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200.

PROFILE ON METHANE PRODUCTION AND


MANAGEMENT IN THE LANDFILL TO BE
CLOSED
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TABLE OF CONTENTS

PAGE

I. SUMMARY 200-3

II. PRODUCT DESCRIPTION & APPLICATION 200-3

III. MARKET STUDY AND PLANT CAPACITY 200-3


A. MARKET STUDY 200-3
B. PLANT CAPACITY & PRODUCTION PROGRAMME 200-7

IV. MATERIALS AND INPUTS 200-8


A. RAW MATERIALS 200-8
B. UTILITIES 200-8

V. TECHNOLOGY & ENGINEERING 200-9

A. TECHNOLOGY 200-9
B. ENGINEERING 200-11

VII. MANPOWER & TRAINING REQUIREMENT 200-16


A. MANPOWER REQUIREMENT 200-16
B. TRAINING REQUIREMENT 200-16

VIII. FINANCIAL ANLYSIS 200-17


A. TOTAL INITIAL INVESTMENT COST 200-17
B. PRODUCTION COST 200-18
C. FINANCIAL EVALUATION 200-19
D. ECONOMIC BENEFITS 200-21
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I. SUMMARY

This profile envisages the establishment of a plant for methane production and
management in the landfill to be closed with a capacity of 1,633 kg per day and 489,900
kg per annum.

The raw material required for methane production is solid organic waste to be collected
from the city households and commercial establishments. There is ample solid organic
waste in the City Administration.

The present demand for the proposed product is estimated at 416,112 kg per annum.
The demand is expected to reach at 832,187 kg by the year 2020.

The total investment requirement is estimated at about Birr 5.98 million, out of which
Birr 1.24 million is required for plant and machinery. The plant will create employment
opportunities for 20 persons.

The project is financially viable with an internal rate of return (IRR) of 21.08 % and a
net present value (NPV) of Birr 5.69 million, discounted at 8.5 %.

The establishment of such factory will have a foreign exchange saving effect to the
country by substituting the current imports.

II. PRODUCT DESCRIPTION AND APPLICATION

Methane is a colorless, odorless, lighter than air and flammable. It occurs in natural gas
as firedamp in coal mines, as a by product of petroleum refining and as a product of
decomposition of organic matter in swamps. Methane is valuable as a fuel and in the
production of hydrogen, cyanide, ammonia, acetylene and formaldehyde.
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III. MARKET STUDY AND PLANT CAPACITY

A. MARKET STUDY

1. Past Supply and Present Demand

Methane is a colorless, odorless inflammable gas harvested from human and animal
waste or marshy areas.

Some enlightened dairy farmers have had some success in harvesting and managing
methane gas here in Addis Ababa and some rural /areas for household use, as cooking
fuel. Commercial scale production was never tried locally.

There exists no record of methane gas in the import statistics bulletin either. What is
being imported are the substitutes for methane gas, namely, butane and liquid propane
gas (LPG)
To ascertain the magnitude of demand for methane, therefore assessment of the supply
of butane and LPG is the only option.

In Table 3.1 is presented the import of butane and LPG gas from 2002 to 2006, brought
compressed in metallic cylinders

Table 3.1
IMPORT OF BUTANE AND LPG (KG)
Year Quantity Value (Birr)
2002 78,725 2,092,593
2003 230,836 4,113,017
2004 210,221 4,220,480
2005 168,033 7,910,434
2006 271,762 8,246,501
Total 959,577 26,583,025
Average 191,915 5,316,605
Source: Annual Eternal Trade statistics, unpublished
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With a standard deviation of 0.023, average import has registered an 8.4% annual
increase during those five years. Present supply volume of butane and liquid propane gas
is thus 208,036 kg.

The gas is imported largely for cooking purposes by households and restaurants.
Information on the use of butane or liquid propane gas in restaurant or other institutions
was not available.

The Central Statistical Agency in its survey report of energy consumption ration by
households, has established that, only 0.8% and 0.1% of all households in Addis Ababa
and the rest of Ethiopia, respectively, use butane or LPG for cooking.

The average holding capacity of liquid gas containers is 16 kg.

There are 416,667 households in Addis Ababa, and there are estimated to be 7,800,000
households in the rest of Ethiopia.

Consumers of liquid gas are therefore, 3,333 households in A.A and 7,800 house holds
in the rest of Ethiopia.

Liquid gas consumption in A.A is 4 cylinders of 16 kg each per year, whereas in the
regions, it is 2 cylinders of 13 kg capacity a year.

Present consumption (demand is):


For A.A: .. 3,333HH x 4 cylinders x 16kg = 213,310kg
Rest of Ethiopia: 7,800HH x 2 cylinders x 13 kg = 202,800 kg
Total present demand is thus 416,112 kg. In the absence of supply from local sources,
Demand- supply gap is also 416,112 kg.
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2. Demand Forecast

With all demand generating factors taken into account, demand for the coming 10 years is
assumed to increase by the average rate of increase of supply, which is believed to be in
response to express customers demand. Forecast demand at 8.4% rate of increase is
presented below.

Table 3.2
FORECAST DEMAND FOR METHANE GAS (KG)

Year Forecasted Demand


2009 451,065
2010 488,955
2011 530,027
2012 574,549
2013 522,811
2014 575,128
2015 631,838
2016 693,313
2017 759,951
2018 832,187

3. Pricing and Distribution

The price of liquefied gas has been to a great extent, influenced by international politics
and the price of oil.

In recent months, the price of liquid gas e.g. for a 13 kg container has increased from Birr
150.00 to Birr 225.00, i.e. a 50% price hike. A reduction in price is also expected parallel
to international market.

For locally produced methane gas a price range of Birr 145.00 to 160 is recommended for
a 13 kg cylinder; that is Birr 11.15 to Birr 12.30 a kilo.
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Methane gas, filled by compression into 13kg, 16 kg and 32 kg capacity metallic


cylinders can be distributed either through gas stations or by opening sales outlets in
selected locations.

Another distribution technique and the appropriate technology is required to serve


institutional customers who have cylinders planted on solid concrete foundations. Such
cylinders have 5,000 7,500 kg capacity. A mobile filling apparatus is required. Pipelines
for gas distribution are for future considerations.

B. PLANT CAPACITY AND PRODUCTION PROGRAMME

1. Plant Capacity

Based on the availability of market, population density, and commercial establishment


which dispose significant amount of organic waste in the outskirt of Addis Ababa city and
from the composition of landfill gases 40 to 50% is methane. The envisaged landfill
capacity to be designed will be a landfill, which covers the demand for Addis Ababa city
in 2010 G.C. The daily capacity will be 1633 Kg of methane considering 300 working
days per annum. The annual production will be 489,900 Kg of methane.

2. Production programme

The production programme considering that the gas collection starts after a portion of
landfill (a "cell") is closed and this process need some time. The envisaged plant will start
with 70% capacity in the first year and then after will produce with 100% of its capacity.
Also the by-product, which is produced in the process of decomposition of organic waste,
namely CO2 needs to be managed and treated properly to be sold as a by-product and
clean the environment from contamination.

Table 3.3

PRODUCTION PROGRAMME
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S/N Product Year of production


1 2-10
1 Capacity utilization rate (%) 70 100
2 Methane (Kg) 342,930 489,900

IV. MATERIAL AND INPUTS

A. RAW MATERIAL

The raw material required for methane production is the solid organic waste collected
from the city household and commercial establishments. Considering from the Addis
Ababa municipality solid waste 35% is organic waste and the average production of
methane from landfill gas is 40 to 50 % by volume the amount of solid organic waste
(raw material) to produce 489,900 Kg of methane will be 980 to 1,225 tons of sold
organic waste per annum, so that availability of raw material will not be a problem for the
envisaged methane production plant. The cost will be considered on facilities for
collection, transportation and handling of solid waste, which is estimated, in local
currency at Birr 667,500.

Table 4.1
ANNUAL CONSUMPTION OF RAW-MATERIALS & COST
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No. Description Unit Qty Unit Cost In '000 (Birr)


F.C L.C Total
Of Cost
Meas. (Birr)
1 Municipality solid waste Ton 1225 544.90 - 667.50 667.50
Total cost 667.50 667.50

B. UTILITIES

The utilities required by the envisaged plant are electricity and water. The annual
requirement of utilities is given in Table 4.2

Table 4.2
ANNUAL UTILITIES REQUIREMENT AND COST
Sr. Item Unit Qty Cost in
No. Birr000
1 Electricity kWh 37,500 17.76
2 Water m3 1500 4.875
Total Cost 22.63

V. TECHNOLOGY AND ENGINEERING

A. TECHNOLOGY

1. Process Description

Methane is produced when organic materials (such as yard waste, house hold waste and
food waste) from land fill are decomposed by bacteria under anaerobic conditions (i.e., in
the absence of oxygen).

Methane production varies greatly from landfill to landfill depending on site-specific


characteristics such as waste in place, waste composition, moisture content, landfill
design and operating practices, and climate. Unless captured first by a recovery system,
methane generated by the landfill is emitted when it migrates through landfill cover.
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During this process, the soil oxidizes a small portion (approximately ten percent) of the
methane generated, and the remaining 90 percent is emitted.

Landfill methane emissions can be reduced by flaring or through methane recovery


system. Principal technologies for reducing emissions from landfills involve collecting
methane and using it as fuel for electric power generation or for sale to nearby industries.

Gas collection, by vertical wells and horizontal trenches, typically begins after portion of
a landfill (a cell) is closed. Vertical wells are most commonly used for gas collection,
while trenches are sometimes used in deeper landfills, and may be areas of active filling.
The collected gas is routed through lateral piping collection header.

The methane plant will produce a liquefied methane gas by cooling and condensing the
methane gas collected from landfill which includes the following main stages; pre-
treating, liquefaction and storage of the liquefied gas based on a successive compression-
cooling-expansion process of the methane gas.

This project is for reducing environmental pollution by the municipal wastes but the
methane to be generated in the land fill has to be collected properly to minimize the
emission of this green house gas which has impact on global warming.

2. Source of Technology

The technology is well developed in America, Europe, Asia and Middle East. In this case
the technology can be adopted by visiting or by arranging a training progamme with
countries located in the above mentioned continents or especially in developing countries
located in Africa.

B. ENGINEERING
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1. Machinery and Equipment

The list of machineries and equipments required by the envisaged plant are shown in
Table 5.1. The cost of machineries and equipment is estimated to be Birr 1,248,000 out
of which Birr 260,000 is required in foreign currency.

Table 5.1

Sr.No. Description Qty Cost in Birr000


FC LC TC
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1 Tank (leachet Collector) - 1


395.20 395.20
2 Tank (methane gas storage) - 1
395.20 395.20
3 Pumps - 1
494.00 494.00
4 Condenser (H.Ex) 78.00 1
- 78.00
5 Flash Tank 52.00 1
- 52.00
6 Laboratory Equipments 130.00 Set
- 130.00
7 Handling facilities - Set
148.200 148.20
260.00 988.00 1,248.00
LIST OF MACHINERIES AND EQUIPMENT AND COST

2. Management of Landfill to Be Closed

Most landfills in Africa are owned by the municipal government, but built and operated
by private owners and we recommend following this experience will be meaningful on
the envisaged landfill management.

Important points to be considered on landfill management are the following: -

To control unauthorized people coming to the area (fencing the landfill) is an


important task.

The chemical composition of leachate should be regularly analyzed.

An air quality monitoring system should be practiced to ensure that the gas
collection system at the site is adequately capturing the landfill gas generated
on the site.

Once a landfill has been filled it must be closed according to rules and
regulations to minimize a long-term impact of the landfill
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3. Land, Buildings and Civil Works

The total land requirement for the envisaged plant is estimated at 2,000 m 2 out of this 700
m2 is built-up area. The plant will have a production building (300m 2), store (150m2),
garage (150m2), office building and other civil structure (100m 2). Cost of building
construction with a rate of Birr 2,300 per m2 amounts to Birr 1,610,000.

According to the Federal Legislation on the Lease Holding of Urban Land (Proclamation
No 272/2002) in principle, urban land permit by lease is on auction or negotiation basis,
however, the time and condition of applying the proclamation shall be determined by the
concerned regional or city governments depending on the level of development.

In Addis Ababa the citys Land Administration And Development Authority is directly
responsible in dealing with matters concerning land. Accordingly, the initial land lease
rate in Addis Ababa set by the Authority based on the location of land is as shown in
Table 5.1.

Table 5.1
INITIAL LAND LEASE RATE IN ADDIS ABABA

Sr. Land Initial Price in


No Location of the land Grade m2
1 Central Business zones 1 1167.3
2 1062.9
3 916.2
4 751.5
5 619.2
Places That are Under
2 Transit 1 716.4
2 647.1
3 559.8
4 472.5
5 384.3
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3 Expansion Zones 1 245.7


2 207
3 150.3
4 132.3

Source; Addis Ababa City Land Administration Authority

As can be seen from Table 5.2 the initial land lease rate ranges from Birr 1,167.3 to
132.3 per m2 .

Considering the nature of the this project expansion zones are recommended as the best
location. Accordingly, the highest land lease rate in expansion zones which is Birr 245.7
m2 is adopted.

The Federal Legislation on the Lease Holding of Urban Land legislation has also set the
maximum on lease period and the payment of lease prices ( See Table 5.2 and Table 5.3.)

Table 5.2
LEASE PERIOD

Lease Period
Type of Service ( Years)
Residential area 99
Industry 80

Education, cultural research health, sport,


NGO and religious 99
Trade 70
Urban Agriculture 15
Other service 70

Table 5.3
LEASE PAYMENT PERIOD
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Period of Payment
Sr. According to the Grade of
No. Service Type Towns
Private residential are obtained
1 through tender or negotiation 50 - 60 years
2 Trade 40 - 50 years
3 Industry 40 - 50 years
4 Real estate 40 years
5 Urban Agriculture 8 - 10 years
6 Trade and social service 40 - 50 years
7 Others 40 years

Moreover, advance payment of lease based on the type of investment ranges from 5% to
10%. For those that pay the entire amount of the lease will receive 0.5% discount from
the total lease value and those that pay in installments will be charged interest based on
the prevailing interest rate of banks. Moreover, based on the type of investment, two to
seven years grace period shall also be provided. The lease price is payable after the grace
period annually.

Regarding, the terms and conditions of land lease the Addis Ababa City Government have
adopted Article 6 of the Federal Legislation with very minimal changes.

Therefore, for the purpose of this project profile assuming it is categorized under other
services , 70 years lease period, 40 years lease payment completion period, 5% down
payment and seven years grace period is used.

Accordingly, the land lease cost of the project, at rate of Birr 245.7 per m 2 for 70 years of
holding is estimated at Birr 34.40 million. Assuming 5% of the total cost ( Birr 1.72 ) will
be paid in advance as down payment and the remaining Birr 32.68 million will be paid in
equal installments with in 40 years, the annual lease payment is estimated at Birr
816,953.

VI. MANPOWER AND TRAINING REQUIREMENT


200-16

A. MANPOWER REQUIREMENT

In order to run the envisaged plant efficiently, it needs 20 employees. The estimated
annual cost of manpower is Birr 244,500. The detail of which is shown in Table 6.1

Table 6.1
MANPOWER REQUIREMENT AND ESTIMATED LABOUR COST

Sr. Req. Monthly Annual


Description
No. No. Salary(Birr) Salary(Birr)
1 Manager 1 3,000 36,000
2 Secretary 1 900 10,800
3 Administration & Finance head 1 2,500 30,000
4 Sales man 1 1,500 18,000
5 Production Supervisor 1 1,500 18,000
6 Chemists 1 1,000 12,000
7 Operators 2 1,200 14,400
8 Electrician 1 600 7,200
9 Mechanic 1 600 7,200
10 Laborers 6 2,100 25,200
11 Guards 4 1,400 16,800
Sub Total 20 195,600
Employee benefit (25%) 48,900
Grand Total 244,500

B. TRAINING REQUIREMENT
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Since, the production of methane from landfill organic waste is new technology in our
country the supervisors, chemists and operators need a one weeks training abroad, which
will be arranged with the suppliers of machineries. Also a one-week visiting programme
to methane production from organic waste in Africa will help to share experience in
proper management of landfill to be closed. Total cost of training and visiting is estimated
at Birr 150,000.

VII. FINANCIAL ANALYSIS

The financial analysis of the methane project is based on the data presented in the
previous chapters and the following assumptions:-

Construction period 1 year


Source of finance 30 % equity
70 % loan
Bank interest 8.5%
Discount cash flow 8.5%
Accounts receivable 30 days
Work in progress 1 day
Cash in hand 5 days
Finished product 30 days
Accounts payable 30 days
Repair and maintenance 5% of machinery cost

A. TOTAL INITIAL INVESTMENT COST

The total investment cost of the project including working capital is estimated at Birr
5.98 million of which 17% is required in foreign currency . The major breakdown of the
total initial investment cost is shown in Table 7.1.
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Table 7.1
INITIAL INVESTMENT COST

Sr. Cost Items Local Foreign Total


No. Cost Cost Cost
1 Land lease value 1,719.90 - 1,719.90
2 Building and Civil Work 1,610.0 - 1,610.00
3 Plant Machinery and Equipment 260.0 988.00 1,248.00
4 Office Furniture and Equipment 100.00 - 100.00
5 Vehicle 450.00 - 450.00
6 Pre-production Expenditure* 578.6 - 578.60
0
7 Working Capital 276.5 - 276.56
6
Total Investment cost 4,995.06 988.0 5,983.06

* N.B Pre-production expenditure includes interest during construction ( Birr 328.60


thousand ), training ( Birr 150 thousand) and Birr 100 thousand costs of
registration, licensing and formation of the company including legal fees,
commissioning expenses, etc.

B. OPERATING COST

The annual operating cost at full capacity operation is estimated at Birr 1.56 million
(see Table 7.2). The raw material cost accounts for 42.69 per cent of the production
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cost. The other major components of the production cost are depreciation , financial cost
and labour direct which account for 22.78 %, 13.45% and 7.51 % respectively. The
remaining 13.57 % is the share of repair and maintenance, utility and other administration
cost.
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Table 7.2
ANNUAL PRODUCTION COST AT FULL CAPACITY ('000 BIRR)

Items Cost %
Raw Material and Inputs 667.5
42.69
Utilities 22.64 1.45
Maintenance and repair
62.40 3.99
Labour direct 117.36 7.51
Labour overheads
48.90 3.13
Administration Costs 78.24 5.00
Land lease cost - -
Total Operating Costs 997.04 63.77
Depreciation 356.24 22.78
Cost of Finance 210.23 13.45
Total Production Cost
1,563.51 100

C. FINANCIAL EVALUATION

1. Profitability

Based on the projected profit and loss statement, the project will generate a profit through
out its operation life. Annual net profit after tax will grow from Birr 1.88 million to Birr
2.75 million during the life of the project. Moreover, at the end of the project life the
accumulated cash flow amounts to Birr 24.51 million.

2. Ratios

In financial analysis financial ratios and efficiency ratios are used as an index or yard
stick for evaluating the financial position of a firm. It is also an indicator for the strength
and weakness of the firm or a project. Using the year-end balance sheet figures and other
relevant data, the most important ratios such as return on sales which is computed by
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dividing net income by revenue, return on assets ( operating income divided by assets),
return on equity ( net profit divided by equity) and return on total investment ( net profit
plus interest divided by total investment) has been carried out over the period of the
project life and all the results are found to be satisfactory.

2. Break-even Analysis

The break-even analysis establishes a relationship between operation costs and revenues.
It indicates the level at which costs and revenue are in equilibrium. To this end, the
break-even point of the project including cost of finance when it starts to operate at full
capacity ( year 3) is estimated by using income statement projection.

BE = Fixed Cost = 21 %
Sales Variable Cost

3. Payback Period

The pay back period, also called pay off period is defined as the period required to
recover the original investment outlay through the accumulated net cash flows earned by
the project. Accordingly, based on the projected cash flow it is estimated that the
projects initial investment will be fully recovered within 4 years.

4. Internal Rate of Return and Net Present Value

The IRR of the project which is the discounted rate at which the present value of cash
inflows is equal to the present value of cash outflows or in other worlds the discount rate
for what the present value of the net receipts from project is equal to the present value of
the investment is computed to be 21.08%.

Net present value ( NPV) which is defined as the value obtained by discounting, at a
constant interest rate and separately for each year, the difference of all annual cash
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outflows and inflows accruing through out the life of the project, this differences is
discounted to the point at which the implementation of the project is supposed to start, the
NPV obtained for the years of the project life are than added to obtain the NPV.
Accordingly, the net present value of the project at 8.5% discount rate is found to be
Birr 5.69 million.

D. ECONOMIC BENEFITS

The project can create employment for 20 persons. In addition to supply of the domestic
needs, the project will generate Birr 4.47 million in terms of tax revenue. The
establishment of such factory will have a foreign exchange saving effect to the country by
substituting the current imports.