Opportunities For Creating New Sources Of Livelihoods in Communities Affected by Tsunami in Nagapattinam, India

1. Investment opportunities for creating new
sources of livelihoods in communities affected by
Tsunami in Nagapattinam, India1
A feasibility study of three options
Bellarmine K.C.
Kochi/Nagapattinam, INDIA
August 2006
1
This document is not an ESCAP publication. The views expressed in it are the sole responsibility
of the author. This document has not been edited

2. INVESTMENT OPPORTUNITIES FOR CREATING
NEW SOURCES OF LIVELIHOODS IN
COMMUNITIES AFFECTED BY TSUNAMI
TABLE OF CONTENTS
PART - I
1. Executive Summary………………………………………………………………………………… 3
PART - II
1. Introduction…………………………………………………………………………………………….. 6
2. Feasibility study on Knitted Garment Unit………………………………………………10
3. Feasibility study on Jatropha Cultivation………………………………………………..17
4. Feasibility study on Hygienically Dried Fish Unit…………………………………….29
5. Conclusion………………………………………………………………………………………………..35
PART – III List of Annexures
1. Annexure 1 a: Garmenting Unit : Cost of Project
2. Annexure 1 b : Garmenting Unit : Projected Profitability
3. Annexure 1 c : Garmenting Unit : Projected Cash Flows
4. Annexure 1 d : Garmenting Unit : Projected Balance Sheets
5. Annexure 2 a : Bio diesel – Jatropha Cultivation : Cost of Project
6. Annexure 2 b : Bio diesel – Jatropha Cultivation : Projected Profitability
7. Annexure 2 c : Bio diesel – Jatropha Cultivation : Projected Cash Flows
8. Annexure 2 d : Bio diesel – Jatropha Cultivation : Projected Balance Sheets
9. Annexure 3 a : Hygienically Dried-Fish Unit : Cost of Project
10. Annexure 3 b : Hygienically Dried-Fish Unit (Model 1 Single Unit): Projected Profitability
11. Annexure 3 c : Hygienically Dried-Fish Unit (Model 1 Single Unit): Projected Cash Flows
12. Annexure 3 d : Hygienically Dried-Fish Unit (Model 1 Single Unit): Projected Balance Sheets
13. Annexure 3 e : Hygienically Dried-Fish Unit (Model 1 Double Unit): Projected Profitability
14. Annexure 3 f : Hygienically Dried-Fish Unit (Model 1 Double Unit): Projected Cash Flows
15. Annexure 3 g : Hygienically Dried-Fish Unit (Model 1 Double Unit): Projected Balance Sheets
16. Annexure 3 h : Hygienically Dried-Fish Unit (Model 2): Projected Profitability
17. Annexure 3 i : Hygienically Dried-Fish Unit (Model 2): Projected Cash Flows
18. Annexure 3 j : Hygienically Dried-Fish Unit (Model 2): Projected Balance Sheets
2

3. 1. EXECUTIVE SUMMARY
Nagapattinam was severely affected by the 2004 tsunami with over 6000
deaths coupled with damages and losses estimated at over Rs.25 billion. Post
rehabilitation efforts have since seen restoration of most of the damaged
property. However, restoration of livelihoods primarily focused on employment
generation through cash for work programs and other small-scale activities that
lacked the dynamism to generate sustainable long-term income generation.
Predominantly fishing dominated areas like Nagapattinam have also seen the
rehabilitation efforts actually increasing the fishing craft and gear deployment in
the area, increasing the threat of over fishing in the near future.
With a view to minimize future economic disruption risks by diversifying the
livelihood patterns, three investment alternatives that have the potential to
attract private investment and capable of generating gainful employment to the
community members have been identified and their feasibilities studied. As a
matter of abundant precaution, the assumptions of profitability have been based
on conservative estimates giving the investment ideas relatively lower
downsides provided the enterprise is able to deliver the basic operational
parameters. The three investment options examined are as follows:
1. Knitted Garmenting Unit:
India is expected to be one of the biggest beneficiaries of the post quota
regime and garment exports which have been growing at around 10% in the
past has shown double growth rates post 2005 and the growth rate is expected
to continue at least in the medium term. Tiruppur the main knitted garment-
exporting centre in India is currently facing a shortage of trained work force and
manufacturers are exploring alternate locations for setting up garmenting units
especially for the manufacture of low end and simple items such as vests, briefs,
basic T shirts, etc.
One of the positive fallouts of the rehabilitation efforts in Nagapattinam has
been the development of a pool of women talent trained in tailoring. The
proposed knitted garmenting unit would utilize this trained talent pool for
undertaking Cutting, Making and Trimming (CMT) jobs on per piece basis for the
manufacture of basic knitted garments.
The unit envisaging an investment of Rs.5.5 million with a capacity of 28
seats will produce 0.50 million basic T-shirts per annum. It would provide direct
employment to 40 people of which at least 34 can be women. The unit will
generate a turnover of Rs.4.50 million, an EBIDTA of 1.48 million and pre tax
profits of Rs.0.95 million per annum. The return on capital employed (ROCE) in
the normal year of operation works out to 17%. The IRR for the project works
out to 21% (against a cost of capital of 15%) indicating reasonable strength.
Given the social obligations this initiative is attempting to address, it would
be prudent to presume that patronage in the form of preferential orders, if not
initiatives to co-promote the venture, could be forthcoming from some large
players in the industry. Moreover, as the deliverables are easily quantifiable and
given that the products targeted are generic items that have more flexible
delivery deadlines, as long as the unit can produce the desired quality, there is
no significant risk that the garment manufacturer needs to share. While the key
3

4. challenge would be to develop the talent available at Nagapattinam to deliver
minimum acceptable levels, it would be quite a worthwhile effort and
experiment, as there is a huge upside to the whole endeavor.
Jatropha Cultivation:
India ranks sixth in the world in terms of energy demand accounting for
3.5% of world commercial energy in 2001. Currently India imports almost two
thirds of its requirement of petroleum products and with the firming up of crude
prices, this has had a significant impact on the country’s economy. India is also
fast emerging as a significant contributor to the world’s carbon emissions and as
a signatory to the Kyoto protocol, is looking at various alternative non-
conventional and cleaner energy resources such as solar, wind, bio fuels, etc. Of
the various non-conventional energy sources being pursued, bio fuels – more
particularly bio diesel - has been identified as having the most potential as far as
India is concerned. Bio diesel is an eco-friendly, renewable alternative to
petroleum diesel prepared from vegetable oils. It is produced by a relatively
simple process of trans-esterification of vegetable oils. It is non-toxic,
biodegradable and produces significantly less serious air pollutants when burnt
as an engine fuel. The Government of India (GoI) has projected a requirement
of about 13.38 million tones of bio diesel by 2011-2012. Among the raw
materials used for bio diesel production, Jatropha have been given focus by the
GoI due to its weighted advantages over other sources/species and has drawn
up long term plans of Jatropha cultivation over an ambitious 11.19 million ha by
2012.
Nagapattinam offers immense scope for the cultivation of Jatropha which has
been identified as the second alternative investment option. Currently over
5000 ha of land is available in the area that can be brought under Jatropha
cultivation. The agro climatic conditions prevailing in the area are conducive for
Jatropha cultivation on a commercial scale.
The investment proposal encompasses undertaking Jatropha cultivation on a
pilot scale over a 100 ha area. Envisaging an investment of Rs.2.5 million, the
project would provide 100 plantation jobs and 30 maintenance jobs. It will
produce 200 tons of jatropha seeds per annum that is equivalent to 65 tons of
bio diesel per annum, an income of Rs.1.20 million per annum and net profit of
Rs.0.59 million per annum. An IRR of 22% (against a cost of capital of 14%)
indicates inherent viability of the project. The ROCE in the normal year works
out to 25%. The project provides potential for private sector participation by
way of buying back the produce as well as to provide extension services
including identification of land and suggestion of appropriate cultivation
practices. Being agro based this initiative is likely to be more adaptable for the
community than other industrial options and the perennial nature of Jatropha
would ensure a minimum regular sustenance income to the fishing community
that is used to vast fluctuations in their income streams.
HYGENICALLY-DRIED FISH PRODUCTION UNITS:
Commercial fishing though target/species specific, bring in large quantities of
unintended, low value/low quality fishes. Mainly due to lack of adequate and
appropriate post harvest solutions, these bountiful catches often do not fetch
4

5. commensurate returns. Nagapattinam being one of the prominent fish landing
centers of Tamil Nadu, lands significant quantities of various commercially
important varieties including anchovies, lesser sardines, white fish, sharks,
skates and rays, ribbon fishes, prawns, etc. One of the traditional and cost
effective preservation methods being employed by fisherfolk all along the Indian
coast is salting and sun drying. Unfortunately, because of the delay in
processing and the crude methods (drying in the open) employed, the quality of
the product is low due to the presence of dust and sand, bacterial contamination
due to uncontrolled humidity levels during drying, etc. This has resulted in very
poor local, as well as outside market for these products. However, of late small
quantities of quality fish, dried in hygienic conditions without salt, have been
gaining acceptance in the markets. This appears to have a promising potential if
the efforts are coupled with some coordinated raw material procurement and
marketing efforts.
Recently, the Central Institute of Fisheries Technology (CIFT) has successfully
developed an energy efficient solar drier (with auto backup with LPG heating
during periods of low sunlight). The model that has been brought out has a
normal capacity of drying 1 tons of fish per day (in 8 hours).
The third investment alternative envisages setting up a hygienically dried-fish
production unit. Two operational models have been examined – one wherein the
unit functions as a service provider where the fisherfolk can bring in their
catches and gets the same hygienically dried by paying a user fee. This is ideal
if the fisherfolk cooperatives can undertake the consolidation efforts and
arranges for marketing of the dried fish. Under the second model the unit would
buy raw fish at market rates, carry out the drying process and then sell the
same under an arrangement with a private participant, either for export or for
sale in the domestic market.
Estimated to cost Rs.5.5 million for model 1 and Rs.6.0 million for model 2,
the unit would process 450 tons of various types of raw fish delivering around
112.5 tons of hygienically dried fish. Since the model 2 envisages buying the
raw material and subsequent processing and marketing, it is the preferred model
and would earn a total income of Rs.12.60 million, EBIDTA of Rs.1.79 million and
pre tax profits of Rs.1.42 million. The IRR for the model 2 works out to 22%
indicating adequate project strength. Under the model 2 the private participant
will have the scope to facilitate developing a good market for the product. As an
expansion phase, the community could attempt the model 1 subsequently at
various locations.
5

6. Chapter 1
INTRODUCTION
Nagapattinam, a coastal district of the state of Tamil Nadu in India was one
of the worst affected by the 2004 tsunami. Over 6000 people died, around 800
reported missing and over 196,000 were rendered homeless. The damages and
losses were estimated at over Rs.25 billion. Rescue and rehabilitation efforts led
by the Central and State Governments with support from NGO’s, UN agencies,
Corporates and the civil society have been quite successful with most of the
damaged property having been now reinstated. However, programs to restore
livelihoods have largely focused on replacing lost or damaged assets,
employment generation through cash for work programs/reconstruction, focus
on cottage/small-scale activities, etc. These efforts, primarily by virtue of their
ad hoc nature, lack the dynamism to generate sustainable long-term income
generation. Moreover, places like Nagapattinam that are predominantly fishing
dominated areas, have seen the rehabilitation efforts actually increasing the
fishing craft and gear deployment in the area, increasing the threat of over
fishing in the near future. It has become imperative that communities diversify
their livelihood patterns to minimize the future risk, particularly economic
disruption.
The project “Building Community Resilience to Natural Disasters Through
Partnerships”, implemented by ESCAP aims to identify self-sustaining
alternatives that inter alia have the potential to attract private investment and
are capable of generating gainful employment to the community members,
especially the poor. Attempts will be made to ensure that the alternatives are,
to the extent possible, complementary to the current activities of the
communities and are in line with the overall developmental programs in the
region.
Against the above background, this study had examined in detail several
opportunities and have short listed three feasible options.
1.1. OVERVIEW of NAGAPATTINAM
The district of Nagapattinam lies on the shores of the Bay of Bengal (between
Northern Latitude 10.7906 degrees and Eastern Longitude 79.8428 Degrees).
Nagapattinam, an old Port Town that probably derived its name from Naval
Pattanam (Pattanam = town), as a district, was carved out by bifurcating the
composite Thanjavur district in 1991 and has traditionally been referred to as
East Thanjavur. Also known as the paddy granary of South India, with paddy
cultivation in over 150,000 hectares harvesting 3 times a year, the area has
numerous places of historical importance.
The total geographical area of the district is 3536 sq.km. Cropped area
accounts for about 65.53% of the total area. Forest cover is very minimum
accounting for only about 1.31% of the land. Lands not available for cultivation
(including barren/uncultivable land and land put into non-agricultural uses)
account for 22.83%. The other uncultivated lands, including permanent
6

7. pastures/other gazing lands, miscellaneous tree crops/groves and cultivable
waste land account for 5.35%.
As many as 11 ports and a number of fish landing centers dot the coastline of
188 km. The district has a total population of around 1.5 million comprising
330,000 in the urban areas and 1.2 million people in the rural areas.
1.2. THE ESCAP INITIATIVE
The broad objective of the project is to build capacities of Governments to
mitigate the impact of natural disasters through community based initiatives that
have the dynamism to generate long term and self sustainable livelihood
patterns by attracting private sector participation into those initiatives.
1.3. INVESTMENT ALTERNATIVES
After careful evaluation of a variety of options, three different investment
opportunities that would best serve the project objectives have been identified.
The identified options have diverse backgrounds – one is a purely industrial
activity, the second is agro-industry related and the third is fishery based.
Option 1. Knitted Garmenting Unit
Option 2. Bio diesel : Jatropha cultivation
Option 3. Hygienically Dried-Fish Production Unit
7

8. Chapter 2
FEASIBILITY STUDY ON KNITTED GARMENTING UNIT
The global garment industry is currently going through an era of institutional
changes. Consequent to dismantling of quota restrictions in 2005 under the
WTO and establishment of Agreement on Textiles and Clothing (ATC), the USD
50 billion Indian textile industry, especially its export segment, is poised for
exponential growth. Given its strong presence across the entire value chain in
the global textile market, India is expected to be one of the biggest beneficiaries
of the ATC. Low cotton costs, cheap and efficient labour, reputed designing
skills, flexibility and excellent turnarounds have been some of the key factors
that have benefited India.
Garment exports from India presently account for around USD 7 billion and
have been growing at over 10% since 2002. The growth rate has more than
doubled post 2005 and is expected to be sustained at least in the medium term.
Conventionally the garment sector has been viewed as a major source for
employment generation, especially non-agrarian employment, in the rural areas.
Unlike other traditional industries, this sector is seen to have more potential to
generate employment opportunities for the rural women, given its semi skilled
nature. Low capital costs, relatively low technology, moderate skills, poor entry
barriers, etc. have facilitated the garment manufacturers to outsource their
labour intensive operations to weaker economies quite successfully. Contract
manufacturing of garments perhaps started with the US taking advantage of the
low wage cost in Japan in the 1950’s. Subsequently it moved to other countries
such as Hong Kong, South Korea, Taiwan, and then to China, Thailand, India,
Bangladesh, Sri Lanka, etc.
Knitted garments have played a major role in India’s garment exports and
Tiruppur has contributed significantly. Exports from Tiruppur, which commenced
in the early 1980’s, have grown rapidly to the current level of around Rs.70
billion. This is despite the industry being largely unorganized - some estimates
indicating the level of organized investments at less than 25%. However, things
started to change as Tiruppur started preparations to capitalize on the wider
opportunities in the ATC era, post 2005. Setting up of apparel parks, common
effluent treatment plants and other infrastructure facilities have been some of
the initial attempts in this regard. Several of the large players in Tiruppur have
already transformed their enterprises from family run businesses to true
professional corporates. This distinct change in the attitude would catalyze more
institutional investments including both equity and debt.
One of the major challenges Tiruppur is currently facing is a severe shortage
of trained labour. While manufacturers of high end products – fashion garments,
labeled garments and to some extent merchandised items - have been able to
retain the available trained talent, manufacturers of generic and low value items
are experiencing high turnaround rates as well as an acute shortage of labour.
Manufacturers are inter alia exploring alternate locations that are away from
Tiruppur for setting up garmenting units especially for the manufacture of low
end and simple items such as vests, briefs, basic T shirts, etc. that do not
require constant support and coordination from the various ancillary units
located in and around Tiruppur.
8

9. An outstanding achievement of the post tsunami rehabilitation efforts carried
out by the various NGO’s at Nagapattinam has been the establishment of a pool
of talent trained in tailoring. Initial rough estimates indicate that presently there
are close to 600 trained and currently unemployed women in Nagapattinam
making it an ideal location to set up a small garmenting and finishing unit.
2.1. Feasibility Study of the Proposed Garmenting Unit
The proposed garmenting unit would undertake CMT (cutting, making and
trimming) jobs on per piece rate basis mainly for the domestic market. The
unit, to start with, will cater only to the low end large volume products such as
basic T shirts, vests and briefs, etc. The unit will also have facilities to finish the
product as retail packs depending on the client’s requirements so that the output
can be directly sent to the final markets. Attempts would be made to get
patronage from one or two large players in the industry such as VIP, Dixy, etc.,
if not as the private partner for this proposal at least as an outsourcing partner
by way of a long term standing order on a first right of refusal basis.
2.2. Project Highlights :
Industry : Textiles/Garments
Cost : Rs.5.5 million
Capacities
• No. of seats : 28
• Output (npa) : 0.50 million pieces of basic T shirts
Employment generation : Direct : 35
IRR : 21.46%
BEP
Cash : 34.43%
Operating : 46.33%
DSCR (average) : 2.83 times
ROCE : 17.33% in the normal year of operations
2.3. Cost of Project
The break up of the cost of project of Rs.5.5 million is given below. More details
are given in Annexure 1.
(‘000 Rupees)
Land incl. leveling, fencing, etc. 300
Buildings and civil works 1,200
Sewing machines and other implements 2,240
Misc. fixed assets 1,000
Preoperative/training expenses 400
Contingencies 260
TOTAL CAPITAL COST 5,400
Margin money for working capital 100
TOTAL PROJECT COST 5,500
9

10. 2.3.1. Land:
An amount of Rs.0.25 million has been allocated towards cost of land for an
extent of 25 cents (0.25 acre = approximately 1012 sq.m.) at the currently
prevailing rate of Rs.1 million per acre. A lump sum provision of Rs.50,000 has
been provided towards leveling and fencing.
2.3.2. Buildings:
An aggregate of 250 sq.m. of buildings would be required for the unit
comprising a main shed of 200 sq.m. and an ancillary shed of area 50 sq.m.
Based on the current construction costs including architect’s fees, a provision of
Rs.1.2 million has been provided.
2.3.3. Machines:
Sewing machine mix provided in the cost of project has been balanced for the
production of basic T-shirts. Accordingly, provisions have been made for 8
Flatlock machines, 16 Interlock machines and 4 Single lock machines. The cost
of Flatlock, Interlock and Singlelock machines have been assumed at the current
rates of Rs.55,000, Rs.27,000 and Rs.18,000 respectively. Provision of Rs.0.84
million has been made towards cost of other accessories including for cutting,
pressing and finishing jobs. In case the unit needs to get equipped for under
garments such as vests and briefs, the machine mix will comprise Outer and
Inner elastic attaching machines, Single needle, Flat lock and Over lock
machines, etc. which could also be acquired without a significant change in the
cost.
2.3.4. Miscellaneous Fixed Assets:
Comprises electrical installations, office and communication equipment and
other utilities towards which a provision of Rs.1 million has been provided for in
the cost of project.
2.3.5. Preoperative Expenses:
Includes establishment expenses (Rs.0.1 million), training costs (Rs.0.2
million) and capitalised interest (Rs.0.1 million).
2.3.6. Contingency Provision: has been made at 5%.
2.3.7. Margin money for working capital:
Even though the unit is intended to undertake only job works, a provision of
Rs.0.1 million towards essential consumables, mainly as a backup, has been
provided in the cost of the project.
2.4. Means of Financing
The above cost of project is proposed to be financed as follows :
Equity from the community/Government : Rs.1.925 million
Equity from the corporate : Rs.1.925 million
Term Loan : Rs.1.650 million
10

11. The above means of financing would result in a leverage of 0.43.
2.5. Expected implementation schedule:
The identification and acquisition formalities of the land are expected to be
completed by December 2006. Construction of buildings would take
approximately 3 months and after the acquisition and installation of the
machines, the unit is expected to be ready for production by May 2007. After 1
months’ of training, the commercial scale operations are expected to commence
from June 1, 2007.
2.6. Private Partnership:
The scope of collaboration for the private sector will encompass the three key
aspects of the project viz. finance (as a funding agency), technical inputs (as an
operator) and marketing (as a buyer). Since the three aspects are involved, the
project may need to collaborate with more than one private partner. The role of
the government may be in the form of allotment of land (in lieu of which the
company may allot equity shares), exemption/concessions in sales tax/other
levies, other grants or viability funding to augment the overall viability of the
project, etc. The community participation will be in the form of equity
contribution that would be raised from UNESCAP.
2.7. Projected profitability:
The main assumptions of profitability are given below:
1. No of seats : 28
2. Normal year of operations : from the 2nd year onwards
3. Productivity per seat per 8 hr shift : 71 pieces
(based on 1500 pieces per 12 hr
shift from a 14 seater standard unit)
4. Capacity utilization : 76%
(100% capacity utilization would
indicate output levels currently
prevailing at Tiruppur)
5. CMT (incl. packing) rate per piece : Rs.9
6. Labour cost : Rs.150 per operator per shift
7. Salaries : 1 Manager, 3 Supervisors,
2 watchmen, 1 Electrician and
2 Helpers
7. Consumables : Rs.0.5 per piece
8. Power cost : 9 kVA per seat per hour
@ Rs.4 per kWh
9. Interest on term loans : 12% p.a.
10.Depreciation : SLM
11.Corporate Tax : At current rates of 33.6%
incl. surcharges and cess.
11

12. Year Ending December 31, 2008 (Rs million)
(normal year)
No of seats 28
Productivity
(No of pieces per seat per shift) 71
No of days in operation per annum 330
Total Output (million no. of pieces) 0.50
Total Income 4.50
Salaries and Wages 1.58
Consumables 0.25
Power and fuel 0.33
Admin. & Misc. expenses 0.85
Total Expenses 3.02
EBIDTA 1.48
Interest on Loans 0.21
Profit Before Tax 0.91
Tax 0.08
Profit After Tax 0.83
Net Cash Accruals 1.19
EBIDTA / Total Income 32.92%
PAT / Total Income 18.37%
Return On Capital Employed (ROCE) 17.33%
BEP – Operating 46.33%
BEP – Cash 34.43%
Cost of capital (with equity @ 18%) 14.99%
Average DSCR 2.83 times
IRR 21.46%
The efficiency in terms of output has been conservatively estimated
considering the challenges involved. The normal output from a 28 seater unit in
Tiruppur is 3000 npd for a 12 hour shift. Adjusting the latter for an 8 hour shift,
(Nagapattinam will have an 8 hour shift to start with) the average productivity
works out to 2000 npd. Against this an output of 0.50 million pieces per annum
(1515 npd or around 75% productivity) is conservatively assumed. Since
packing is also included, the project could comfortably expect to earn a per piece
rate of around Rs.10 to Rs.12; however the same has been assumed on a
conservative basis at Rs.9 per piece. The EBIDAT margins currently prevailing in
the market for CMT jobs is between 35% and 40% whereas this project has
assumed only 33%. The IRR (with life of the project assumed at 15 years)
works out to 21% indicating reasonable project strength. This also compares
favorably with the cost of capital of 15%. The break even points at 46%
(operating) and 34% (cash) indicate comfortable operating parameters.
More details on the projected profitability are included in Annexure 1b. The
projected cash flow statement and the projected balance sheets are included as
Annexure 1c and 1d respectively.
12

13. 2.8. SELLING ARRANGEMENTS:
The unit proposes to undertake CMT jobs on a piece rate basis, which is the
normal practice in the industry. The raw materials including grey/dyed fabrics,
threads, labels, etc. would be delivered to the unit alongwith deliverables and
time lines. To optimise on logistics, the unit will, in addition to CMT, also
undertake finishing and packing as per client specifications. The finished
product would be offered FOR, Nagapattinam.
2.9. SWOT Analysis:
Strengths Opportunities
• Extensive employment generation • Potential to develop the area into an
potential EOU hub
• Substantial spill over effects • Scope for developing allied
• Modular expansion of capacities backward industries such as dyeing,
feasible processing, etc.
• Benefits even the poorest of the • High scale up potential
poor
• Most suited for women folk; men
could continue with their existing
activities
• Capable of attracting a range of
investment options to suit the
private sector participant
Weakness Threats
• Ability of the local talent to deliver • Uncontrolled development,
acceptable levels of especially of the ancillary and back
output/efficiency end processing activities, could lead
to pollution issues
2.10. CONCLUSION:
Tiruppur, backbone of the Indian knitted garment industry, is going through a
severe manpower crisis. The latter could not have come at a more inappropriate
time and entrepreneurs are looking at various alternatives to meet this
challenge. Nagapattinam on the other hand is sitting on a pool of trained
unutilized work force and it would seem quite appropriate to synergize these
opportunities. As mentioned earlier the garment industry is known for its
resilience to adopt and absorb agrarian and women talent successfully. Besides
bringing in regular income into the rural household, this initiative would
empower the fisherwomen of the area by making them economically
independent.
Given the social obligations this initiative is attempting to address, it would
be prudent to presume that patronage in the form of preferential orders, if not
initiatives to co-promote the venture, could be forthcoming from some large
players in the industry. Moreover, as the deliverables are easily quantifiable and
given that the products targeted are generic items that have more flexible
13

14. delivery deadlines, as long as the unit can produce the desired quality, there is
no significant risk that the garment manufacturer would need to share. While
the key challenge would be to develop the talent available at Nagapattinam to
deliver minimum acceptable levels, it would be quite a worthwhile effort and
experiment, as there is a huge upside to the whole endeavor.
14

15. Chapter 3
FEASIBILITY STUDY ON BIO DIESEL – Jatropha cultivation
Global demand for fossil fuel is currently rising at more than 2% a year. In
the past 3 decades, energy use has increased by about 30% in Latin America,
40% in Africa and 50% in Asia. Energy demand worldwide is expected to rise by
50-60% over the next 20 years. India ranks sixth in the world in terms of
energy demand accounting for 3.5% of world commercial energy in 2001. The
demand for petroleum diesel is projected to grow at 5.6% per annum from
39.81 million metric tons in 2001-02 to 52.32 million metric tons in 2006-07.
Currently India imports almost two thirds of its requirement of petroleum
products. It has been estimated that crude oil imports would go up to around
147 million metric tons (MMT) per annum by the end of 2006-07. With the
current firming up of crude prices, this has had a significant impact on the
country’s economy.
In line with the increasing use of fossil fuels, especially by the ever-rising
vehicle population, vehicular pollution is estimated to have increased eight times
over the last two decades contributing to about 70% of the total air pollution.
India is ranked 5th in the world behind the US, China, Russia and Japan in
contribution to world’s carbon emissions and is expected to increase in the
coming years due to rapid increase in urbanization. As a signatory to the Kyoto
protocol, India is also looking at various alternative non-conventional energy
resources such as solar, wind, bio fuels, etc. These alternatives besides
providing another energy resource would also enable the country to meet its
emission obligations as well as profitably trade through accruals of carbon
credits – India has set an ambitious target of earning Euro 2.5 billion through
carbon trading in the medium term. Of the various non-conventional energy
sources being pursued, bio fuels – more particularly bio diesel - has been
identified as having the most potential as far as India is concerned.
3.1. What is Bio diesel?
Bio diesel is an eco-friendly, renewable alternative to petroleum diesel
prepared from vegetable oils - mainly non-edible vegetable oil. It is non-toxic,
biodegradable and produces significantly less serious air pollutants such as
particulates, carbon monoxide, hydrocarbons and other air toxics when burnt as
an engine fuel. Blends of 20% bio diesel with 80% petroleum diesel (commonly
referred to as B20) can generally be used in unmodified diesel engines. It can
also be used in its pure form (B100), with minimal engine modifications.
3.2. Bio diesel as fuel:
Bio diesel has been registered as a fuel and fuel additive with the
Environmental Protection Agency (EPA) and meets the clean fuel standards
established by several agencies. Neat (100 percent – B100) bio diesel has been
designated as an alternative fuel by the Department of Energy of the United
States and the US Department of Transportation. It is the only alternative fuel
to have fully completed satisfactorily the health effects requirements of the
Clean Air Act. The National Bio diesel Board of the United States has estimated a
sales volume of 75 million gallons for the year 2005.
15

16. 3.3. Bio diesel is eco friendly:
Bio diesel is the first and only alternative fuel to have a complete evaluation
of emission results and potential health effects submitted to the U.S.
Environmental Protection Agency (EPA) under the Clean Air Act. These programs
include the most stringent emissions testing protocols ever required by EPA for
certification of fuels or fuel additives.
The use of bio diesel in compression engines decreases the emission of solid
carbon fraction of particulate matter (since the oxygen in bio diesel enables
more complete combustion to CO2) and reduces the sulfate fraction (bio diesel
contains less than 15 ppm sulfur), while the soluble or hydrocarbon fraction
stays the same. Therefore, bio diesel works well with emission control
technologies such as diesel oxidation catalysts (which reduce the soluble fraction
of diesel particulate but not the solid carbon fraction).
Of the major exhaust pollutants, both unburnt hydrocarbons and nitrogen
oxides are ozone or smog forming precursors. The use of bio diesel results in a
substantial reduction of unburned hydrocarbons. Emissions of nitrogen oxides
are either slightly reduced or slightly increased depending on the duty cycle of
the engine. Consequently the overall ozone forming potential of the hydrocarbon
emissions from bio diesel is nearly 50 percent less than that measured for
petroleum diesel.
The exhaust emissions of carbon monoxide (a poisonous gas) from bio diesel
are also on average 48 percent lower than those from diesel.
Bio diesel emissions also show significantly decreased levels of polycyclic
aromatic hydrocarbons and nitrated polycyclic aromatic hydrocarbons, which are
considered to be the most potential cancer causing compounds.
3.4. Properties of Bio Diesel
The properties of bio diesel are very similar to that of conventional diesel and
are given below.
Specific gravity 0.87 to 0.89
Kinematic viscosity @ 40°C 3.7 to 5.8
Flash Point 130oC
Cetane number 46 to 70
Higher heating value (btu/lb) 16,928 to 17,996
Sulfur, wt% 0.0 to 0.0024
Cloud point °C -11 to 16
Pour point °C -15 to 13
Iodine number 60 to 135
Lower heating value (btu/lb) 15,700 to 16,735
3.5. Demand for Bio diesel
The Committee for development of Bio fuels, constituted by the Planning
Commission, GoI has projected a requirement of about 13.38 million tones of bio
diesel by 2011-2012 as follows:
16

17. Year Diesel Bio- Area for Bio- Area for Bio- Area for
Demand Diesel 5% Diesel 10% Diesel 20%
MMT @ 5% Mha @ 10% Mha @ 20% Mha
MMT MMT MMT
2001-02 39.81 1.99 N.A. 3.98 N.A. 7.96 N.A.
2006-07 52.33 2.62 2.19 5.23 4.38 10.47 8.76
2011-12 66.90 3.35 2.79 6.69 5.58 13.38 11.19
3.6 Relevance of Jatropha
Among the raw materials used for bio diesel production Sunflower, Rapeseed,
Soyabean, oil Palm, Jatropha and Pongamia are the most prominent. India
being deficit in edible vegetable oils cannot afford to divert the edible oil to bio
diesel production. Therefore, the use of Tree Borne Oil Seeds (TBOS) of non-
edible nature has been identified as the best alternative.
Though there are more than 100 species of TBOS, the prominent among
them are Neem, Mahua, Sal, Kamala, Rubber, Jatropha, Pongamia, Salvadora
and Jojoba. Out of these, Jatropha have been given focus by the GoI due to its
weighted advantages over other sources/species and has drawn up long term
plans of Jatropha plantation over 2.19 to 11.19 million ha from 2006-07 to
2011-12 for blending of 5% to 20%.
3.7. Advantages of Jatropha:
• Jatropha is a widely occurring plant variety
• The plant can survive on almost any soil type viz., degraded and barren lands
under forest and non-forest use, dry and drought prone areas, marginal lands
and as agro forestry crop.
• It is drought resistant and needs minimal inputs or management. Moderate
irrigation is required only in the initial 2 years
• It improves soil fertility, restores degraded land over a period, and controls
wind and water erosions.
• The plant being a hedge does not grow too tall making it convenient to grow
on field boundaries, alongside railways, highways, irrigation canals,
townships etc.
• Jatropha is easy to propagate and its growth is rapid.
• Practically disease and pest resistant, cattle or sheep do not browse it.
• Commercial yield of seeds start from second year onwards and continues for
over 30 years.
• Collection of seeds is easy because of the short stature of the plant.
• The seeds are available mainly during the non-rainy season facilitating better
and easy collection and processing.
• Integrated utilization of the Jatropha plant based systems is a boon for rural
development and creates a positive correlation between energy production,
food production and poverty reduction.
• Fruit bearing for more than 6 months in a year
• The seeds have oil contents of up to 40%. Improved seeds that yield
significantly more oil (up to 150% of normal values) are now available.
17

18. Jatropha also has the following additional uses:
• Jatropha oil has a very high saponification value and is ideal for soap
manufacture. Soap manufactured from non-petroleum sources is gaining
increasing popularity especially in the European countries.
• It can also be used as an illuminant in lamps as it burns without emitting
smoke
• The latex of Jatropha contains jatrophine, an alkaloid which is believed to
have anti-cancerous properties. It is also used as an external applicant for
skin diseases, rheumatism, livestock sores, piles and as an antidote for
certain snake-bites
• The dark blue dye extracted from the bark of Jatropha is a useful dye.
• Jatropha oil cake is rich in nitrogen, phosphorous and potassium and can be
used as organic manure.
• Jatropha leaves are used as food for the tusser silkworm.
• The seeds are considered anti helmintic in Brazil, and the leaves are used for
fumigating houses against bed bugs. In addition, the ether extract shows
antibacterial properties against Staphylococcus aureus and Escherichia coli.
3.8. Botanical features of Jatropha
Family: Euphorbiaceae
Vernacular/common names:
English Physic nut, Purging nut Hindi Ratanjyot Jangli erandi
Malayalam Katamanak Tamil Kattamanakku
Telugu Pepalam Kannada Kadaharalu
Gujarathi Jepal Sanskrit Kanana randa
Physical properties:
It is a small tree or shrub with smooth gray bark, which exudes whitish
colored, watery, latex when cut. Normally, it grows between three and five
meters in height, but can attain a height of up to eight or ten meters under
favorable conditions.
Leaves:
It has large green to pale-green leaves, alternate to sub-opposite, three-to
five-lobed with a spiral phyllotaxis.
Flowers:
The petiole length ranges between 6-23 mm. The inflorescence is formed in
the leaf axil. Flowers are formed terminally, individually, with female flowers
usually slightly larger and occurs in the hot seasons. In conditions where
continuous growth occurs, an unbalance of pistillate or staminate flower
production results in a higher number of female flowers.
Fruits:
Fruits are produced in winter when the shrub is leafless, or it may produce
several crops during the year if soil moisture is good and temperatures are
sufficiently high. Each inflorescence yields a bunch of approximately 10 or more
18

19. ovoid fruits. A three, bi-valved cocci is formed after the seeds mature and the
fleshy exocarp dries.
Seeds:
The seeds become mature when the capsule changes from green to yellow,
after two to four months
Flowering and fruiting habit:
The trees are deciduous, shedding the leaves in the dry season. Flowering
occurs during the wet season and two flowering peaks are often seen. In
permanently humid regions, flowering occurs throughout the year. The seeds
mature about three months after flowering. Early growth is fast and with good
rainfall conditions nursery plants may bear fruits after the first rainy season,
direct sown plants after the second rainy season. The flowers are pollinated by
insects especially honey bees.
3.9. Ecological requirements:
Jatropha grows almost anywhere, even on gravelly, sandy and saline soils. It
can thrive on the poorest stony soil. It can grow even in the crevices of rocks.
The leaves shed during the winter months and forms mulch around the base of
the plant. The organic matter from shed leaves enhance earthworm activity in
the soil around the root-zone of the plants, which improves the fertility of the
soil.
Jatropha is found in the tropics and subtropics and likes heat, although it
does well even in lower temperatures and can withstand a light frost. Its water
requirement is extremely low and it can stand long periods of drought by
shedding most of its leaves to reduce transpiration loss. Jatropha is also suitable
for preventing soil erosion and shifting of sand dunes.
3.10. Biophysical limits:
Altitude: 0-500 m, Mean annual temperature: 20-28 deg. C,
Mean annual rainfall: 300-1000 mm or more.
Soil type:
Grows on well-drained soils with good aeration and is well adapted to
marginal soils with low nutrient content. On heavy soils, root formation is
reduced.
3.11. AGRO PRACTICES (as per NOVOD, Ministry of Agriculture, GOI):
Nursery raising:
Nurseries may be raised in poly-bags filled with mixture of soil and farm yard
manure in the ratio of 4:1. Two seeds are sown in each bag.
Plantation:
30 cm x 30 cm x 30 cm pits are dug. Farmyard manure (2-3 kg), 20 gm
urea, 12 gm Single Super Phosphate (SSP) & 16 gm Mono Phosphate (MP)
19

20. Planting density: 2500 plants / ha at 2m x 2m
Transplantation: It should be done preferably during rainy reason.
Fertilizer : From second year in the ratio of 40:60:20 Nitrogen Phosphorous and
Potassium (NPK) kg/ha
Irrigation : It is required only for the first two years
Pruning : During the first year when branches reach a height of 40-60 cms
Pest & Disease control: No disease or insects noticed to be harmful
Flowering: Sept.- Dec. & March- April
Fruiting: After 2 months of flowering.
Collection and processing: Ripe fruits collected from trees.
3.12. Employment potential estimates:
(as per Planning Commission, GoI, report on bio-fuels, 2003)
• Likely demand of petroleum diesel by 2006-07 will be 52 MMT and by
2011-12 it will increase to 67 MMT.
• 5% blend of Bio-diesel with petroleum diesel will require 2.6 MMT of Bio-
diesel in 2006-07
• By 2011-12, for 20% blend with petroleum diesel, the likely demand will
be 13.4 MMT.
• To meet the requirement of 2.6 MMT of bio-diesel, plantation of Jatropha
should be done on 2.2 - 2.6 million ha area.
• 11.2 - 13.4 million ha of land should be covered by 2011 - 12 for 20%
bio-diesel blending
• It will generate following no. of jobs in following areas.
Year Plantation Jobs Maintenance Operation of BD units
2006 – 07 2.5 million 0.75 million 0.10 million
2011 – 12 13.0 million 3.9 million 0.30 million
3.13. TRANS ESTERIFICATION:
The process of converting the triglycerides (fatty acids) in the vegetable oil
into methyl or ethyl esters (the methyl/ethyl ester is bio diesel) is called trans
esterification. Chemically, trans esterification involves taking a triglyceride
molecule or a complex fatty acid molecule, neutralizing its free fatty acids,
removing the glycerol component and creating an alcohol ester or bio diesel.
If 100 gm of vegetable oil is taken, 1 gm of the alkaline catalyst (Potassium
Hydroxide), and 12 gm of Methanol would be required. As a first step, the
alkaline catalyst is mixed with methanol and the mixture is stirred for half an
hour for its homogenization. This mixture is mixed with vegetable oil and the
resultant mixture is made to pass through reflux condensation at 65oC. The
mixture at the end is allowed to settle. The lower layer will be of glycerin and it
20

21. is drained off. The yield of glycerin (a by-product having medicinal value) is
about 11%. The upper layer of bio-diesel (a methyl ester) is washed to remove
entrained glycerin. The excess methanol is recycled by distillation. This reaction
works well with high quality oil. If the oil contains up to 1% Free Fatty Acid
(FFA), then difficulty arises because of soap formation. If FFA content is more
than 2% the reaction becomes unworkable and the FFA will have to be removed
or transformed into bio diesel using special pretreatment technologies. Methanol
is inflammable and Potassium Hydroxide is caustic, hence proper and safe
handling of these chemicals is a must. The bio diesel yield is 95%.
3.14. Current usage of bio diesel:
Usages of bio-diesel are similar to that of petro-diesel
• Shatabadi Express of the India Railways was successfully run on 5% blend
of bio-diesel from Delhi to Amritsar on 31st December 2002 in association
with Indian Oil Corporation (IOC)
• Field trials of 10% bio-diesel blend were also done on Lucknow-Allahabad
Jan Shatabdi Express also through association with IOC.
• HPCL is also carrying out field trials in association with BEST (Mumbai’s
city bus operator)
• Bio-Diesel blend from IOC (R&D) is being used in buses in Mumbai as well
as in Rewari, in Haryana on trial basis
• CSIR and Daimler Chrysler have jointly undertaken a successful 5000 km
trial run of Mercedes cars using bio-diesel as fuel
• NOVOD has initiated test run by blending 10% bio diesel in collaboration
with IIT, Delhi in Tata Sumo & Swaraj Mazda vehicles
The Government of India is aggressively pushing cultivation in the various
states. In Tamil Nadu an area of 60 ha has already been identified for pilot scale
Jatropha cultivation by the NOVODB.
3.15. Feasibility study on Jatropha cultivation in Nagapattinam:
Nagapattinam offers immense scope for the cultivation of Jatropha.
Currently over 5000 ha of land is available in the area that can be brought under
Jatropha cultivation. The agro climatic conditions prevailing in the area are
conducive for Jatropha cultivation on a commercial scale.
A feasibility analysis of Jatropha cultivation on a pilot scale over a 100 ha
area has been attempted and is detailed below. Since the primary focus has
been given to the cultivation part, the project has assumed that the jatropha oil
would be its final output.
3.13. Project Highlights:
Industry : Agriculture/Non Conventional Energy
Cost : Rs.2.5 million
Capacities
• Area : 100 ha
• Output (in normal year) : 200 tons of jatropha seeds per annum
equivalent to 65 tons of bio diesel p.a.
Employment generation : 100 plantation jobs
21

22. 30 maintenance jobs
Income generation : Rs.1.2 million per annum in normal year
IRR : 22.46%
DSCR (average) : 2.33 times
ROCE : 25.38% in the normal year of operations
3.17. Cost of the Project:
The proposal envisages setting up jatropha cultivation over an area of 100 ha
on a pilot basis at a total cost of Rs.2.5 million.
As indicated earlier, Jatropha cultivation is a focus area and various
Governments have been heavily subsidizing the farmers who undertake its
cultivation by giving them as much as 90% of the cost of all inputs. Certain
state Governments have also leased out idle Government lands to private
companies for Jatropha cultivation on long-term basis. Given the vast
availability of Government land suitable for Jatropha cultivation at
Nagapattinam, it is proposed to undertake the cultivation on Government land
made available to the project at nominal rates on long term basis. Moreover, in
view of the returns from Jatropha cultivation being comparatively lower than
other crops, acquiring land on commercial rates for undertaking this venture
may not be viable. Therefore no cost has been assumed towards cost of land in
the project cost. The details of cost of project are given below. Replanting costs
which happen through the second year, weeding and irrigation expenses through
the third year have been capitalised in pre operative expenses.
(‘000 Rupees)
Year 1 Year 2 Year 3 TOTAL
Site preparation 84 84
Initial ploughing 90 90
Alignment and staking 49 49
Digging and refilling of pits 308 308
Cost of fertilizers 270 270
Cost of plants and planting expenses 323 33 356
Weeding and irrigation 350 350 350 1,050
Pre operative expenses 200 200
Contingencies 93 93
TOTAL 1,767 383 350 2,500
3.17.1. Site preparation and initial ploughing:
Labour costs required for site preparation including leveling, etc. have been
assumed at 12 man-days per hectare. Cost of labour has been assumed based
on the current levels at Rs.70 per man-day. Initial ploughing costs have been
assumed at the rate of 6 hours per hectare at Rs.150 per hour or Rs.900 per ha.
3.17.2. Alignment and staking: at the rate of 7 man-days per ha.
3.17.3. Digging and refilling of pits:
Planting density has been assumed at 1100 trees to get, on a conservative
basis, fruiting from 1000 trees. At the rate of 25 pits per man-day the
requirement of total man days for digging and refilling has been worked out at
4,400 man days.
22

23. 3.17.4. Initial fertilizing:
Requirement of organic manure, chemical fertilizers and insecticides have
been assumed at 2 kg, 100 gm and 30 gm respectively per pit. Based on the
current prices for fertilizers the rates have been assumed at Rs.2 per kg, Rs.10
per kg and Rs.15 per kg for organic manure, chemical fertilizers and insecticides
respectively.
3.17.5. Cost of plants and planting expenses:
Cost of seedlings has been assumed at Rs.2 per plant and 75 plantings per
man-day. Around 10% replanting will be required in the second year.
3.17.6. Weeding and irrigation expenses:
30 man-days per ha for weeding and 20 man days per ha for initial irrigation
have been assumed. Both weeding and irrigation expenses will be required for
the initial 3 years and have been accordingly provided in the cost of the project.
3.17.7. Pre operative expenses:
A lump sum amount of Rs.200,000 has been provided in the cost of the
project towards pre operative expenses.
3.17.8. Contingency: Provision for contingencies has been provided at 5%.
3.18. Means of Financing:
The above cost of project is proposed to be financed as follows:
Equity from the community : Rs.1.25 million
Term Loan : Rs.1.25 million
3.18.1. Term Loan:
Being a priority sector enterprise, the project will easily be able to raise a
term debt. Even though the project would also qualify for a capital subsidy from
the government, the same has not been assumed in the means of financing. In
the event the capital subsidy becomes available, the term debt component would
be correspondingly reduced.
More details on the cost of project are included in Annexure 2a.
3.19. Expected implementation schedule:
It has been assumed that the entire 100 ha of land shall be planted by June
2007.
3.20. Private Partnership:
The scope of collaboration for the private sector will primarily encompass
buying back the produce as well as to provide extension services including
23

24. identification of land and suggestion of appropriate cultivation practices. Various
Government agencies are also keenly promoting Jatropha cultivation and this
project could expect significant support from these agencies. Their role would
need to be structured based on the scope of their participation in the project.
An indicative interest for collaborating with this initiative has been received from
a corporate that is currently setting up a bio diesel plant of capacity 100,000
tons per annum envisaging an investment of USD 31 million. They have offered
to provide assistance in identifying the land for the proposed pilot project,
suggest appropriate cultivation practices and arrange for a buy back of the
produce on mutually agreeable long term basis.
3.21. Projected profitability:
The main assumptions for working out the profitability of the proposed
Jatropha cultivation are given below :
1. Cultivated area : 100 ha
2. Normal year of operations : from the 4th year onwards
3. Yield (seeds per ha) : 2 tons in the normal year
4. