DISCLAIMER

The purpose and scope of this Pre Feasibility Study is to introduce the Project and
provide a general idea and information on the said Project including its marketing,
technical, locational and financial aspects. All the information included in this PreFeasibility is based on data/information gathered from various secondary and primary
sources and is based on certain assumptions. Although, due care and diligence has been
taken in compiling this document, the contained information may vary due to any change
in the environment.

The Planning & Development Division, Government of Pakistan, Allied Engineering

Consultants (Pvt) Ltd., Lahore who have prepared this Pre-Feasibility Study or National
Management Consultants (Pvt) Ltd. who have quality assured this study do not assume
any liability for any financial or other loss resulting from this Study

The prospective user of this document is encouraged to carry out his/ her own due
diligence and gather any information he/she considers necessary for making an informed
decision

TABLE OF CONTENTS
ACRONYMS .................................................................................................................. iii
EXECUTIVE SUMMARY ...........................................................................................iv
CHAPTER 1 - INTRODUCTION ...................................................................................1
CHAPTER 2 NEED ASSESSMENT/ MARKET ANALYSIS .................................2
2.1
2.2
2.3
2.4
2.5
2.6

REFRACTORY PRODUCTS..................................................................................................... 2
CURRENT APPLICATIONS..................................................................................................... 4
LOCAL DEMAND & SUPPLY ............................................................................................... 6
FUTURE DEMAND................................................................................................................... 7
WORLD MARKET TRENDS ................................................................................................... 9
PRICES OF DEAD BURNED MAGNESIA ......................................................................... 10

CHAPTER 3 TECHNICAL EVALUTION................................................................12

3.1
3.2
3.3
3.4
3.5
3.6

RAW MATERIAL SOURCES & LOCATION...................................................................... 12

LOCATION OF THE PROPOSED PROJECT....................................................................... 15
EVALUATION OF TECHNOLOGY ..................................................................................... 16
MANUFACTURING PROCESS.............................................................................................. 18
MACHINERY REQUIRED ..................................................................................................... 19
PLANT CAPACITY & PROJECT DESCRIPTION............................................................... 21

CHAPTER 4 GOVERNANCE & MANAGEMENT STRUCTURE ......................25

4.1
4.2

GOVERNANCE STRUCTURE............................................................................................... 25
MANAGEMENT STRUCTURE ............................................................................................. 27

CHAPTER 5 FINANCIAL EVALUATION.............................................................30

5.1
5.2
5.3
5.4
5.5
5.6

CAPITAL COST ...................................................................................................................... 30

PROJECTED PROFIT & LOSS ACCOUNTS ..................................................................... 33
PROJECTED CASH FLOW STATEMENT........................................................................... 35
PROJECTED BALANCE SHEET .......................................................................................... 36
INTERNAL FINANCIAL RATE OF RETURN.................................................................... 37
PAYBACK PERIOD................................................................................................................ 37

CHAPTER 6 CONCLUSION ....................................................................................38

LIST OF TABLES
TABLE 1 MAGNESITE/ CHROME MAGNESITE REFRACTORY SPECIFICATION ...................... 4
TABLE 2 CONSOLIDATED LOCAL DEMAND FOR MAGNESITE REFRACTORIES..................... 7
TABLE 3 MAGNESITE REFRACTORIES DEMAND PROJECTION................................................... 8
TABLE 4 AVAILABILITY OF MAGNESITE DEPOSITS.................................................................... 12
TABLE 5 CHEMICAL ANALYSIS BALOCHISTAN OF KUMHAR DEPOSITS.............................. 13
TABLE 6 SPECIFICATION OF REFRACTORIES FROM KUMHAR DEPOSITS. ........................... 13
TABLE 7 KUMHAR DEPOSIT (1) ......................................................................................................... 14
TABLE 8 KUMHAR DEPOSIT (2) ......................................................................................................... 14
TABLE 9 MACHINERY AND EQUIPMENT ........................................................................................ 22
TABLE 10 CORPORATE OFFICE MANPOWER REQUIREMENT ................................................. 29
TABLE 11 PLANT MANPOWER REQUIREMENT ............................................................................ 29
TABLE 12 ESTIMATED CAPITAL COST ............................................................................................. 30
TABLE 13 CIVIL WORKS & BUILDERS.............................................................................................. 31
TABLE 14 PROJECTED PROFIT & LOSS ACCOUNT........................................................................ 34

TABLE 15 PROJECTED CASH FLOW................................................................................................... 35

TABLE 16 PROJECTED BALANCE SHEET ......................................................................................... 36

ANNEXURE- 1

PAKISTAN A PROFILE

ii

ACRONYMS
Admin

Administration

Brucite

Magnesium Hydroxide

CC

Concast

CCM

Caustic- Chemical Magnesia

CEO

Chief Executive Officer

DBM

Dead Burnt Magnesite

FS

Feasibility Study

GST

General Sales Tax

IFRR

Internal Financial Rate of Return

km

Kilometer

L/C

Letter of Credit

MgCo3

Magnesite

NW

North West

NWFP

North West Frontier Province

Rs.

Rupees

Dollar

iii

EXECUTIVE SUMMARY
Refractories are structural materials that are very essential for most process industries.
Refractories industry provides the materials required to achieve energy conservation in
other industries.

The iron and steel industry consumes about 70% of the total tonnage of refractories
produced globally. Chrome refractory bricks of 100 percent chromium ore have been
largely replaced by magnesite bricks & bricks composed of mixtures of chromite and
added oxides ( i.e. magnesia).

Domestic installed capacity for the manufacture of refractories is 62,300 tonnes per
annum. Present annual production is estimated at 33,100 tonnes. Domestic production of
refractories is designed for and is confined mostly to insulation bricks and refractory
bricks for boilers and furnaces.

Present import of magnesite & chrome-magnesite refractories is estimated at around

14,00015,000 tonnes per annum. The imported magnesite and chrome-magnesite bricks
are being used for new projects, repair and replacement purposes of cement plants, steel
furnaces, glass furnaces and in ceramic industry.

Current domestic demand, for magnesite and chrome-magnesite refractories is given

below:
Tonnes/ Annum
-

Steel Industry

9,229

Glass Industry

3,758

Cement Industry

Ceramic Industry

14,699
153

Total Demand:

27,839

It is estimated that by 2007-08 the total demand of magnesite & chrome-magnesite

refractory bricks will range between 30,000 to 36,000 tonnes, per year.

iv

Virtually, the manufacture of quality magnesite & chrome-magnesite refractories is

negligible in the country. Only 2,000 to 3,000 tonnes of low quality magnesite
refractories are being manufactured domestically. At present there is no plant to
manufacture refractories to meet the requirement of iron & steel, cement, glass and
ceramics industry. Demand of the industry is being met totally through imports.

Magnesite ore deposits are found in Balochistan & NWFP Provinces. The NWFP
magnesite deposits are located 29 Kms NW of Abbottabad near Kumhar Village.

Considering the availability of high quality and reasonably large deposit of natural
magnesite of Kumhar Deposit, natural gas availability and developed infrastructure, the
plant is proposed to be located in Hattar/ Haripur Area of NWFP, quite near the main
deposits.

Based on projected demand, it is proposed to install a 20,000 per annum refractory

materials manufacturing plant. It is currently a minimum economic size plant utilizing
latest processing technology. Based on 20,000 tonnes capacity the daily capacity works
out at arround 67 tonnes working on a 300 days/ year basis.

Manpower requirement has been estimated at 166 persons including managers,

executives and workers at corporate office and at the plant. Loading/unloading of
materials, janitorial services, security and other services are proposed to be out sourced.

The total capital cost of the project is estimated at Rs. 856.402 million inclusive of net
initial working capital of Rs. 26 million.

The financial structure of the project on the basis of debt/equity ratio of 60:40 will be
total loan Rs. 515.841 million and total Equity of Rs. 342.561 million.

The estimated sale revenue at 100% capacity of 20,000 tonnes @ Rs. 38,000/ tonne will
be Rs. 760 million.

It is assumed that the plant will operate at 50%, 60%, 70%, 80% and 90% of installed
capacity during 1st, 2nd, 3rd, 4th and 5th year of operation. The project is expected to earn
profit from first year of operation. The project is expected to attain a positive (surplus)
cash flow from the first year of operation.

The Internal Financial Rate of Return of the project has been determined at 22.14% and
payback period has been calculated as 5.20 years.

vi

CHAPTER 1
INTRODUCTION
Government of Pakistan is making efforts to promote bring in investments in
Pakistan by facilitating establishment of viable projects in Agriculture,
Manufacturing, Mining, Tourism, Shipping and in various other productive
sectors. For this purpose, Pre-feasibility studies for selected projects are being
prepared. The refractories are structural materials and essential for many process
industries, particularly iron and steel industry which consumes 70% of the total
tonnage of the product produced globally. Magnesite and Chrome magnesite
refractories are extensively used in the industrial sector for energy conservation.

In view of sizeable requirement of magnesite refractories in Pakistan which is

almost entirely met through imports, the setting up of its mining and
manufacturing project in Pakistan has become essential.

The objective of the study is to determine the viability of setting up a Project for
production of refractories.

The methodology adopted in the preparation of this study includes primary and
secondary data collection from relevant sources and analysis of the collected data.
Based on the analysis, proposals have been developed as given in this report.

The scope of work of the study includes Need Assessment, Technical, Financial
and Organisational and Management Evaluations.

The study team consisted of market analyst, HRD & technical experts and
financial analyst who contributed their inputs in coordination with the Team
Leader. The Support Staff consisted of field Surveyors, data tabulators and word
processors.

CHAPTER 2
NEED ASSESSMENT/ MARKET ANALYSIS
2.1

REFRACTORY PRODUCTS
The Refractories are structural materials and these are essential for most process
industries. Refractories industry provides the materials required to achieve
energy conservation in many other industries.

Refractories are produced from a small range of high melting point materials,
notably magnesia, dolomite, bauxite, andalusite, fireclay and silica, and smaller
quantities of carbon, graphite, chromite, zircon and zirconia are used to improve
their properties. Products consisting mainly of magnesia are classified as basic
(i.e. alkaline) and are generally used where the working environment is alkaline.
Dolomite bricks are a form of basic refractory, but they are often considered a
separate category as in certain circumstances they will withstand temperature
fluctuations better than other basic bricks. Products based on bauxite and
andalusite (i.e. high alumina) or silica are known as acidic and are used in acidic
environments. Products including less than 40 percent alumina (fire brick or
insulating products) are strictly also acidic; they tend to be of lower quality and of
use in lower temperature applications and/ or less severe operating environments.

Refractories have a variety of industrial and domestic applications including use

in high temperature processes in the cement, glass and aluminum industries and in
domestic heating systems. However, their most important use world-wide is in the
iron and steel industries.

Refractory products are characterised by their ability to withstand the effects of

exposure to heat in their industrial uses, with which we are particularly concerned
here. Refractory products are also required to be able to resist/ attain strength at
high temperatures.

Refractories can be broadly classified into two categories: 1) Shaped Refractories;

(Fired Refractories and Chemically, hydraulically bonded and fused cast
Refractories) and 2) Unshaped Refractories.

There are granular or monolithic Refractories which are used in the building up of
new furnace walls or in their maintenance. These materials are applied insitu
through, casting, guniting, ramming etc. In some cases they are precast into
shapes and installed in area of use to be fired insitu.

Companies produce unshaped refractories (monolithic) and shaped refractories.

The latter are referred to as bricks although some of them are, in fact, quite
complicated shapes and do not look like normal bricks.

Monolithic refractories consist of crushed and mixed refractory raw materials

which have a controlled chemical content and range of particle size plus a
bonding agent such as refractory cement. They are supplied to the customer as
loose materials in sacks or in bulk in a variety of consistencies.

