ELECTRICAL ENGINEERING 3RD YEAR PROJECT FIST PART

UNIVERSITY OF ZIMBABWE

DEPARTMENT OF ELECTRICAL ENGINEERING 3RD YEAR PROJECT.

NAME KUTADZA ALIMON

REG NO RO82717H

PROJECT SUPERVISOR ENG S.T MANDIOPERA

PROJECT CO-ORDINATOR MR DZIKAMUNHENGA

FEASIBILITY STUDY FOR THE LOCAL COMMERCIAL PRODUCTION OF

INTEGRATED SUGAR ,ETHANOL AND ELECTRICAL POWER GENERATION PLANTS.

IN PARTIAL FULLFILLMENT FOR THE REQUIREMENTS OF THE BSc HONOURS

DEGREE IN ELECTRICAL ENGINEERING.

KUTADZA ALIMON Page i

TABLE OF CONTENTS

CHAPTER

PAGE

1. Executive summary…………………………………………………………………………….5

2. Project background and history………………………………………………………....6

3. Market analysis and marketing concept……………………………………………..10

4. Material inputs……………………………………………………………………………………27

5. Location, site and environment…………………………………………………………..30

6. Project engineering…………………………………………………………………………….32

7. Organization and overhead costs………………………………………………………..59

8. Human resources………………………………………………………………………………..62

9. Implementation scheduling…………………………………………………………………70

10. Financial analysis and investment………………………………………………………..73

Conclusion..............................................................................................79

References..............................................................................................80

KUTADZA ALIMON Page 2

ABSTRACT

Study of this project is based on the setting up of any industrial production site for the local

commercial production of integrated sugar, ethanol and electrical power generation plants.

The development of this industry is necessitated by a noted increase in the world population

resulting in an increase in the demand for sugar, ethanol and electricity. I had to investigate

and assess the current positions of power supply in Zimbabwe and surroundings countries as

well as investigating the availability of sugar and sugar based products market locally and

internationally. The possibility of introducing large quantities of ethanol into the country and

surrounding countries was also assessed. It was discovered that there are numerous power

cuts due to power shortage. Ethanol is also required by pharmaceutical companies and

alcohol manufacturing industries. The ethanol is sold to local markets and also exported to

countries which include America and Canada. By –products of ethanol such a aldehydes and

fusel fuels can also be sold to bottling companies.

It is from this background that the need to establish a large scale sugar industry which

produces sugar, ethanol and electricity arises. Although the company intends to use its

electricity to power its industry and residential areas for a start, plans are in place to feed the

extra electricity into the national grid. All the machinery and equipment is capital intensive

and most of them require importation as they are not locally available. In this project I

intensively looked at the commercial production of sugar, ethanol and electricity from a

sugar background.

A Careful assessment of the availability and costs involved with the procurement of

sugarcane which is the raw material for this industry was done. Sugarcane required for this

venture needs to be grown near the milling area. The growing of big sugarcane plantations is

really capital intensive. Therefore the setting up of the sugar industry requires reliable

sponsorship. Setting up of this kind of a venture is rather capital intensive such that no

financier may be ready to invest so much in a project that may start to realize real targeted

profits in a matter of years. Projections that I made in this project show clearly that we may

operate on losses during the first year of operating and by the second year some profit will

start being realised although it might not be the targeted profit.


AcknowledgementsFirst and foremost I would like to thank the Lord Almighty who has been guiding me in all

my academic pursuits. Secondly I would like to thank all people who contributed in making

my project a success.

Special mention goes to the following:

Eng. S.T Mandiopera………………...........................Project supervisor U.Z

Eng. O. Makuza………………………………..Electrical and instruments engineer, Triangle

Mr F Kutadza…………………………………………………Stocks controller, Triangle

Mr W Shumba………………………………………………….Marketing director, Triangle

Mr Nhondova……………………………………………Assistant process manager, Triangle

Mr Chimanikire………………………………………………………..Salaries, Triangle

Mr Nhondova………………………………..........Human resources manager, Chisumbanje

Miss R.Rwanya......................................................................Student, UZ

Ms F.Chiparaushe.....................................................................Human resources manager

Triangle

Miss S.Sakala...........................................................................Journalist, the Herald

Mr .Mutave...................................................................................ARDA, Chiredzi


1.0: EXECUTIVE SUMMARY

During the course of the research, it was noted that there are currently two companies in

Zimbabwe which are the major players in the sugar industry. Triangle limited produces sugar

and ethanol as well as electricity for its industrial activities and residential areas while Hippo

Valley produces sugar only. The electricity normally produced by the sugar industry is not

enough to be fed into the national grid though it’s enough to power the sugar and ethanol

producing plants 3rd company is also under construction at Chisumbanje in the south eastern

part of the lowveld.This company also intends to produce ethanol, sugar and electricity on a

large scale. A careful assessment of the economic environment and anticipated competition

as well as the demand of sugar and ethanol as well as the availability of sponsorship was

done. All factors considered it is possible to come out with a sales programme that indicates

to what extend the project is feasible.

After a study of the processes involved in the production of sugar, ethanol and electricity, I

came up with a quantitative description of costs of raw material, labour, human resources and

equipment involved. I also had to sum up all the direct and indirect costs involved in setting

up the industry so as to get an insight into the amount of capital needed. The cost of sugar

and ethanol is mainly derived from the heavy duty operations that are involved in their

production. The raw material procurement stage is one of the capital intensive stages but

once the raw material has been made available, processing can begin.

Considering the feasibility of the project, if the land to grow sugarcane is available as well as

factory supplies such as water are available then the project is feasible, In the lowveld of

Zimbabwe the land is available and there are three rivers from which water can be channelled

to the industrial site. Therefore from this perspective, the project is feasible. However

considering the capital requirement of 480 million US Dollars, investors may not be willing

to part with such a huge sum of money but there are sponsors such as the European Union

who give sponsorship to sugar projects. There is also another 600 million dollar project

which is in its final stages of construction and when the profitability of the industry is

considered, then the project is feasible only with sponsorship availability.


CHAPTER 2: PROJECT BACKGROUND AND HISTORY

2.1: Project sponsors

Technical sponsorship

The setting up of a local industry which produces sugar, ethanol and electricity is a labour

intensive as well as a capital intensive project. In order to ensure a smooth flow of operations

a technical team is required which oversees the day to day operations. The overall sponsor of

the project appoints a technical team which will be on site where the initial operations of

design, construction and procurement of raw materials takes place.

Management sponsorship

A huge investment project like this usually has more than one stakeholders or financial

sponsors who however will mostly not be involved in activities but their responsibility being

to finance the project. In light of this a management committee which interacts with the

technical team and oversees the whole project implementation will be put in place. A project

manager heads the management committee which gives reports of progress to the financiers.

The project manager should be someone with good communication, planning and budgeting

skills to ensure that design and implementation of the project is well on course and always up

to standards as well as seeing to the fact that disbursed funds always get their optimum use.

The management committee also updates the project sponsors on problems that are

encountered in the course of project implementation such as increases in cost of labour, raw

and processed materials and when the project implementation fails to meet its set deadlines.

Financial sponsors


Production of sugar, ethanol and electricity on such a large scale is a capital intensive project

as aforementioned above and so before embarking on the venture adequate funding should be

obtained for the project. Having done convincing feasibility studies in Zimbabwe

sponsorship of a project like this can be obtained from the government in conjunction with

the relevant ministries and also from banks such as the Infrastructural Development Bank

and other banks though in some cases collateral security is required. The government in

partnership with some existing individuals who own big investment firms can also finance

the local commercial production of integrated sugar, ethanol and electrical power generation

plants.

The European Union also occasionally disburses funds to finance programmes in the sugar

industry in Zimbabwe. There are also some international investment companies such as JP

Morgan and Chase, Marlborough Sugar and Cargill with interests in the sugar industry.

However to secure international sponsors of the project mainly depends on the social and

political environment as well as government policy. Considering the amount of capital

required for this project, partnership with international sponsors would be most preferable.

2.2: Project history

There are 121 sugar-producing countries in the world with an average annual output of

approximately 150 million metric tons. Annual world consumption is estimated at about 140

million tons giving a surplus of approximately 10 million tons. Most of the sugar produced is

either consumed on respective domestic markets or is exported under preferential trade

arrangements at prices way above those obtainable on the world market. A relatively small

percentage of sugar is traded on the residual world market at prices, which, in some

instances, are lower than production cost.

The Zimbabwe sugar industry comprises of cane farmers, sugar mills and sugar refineries. As

at August 2004 the sugar industry’s assets were valued at approximately $790 billion and

some twenty thousand people were directly employed with the industry with many others

employed in downstream and support industries. Apart from the two sugar estates of Hippo

Valley and Triangle, there are approximately two hundred and eighty out-growers owning

farms ranging in size from ten hectares to fifty hectares.


Hippo Valley Estates and Triangle Limited own the only two sugar mills in the country and

between them, currently have installed capacity to produce around 600 000 tons of raw

sugar. The two mills also operate back end refineries with an annual capacity of 150 000

tons. Zimbabwe Sugar Refineries Corporation operates two refineries in Harare and

Bulawayo with a total annual capacity of over 200 000 tons. As the main employers in a

largely rural setting, Hippo Valley Estates and Triangle Limited have assumed most the

functions normally undertaken by municipalities, including housing, education and health not

only for their employees but for the communities within which they operate.

There are initiatives underway by both Government and the private sector to boost sugar

production. Completion of Tokwe – Mukorsi Dam, which will be the largest inland dam in

Zimbabwe, will make it possible for both current and new players to increase the area under

cane. Another sugar and ethanol plant is currently under construction in Chisumbanje.

Zimbabwe currently exports raw sugar under quota arrangements to the EU and the US

where prices are between 2..5 and 3 times higher than those available on the world market.

There are also significant exports of mostly refined sugar to regional markets covered by

bilateral trade agreements.

2.3: Cost of studies and investigations already performed

2.3.1: Studies already performed on other projects

2.3.1.1: Study number one

1984: Feasibility study: Chisumbanje sugar and ethanol plant.

Agzim (PVT) a subsidiary of PGBI was appointed by the Industrial Development

Corporation of Zimbabwe to prepare a detailed feasibility study for a sugar and ethanol

project in the lowveld of Zimbabwe in a joint venture. The study covered the development of

a 9000 ha estate, 98000 tonnes per year sugar mill, 23 million litres per year ethanol plant

and all associated structures.

1998: Chisumbanje Feasibility study update: Zimbabwe.


This project involved the development of detailed Terms of Reference for a consultancy to

update the Chisumbanje sugar cane growing, milling and refinery project and compilation of

the necessary tender and bidding documents for a viable proposal.

March 2010 $600m Ethanol Plant Under Construction.

The project is a joint venture between the government and ARDA and its investment

partners, Rating Investment Ltd and Macdom Investments Ltd.

The project using sugar cane grown in Chisumbanje and Middle Sabi as a feedstock is a 10

year commitment for the companies. More than 50,000 hectares of sugar cane are to be

planted. Farmers in the area will have to grow sugarcane only and we are looking at engaging

30 000 upland farmers to grow maize under contract to supply farmers in this area. The

project was expected to have been complete by March 20011 but at present construction is

still underway

2.3.1.2: Study number two

In September 2007 the European Union disbursed 22 million pounds for the sugar sector

reform programme in Zimbabwe. . The programme contributed to enhancing the

competitiveness of the sugar sector in Zimbabwe. The funds were given to new cane growers

to buy inputs and finance operations on sugarcane plantations as well so as to increase the

quantity of sugarcane available for crushing.

Current studies


In order to get enough information on the sugar industry and a closer understanding of the

local commercial production of sugar, ethanol and electrical power generation plants I had to

visit some companies which are involved in this industry. I got a one month permit to get

access into the Triangle sugar and ethanol plant where I carried out my research and obtained

an in-depth understanding of the operations of the sugar industry such as project engineering

and the marketing of sugar and ethanol. I also visited ARDA Chisumbanje where an ethanol

and sugar plant is under construction.At Chisumbanje civil works on the mill house, distillery

and boiler were 80% complete as of end of February 2011 when I visited the site. I also

visited The Zimbabwe Sugar Sales in Harare to get an insight into the sale of sugar as well as

government policy with regards to this issue. I also sent emails of quotations to suppliers

both in and outside the country to get prices of materials, equipment and machinery required

in the setting up of the plant. I also spent money on airtime, buying stationery and writing

pads as well as buying food while I did my research.

CHAPTER 3: MARKET ANALYSIS AND MARKETING CONCEPT

3.1.1: Idea of the project

The project’s prerogative is to come out with a large scale commercial production of sugar,

ethanol and electricity in Zimbabwe. Our idea is to be the leading local and international

supplier of sugar and ethanol. Through this project it is intended to increase the nation’s

reserves of foreign currency through the exportation of sugar to both African and overseas

markets. Therefore the project is set to be a huge foreign currency booster. The project is also

going to play a major role in providing employment to many people in the country.

3.1.2: Objectives and strategy

3.2: DEMAND AND MARKET

3.2.1: Structure and characteristics of the market


The Zimbabwe sugar industry comprises of cane farmers, sugar mills and sugar refineries. As

at August 2004 the sugar industry s assets were valued at approximately $790 billion and

some twenty thousand people were directly employed with the industry with many employed

in downstream and support industries. Sugarcane is currently grown in the south-eastern

corner of the country where growing conditions are ideal. Apart from the two sugar estates

Hippo Valley and Triangle, there are approximately two hundred and eighty out-growers

owning farms ranging in size from 10 hectares to fifty hectares. The industries of Triangle

and Hippo Valley limited also produce their own electricity from baggasse.A huge ethanol

plant is also located at Triangle limited.

With the annual domestic market sugar requirement currently at approximately 320 000

tonnes, any additional sugar produced will have to be exported in as raw sugar based

products. Zimbabwe currently exports raw sugar under quota arrangements to the EU and the

US where prices are between 2..2 and 3 times higher than those available on the world

market. There are also significant exports of mostly refined sugar to regional markets

covered by bilateral trade agreement.

3.2.2: Past growth of industry

The sugar industry from which ethanol and electricity are obtained as by products continues

to grow in Zimbabwe. Triangle is increasing the hectares under which sugar cane is grown in

order to meet international demand of both sugar and ethanol. The Agricultural Development

Authority (ARDA) together with a partner has increased the area under cane to take

advantage of the underutilised potential of the Osborne Dam and is developing a 150 000 ton

sugar mill at Chisumbanje.

3.2.3: Capacity of the industry


Currently the sugar industry in Zimbabwe has two major players at the production level.

Triangle limited and Hippo Valley are the only sugar producers in Zimbabwe although

another sugar and ethanol plant is currently under construction at Chisumbanje. Triangle and

Hippo Valley between them produce about 600 000 tonnes of Raw sugar per year while

Triangle also produces 40 million litres of ethanol per year. With the demand of sugar, sugar

products and ethanol on a surge in the world, the Zimbabwean sugar industry is still open to

new entrants in the industry particularly those sugar industries producing electricity and

ethanol to curb the fuel and electricity shortage in the country.

3.2.4: Major problems faced by the industry

Competition from global firms

Competition from global firms offering better products or lower prices for example in the

sugar world the threat from cheap Brazilian imports is a major factor in pricing decisions. As

a result firms have to operate at low profits to block off Brazilian imports.

Geographical location of Zimbabwe

The geographical location of Zimbabwe relative to key markets is also a problem. The EU,

ASIA and The Middle East are the main export destinations for most sugar producers. The

response time for Zimbabwe as a landlocked country with an unreliable rail system is

relatively long when compared to industries close to harbours. Freight costs are US$30/ton

more than that incurred by industries closer to harbours.

Macroeconomic instability

For the past decade, the Zimbabwean economy has been in recession with negative GDP

growth rates. The period has been characterised by high inflation which peaked at over 612%

in January 2004 before gradually decreasing to the current values, shortages of foreign

currency to purchase equipment and other key inputs and shortages of fuel and power.

Interviewees operating at various levels of the industry felt that macroeconomic instability

was by far the biggest challenge facing the sugar industry.

Decline in sugar production.


Persistent droughts, heavy floods and record temperature swings had a detrimental effect on

the growth of sugarcane leading to lower than normal yields as shown in the diagram below.

Managing the effects of the Land Redistribution Programme.

The land reform programme has changed the composition of the sugar industry. Over two

hundred new farmers have joined the sugar industry at the sugar growing level. While the

number of farmers has increased, the area under sugarcane has shrunk due to diversification

and neglect. Views on the impact of the land reform varied with interviewees keen to either

justify the need for the programme while others while others were keen to criticize the way

the programme was implemented. Even with these polarised views there was agreement that

production had generally declined on farms taken over by the new farmers though there was

no consensus on why there had been a decline.

Lack of adequate funding

Because the new farmers do not have title deeds to the properties they occupy, they are not

able to access loans from most banks. Approaches to Government for assistance in accessing

loans has to date not yielded anything. Because of the unavailability of funds, some farmers

are diversifying into other crops with shorter production and which require minimal funding.

This has resulted in decline in sugar yields.

Unavailability of inputs

Fertilizers and chemicals, apart from being expensive, are said to be in short supply. While

some assistance is being given by the estates and established farmers this is generally

inadequate and sometimes late

Absentee farmers.

Some of the sugar farmers are relying on supervisors, most of whom are under-qualified and

sometimes underpaid. A number of farms had become derelict.

Staff retention.


During the course of the research it was pointed out that the industry was losing more and

more of its trained staff to other sugar industries within the region due to the deteriorating

economic situation in the country. The general view was that the brain drain from the sugar

industry would likely continue even when the Zimbabwean economy eventually recovers.

Considering that the sugar industry has remained relatively intact compared to other

industries within the agricultural sector, if the agriculture sector were to recover, the sugar

industry would likely to be one of the few remaining reservoirs for experienced

agriculturalists. Instead of losing experienced personnel to regional industries, staff would be

much sought after by other industries within Zimbabwe.

3.2.5: General quality of goods.

Sugar suppliers to the world market can opt to supply either refined/white sugar or raw sugar.

Price is dependent on sugar type and quality. The quality requirements for both sugar types

are increasingly becoming stringent and those industries capable of cost effectively

producing quality sugar will gain a competitive advantage over those that cannot

3.2.6: Past imports and their future trends.

In Zimbabwe imports of sugar are very limited though imports of other sugar products are

available therefore Zimbabwean sugar industries mostly experience competition when it

comes to foreign markets. However imports of fuel exist in Zimbabwe and there is currently

no viable framework for the use of ethanol as a fuel in vehicles. Electricity in Zimbabwe is

also complemented by imports from South Africa, Mozambique and from Botswana

therefore existence of an additional industry which produces electricity to feed into the

national grid also reduces imports.

3.2.7: Volumes and prices.

Triangle limited and Hippo Valley are the two sugar producing companies in Zimbabwe and between them they produce about 600 000 tonnes of sugar and Triangle limited also produces electricity and ethanol. Our company aims to crush 2.5 million tonnes of sugar per year to produce 320 000 tonnes of raw sugar and 95 000 tonnes of white sugar as well as 40 million litres of ethanol.


Product Price/$Raw sugar 24 000/30 tonneEthanol 0.55/litreWhite sugar 24 500/30 tonne


3.2.8: Role of industry in national economy

The sugar industry has a crucial role to play in the Zimbabwean economy. Production of

sugar for export brings into the country the much needed foreign currency. The foreign

currency is used for numerous developmental projects in the country. Revenue from the

sugar industry is also used by the government to pay civil servants salaries.

The industry is also instrumental in infrastructural development whereas it takes part in roads

construction, construction of schools, dams and hospitals. These services are of paramount

importance to the local communities. As a result of electricity production the industry

reduces the country s power imports. The industry also reduces the percentage of the

unemployed in Zimbabwe as it offers employment to many people who would otherwise be

unemployed. Currently Triangle limited and Hippo Valley employ more than 25000 people

between them and Chisumbanje sugar and ethanol plant has to date employed more than

3000 while it is still under construction.

3.2.9: National policies, priorities and targets

Governments have an overreaching role in the creation of a conducive environment within

which home firms operate. They influence and are influenced by the other factors.

Government’s role can be positive but it can also be negative as the following points show:

a) Providing a policy framework that promotes investment and growth in certain industries or

discourages/controls production of certain products.

b) Protecting home industries from external competition through various types of trade

barriers.

c) Supporting domestic industries through incentives and a variety of subsidies.

d) Providing infrastructure especially in those areas considered unattractive by private

investors.

e) Negotiating bilateral and multilateral agreements to open new markets or get favorable

trading terms for home industries.


The Zimbabwean government signed bilateral trade agreements with some countries; these

trade agreements have promoted trade between Zimbabwe and other member countries:

COMESA

Zimbabwe is a member state and the prime objective at formation was the establishment of ‘a

large economic and trading unit that is capable of overcoming some of the barriers that are

faced by individual states’ and the removal of all internal trade tariffs and barriers. Member

states specifically agreed on the following measures:

a) Creation of a free trade area guaranteeing the free movement of goods and services

produced within COMESA and the removal of all tariff and non-tariff barriers;

b) Formation of customs union with common external tariffs

c) Free movement of capital and investment and the adoption of common policies to

facilitate and encourage investment within the FTA.

d) Establishment of a payments union to facilitate trade between member countries

e) Harmonisation of visa requirements to facilitate movement of nationals within the region.

Zimbabwe is also a SADC member which also has roughly the same trade terms. Trade

within these spheres can be maximised as there are no stringent trade restrictions. Zimbabwe

encourages its sugar industries to trade with countries that it has signed bilateral ties with and

with which it has good relations with.

3.2.10: Targets related/assigned to the industry.

Currently Zimbabwe is heavily dependent on electricity imports from neighbouring countries

to sustain our low production. Zimbabwe has a capacity of producing 1980MW of electricity

but has a requirement of 2800MW of electricity daily, however the electricity it both

produces and imports does not meet its daily requirements hence the government is inviting

independent stakeholders to produce electricity to meet the nation s requirements.


The country s daily consumption of ethanol is 1 million litres per day and again the country

is in need of producers to provide this ethanol requirement at lower cost than the import

price. The country s sugar requirement is mainly for export to furnish the country with the

much needed foreign currency.

3.2.11: Approximate present size of demand

Fig: World population

There is a direct relationship between population growth rate and demand for sugar. Africa s

growth is the highest in the world, 2.36 %( UN Report Nov 98).Africa with 13% of the world

s population is projected to see 34% of the globe s population increase over the next 50 years.

The population of the African continent is expected to rise from 800 million now to 1.8

billion in 2050,because fertility rate of 38 births per 1000 people is still much higher than the

mortality rate of 14 deaths per 1000 people. Also the population is under the age of 15.


Fig: World sugar consumption


Long-term potential for consumption growth, particularly in Southern African countries,

remains positive. Consumption growth in China has increased as a result of the buoyant

economic conditions currently being experienced in that country. Global sugar consumption

continues to increase by about 2% per annum, and in 2011/12 is expected to reach almost

160 million tons. The regional markets of sugar as evidenced by these graphs are in growth

stage. Developed world have reached maturity stages. There is great demand of sugar driven

population growth and change in life of people. Africa has one of the smallest consumption

per capita. New entrants while they may add to over production periodic as was the case in

2006 resulting in price slumps, the demand for sugar is likely to keep on the upward trend.

The demand for ethanol is also on a surge both locally and internationally. Alcohol can be

used as a liquid fuel in internal combustion engines either on their own or blended with

petroleum. Therefore they have the potential to change and or enhance the supply and use of

fuel (especially for transport) in many parts of the world. Alcohols have favorable

combustion characteristics, namely clean burning and high octane rated performance. With

the advantages associated with ethanol thereof stated the supply of ethanol at present cannot

meet the demand especially with the estimated population growth Zimbabwe has been

experiencing a huge shortage of electricity for a big part of the past decade. This can be

attributed to a variety of reasons including equipment and machinery depreciation. Therefore

a large commercial producer of electricity to try and minimize the shortage is also needed.

3.2.13: Major determinants and indicators.

Although the world s population is increasing and the demand for sugar is overally

increasing with increase in population, the developed markets have a declining demand for

cane sugar as a sweetener in favour of artificial sweeteners. The growing demand for low

calorie foods and obesity issues are taking centre stage. The demand of sweeteners in Africa

is very low and availability low.


The development of ethanol production has brought a new product for the sugar producers.

As existing firms diversify to ethanol production new entrants come in to cover the gap left

by those firms concentrating on ethanol production only. With pressure mounting on

environmental issues sugar producers can produce ethanol and some countries such as Brazil

have taken giant steps towards bio fuel. With low sugar prices, the sugar producers switch to

bio fuel and viss versa. The current petroleum price of $110 per barrel makes the ethanol

case stronger.

The sugar industry has other green products to keep it strong in power cogeneration.

Mauritius depends on power from sugar mills and has been able to cut on coal imports as a

result. Bagasse is burnt to generate electricity, clean power. As Zimbabwe slows rises from a

decade long economic slumber the demand for electricity is expected to rise as more

industries increase their production capacities. Regional demand for electricity also continues

to grow and this is also a positive indicator of an expected increase in electricity generating

stations.

3.3: MARKETING CONCEPT, SALES FORECAST AND MARKETING BUDGET

3.3.1: Description of the marketing concept.

In order to lure new customer to the newly established industry efficient marketing

techniques are a key factor. The four P’s – Product, Price, Promotion and Place, are

important in the marketing of sugar and ethanol just as it is important for the other products.

While strategies for the domestic market differ little from those used for most products,

selling sugar on the world market is highly specialized. Traders and speculators are major

players and because of the existence of speculators, the volumes traded on the various

markets do not reflect actual demand and therefore do not necessarily translate into physical

movement of stocks. The sugar market is fairly complex and sophisticated and substantial

knowledge and skills are required for effectiveness.


Some industries employ full time marketing staffs in key markets, but sugar brokers who

have offices in various parts of the world represent the majority of exporters. Apart from

being marketing agents, brokers are an important source of market intelligence. Sugar

suppliers to the world market can opt to supply either refined/white sugar or raw sugar. Price

is dependent on sugar type and quality. The quality requirements for both sugar types are

increasingly becoming stringent and those industries capable of cost effectively producing

quality sugar will gain a competitive advantage over those that cannot. Price is largely a

function of demand and supply and the world market is considered to be the market of last

resort with in some instances the going price being lower than cost of production. It is mostly

bigger producers like Brazil that are a major influence on the price obtainable on the world

market.

Location of industries in relation to their markets determines the cost of servicing markets

and speed at which an industry can respond to customer demands. Most sugar industries are

located along the coast and this reduces freight costs. Domestic marketing techniques will

involve advertisements in the local newspapers, television adverts and company internet

websites. All these marketing techniques will help in making the brand name known to our

domestic customers. Giving promotions and discount for bulk buying will also increase the

volume of sales. The same marketing concepts used for marketing sugar will be applicable to

the marketing of ethanol. The electricity generated by the plant will be used to run operations

or fed into the national grid hence there is no need for marketing of electricity.

3.3.2: Selected targets and strategies.

Although the domestic market is of concern exports are generally preferred because they

bring about the much needed foreign currency into the country, Therefore most of the ethanol

and sugar produced is mainly for export. Most of the sugar produced in Zimbabwe is

currently sold to the EU and thus but our industry will mainly export products to countries

which Zimbabwe has bilateral trade agreements with such as The COMESA, and SADC

countries to capitalize on the advantages that come with trading with these countries as well

as to the EU and the US.

Company strategy


As well as maintaining the country s current export destinations diversification of markets

will be the company s main strategy. The industry intends to reduce dependence on quota

markets and develop new markets within the region taking advantage of the many trade

agreements already in place. Also putting emphasis on product quality, the company will also

diversify products. Instead of exporting sugar alone, more emphasis will be placed on adding

value to sugar through the production and export of sugar based products. The company will

also maximise the production of ethanol and other spirits, which are alternatives to sugar.

This would give flexibility to the industry and maximise revenue.

3.3.3: Anticipated competition.

Competition is expected from both domestic and foreign companies already established in

the industry. Domestic companies already established in the industry are Triangle limited,

Hippo Valley Estate, Chisumbanje sugar and ethanol plant under construction and various

sugar refineries across the country. On the international scene competition will also be met

from producers in Brazil, Cuba and Australia just but to mention.

3.3.4: Localisation of markets and products target group

The initial market of sugar and ethanol will be local but the target market will stretch to

include foreign markets to meet the international demand as mentioned previously.

Table: Zimbabwe exports by country of destination.


1997 1998 1999 2000 2001 2002 2003 Total

Angola - - - 9297 - - - 9,297

Botswana 15,188 32,153 13,710 31,205 24,093 27,239 23,794 167,382

Mozambique - 32,468 20,648 736 - - - 53,852

Namibia 33,897 42,838 36,144 36,299 44,968 41,984 40,149 276,279

South Africa - 5,750 - - - - - 5,750

Tanzania 10,000 4,801 - - - - - 14,801

Kenya - - - 7,501 - - - 7,501

Egypt 15,750 - - 48,500 - - - 64,250

Zambia - 2,517 - 4,438 - - - 6,955

Africa

(Other) 109,446 22,621 11,746 143,813

EU 62,870 62,533 72,225 46,300 80,173 47,450 48,600 420,151

US 17,642 17,029 - 12,210 26,386 11,953 12,000 97,220


Approximately 25% of the sugar produced in Zimbabwe by the two local producers is for

local consumption and the remainder is exported.85% of Zimbabwe s sugar is exported to

high price quota and preferential markets in the EU, US and the SADC region. About 50% of

production goes to the local market. These customers are well informed about the cost

structures of sugar production and they dictate the pace. Table shows the consistent

predominance of EU and US quota markets as destinations for Zimbabwean sugar. Very little

sugar is currently sold on the residual markets.

As evidenced by the table above the markets for sugar and sugar products are vast for

Zimbabwe and these will also serve as the markets for the industry.

3.3.5: Sales programme

The company will produce 320 000 tonnes of raw sugar annually and 95 000 tons of white

sugar annually. The domestic market sugar requirement is about 320 000 tons. With other

producers already in the industry, the company intends to sell 25% of its sugar production to

the domestic market and 75% to the international market where a better price is fetched and

where the demand is on a notable increase. The company intends to export most of its sugar

products to the EU, US and to other African countries of which the country has bilateral trade

agreements with.

The company will also produce 40 million litres of ethanol annually. The ethanol will be sold

to both the local and international market where the demand of environmental friendly fuels

is on a surge. The are plans to feed the extra electricity produced into the national grid on

agreed terms with the local power utility ZESA in the long run. The demand of electricity in

the country is increasing with the rural electrification programme.

3.3.6: Estimated annual sales revenue from products and by products.

To come up with annual sales, it is necessary to come up with good pricing and minimisation

of production costs. The costs involved in production need to be put into consideration.


These include fixed, variable costs, variable costs, salaries and cost of raw material. The table

below shows the costs for our sugar industry where the costs of producing sugar, ethanol and

electricity have been put into consideration.

Cost Amount/$

Fixed costs 369 516 777

Overhead costs 200 000

Raw materials 100 000 000

Salaries 3 500 000

Variable costs 300 000

Total 473 516 777

For the past decade the price of raw sugar and white sugar has been constant at about $24000

and $24 500 per 30 tonnes respectively. The price of ethanol both on the local and

international market is between $0.40 and $0.60 per litre.

Product Quantity produced Selling price/$ Total annual sales/$

Raw sugar 320 000 tonnes 24 000/30 tonnes 256 000 000

White sugar 95 000 tonnes 24 500/30 tonnes 77 583 333

Ethanol 40 million litres 0.55/litre 22 000 000

Total annual sales

Total sales revenue/$

Trading year 1st 2nd 3rd 4th 5th

Raw sugar256 000 000 256 000 000 256 000 000 256 000 000 256 000 000

White sugar 77 583 333 77 583 333 77 583 333 77 583 333 77 583 333

Ethanol 22 000 000 22 000 000 22 000 000 22 000 000 22 000 000

Total 355 583 333 355 583 333 355 583 333 355 583 333 355 583 333


3.3.7: Estimated annual cost of sales promotion and marketing.

Sales promotion is important for securing a huge customer base. It is important to carry out

advertising and marketing campaigns as well as offering incentives to promote sales.

However sugar products do not need much advertising as they are already in huge demand.

MEDIA PLACEMENTS PER YEAR US$80 000

IN STORE SIGNAGE US$20 000

TOTAL PROMOTION COST US$100 000



4.0: MATERIAL INPUTS.

4.1: Raw materials

Sugar is a broad term that is applied to a large number of carbohydrates in many plants and characterised by a more or less sweet taste. The primary sugar, glucose, is a product of photosynthesis and occurs in green plants. In most plants the sugar occurs as a mixture that cannot readily be separated into components. Juices of sugarcane are rich in pure sucrose and sugarcane is therefore used as the main source of commercial sucrose hence sugarcane is the raw material for sugar production. Sugarcane is the raw material for sugar, ethanol and electricity production in the sugar industry. The supply of raw materials must be at a competitive cost for the project to be viable.

Final molasses from the raw house is used as the raw material for ethanol production in the ethanol plant. Processed materials required in ethanol production include baker’s yeast, diammonium phosphate and diammonium sulphate.

For electricity production bagasse a by product of sugar production is used to fire the boilers and coal can also be used in place of bagasse during the off crop season.

As the main raw material is sugar cane, costs of procuring the sugar cane have to be put into consideration. The company intends to acquire to acquire 20 000 hectares of land to grow sugar cane.20 000 hectares produces about 2 million tonnes of sugar cane annually, together with sugar cane from out growers the total cane that the company intends to crush per year is 3 million tonnes. The Agricultural directorate will be responsible for raw material production.

4.2: Sugar cane cash flow analysis for 20 hectares for a five year period


Documents

ELECTRICAL ENGINEERING 3RD YEAR PROJECT FIST PART