Materials for ramming into place are supplied as a gritty putty ready for use.
Refractory concretes, with water added, can be cast into the required shape.
Materials for gunning are simultaneously mixed with water and blasted into place
though a nozzle. Monolithies may thus be used in place of pressed bricks or, when
they take the form of a refractory cement, as a complement to bricks for sealing
the joints between them and making repairs.

Bricks are produced by crushing and milling the raw materials into a range of
small particle sizes and mixing together specified materials and sizes with a
bonding agent. The mixture may then be shaped in one of three ways: a) most
bricks are made by putting a measured amount of mixture into a steel or tungsten
carbide-lined mould and exerting a high uni-directional pressure (eg 10 tonnes per
square inch) on them; b) complicated shapes are hand-moulded and pressed; and

c) some special refectories are isostatically pressed, eg the same pressure is

exerted on them from all directions. The moulded or pressed brick is known as
green stock (ie unfired).

Typical composition of magnesite and magnesitechrome refractories is presented

in the table below.

TABLE -1
MAGNESITE / CHROME - MAGNESITE REFRACTORY
SPECIFICATIONS
Brick Type
A-Electric Arc Furnace
BBEF 1
BMEF 2
B-Chemically Bonded
Bricks
CBMB 1
CBMB 2
C-Direct Bonded Bricks
MGDB 1
MGDB 2
D-Glass Industries
Refractories
GMDG 1
GMDB 2
GMDB 3
E-Integrated Steel Plants
MDBS 1
MDBS 2
MDBS 3
F-Cement Industry
VRW 1
VRW - 2

2.2

MgO
(Min.) %

SiO2
(Max.) %

CaO
(Max.) %

Cr2O3
(Min.) %

85
91

6.5
3.5

2.5
2.0

55
63

6.5
6.5

05
11

96
92

0.5
3.0

98
94
88

0.7
2.8
6.5

1.5
2.0
2.5

85
87
91

6.5
5.5
5.0

2.5
2.0
2.0

83
93

1.5
2.0

2.0
2.5

06

CURRENT APPLICATIONS
The iron and steel industry consumes about 70% of the total tonnage of
refractories produced globally. The cement and lime industry consumes 7%, the
ceramics industry 6%, the glass industry 3 to 4%, and the oil industry about 4%.

Chrome refractory bricks of 100 percent chromium ore have been largely replaced
by bricks composed of mixtures of chromite and added oxides (i.e., magnesia) for
greater

refractoriness,

volume

stability,

and

resistance

to

spalling

(cracking/rupturing of a refractory shape). A large quantity of Cr2O3 raw or

synthetic grain, such as MgCr2O4 and Cr2O3 or as additive. Magnesia-chrome
brick can be severely affected by hydration during storage.

COPPER METALLURGY
Nearly all copper producing furnaces have adopted refractory practices based on
the use of magnesia-chrome refractories. In converter furnaces, the lining of the
furnace bottom and the tuyere zone (zone of greatest wear) is usually fused cast
magnesia-chrome or chrome-magnesite brick. The prospective replacement of
magnesia-chrome by spinel magnesia-alumina spinel brick for copper smelting
converting and refining is left undetermined at the time.

STEEL MAKING
Iron and steel plants are the major consumers of refractories. Although new
technological improvements have led to lower consumption, magnesia-chrome
refractories are commonly used in secondary steel-making plants because of their
high resistance to a wide variety of usage and their stability at high temperatures.

CEMENT KILNS
Several types of bricks are used in cement rotary kilns, and most have good
mechanical behavior and high chemical stability. Magnesia-spinel (MgOMgA12O4) refractories fired magnesia-chrome bricks are mostly applied in the
burning zones of the kilns.

GLASS MELTING
In glass industry chrome refractories (10 and 16% Cr2O3) offer high corrosion
resistance to soda-lime glasses and are used as paving, sidewall and back-up
lining and increasingly in the fore heart components. Sintered chrome, chrome-

magnesite, or magnesite-chrome is used in the bottom of the checkers, as well as

on the structure surrounding the checkers and walls.

2.3

LOCAL DEMAND & SUPPLY

There were 20 refractories manufacturing units in the country, out of which 8
have closed down. Installed capacity for the manufacture of refractories is 62,300
tonnes. Present annual production is estimated at 33,100 tonnes; which, at present,
is operating at about 50% capacity.

Domestic production of refractories is confined mostly to insulation bricks and

refractory bricks for boiler and furnaces. Only 2,000 3,000 tonnes of low quality
magnesite bricks are being manufactured in the country, rest are mostly alumina
and silica bricks.

The present import of magnesite & chrome-magnesite refractories is estimated at

around 14,000 15,000 tonnes per annum. A large number of refractory materials
are being imported under BMR and some as components of new plant &
machinery and categorized under accessories to plant & machinery.

The imported magnesite and chrome-magnesite material is being used for repair
and replacement purposes of cement plants, steel furnaces, glass furnaces and in
ceramic industry. Since for establishment of demand import, statistics cannot be
relied upon as refractories are also being imported in other product codes; the
present demand can only be established through estimation of requirement of
industrial end-users as follows:

Steel Industry: Estimated present production of Pakistan Steel and steel products
through steel melting furnaces is 1.678 million tones. On the basis of this
production, the requirement of magnesite refractories works out to 9,229 tonnes
annually.

Glass Industry: Current production of glass products is estimated at 752,000

tonnes per annum. The average annual requirement of magnesite refractories is
3,758 tonnes.

Cement Industry: Present production of cement is 13,999 million tonnes. Based

on this production, the estimated average annual consumption of magnesite and
chrome-magnesite refractories for cement industry works out at 14,699 tonnes.

Ceramic Industry: Current production of ceramics stands at 38,000 tonnes per

annum. Based on this production of ceramics, the annual demand for magnesite or
basic bricks works out at 153 tonnes.
On the basis of the above, the consolidated demand works out as follows:

TABLE - 2
CONSOLIDATED LOCAL DEMAND FOR
MAGNESITE REFRACTORIES
INDUSTRY

TONNES / ANNUM
9,229
3,758
14,699
153
27,839

Steel Industry
Glass Industry
Cement Industry
Ceramic Industry
Total Demand:

The above demand is for normal repair & maintenance requirement. In addition,
the industry requires refractories for complete replacement on an average of every
two (2) years. On annual basis, this demand can be estimated at 10,000 to 13,000
tonnes. As such the total magnesite and chrome-magnesite refractories demand
works out at 38,000 41,000 tonnes per annum.

2.4

FUTURE DEMAND
Five scenarios have been developed for projecting demand of magnesite and

chrome magnesite refractories. Two projected scenarios are based on Trend

Line and Growth Curve methodology.

Considering the natural population growth, GDP growth and general affluence;
additional three (3) scenarios have been developed, using average annual growth
of 3% 6% and 9% per annum. The projections of magnesite & chrome-magnesite
bricks based on five scenarios is presented in Table-3 and graphically presented in
Chart -1 below:

TABLE - 3
MAGNESITE REFRACTORIES DEMAND PROJECTION
Trend
Line
27,840
29,184
30,852
32,521
34,189
35,857
37,525
39,194
40,862
42,530
44,199

Year
2004-05
2005-06
2006-07
2007-08
2008-09
2009-10
2010-11
2011-12
2012-13
2013-14
2014-15

Growth
Curve
27,941
29,686
31,933
34,375
37,030
39,919
43,063
46,486
50,214
54,275
58,701

Constant Annual Growth Rate

3%
6%
9%
27,840
27,941
27,840
28,675
29,618
30,345
29,535
31,395
33,076
30,421
33,278
36,053
31,334
35,275
39,298
32,274
37,392
42,835
33,242
39,635
46,690
34,239
42,013
50,892
35,267
44,534
55,473
36,325
47,206
60,465
37,414
50,038
65,907

CHART -1
PAKISTAN-MAGNESITE REFRACTORIES DEMAND PROJECTION
70,000

Trend Line

60,000
Grow th
Curve

50,000
40,000

Cont. Ann. G.
Rate 3%

30,000

Cont. Ann. G.
Rate 6%

20,000
10,000

Cont. Ann. G.
Rate 9%

20014-15

20013-14

20012-13

20011-12

20010-11

2009-10

2008-09

2007-08

2006-07

2005-06

2004-05

The methodology for Trend Line projections is based on a model based on a

result of polynomial curve fitting by regressing against the same variable raised to
different powers.

Growth Curve projection model fits an exponential curve to the known data,
and then return the one variables values along the curve for sway of new values
of the other variable.

The above projections are based on user industries production for the year
1999-00 to 2003-04.

For constant average annual growth rate projections end-user growth at 3%, 6%
and 9% annual growth is assumed using the year 2004-05 demand as base
demand.

It is estimated that by 2007-08 the total demand of magnesite & chromemagnesite refractory bricks will range between 30,000 to 36,000 tonnes.

2.5

WORLD MARKET TRENDS

Virtually the manufacture of quality magnesite & chrome-magnesite refractories
is negligible. Only 2,000 to 3,000 tonnes of low quality magnesite refractories are
being manufactured domestically. At present, there is no plant to manufacture
refractories to meet the requirement of iron & steel, cement, glass and ceramics
industry. Demand of the industry is being totally met through imports.

The world refractory magnesia market has been in a state of oversupply but has
been moving back closer to balance in recent years, according to a new report
from market analyst Roskill Information Services Ltd. (London, England). The
main reason for this has been the exit of producers in Italy, the UK and the USA
from the market, with some companies closing plants while others simply moving
into other markets.

Economics of Magnesium Compounds & Chemicals (10th Edition, 2005)

explains that the combination of slow growth in crude steel production and
improved refractory specifications and applications continues to reduce
consumption of refractries worldwide. Refractories are such an important market
for magnesia that the decline in this market is estimated to have more than halved
the total magnesia consumption in most industrialized countries over the last 30
years.

Over the next three years to 2008, Roskill forecasts an average annual growth of
1.5% per annum to 2% per annum. This increase will be driven by increased
demand from the refractory sector in China. The majority of global magnesia is
located in the centrally planned and former centrally planned economies of China,
North Korea and Russia. Producers in these countries have the capacity to
produce over 6 million tonnes per year (mtpy) of dead burned magnesia from
magnesite, or over 75% of global dead burned magnesia capacity based on
magnesite.

In developed economies, such as Japan, the USA and Western Europe, the
magnesia capacity based on magnesite is estimated at just 0.7 mtpy out of a world
total of 10.0 mtpy.

The refractories industry has led the gradual change in the market from traditional
products to innovative products and application technologies for most of the
users, including metal, hydrocarbon, and other industrial processors. The
introduction of these new materials, products and application technologies helped
the iron and steel makers, along with other refractory users, cope with the world
market.

2.6

PRICES OF DEAD BURNED MAGNESIA

The price of dead burned magnesia rose by over 25% in 2004, which was the first
increase since the late 1990s. However, the increase in published Chinese

10

magnesia prices was caused by sharp rises in costs of production such as power
and transport. The long-term price of dead burned magnesia and fused magnesia
will largely be detemined by rising Chinese consumption in refractories and the
amount of material exported from China.

About one-third of Europes production, including over half of special

refractories, is exported. Although this may seem surprising in view of the nature
of the product, it should be noted that the product can be of very high value
compared with transport costs. Basic refractories, for instance, have an export
value of US$ 660/tonne and special zircon based bricks at US$ 2,600/tonne.

11

CHAPTER 3
TECHNICAL EVALUATION
3.1

RAW MATERIAL SOURCES & LOCATION

Magnesite (MgCO3), the naturally occurring carbonate of magnesium (Mg) is one
of the key natural sources for the production of magnesia (MgO) and
subsequently fused magnesia. Magnesite occurs in two distinct physical forms:
macro crystalline and cryptocrystalline. Cryptocrystalline magnesite is generally
of a higher purity than macro crystalline ore, but tends to occur in smaller
deposits than the macro crystalline form.

Domestic magnesite raw material for the manufacture of magnesite refractory

bricks & material is available in:

TABLE -4
AVAILABILITY OF MAGNESITE DEPOSITS
Quality
Balochistan
MgO 45.40%
Nisai Zhob, Muslim Bagh
MgO 43-45%
Spin Tangi
MgO 38-42%
Shabi Ghandi, Muslim Bagh
NWFP
MgO 44.00%
Kumhar, Abbottabad
Source: Geological Survey of Pakistan

Reserve Size
60,000 tonnes
6,000 tonnes
6,000 tonnes
11.16 million tonnes

The largest magnesite deposits are located 29 Kms NW of Abbottabad near

Kumhar Village. There are 14 lenses of magnesite in the area but the main
development work is confined to lens No. I & II only. The Ore bodies are found
enveloped in the grey dolomitic limestone which constitute the carbonate Unit of
Abbottabad Formation.

12

The largest ore body being explored is lens No. I. It extends along the strike for
atleast 101 meters and down the dip for more than 1145 meters, where the out
crop is exposed. Similarly, lens no. II extends along the strike for atleast 75
meters and down the dip for more than 1140 meters, where the out crop is
exposed.

Average chemical analysis of samples collected from the exploratory adit of lens
no. I & II of Kumhar is as follows:-

TABLE -5
CHEMICAL ANALYSIS BALOCHISTAN OF KUMHAR DEPOSITS
Particular
Lens I
Lens II

MgO%
44.06
43.97

CaO%
2.66
1.76

Fe2O3% Al2O3%
2.48
0.95
1.19
1.16

SiO2%
1.57
1.72

By subjecting this magnesite to calcinations (1500 1700

L.O.I.%
50.26
50.19

C), dead burnt

magnesite of the following characteristics that conforms with the specifications

laid down in standard books for the manufacture of magnesite, magnesite chrome
and chrome magnesite bricks can be obtained. Specification of various types of
refractory bricks and dead- burnt magnesite which may be manufactured based on
Kumhar deposit is given below:

TABLE -6
SPECIFICATION OF REFRACTORIES FROM KUMHAR DEPOSITS
Particular
General
Specifications

Item
Magnesite
Bricks
Magnesite
Chrome
Chrome
Magnesite

Kumhar

Lens- I
Lens- II

MgO
%

CaO
%

Fe2O3
%

Al2O3
%

SiO2
%

L.O.I.
%

80-90

1-4

1-5

4-10

1-3

55-80

1-3

2-7

6-12

6-20

2-6

25-55
88.7
88.3

0.5-2
5.57
4.87

2-15
1.99
3.83

8-15
1.04
0.77

20-45
0
0

3-7
2.88
2.09

13

Chemical composition of both natural and dead burnt magnesite is very good
except CaO & Al2O3 is slightly on the higher side that may be brought within
permissible limits by the addition of 4-10% iron oxide to facilitate Periclase
formation. Anyhow this magnesite, can stand a high temperature during use as a
refractory material.

It is estimated that 11.16 million tons of demonstrated reserves are present in

Kumhar I and 8.75 million tonnes in Kuhmar II as given below:

TABLE - 7
KUMHAR DEPOSIT (1)
(in million tonnes)
Particular

Measured

Indicated

Demonstrated

Lens I

2.34

4.30

6.64

Lens II

1.45

3.07

4.52

Total

3.79

7.37

11.16

TABLE -8
KUMHAR DEPOSIT (2)
(in million tonnes)
Particular

Measured

Indicated

Demonstrated

Lens I

1.84

3.37

5.21

Lens II

1.14

2.40

3.54

Total

2.98

5.77

8.75

Based on the evaluation of the Kumhar 1 and 2 deposits it may be recommended

that an open pit technique of mining employing conventional drill, blast, load and
haul operations may be adopted. A separate detailed feasibility study on mining
needs to be undertaken.

There have been a number of exploratory studies done in the last few years to
determine the quality and quantity of raw material available by experts from

14

China, JCI of Japan and M/s Minkoh International of Pakistan. In addition to the
above, they have also examined other aspects of the refractories project and have
found it feasible.

3.2

LOCATION OF THE PROPOSED PROJECT

Considering the availability of high quality and reasonably large deposits of
natural magnesite, the plant is proposed to be located, based on use of raw
material from Kumhar Deposit, in Abbottabad or Haripur District of NWFP
Province.

The bulk material required includes only magnesite ore brought from quarry/
mine. Energy is required in shape of electricity and fuel/ oil. The most important
factors to be considered for a site to install a refractory plant are source of raw
material, availability of natural gas, fuel oil and electricity.

For every tonne of finished material produced, the raw material requirement is
about 2.5 times, depending upon the quality of raw material. Major consideration
for location of the plant is its closeness to the raw material source.

The consumer industry of refractories is scattered all over the country. Majority of
consumers are located in the central part of the country. Three very large size
cement plants are being established in northern Punjab, in addition to plants
already existing in the area.

Second high bulk material is energy source i.e. furnace oil or natural gas.
Considering the ease of use & handling, it is more feasible that project be located
where natural gas is available.

A strong infrastructure and good transportation system is needed for the

transportation of raw material and finished goods.

15

Ideal site would be close to the magnesite deposit, but since the area is not
developed, it is proposed that the plant be located in Hattar/ Hawellian area which
has good magnesite deposits. At 100% capacity utilization about seven (7) 10tonnes capacity trucks will be required to transport raw material to the plant daily.

A detailed study for the location of the site will be necessary for ultimate decision
on the establishment of the plant.

3.3

EVALUATION OF TECHNOLOGY
Refractories are produced in two basic forms, formed objects, and unformed
granulated or in plastic compositions. The preformed products are called bricks
and shapes. These products are used to form the walls, arches and floor tiles of
various high-temperature process equipment such as furnaces, kilns, etc..
Unformed compositions include mortars, gunning mixes, castables (refractory
concretes), ramming mixes and plastics. These products are cured in place to form
a monolithic, internal structure after application.

Raw material preparation is an essential requirement for all types of basic

magnesite refractories (magnesite, magnesite-chrome & chrome-magnesite). First
step is beneficiation of the mined material if it is associated with undesirable
compounds or the content of required element is low.

Next step is to thermally treat the raw material to complete all the changes in the
material or remove water of crystallization and sinter to increase the density.

The processed raw material then may be dry-mixed with other minerals and
chemical compounds, packages and shipped as monolithic product. Brick forming
consists of mixing the raw materials and forming them into the desired shapes.
This process frequently occurs under wet or moist conditions. Firing involves
heating the refractory materials to high temperatures in a periodic (batch) or
continuous tunnel kiln to form the ceramic bond that gives the product its

16

refractory properties. The final processing stage involves milling, grinding and
sandblasting of the finished product. This step keeps the product in correct shape
and size after thermal expansion has occurred. For certain products, final
processing may also include product impregnation with tar and pitch and final
packaging.

Chromium is used in several types of nonclay refractories, including

chrome-magnesite,

(chromite-magnesite),

magnesia-chrome

and

chrome-

alumina.Chromium compounds are emitted from the ore crushing, grinding,

material drying and storage; brick firing and finishing processes used in
producing these types of refractories.

Other technological changes in the industry have affected the quality or type of
refractory required. This has meant that conditions have become more severe in
the steel ladle and a higher quality refractory is needed. Another development has
been the change from using a plug to a sliding gate valve to control the pouring of
steel from the ladle. The plates of these valves are used in an application with a
high degree of risk and are therefore allowed only very short life.

There have also been technological changes in the cement industry which have
affected the demand for refractories. Cement manufacturing companies are
switching over from the wet to the dry process which saves energy and uses a
shorter kiln. It still needs a basic- lined hot zone but it has less surface remaining
to be lined with high alumina and firebrick.

The growth of steel production caused the need to build new refractories. For
these new steel plants fireproof brickwork was made from quality magnesite
sinters made from quality raw materials, which could be assured only by building
high quality finishing plants.

17

3.4

MANUFACTURING PROCESS
Beginning with open cast mining of Magnesite (MgCo3), the process of
transformation into the best of basic refractories follow the stages of preparation
and processing as shown in Chart 2 which presents a typical process flow
diagram.

The selected grade of Magnesite is sized by primary crushing, screening and

washing before being fed into the High Temperature Rotary Kilns (50-100 TPD
capacity). The DBM (Dead Burnt Magnesite) obtained is further sized to the
desired standards.
CHART - 2
MAGNESITE REFRACTORY MANUFACTURING
TYPICAL PROCESS FLOW DIAGRAM
Transporting
Raw Material
Storage

Weathering

Crushing/ Grinding

Calcining/ Drying

Screening/
Classifying

Dead Burnt Material

Storage
Mixing

Forming

Drying

Milling/ Finishing

Cooling

Firing

Packing & Shipping

18

The meticulously formulated compositions are pressed into a variety of shapes

and sizes in an array of presses including high capacity hydraulic presses.

The bricks are dried and fired in state-of-art High Temperature Tunnel kiln from
where they are sent for finishing, testing/inspection and packing before being
forwarded to a wide range of customers across the country.

Another trend has now emerged which involves usage of specially developed
resin binders. This involves utilizing chemical bonding using resin binders
(chemical bonders). The temperature requirement for drying these types of bricks
is only 200 oC to 400 oC compared to 1200 oC to 1600 oC required for bricks with
conventional bindings.

3.5

MACHINERY REQUIRED
Depending on hardness of material, different types of crushing and grinding
equipment are used. The improved machinery now available is: Higher width jaw
crushers; Rock-on Rock crushers, which obviate the use of conventional
Gyratory-Cone-Crushers and Roll Crushers and are a better choice.

In case of relatively softer materials, impact mills and vibro-grinding mills

provide the required range of particle sizes.

All refractory materials need to be free from metallic iron introduced during the
comminuting operations. The new rare earth magnetic separators provide
excellent alternatives, both in terms of productivity and energy consumed,
compared to Induced Electro Magnetic Separators.

Mixers are the most essential piece of equipment in the manufacture of

refractories-shaped or unshaped. The new generation high intensity mixers,
though require higher power to operate, take less time to make a better mix.

19

Conventional Counter current mixers would have taken 40-45 minutes to produce
the consistency now possible in 10 minutes on these high intensity mixers.

Presses are the major consumers of power in ceramic & refractory industry.
Several developments have taken place in this area. In refractory industry,
hydraulic presses are essential to achieve higher quality consistency and
productivity. Though friction screw presses are the choice, when capital is scarce
it is advisable to go for hydraulic presses. For small volume high precision
refractories, specialized vibro-pneumatic presses may be a better alternative to
conserve energy and capital. Iso-static presses are also finding increasing
application in the production of sophisticated concast (CC) refractories like submerged nozzles and shrouds and also in the production of industrial ceramics. The
bricks are flat and uniform with iso-static presses and the presses are also
compact.

Kilns and Dryers are the major consumers of energy (thermal energy) in
ceramics & refractory industry. The industry has seen the most energy inefficient
down draft kiln to the modern kilns tunnel/ shuttle and roller kilns.

For high volumes, Tunnel kilns are very efficient and for low volumes, shuttle
kilns with high velocity burners may be preferred. The major losses in kilns occur
because of:

Insulation loss;

Exhaust loss; and through

Intermittent operation.

The suggestions for energy conservation are as follows:

Insulate the furnace with proper insulating material such as ceramic fiber,
hot face insulating refractory.

Proper combustion control system is essential to optimize fuel consumption.

20

Waste heat recovery system, typically the gases from the cooling zone area
are sent to heating zone.

3.6

PLANT CAPACITY & PROJECT DESCRIPTION

As discussed in Chapter-2, the estimated demand, by year 2007-08, for magnesite
& chrome-magnesite refractory bricks will range between 30,000 to 36,000
tonnes per year. Based on this projected demand it is proposed to install a 20,000
per annum refractory materials manufacturing plant. This is currently a minimum
economic size plant utilizing latest processing technology. Based on 20,000
tonnes capacity the daily capacity works out at 67 tonnes/ day on a 300 days/ year
basis.

Larger capacity plant will have advantage of economy of scale but the overall
demand projections for the country do not justify installation of a plant larger than
20,000 tonnes/ annum at present. The capacity utilization will have to be linked
with marketing & promotional effort.

The financial evaluation, presented in later sections of this report, is based on

magnesite refractory bricks manufacture only. However, the proposed project is
planned to manufacture all type of refractory materials, including monolithic
material.

The sponsors of the proposed project should also consider feasibility of

manufacture of other magnesite products in addition to refractories. Most of these
are high value-added products such as:

Magnesium Sulphate for making pulp and paper, animal feed and
pharmaceuticals.

Magnesium Chloride used in important industries e.g. cement, ceramics and

refractories, textile and paper, chemical applications, production of
magnesium.

21

Magnesium Hydroxide (Brucite) used in sugar refining, flame and smoke

retardants, water treatment and other environmental application.

Magnesite (Precipitated) used for insulation, rubber, paint pigment and ink,
glass.

Caustic-Clinical Magnesia CCM used for extraction of magnesium, fused

magnesia, fertiliser, vulcanisation, processing of uranium.

In this section, the requirement of typical main machinery & equipment and other
facilities is discussed. List of plant & machinery (I = imported machinery and
L=local machinery) to be used for a complete plant to produce magnesite
refractory bricks.

TABLE 9
MACHINERY AND EQUIPMENT
Name of Machine

Quantity
(Number)

CRUSHING UNIT
Bunker Lining. (L)
Push-Type Feeder (I)
Impact Crusher (I)
Trough Belt Conveyor (L)
Chain Bucket Elevator (L)
Special-Sizer (I)
Feed-back Tuber for Oversize Grain (I)

1
1
1
1
1
1
1

RAW MATERIAL TRANSPORT AND STORAGE

Trough Conveyor Belt (L)
Sheet Steel Silo (L)
Trough Conveyor Belt (L)

1
1
1

CALCINING AND GRINDING UNIT FOR PRODUCTION

OF DEAD- BURNT MATERIAL
Tunnel/ Rotary Kiln Feeding Silo (L)
Metering Belt Conveyor (I)
Tunnel/ Rotary Kiln with Bucket Wheel Sluiceway(I)
Hot Gas Generator (I)

22

1
1
1
1

TABLE 9 (Continued)
MACHINERY AND EQUIPMENT
Name of Machine
Cyclone Dust Removal Installation (L)
Screw Conveyors for Returning Material (I)
Waste Air Fan (I)
Chimney (L)
Screw Conveyors (I)
Special Sizer (I)
Grinding Mill (I)
Sheet Steel Silo (L)

Quantity
(Number)
1
2
1
1
3
1
1
1

TRANSPORT OF FINISHED DEAD-BURNT MATERIAL

AND STORAGE
Chain Bucket Elevator (I)
Screw Conveyors (I)
Hot Material Silo (L)
Special Delivery Chain Conveyors for DBM (I)

1
3
1
2

FORMING PLANT
Chain Bucket Elevator (I)
DBM Hopper (L)
Screw Conveyor (I)
Classifier (I)
Recycled Material Conveyor (L)
Mixer (I)
Forming Press with Moulds (I)
Special Conveyors for Bricks (I)
Tunnel Driers (I)
Tunnel Firing Furnaces (I)
Product Coolers (I)
Product Conveyors (I)
Milling & Finishing Equipment
Palletizing Unit
Fork Lift

1
1
1
1
1
2
2
2
2
2
2
One Set
2
3

PACKING AND LOADING PLANT FOR MONOLITHIC

PRODUCT
Chain Bucket Elevator (I)

23

TABLE 9 (Continued)
MACHINERY AND EQUIPMENT
Name of Machine
Screw Conveyor (I)
Vibrating Screen (I)
Row Packing Machine (I)
Sack Transporting Unit (L)
Return Plaster Hopper (L)
Flat Belt Conveyor (L)
Rear Truck Loading Unit (L)
Dust Exhaustion System for Packing Machine (L)
Compressor Installation (I)

Quantity
(Number)
1
1
1
1
1
1
1
1
1

OIL SUPPLY SYSTEM

Tank Filling equipment (L)
Pipeline (L)
Accompanying Heating (L)
Heavy Oil Vertical Tank (L)
Heating Registers (I)
Flooring Heating Coil (L)
Pump Filter Group (L)
Final Preheater (L)
Fuel Oil Tank (L)

1
1
1
1
1
1
1
1
1

ELECTRICAL EQUIPMENT
440 V Low Voltage Main Distribution (L)
Emergency Power Control (L)
Control Installations (L)
Central Control Panel (L)
Current Supply & Distribution Materials (L)
Electric Controls (L)
Emergency Power Generator (L)
MISCELLANEOUS
Gas Metering & Distribution (L)
W/ Shop Equipment (L)
Laboratory Equipment (I)
Fire-Fighting & Safety Equipment (L)

24

CHAPTER 4
GOVERNANCE & MANAGEMENT STRUCTURE
4.1

GOVERNANCE STRUCTURE
Establishment and governance of a limited company (public or private) is
regulated by The Companies Ordinance, 1984 with amendments thereof, and
Code of Corporate Governance, issued by the Security and Exchange
Commission of Pakistan.

Corporate governance is a set of institutional and market-based mechanisms that

encourage controllers of a company to maximize the value of the company to its
owners. The conduct of the corporation is a three-way process involving the board
of directors, top management, and the employees. At the core of corporate
governance is empowerment at all levels shareholders, the board, and top
management. The law applicable to a company is the law of the country.

Principles and rules on corporate governance need to be laid down in the Articles
& Memorandum of Association (Incorporation) and the Regulations of Board of
Directors.

The business of the company is to be managed under the directions of the Board
of Directors. The Board is responsible for establishing broad corporate policies
and for the overall performance of the company. The core responsibility of the
directors is to exercise their business judgment and act in what they reasonably
believe to be the best interests of the company.

Proposed corporate governance structure is presented in Chart -3.

25

CHART - 3
PROPOSED GOVERNANCE STRUCTURE

The Company

Share-Holders

Corporate
Governance
Committee

Board of Directors
Chairman

Corporate Audit
Committee

Chief Executive
Officer

Internal Auditor
& Quality
Controller or
Assurance

Manager
Finance

General
Manager
Operation

Manager
Admin &
Procurement

Manager
Marketing

The Boards Corporate Governance Committee reviews the principles and rules
regularly in the light of prevailing best practices and forwards suggestions for
improvement to the full Board for approval.

The Boards Corporate Governance Committee is responsible for considering

matters of corporate social responsibility and matters of significance in areas
related to corporate public affairs and the companys employees and stockholders.

The Boards job should be to create and maintain a structure that will ensure
harmony and cooperation between management and the employees in pursuing
the goals and objectives of the organization rather than simply rubber-stamping
the actions of management.

26

The Boards Audit Committee will have two fundamental responsibilities.

Internally, it will oversee the annual external audit to ensure the accuracy and
integrity of the financial statements as required by legislation. It will also ensure
that there are no breakdowns in corporate governance rules and procedures,
including the rules of ethical conduct and internal control. The Audit Committee
also would be the practical monitor for collecting information regarding corporate
misconduct and encouraging those with such information to come forward.

4.2

MANAGEMENT STRUCTURE
The paramount duty of the Board of Directors is to select a Chief Executive
Officer and to oversee the CEO and the other senior management in the
competent and ethical operation of the company.

The Board should identify, and periodically update, the qualities and
characteristics necessary for an effective CEO of the company. With these
principles in mind, the Board should periodically monitor and review the
development and progression of potential internal candidates against these
standards.

The Chief Executive Officer (CEO) is in charge of the day-to-day management of

operations, and is responsible for ensuring that the company and management
functions are organized, run and developed in accordance with the law, Articles of
Association and decisions adopted by the Board, and the Annual General Meeting
of the Shareholders.

The management structure, presented in Chart-4, comprises of Operational

Division located at the Plant and Audit, Administration & Procurement, Finance
and Marketing Departments at Corporate Office.

27

CHART - 4
PROPOSED MANAGEMENT STRUCTURE

Chief Executive
Officer

Internal
Auditor

Manager Admin
& Procurement

Manager
Finance

Manager
Marketing

General Manager
Operation

Accounts &
Administration

HSE Engineer

Technical Manager &

Quality Assurance

Production
Manager

Maintenance
Manager

The structure is characterized by a clear assignment of responsibilities as well as a

reduced number of interfaces.

The selected Chief executive is responsible for delivering policy and performance
for customers, society, staff and the business.

Requirement of manpower is given below:

28

TABLE - 10
CORPORATE OFFICE MANPOWER REQUIREMENT
Description

Nos.

Chief Executive Officer

Admin. Manager
Finance Manager
Internal Auditor
Assistants
Marketing Manager
Clerks
Peons / Others
Total

1
1
1
1
9
1
10
8
32

TABLE - 11
PLANT MANPOWER REQUIREMENT
Description
General Manager
Production Manager
Tech. Manager
Maintenance Manager
Admin. / Accounts Officer
Senior Engineers
Shift Engineers
Senior Operators/Technicians
Operators / Technicians / Chemist
Helpers, Drivers, etc
Total

Nos.
1
1
1
1
1
3
4
24
60
40
136

All loading / unloading of material, security, janitorial, and other services are
proposed to be out sourced.

29

CHAPTER 5
FINANCIAL EVALUATION
5.1

CAPITAL COST
The total capital cost of the project is estimated at Rs. 856.402 million inclusive
of net initial working capital of Rs. 26.078 million. The foreign currency
requirement includes: imported plant & machinery; spare parts; design, knowhow, & engineering; training fees; and supervision during construction and
commissioning. Summary of capital cost is given below:-

TABLE 12
ESTIMATED CAPITAL COST
Local
Currency
17,000

Items
Land & Land Development

(Rs. in thousand)
Foreign
Total
Currency
17,000

Civil Works & Buildings

41,586

Plants & Machinery

60,000

400,000

460,000

Know-How & Engg.

8,000

62,000

70,000

Custom duties, GST and Surcharges

I/L Fees, Clearance, Handling, Etc.
Installation & Erection
Vehicles, Furniture & Fixture etc
Pre-Operation & Startup Exp.
SUB TOTAL

41,586

106,000

106,000

4,060

4,060

36,800

36,800

9,000

9,000

11,167

11,167

293,613

462,000

755,613

Interest During Construction

37,781

37,781

Contingencies

36,931

36,931

TOTAL FIXED COST

368,325

Net Initial Working Capital

26,078

TOTAL CAPITAL COST

394,402

462,000

26,078
462,000

Capital cost has been determined on the basis of the following factors:

30

830,325
856,402

 LAND AND LAND DEVELOPMENT

Twenty (20) acres of land required for the plant will be purchased at Rs.
700,000/acre, inclusive of development cost. Rs. 3.000 million has been provided
for the registration, legal and development costs. The total value of land has been
worked out Rs. 17.000 million

CIVIL WORKS AND BUILDINGS

The cost of buildings and civil works has been determined at Rs. 41.586 million
as detailed in Table 13 below:

TABLE - 13
CIVIL WORKS & BUILDINGS
Area
(Sq. ft)
60,000
3,150
600
3,500
600
625

Description
Production Building
Workshop
Laboratory
Offices
Canteen
Mosque
Water Storage, Lump sum
Boundary Walls, Roads, etc.
Total

Rate
Rs./Sq. ft
500
600
700
700
700
650

Total
Amount Rs.
30,000,000
1,890,000
420,000
2,450,000
420,000
406,250
1,500,000
4,500,000
41,586,250

PLANT AND MACHINARY

The total cost of plant and machinery has been estimated at Rs. 460.000 million,
out of which Rs. 400.000 million are in foreign currency and Rs. 60.000 million
in local currency.

KNOW-HOW, SUPERVISION & ENGINEERING FEES

Rs. 70. 000 million has been allocated for Know-how, Engineering and
Process License Fee.

31

 CUSTOMS DUTIES & GST

It is estimated that Rs. 106.000 million will be spent as customs duty and general
sales tax for the project. Detail is as under:

- 10% Importation Cost

Rs. 40.000 million

- 15% G. Sales Tax on duty paid

Value of equipment & machinery

Rs. 66.000 million

Total

Rs. 106.000 million

INSTALLATION & ERECTION COSTS

The total cost of erection and installation of machinery and plant for the project
has been estimated as Rs. 36.800 million.

VEHICLES AND FURNITURE & FIXTURES

The total cost of vehicles and furniture and fixtures has been estimated at
Rs. 9.000 million.

PRE -OPERATION & STARTUP EXPENSES

The estimated cost of Rs. 11.167 million under this item is to cover salaries and
wages, loss of product and use of POL during trial operations, and other
overheads like bank commission, court fees, etc. during projects implementation
and start up.

INTEREST DURING CONSTRUCTION

It is estimated that the plant will be erected and ready to start within 18 months
and weighted average loan period will be 10 months for loans. The financial
charges during construction period are capitalized. Total financial charges during
construction are estimated at Rs. 37.781 million.

32

 CONTINGENCIES
An adhoc amount (@ 5%) of Rs. 36.931 million has been allocated to meet
unforeseen circumstances or requirements.

WORKING CAPITAL
The net initial working capital requirement on account of the stock of raw
material, finished goods, material in process, etc., is estimated at Rs. 26.078
million.

FINANCIAL STRUCTURE.
The financial structure of the project on the basis of debt/ratio of 60:40 is shown
below:

5.2

- Total Loans

= Rs. 515.841 million

- Total Equity

= Rs. 342.561 million

PROJECTED PROFIT & LOSS ACCOUNTS

This Profit & Loss Account has been developed for 5 years of operation and is
presented in Table 14. The project is expected to earn profit from first year of
operation.

33

TABLE 14
PROJECTED PROFIT & LOSS ACCOUNT
Year 1

Year 2

Year 3

(Rs. in thousand)
Year 4
Year 5

50%
10,000
380,000

60%
12,000
456,000

70%
14,000
532,000

80%
16,000
608,000

90%
18,000
684,000

67,500
6,000
31,488
54,720
18,465
80,014

81,000
7,200
31,488
63,576
22,158
80,014

94,500
8,400
31,488
72,433
25,851
80,014

108,000
9,600
31,488
81,289
25,851
80,014

121,500
10,800
31,488
90,145
25,851
80,014

258,188

285,437

312,686

336,242

359,798

Add : Opening Inv.

Less : Closing Inv.
COSTS OF GOODS SOLD

11,736
11,736
258,188

11,736
12,974
284,198

12,974
14,213
311,447

14,213
15,284
335,171

15,284
16,354
358,727

GROSS PROFIT

121,812

171,802

220,553

272,829

325,273

10,502
16,796
7,386
7,600

10,502
16,796
7,386
9,120

10,502
16,796
7,386
10,640

10,502
16,796
7,386
12,160

10,502
16,796
7,386
13,680

42,285
79,528

43,805
127,997

45,325
175,228

46,825
225,984

48,365
276,908

Financial Charges
PROFIT BEFORE W.P.F.
- W.P.F.
PROFIT BEFORE TAXES
- Income Tax

52,694
26,833
1,878
24,955
8,734

49,010
78,987
5,529
73,458
25,710

44,040
131,188
9,183
122,005
42,702

39,057
186,927
13,085
173,843
60,845

34,073
242,835
16,998
225,836
79,043

NET PROFIT

16,221

47,748

79,303

112,998

146,794

Retained Earnings
Retained Earnings B/F

16,221
-

47,748
16,221

79,303
63,969

112,998
143,272

146,794
256,269

CUM RETAINED EARNINGS

16,221

63,969

143,272

256,269

403,063

Description
Capacity Utilization
Production / Tonnes
SALES REVENUE
Less: Costs of Mfg.
- Raw Materials
- Packing Material
- Wages & Salaries
- Utilities
- Repair & Maintenance
- Depreciation

OPERATING EXPENSES :
- Admin. Salaries
- Admin. Expenses
- Insurance. Rents, Etc.
- Marketing & Dist. Exp.
TOTAL OPERATING
EXPENSES
OPERATING PROFIT

34

5.3

PROJECTED CASH FLOW STATEMENT

The projected cash flow is shown below in Table -15:

TABLE - 15
PROJECTED CASH FLOW
Description
Capacity Utilization

Year 1

Year 2

Year 3

(Rs. in thousand)
Year 4
Year 5

50%

60%

70%

80%

90%

SOURCE OF FUNDS:
- Operating Profit
- Add Back : Depreciation
FUNDS FROM OPERATIONS

79,528
80,014
159,542

127,997
80,014
208,011

175,228
80,014
255,242

225,984
80,014
305,998

276,908
80,014
356,922

TOTAL SOURCES OF FUNDS

159,542

208,011

255,242

305,998

356,922

- Long Term Loan

TOTAL REPAYMENTS
- Financial Charges
- W.P.F.
- Taxes
- Inc./(Dec.) in Working Capital
- Replacement of Vehicles
TOTAL APPLICATION

52,694
1,878
8,734
63,307

51,384
51,384
49,010
5,529
25,710
2,983
83,232

51,384
51,384
44,040
9,183
42,702
2,983
98,908

51,384
51,384
39,057
13,085
60,845
2,418
115,404

51,384
51,384
34,073
16,998
79,043
2,418
10,062
142,595

Cash Surplus/(Deficit)
Surplus/(Deficit) B-F
CUMULATIVE CASH
SURPLUS

96,235
-

73,395
96,235

104,950
169,629

139,210
274,579

162,943
413,789

96,235

169,629

274,579

413,789

576,732

APPLICATION OF FUNDS:
- Repayment of Loans

35

5.4

PROJECTED BALANCE SHEET

The projected balance sheet of the proposed project are shown in Table 16 below:

TABLE 16
PROJECTED BALANCE SHEETS
(Rs. in thousand)
Description
Capacity Utilization

Year 1

Year 2

Year 3

Year 4

Year 5

50%

60%

70%

80%

90%

ASSETS:
- CURRENT ASSETS:
- Raw Material
- Packing Material
- Work-In-Progress
- Finished Goods Inv.
- Accounts Receivable
- Cash

3,864
273
782
11,736
23,472
102,569

4,636
327
865
12,974
25,949
176,534

5,409
382
948
14,213
28,426
282,054

6,182
436
1,019
15,284
30,567
421,666

6,955
491
1,019
16,354
32,709
585,012

TOTAL CURRENT ASSETS

142,695

221,286

331,432

475,155

642,611

FIXED ASSETS
- Land
- Building & Civil Works
- Plant & Machinery
- Vehicles, Fur., Fix.

17,000
46,496
756,766
10,062

17,000
46,496
756,766
10,062

17,000
46,496
756,766
10,062

17,000
46,496
756,766
10,062

17,000
46,496
756,766
10,062

TOTAL FIXED ASSETS

830,325

830,325

830,325

830,325

830,325

Less: Accum. Depreciation

NET FIXED ASSETS

80,014
750,311

160,028
670,297

240,042
590,283

320,056
510,269

390,007
440,317

TOTAL ASSETS

893,006

891,583

921,715

985,424 1,082,929

- CURRENT LIABILITIES:
- Accounts Payable
- Short-term Borrowing

9,463
10,920

10,268
12,328

11,074
13,735

11,879
15,026

12,684
16,316

TOTAL CURRENT
LIABILITIES

20,383

22,596

24,809

26,905

29,000

LIABILITIES & OWNER

EQUITY

36

TABLE 16 (Continued)
PROJECTED BALANCE SHEETS
(Rs. in thousand)
Description

Year 1

Year 2

Year 3

Year 4

Year 5

LONG TERM LIABILITIES

- Long Term Loan
TOTAL LONG TERM
LIABILITIES

513,841

462,457

411,073

359,689

308,305

513,841

462,457

411,073

359,689

308,305

TOTAL LIABILITIES

534,224

485,053

435,882

386,593

337,305

OWNERS EQUITY:
- Paid Up Capital
- Retained Earnings

342,561
16,221

342,561
63,969

342,561
143,272

342,561
256,269

342,561
403,063

358,782

406,529

485,833

598,830

745,624

893,006

891,583

921,715

985,424 1,082,929

TOTAL OWNERS EQUITY

TOTAL LIABILITIES AND
OWNERS EQUITY

5.5

INTERNAL FINANCIAL RATE OF RETURN

The Internal Financial Rate of Return for the project has been determined at
22.14%.

5.6

PAYBACK PERIOD
The payback period has been calculated as 5.20 years.

37

CHAPTER 6
CONCLUSIONS
At present, the international refractory market is almost stagnant and likely
increase in world demand will be supplied through large capacities in China,
Turkey and Russia. Export potential for refractory products from Pakistan is
negligible. Considering the extent of the magnesite deposit at Kumhar, NWFP, it
has been recommended that the plant should be located in Haripur District of
NWFP. Some extraction is already carried out from this deposit on regular basis
at an average of 4,000 tonnes per annum. The deposit has been leased out to
PIDC. It is recommended that the lease should be taken over by the proposed
projects sponsors.

The pre-feasibility has not considered the investment cost and operation of
quarrying/mining of magnesite deposit at Kumhar. It is recommended that the
sponsors should consider operating the quarrying/mining operation as part of the
project, for which a separate detailed feasibility study would be required.

If the magnesite deposit operation is taken over by the sponsors then the option of
location of the refractory plant near the deposit needs to be investigated.

It is recommended that the option of producing other materials or products from

magnesite needs to be studied. The proposed refractory project is viable in standalone state; additional product will provide diversity of marketing & operation,
and improving project viability.

The refractory material and products has demand for varying quality and sizes,
but all demand is institutional and has to be tailor-made for each end-user. A
thorough marketing effort will be necessary.

38

ANNEXURE 1
PAKISTAN - A PROFILE

INTRODUCTION

Pakistan is located in South Asia. It borders Iran to the southwest, Afghanistan to the
northwest, China to the northeast and India to the east. The Arabian Sea marks Pakistans
southern boundary.

The total area of Pakistan is 796,095 square kilometers and the country is divided
administratively into four provinces Balochistan, North-West Frontier Province, Punjab
and Sindh and numerous federally administrated areas. The disputed territory of Azad
Jammu & Kashmir lies to the north of Punjab.

ii

Pakistan has a diverse array of landscapes spread among nine major ecological zones
from north to south. It is home to some of the worlds highest peaks including K-2 which
at 8,611 meters above sea level is the worlds second highest peak. Intermountain valleys
make up much of the North-West Frontier Province, while the province of Balochistan in
the west is covered mostly by rugged plateaus. In the east, irrigated plains along the Indus
River cover much of Punjab and Sindh. In addition, both Punjab and Sindh have deserts,
Thal, Cholistan and Thar deserts respectively.

Most of Pakistan has a generally dry climate and receives less than 250 mm of rain per
year. The average annual temperature is around 27oC, but temperatures vary with
elevation from -30oC to -10oC during cold months in the mountainous and northern areas
of Pakistan to 50oC in the warmest months in parts of Punjab, Sindh and the Balochistan
Plateau. Mid-November to February is dry and cool; March and April bring sunny spring,
May to July is hot, with 25 to 50% relative humidity; Monsoons start in July and continue
till September; October- November is the dry and colourful autumn season.

Pakistan had an estimated population in 2005 of 160 million, 40% of this population was
less than 15 years of age. The major cities of Pakistan and their estimated populations
are; Karachi (16.0 million), Lahore (8.0 million), Faisalabad (6.0 million), Rawalpindi
(5.0 million), Multan (4.5 million), Hyderabad (3.0 million), Gujranwalla (1.8 million)
Peshawar (1.6) and Quetta (0.85). Islamabad, the Capital of the country, has a population
of around 750,000.

According to the 1973 Constitution, Pakistan is governed under a federal parliamentary

system with the President as head of state and a Prime Minister as head of government.
The legislature, or parliament, consists of the Lower House (National Assembly) and the
Upper House or Senate. Members of the National Assembly are directly elected for fiveyear terms.

Executive power lies with the President and the Prime Minister. The Prime Minister is an
elected member of the National Assembly and is the leader of the majority party in the

iii

National Assembly. An electoral college consisting of members of the national and

provincial legislatures elects the president for a five-year term.

After the events of 9/11, Pakistan has become a key US ally in the war against terror.
This alignment is totally in-line with the views of the majority of Pakistanis who practice
and preach a moderate version of Islam. The Government of Pakistan fully realizes the
need for promoting Islam as a modern progressive religion. The Government has chosen
the difficult option of fighting the war against terror by clamping down on Taliban and
Al-Qaeda remnants along the border with Afghanistan. The people of Pakistan fully
support the Government in its efforts to promote the true face of Islam.

The US Government fully backs and supports Pakistan in this war against terror. US Aid
which was stopped after the 1998 Nuclear Test has been restored and Pakistan will
receive US$ 3.0 billion over the next 5 years, divided equally between economic and
military aid.

Pakistan follows a very active policy of regional alliances for trade and economic
development. It is an active member of the South Asian Association for Regional
Cooperation (SAARC) which groups Pakistan, India, Bangladesh, Sri Lanka, Nepal,
Bhutan and the Maldives. It is also an active member of the Economic Cooperation
Organization (ECO) comprising of Turkey, Iran, Pakistan, Afghanistan, and the six
Central Asian Republics. Pakistan has an observer status at the Gulf Cooperation Council
(GCC) as well as ASEAN and Shanghai Cooperation Organization. Being a member of
WTO it conforms to most of the international trade regimes.

ECONOMY
Pakistans economy has made significant progress in the last six years. This has been
possible because of the Governments policy of initiating growth through domestic and
foreign direct investment. The GDP growth rate has increased from 1.8% per annum in
2001 to 8.4% per annum in 2005. Despite the devastating earthquake in October 2005,
the economy is expected to grow at over 6.6% in 2006. Pakistans GDP in 2005 was

iv

estimated at US$ 385.2 billion and its per capita GDP was US$ 2,400. The Countrys
credit rating has been upgraded by Moodys from Caa1 in 2002 to Ba3 i.e. stable in
2006.

Pakistan has over 3.5 million laborers working in various countries of the Middle East. In
addition, Pakistani technical and professional manpower is engaged in lucrative pursuits
in USA, UK, Canada, Malaysia, etc. These non-resident Pakistanis annually send over
US$ 4.0 billion in foreign remittances.

The Government of Pakistans policy of encouraging Foreign Direct Investment (FDI)

has seen it grow from a mere US$ 376.0 million in 1999 to more than US$ 1.5 billion in
2005 which is expected to grow to over US$ 3.0 billion in 2006.

In addition to Foreign Direct Investment, low domestic interest rates have meant that
there has been an upsurge in domestic investment; the weighted average rate of lending
has fallen from 16% in 1999 to approximately 8% in 2005.

The Governments economic policy has seen foreign currency deposits rise from US$ 1.7
Billion in 1999 to now US$ 13.0 billion in 2006; this has led to both low rates of inflation
and to a stable exchange rate.

With the Government of Pakistan targeting annual growth in the economy at 7.5% per
annum in the next 5 years, Pakistan is the country of choice for foreign and domestic
investors.

INFRASTRUCTURE
The National Highway Authority (NHA) has the responsibility for 17 of Pakistans major
inter provincial links called the National Highway including the Motorways, which are
access controlled and tolled highways. Total length of roads, under NHA, currently
stands at 8845 Kms.

These roads account for only 3.5% of Pakistans entire road network but cater for 80% of
the commercial road traffic in the country. Improvement and extension of the existing
network is, therefore, essential to develop remote areas and provide better connection
between the economic centers of Pakistan. In addition a first class road network is
essential if Pakistan is going to connect its all-weather Arabian Seaports with the
landlocked Central Asian Republics and Western China. The Government has initiated
work on the North-South Trade Corridor with planned investment of over US$ 60 billion.

In order to further speed up the development of the road network, the Government is
actively seeking the participation of the private sector to implement road projects on a
Build-Operate-Transfer (BOT) basis. A number of projects are currently being
implemented under the BOT concept and others are in the identification stage. These
BOT projects cover the construction of new roads as well as the upgrading of existing
roads.

Pakistan has about 1062 km of coastline on the Arabian Sea running from the Indian
border to the Persian Gulf. The Karachi Port is the premier port of Pakistan and is
managed by the Karachi Port Trust (KPT). Karachi port handles about 75% of the entire
national cargo. It is a deep natural port with a 11 km long approach channel to provide
safe navigation up to 75,000 DWT tankers, modern container vessels, bulk carriers and
general cargo ships. The Karachi Port has 30 dry cargo berths including two Container
Terminals and 3 liquid cargo-handling berths. KPT intends to cater for 12-meter draught
ships, which are the most widely used container vessels. In order to facilitate
accommodate and fast turnaround time of mother vessels, the KPT is offering to the
private sector the opportunity to develop a terminal on BOT basis. In addition KPT has
plans to develop a Cargo Village on 100 acres. This Cargo Village shall serve as a
satellite to the port, integrating container, bulk and general cargo handling as well as
providing processing plants for perishable exports. With direct connection to the National
Highway Network, as well as National Railways Network the cargo village shall also
alleviate the problem of upcountry trade with cost effective storage/handling services in
the vicinity of the port. A master plan is under preparation and all the units within the

vi

village shall be allocated to the private sector on BOT and Build-Operate-Own (BOO)
basis within the next year.

Pakistans second Sea Port, Port Qasim is located 50 kilometers to the South East of
Karachi. It is the Countrys first industrial and multi-purpose deep-sea-port. Currently it
is handling 23% of Pakistans sea trade. Port Qasim has attractions and advantages for
investment both in port facilities and port-based industrial development. Port Qasim
Authority from the very beginning has actively sought the help of the private sector in the
development of its port structure. Some of the projects which have been completed with
private sector involvement include; dedicated oil terminal developed in private sector on
BOO basis at a cost of US$ 87 million to cater for oil imports with a handling capacity of
9 million tons per annum, a container terminal developed by P&G Group, Australia, at a
cost of US$ 35 million on BOO basis, for chemicals imports a facility in collaboration
with Vopak of Netherlands on BOT basis at a cost of US$ 67 million. Some of the
projects which the Port plans to develop with the private sector on the basis of BOT
include; establishment of a second oil jetty, establishment of a dedicated coal and
clinker/cement terminal and the establishment of a marine workshop and dry dock
facilities.

To encourage industrial development the Port Qasim Authority has reserved 300 acres of
land on a prime location in the Eastern Industrial Zone (EIZ) for allotment of plots to
Overseas Pakistanis to induce and encourage foreign investment and provide them an
opportunity to establish small size industries in Pakistan. Each plot is measuring 100
square yards at a very low cost on attractive terms and conditions. This is in addition to
existing 1,200 acres of industrial zone which houses a number of auto assemblers such as
Toyota, Suzuki, Chevrolet and the Textile City spread over 1,250 acres.

The Pakistan Merchant Marine Policy 2001, has deregulated the shipping sector and aims
to attract investment; both local and foreign, public and private, by offering a range of
incentives. The new policy in addition to offering duty-free import of ships, offers many
new incentives to local and foreign investors including Income Tax exemption till 2020.

vii

Pakistan's annual seaborne trade is about 45 million tons, just 5 per cent of which is
carried by the national carrier Pakistan National Shipping Corporation (PNSC), the
country's annual freight bill surpasses staggering $ 1.5 billion which is causing a colossal
drain on foreign exchange resources, the marine policy aims to reverse this situation to
some extent.

The Shipping Policy aims to revive and augment national ship-building/capacity to meet
20 per cent ship construction requirements of the country merchant marine and entire
requirements of support and ancillary crafts. The policy also aims to rejuvenate and
expand the ship repair potential to undertake the entire range of repairs and maintenance
of 50 per cent of Pakistani Flag ocean-going vessels and all ancillary sectors. The new
Shipping Policy offers many financial incentives for potential investors. It offers tax
exemptions and concessional tax measures backed by assurances. It also aims at
simplifying the rules by deregulating the sector.

To begin with, ships and floating crafts tugs, dredgers, survey vessels, and specialized
crafts purchased or bareboat chartered by a Pakistani entity flying the Pakistani flag
will be exempt from all import duties and surcharges till 2020. The policy accords shopbuilding and ship-repair the status of an industry under the investment policy which is
entitled to all incentives contained therein.

To attract foreign investment, all port and harbor authorities in Pakistan will allow all
ships and floating crafts 10 per cent reduced berthing rates when the same are berthed for
purposes of repair and maintenance. Under the Policy, ships and all floating crafts are
considered bonafide collateral against which financing can be obtained from Banks and
Financial Institutions subject to policy of the financial institution.

There are 42 airports in the country managed by the Civil Aviation Authority (CAA). Out
of these, five airports; Lahore, Karachi, Islamabad, Peshawar and Quetta are international
airports. The CAA is planning to develop a new international airport at Islamabad for

viii

which land has been acquired and it is planed to fund the US$ 250-300 million on BOT
basis.

The Pakistan International Airlines (PIA) is the national flag carrier flying to 46
international and 36 local destinations. Other Pakistani airlines in the private sector
include, Aero Asia, Air Blue, Shaheen Air International and Pearl Air. In addition to
direct flights from most parts of the world, Pakistan can also be accessed through the
regional hubs of most international airlines, which operate through airports in the Gulf
countries.

The Pakistan Railways provides an important nation-wide mode of transportation in the

public sector. It contributes to the countrys economic development by catering to the
needs of large-scale movement of freight as well as passenger traffic. Pakistan railway
provides transport facility to over 70 million people and handles freight above 6 million
tons annually.

The Pakistan Railways Network was based on a total of 11,515 track kilometers
(including track on double line, yard & sidings) at the end of 2001-2002. This network
consists of 10,960 kilometers of broad-gauge and 555 kilometers of meter gauge.

Pakistan Railways has launched modernization activity with rehabilitation and

improvement plan both for its infrastructure and rolling stock including prime mover.
The ongoing schemes worth over US$ 500 million are progressing satisfactorily and have
brought a radical improvement in service. The railways is gearing up to the challenge of
providing improved connectivity to Iran, India, and link the upcoming Gwadar Port to
Afghanistan and onward to Turkmenistan.

Pakistan Telecommunication Limited (PTCL) dominated Pakistans telecommunications

market for the fixed-line services. Today the Pakistan Telecommunication Authority
(PTA) has the role of a regulatory body and is responsible for implementing the telecom
deregulation policy. For a long time, Pakistan lagged behind in the region as far as

ix

telecom access is concerned. With cellular mobile revolution taking place, Pakistan's
tele-density currently stands at 10.37%, with gross subscribers base of fixed (5.05
million) as well as mobile subscribers (10.54 million) touching 15.59 million for a
population of 160.0 million.

The Telecomm Sector has attracted the largest FDI in Pakistan with approximately
US$ 1.5 billion having been invested in 2005.

At the moment there are six companies providing mobile phone services in Pakistan, with
the largest of them, Mobilink (owned by Orascom Telecom) with nearly 50% of the
market share, other foreign players include MCE, Telenor and Warid.

In addition Wateen Telecom, a subsidiary of UAE-based Al Warid Telecom, has

launched a US$ 75.0 million project to lay an optic fiber optic backbone across the
Country. The first segment of the project of 800 kms would stretch from Karachi to
Rahimyar Khan and would be further linked with the rest of the country up to Peshawar
through 63 cities. When completed the backbone would be 5,000 kilometers, long
spanning the length and the breadth of Pakistan and would facilitate both the corporate
and residential segments, providing voice and high-speed data services on a converged
wireless network.

Pakistan in 2005 had 70 operational providers of internet services across 1,900 cities and
towns of the Country catering to about 2 million subscribers. In addition the Government
has reduced bandwidth rates for high speed board band internet connections and the
number of subscribers in this category is expected to grow to 200,000 by end of 2006.

AGRICULTURE
Agriculture accounts for nearly 23 percent of Pakistans national income and employs 42
percent of its workforce. Nearly 68 percent of the population lives in rural areas and is
directly or indirectly dependent on agriculture for their livelihood. Livestock is the single
largest contributor 47 percent share in the national income. The major crops; cotton,

wheat, sugarcane and rice contribute 37 percent to agriculture while the minor crops like
oilseed, spices, onion and pulses contribute another 12 percent.

Pakistan is the fifth largest producer of milk in the world. The per capita availability of
milk at present is 185 liters, which is the highest among the South Asian countries. Milk
production in Pakistan has seen a constant increase during the last two decades. The
production has increased from 8.92 million metric tons in 1981 to 28 million metric tons
in 2005. There is a large and untapped potential in the dairy industry. With a population
of 160 million, a significant demand for dairy products exists in Pakistan. There is a need
for establishing modern milk processing and packaging facilities based on advanced
technology to convert abundantly available raw milk into high value added dairy
products. In addition, with improved conditions for milk pasteurization, availability of
chilled distribution facilities and consumer preference for the low cost pasteurized milk,
the sector provides unique opportunity for investment in establishing pasteurized milk
production plants.

There is also great scope for establishing related industries in the form of an efficient
milk collection system and refrigeration & transportation facilities. The sector offers
opportunity to foreign investors for establishing a joint venture for the production of
dairy products, particularly dried milk and infant formula milk for which great demand
exists in the neighboring countries like Afghanistan, Iran, UAE and Saudi Arabia.

Out of the 28 million tons of milk produced per annum in Pakistan, only 2.5 to 3 per cent
reaches the dairy plants for processing into variety of dairy products. Pakistans dairy
industry produces Ultra Heat Treated (UHT) Milk, Pasteurized Milk, Dry Milk Powder,
and Condensed milk. Other major milk products produced by the dairy industry include
butter, yogurt, ice cream, cheese, cream and some butter oil. Approximately half of the
0.3 million tons of milk available to the industry is processed into UHT milk, 40 percent
into powdered milk, and the remaining 10 percent into pasteurized milk, yogurt, cheese
and butter etc. Major players in the sector include Nestle, Haleeb and Engro Foods.

xi

Pakistan produced 1.1 million tons of beef, 740,000 kgs of mutton and 410,000 kgs of
chicken meat in 2005; in addition it also produced approximately 5 billion eggs in 2005.
Processed meat is exported to Saudi Arabia, UAE, Oman, Bahrain, Qatar and Kuwait in
the Middle East and Malaysia in the Far East. Pakistan exports around 40,000 live
animals and 2.83 million kg of meat to the Gulf.

Cotton is an important non-food crop and a significant source of foreign exchange

earning. It accounted for 10.5 percent of the value added in agriculture and about 2.4
percent of the GDP in 2005. Pakistan in 2005 produced about 14.5 million bales of
cotton.

Rice is a high value added cash crop and is also a major export item, it accounts for 5.7
percent of the total value added in agriculture and 1.3 percent of the GDP. Production of
rice in 2005 was about 5 million tones. In 2005 rice became the second largest export
from Pakistan when the country exported rice worth US$ 934 million. In addition to high
value Basmati rice, Pakistan also exports IRRI 6 parboiled rice and IRRI rice to Africa.

Sugarcane is an intensive cash crop and serves as the major raw material for production
of white sugar and gur. Its share in the value added in agriculture is 3.6 percent and 0.8
percent in the GDP. The total sugarcane crop in 2005 was estimated at 45 million tones.

Wheat is the leading food grain of Pakistan, and being the staple diet of the people, it
occupies a central position in agricultural policy. It contributes 13.8 percent to the value
added in agriculture and 3.2 percent of the GDP. The size of the wheat crop in 2005 was
estimated at 21.0 million tons.

In addition to the above, Pakistan also produces bajra, jowar, tobacco, barley, oilseed,
pulses, potato, onion, chillies etc.

xii

The Government of Pakistan has launched a plan to promote Corporate Agriculture

Farming and has offered a number of incentives to develop the sector including the
provision of land and other facilities.

MANUFACTURING
In the post quota regime, total exports of textile increased from $ 6.5 billion in 2004 to
$ 7.4 billion in 2005. Pakistan textiles are poised to achieve $ 10 billion exports by June
2006. This growth is largely driven by the continuity of government policies, positive
macroeconomic indicators, tariff rationalization, removal of sales tax on textile
chain, deregulation, lower interest rates, increased market access, public-private
partnership programs and the creation of a hassle free environment by the government.

The Government of Pakistan continues to take steps to further develop the textile sector
focusing on bridging the skills gap promoting research and development activities,
facilitating an increase in the number of women employees, outsourcing of specialized
work and simplification of procedures. To facilitate value addition in the textile
sector, world class departments in various disciplines related to textile industry are being
set up in three universities. These departments will have linkages with corresponding
foreign departments of high repute.

In the past 5 years, approximately US$ 5.5 billion have been invested in the textile sector
with the major investments being in spinning ($ 2.6 billion), weaving ($ 1.5 billion), and
textile processing ($ 600 million). A Rs.10 billion, Pakistan Textile City facility located
on 1,250 acres of land near Karachi is in the process of being set-up. This will have its
own desalination plant, effluent treatment plant, a self-power generation plant and all the
other modern facilities required for industrial production. It is expected that the Textile
City will lead to an increase in exports of US$ 400 million and provide jobs to 60,000
workers

Pakistans leather exports in 2005 were US$ 883 million which is the second largest
export sector after textiles. It is expected that exports will cross the US$ 1 billion mark in

xiii

2006. Major exports include finished leather; both for garments and footwear, finished
leather garments, leather work gloves, and other leather products. The major centers for
the manufacture of leather and leather products are; Karachi, Lahore, Sialkot and Kasur,
it is estimated that there are more than 700 tanneries operating in Pakistan employing
more than 100,000 persons, in addition another 150,000 workers are employed in the
value addition sectors. In order to promote the industry, the Government has zero-rated
the sales tax on the leather sector and is working to ensure that the industry conforms to
international waste management standards.

Pakistans light engineering sector consists of twenty-eight sub-sectors including

consumer durables and other industrial products. The surgical instrument manufacturing
sector which forms part of light engineering sector is clustered around Sialkot and
exports 95% of its production. There are about 2,500 large, medium and small sized units
with the industry employing about 50,000 skilled and semi-skilled workers. The surgical
goods sector produces both disposable and reusable instruments. The product range
consists of more than 10,000 different items.

The cutlery industry which in 2005 exported goods worth approximately US$ 31 million
is mainly concentrated in the locality of Wazirababd, Nazimabad and Allahbad in
Gujranwalla district. There are approximately 300 units and 25,000 people are directly or
indirectly employed by the industry. The industry has great export potential and requires
better marketing strategies.

The auto parts sector consists of more than 1,200 vendors who are supplying to about 84
Original Equipment Manufactures (OEM) massive capacity increase in Pakistan. The
total investment in the vendor industry exceeds Rs.10 billion and employs more than
40,000 skilled and semi-skilled workers and also brings in more than US$ 160 million in
the form of export earnings.

With the local auto assemblers planning to increase production to 500,000 units by 2008
from the 2006 production figure of 170,000 units, the vendor industry is gearing up for.

xiv

Although the industry has made considerable progress on its own, the need is for joint
collaboration with foreign companies which will not only bring production techniques
but also help in marketing the production of the local vendor industry.

There are a total of 42 assemblers of motorcycles in Pakistan who between them

manufacture 600,000 motorcycles a year, it is expected that the production will increase
to 1 million units a year in the next two years. The main manufacturers of motorcycles in
Pakistan are; Honda, Yamaha and Suzuki who between them command more than 80%
of the domestic market

There are 11 Fertilizer units operating in Pakistan with an installed capacity of 6 million
tones out of which nitrogenous fertilizer has a capacity of 4.9 million tons and phosphatic
fertilizer has a capacity of 1 million tons. Wheat being the most important crop 45% of
the total fertilizer consumption is in this Sector. Cotton consumes 21%, rice 10%,
sugarcane 8% while the remaining 16% is consumed by other crops.

Out of a total of 24 cement plants, currently 22 units are operative, 17 companies being
listed on the Karachi Stock Exchange. The country, at present, has an installed capacity
of producing 17.55 million tons of cement per annum, mainly Portland cement. It is
envisaged to increase installed capacity (also by expansion) to 28.21 million tons per
annum by 2008. New projects as well as capacity increases in existing units should boost
production capacity to about 7 million by 2007.

The demand for cement is expected to be robust, as the Government of Pakistan has
initiated a massive reconstruction drive in the earthquake hit regions of Northern Pakistan
and Azad Kashmir. In addition large quantities of cement will be required for the mega
construction projects initiated by the Government of Pakistan including the construction
of large dams and road projects. Also the industry has good prospects for exporting
cement to Afghanistan where reconstruction work is on-going on in that Country.

xv

Pakistan is the twelfth largest producer of sugar in the World; it ranks fourth in sugarcane
production and holds seventh position in yield, which is about 50 tons per hectare.

The sugar industry has 76 units installed mostly in Punjab and Sindh. The total capacity
of the industry is estimated at 5 million tones per annum. In order to provide incentives to
the growers, the Government determines a support price keeping in mind the production
costs and profits of other crops. The Government and the Industry are trying to increase
cane yield to ensure an increase in the total production of sugar.

The demand for Steel has undergone a dramatic increase in 2005; the total consumption
of steel in 2005 is estimated at 5 million tons as against a domestic production of only 3.2
million tones. The biggest producer of domestic steel is the Pakistan Steel Mills with a
capacity of 1.1 million tones per annum. In addition to the Pakistan Steel Mills there are
approximately 350 steel re-rolling mills in the country, which mainly cater to the needs of
the construction industry.

The demand for steel is expected to further surpass production because of increased
demand due to economic activity and construction of large dams and infrastructure
projects in the Country. The Government is encouraging the private sector to come
forward and invest in mini steel mills and in the mining sector. The Government in an
effort to increase production, is in the process of privatizing major light and heavy
engineering concerns.

OIL, GAS & ENERGY SECTOR

The Pakistani economy is expected to grow at a rate of 7 to 8 percent over the next five
years. In order to sustain the growth momentum a rise in levels of income and increased
availability of goods and services, the country is following a policy to increase the supply
of and the conservation of energy.

In 2005 the consumption of petroleum products in household and agriculture exhibited

sharp decline to the tune of 16.8 and 16.2 percent, respectively. The decline in the use of

xvi

petroleum products was mainly on account of the availability of alternative and relatively
cheaper fuels in the form of natural gas and LPG

Historically, the country is dependent on oil imports. The crude oil import for 2005 was
about 8.3 million tons, equivalent of US$ 2,606 million. The import of petroleum
products import was 5.7 million tons, an equivalent of US$ 1,998 million. The total
annual import bill for the year 2005 was US$ 4,604 million. Due to increase in
international prices of crude oil, the import bill in 2006 is expected to be US$ 5,500
million. Pakistan has five refineries, namely, National Refinery, Pakistan Refinery,
Bosicor, Pak Arab Refinery and Attock Refinery; annual oil refining capacity is 12.82
million tons. In the downstream oil marketing business, the main players are; Pakistan
State Oil (100% owned by the Government of Pakistan), Caltex, Shell and Total.

Pakistan has an interesting Geo-dynamic history of large and prospective basin (onshore
and offshore) with sedimentary area of 827,268 sq. km. So far about 844 million barrels
crude oil reserves have been discovered of which 535 million barrels have already been
produced. A Prognostic potential of total endowment of hydrocarbons has been estimated
as 27 billion barrels of oil. To date various national and international exploration and
production companies, resulting in over 177 oil and gas discoveries, have drilled more
than 620 exploratory wells. Indigenous production of crude oil during the year 2005 was
66,079 barrels per day. The main companies in the upstream chain include; BHP
Petroleum, Lasmo Oil, Shell, OMV Pakistan etc.

Pakistan is among the most gas dependent economies of the world. Natural gas was first
discovered in 1952 at Sui in Balochistan province that proved a most significant and the
largest gas reservoir. After successful exploration and extraction, it was brought to
service in 1955. This major discovery at Sui followed a number of medium and small size
gas fields in other parts of the country.

So far about 52 TCF of gas reserves have been discovered of which 19 TCF have already
been produced. Natural gas production during 2005 was about 3.7 billion cubic feet per

xvii

day. Pakistan has well developed and integrated infrastructure of transporting,

distributing and utilizing natural gas with 9,063 km transmission and 67,942 km of
distribution and service lines network, developed progressively over the last 50 years.

Natural gas sectoral consumption during 2005 was: power (43.7%), fertilizer (16.4%),
cement industry (1.2%), general industry (19.5%), domestic (14.8%), commercial (2.3%)
and Transport (CNG; 2.1%).

Gas importation projects envisage about 1500 to 2000 km long pipelines connecting
regional gas supply sources such as Turkmenistan, Iran and Qatar to the domestic
pipeline network bringing in more than 1.5 billion cubic feet gas per day. With further
extension, the imported gas can also reach the Indian market.

Pakistan started using Compressed Natural Gas (CNG) as transport fuel through
establishment of research and demonstration CNG refueling stations by the Hydrocarbon
Development Institute of Pakistan (HDIP) at Karachi in 1982 and at Islamabad 1989.
CNG is now fast emerging as an acceptable vehicular fuel in place of oil. Pakistan is third
largest user of CNG in the world after Argentina and Brazil. As many as 835 CNG
stations have been set up in the country by December 2006 and 200 stations were under
construction. With 850,000 CNG vehicles on the road, the CNG sector has attracted
Rs.20 billion investment while another Rs.2 billion is in the pipeline, providing 16,000
jobs.

Large diesel vehicles (buses and trucks) being the major consumer of HSD are now the
next target for substitution by CNG for economic and environmental reasons. Meanwhile
a private company has imported some CNG diesel dual-fuel buses for Karachi and plans
are also underway for local manufacturing of these buses.

The total power generation capacity of Pakistan is 19,540-mw. In order to sustain a

higher GDP growth rate of 78 percent, the Government is planning to increase its power
generation capacity by 143,000-mw in the next 25 years, to 162,590-mw.

xviii

The 25-year Energy Security Plan (ESP 2005-2030) approved recently by the
Government envisages increase in nuclear power generation by 8,400-mw to 8,800-mw
by the year 2030 from current nuclear power of 400-mw. The ESP envisages the share of
nuclear power to increase to 4.2 per cent of country's total energy mix from the current
rate of 0.8 per cent. The current energy mix has (highest) 50 percent share of gas, 30
percent oil, 12.7 per cent hydel, 5.5 per cent coal, 0.8 per cent nuclear and zero percent
renewable energy.

The additional 143,053-mw would include 8,400-mw of nuclear power, 26,200-mw

hydel-power, 19,753-mw coal based energy, 9,520 mw renewable energy, 1,360-mw oil
based and 77,820-mw gas based power production.

By the year 2010, the country would have an additional power of 7,880-mw and hence
total capacity would reach 27,420-mw. This additional power would not include any new
plant in the nuclear sector, but hydel generation would increase by 1,260-mw, coal based
increase of 900-mw and renewable energy increase of 700-mw. A minor increase of 160mw would take place in the oil-based generation while gas based power production
would increase by 4,860 mw.

xix

IMPORTANT CONTACTS
Secretary,
Ministry of Commerce,
Govt. of Pakistan,
Block A, Pak. Secretariat,
Islamabad.
Office Tel: 92(51) 9208692,
www.commerce.gov.pk

Deputy Chairman,
Planning and Development Division,
Ministry of Planning & Development,
Govt. of Pakistan,
Block P, Pakistan Secretariat,
Islamabad.
Office Tel: 92 (51) 9211147, 9202783
www.mopd.gov.pk

Secretary,
Ministry of Health,
Govt. of Pakistan,
Block C , Pak. Secretariat,
Islamabad.
Office Tel: 92(51) 9211622
Fax No: 92(51) 9205481

Secretary,
Planning and Development Division,
Ministry of Planning & Development,
Govt. of Pakistan,
Block P, Pakistan Secretariat,
Islamabad.
Office Tel:92 (51) 9211147, 9202783
www.mopd.gov.pk

Secretary,
Ministry of Food, Agriculture and
Livestock,
Govt. of Pakistan,
Block B, Pak. Secretariat,
Islamabad.
Office Tel: 92(51) 9203307,9210351
Fax No: 92(51) 9210616

Secretary,
Ministry of Finance,
Govt. of Pakistan,
Block Q, Pak. Secretariat,
Islamabad.
Office Tel: 92 (51) 9201962
Fax No: 92(51) 9213705
www.finance.gov.pk

Secretary,
Ministry of Ports & Shipping,
Govt. of Pakistan,
Block D , Pak. Secretariat,
Islamabad.
Office Tel: 92(51) 9215354
Fax No: 92(51) 9215349

Secretary,
Ministry of Industries, Production &
Special Initiatives,
Govt. of Pakistan,
Block A, Pak. Secretariat,
Islamabad.
Office Tel: 92(51) 9210192, 9211709
E-mail:secretary@moip.gov.pk
http://www.moip.gov.pk

Secretary,
Ministry of Tourism,
Govt. of Pakistan,
Block D , Pak. Secretariat,
Islamabad.
Office Tel: 92(51) 9213642
Fax No: 92(51) 9215912
Email:secretary@tourism.gov.pk

Secretary,
Ministry of Communication,
Govt. of Pakistan,
Block D, Pak. Secretariat,
Islamabad.
Office Tel: 92 (51) 9201252

xx

Chairman,
Securities and Exchange Commission
of Pakistan,
National Insurance Corporation
Building,
Jinnah Avenue,
Islamabad-44000,
Telephone: 92-51-9207091 (3 lines)
Fax: 92-51-9204915
Email: enquiries@secp.gov.pk
www.secp.gov.pk

Governor,
State Bank of Pakistan,
I.I. Chundrigar Road,
Karachi. Pakistan.
Phone: 111-727-111 Fax: (+92-21)
9212433-9212436
www.sbp.org.pk
Chairman,
Board of Investment,
Govt. of Pakistan,
Attaturk Avenue,
Sector G-5/1,
Islamabad.
Tel: 92(51) 9207531, 9206161
www.pakboi.gov.pk

Chairman,
Export Promotion Bureau,
Govt. of Pakistan,
5th Floor, Block A
Finance & Trade Centre,
Shahrah-e-Faisal.
Karachi.
Tel: 92-21-9206462-70
Fax: 92-21-9206461
www.epb.gov.pk

Chairman,
Pakistan Telecommunication
Authority,
Head Quarter Sector F-5/1,
Islamabad.
Tel: 92-51-2878143,9225326,
Fax: 92-51-2878155
E-mail: chairman@pta.gov.pk
www.pta.gov.pk

Chairman,
Engineering Development Board,
Govt. of Pakistan,
5-A, Constitution Avenue, SEDC
Building (STP), Sector F-5/1,
Islamabad,
Tel: 92-51-9205595-98
Fax:92-51-9205595-98
Email: edb@edb.gov.pk
www.engineeringpakistan.com

Chairman,
Oil & Gas Regulatory Authority,
Tariq Chambers, Civic Center,
Melody Market, Sector G-6,
Islamabad.
Tel: 92-51-9221705
Fax: 92-51-9221714
Email: chairman@ogra.org.pk
www.ogra.org.pk

Chairman,
Alternative Energy Development
Board,
Govt. of Pakistan,
344-B,Prime Minister's Secretariat,
Constitution Avenue,
Islamabad.
Phone No: 92-51-9223427, 9008504
Fax No: 92-51-9205790
E-mail: support@aedb.org
www.aedb.org
Chairman,

Chairman,
Pakistan Electronic Media Regulatory
Authority,
Green Trust Tower,
6th Floor, Jinnah Avenue, Blue Area,
Islamabad
Phone#:0092-051-9222320/26/32/40/42
E-Mail: ctv@pemra.gov.pk
www.pemra.gov.pk

xxi

Small & Medium Enterprise

Development Authority,
6th Floor, LDA Plaza, Egerton Road,
Lahore.
Tel: 92-42-111-111-456
Fax: 92-42-6304926
E-mail helpdesk@smeda.org.pk
www.smeda.org.pk

Karachi Cotton Association,

The Cotton Exchange,
I.I Chundrigar Road,
Karachi, Pakisan.
Tel : 92-21-242-5007, 241-2570,
Fax : 92-21-2413035
Email: contact@kcapak.org
www.kcapk.org

Managing Director,
Private Power and Infrastructure
Board,
50 Nazimuddin Road, F7/4,
Islamabad, Pakistan.
Tel: 92-51 9205421,9205422
Fax: 92-51 9215723,9217735
Email: ppib@ppib.gov.pk
www.ppib.gov.pk

President,
Federation of Pakistan Chambers of
Commerce and Industry,
Federation House,
Sharea Firdousi, Main Clifton,
Karachi.
Tel: 92-21-5873691,93-94
Fax : 92-21-5874332
Email : fpcci@cyber.net.pk
info@fpcci.com.pk
www.fpcci.com.pk

CEO,
Competitiveness Support Fund,
House No. 53,
Street 1, F-6/3,
Islamabad.
Cell: 92-300 856 5277
Email: arthur.bayhan@telefonica.net
www.competitiveness.org.pk

President,
Karachi Chamber of Commerce
Industry,
Aiwan-e-Tijarat Road,
Off Shahrah-e-Liaquat,
Karachi.
Tel: 92-21- 241 6091-94
Fax : 92-21- 241 0587
Email: info@ karachichamber.com
www.karachichamber.com

Chairman,
Pakistan Software Export Board,
2nd Floor Evacuee Trust Complex
F-5, Aga Khan Road
Islamabad - 44000
Tel: 92-51-9204074
Fax: 92-51-9204075
www.pseb.org.pk

President,
Lahore Chamber of Commerce
Industry,
11, Shahrah Aiwan i Tijarat,
Lahore. Pakistan.
Tel: 92-42 -111-222-499
Fax : 92-42 -636-8854
www.lcci.com.pk

Managing Director,
Karachi Stock Exchange (Guarantee)
Limited,
Stock Exchange Building, Karachi.
Tel: 92-21-111-001122
Fax : 92-21-241 0825
Email: info@kse.com.pk
www.kse.com.pk
Chairman,

xxii

Secretary,
Overseas Chamber of Commerce and
Industries,
Chamber of Commerce Building,
Talpur Road, P.O. BOX 4833,
Karachi.
Tel: 92-21-2410814-15
Fax: 92-21-2427315
E-mail: info@oicci.org

President,
Rawalpindi Chamber of Commerce
and Industries,
Chamber House, 39 - Mayo Road
(Civil Lines),
Rawalpindi.
Tel: 92-51-5111051-54
Fax: 92-51-5111055
E-mail : rcci@isd.wol.net.pk
www.rcci.com.pk

xxiii

Study Commissioned by:

EMPLOYMENT & RESEARCH SECTION,
PLANNING & DEVELOPMENT DIVISION, GOVERNMENT OF PAKISTAN,
PAKISTAN SECRETARIAT, P- BLOCK, ISLAMABAD
Tel: (92-51) 921 2831, Fax: (92-51) 920 6444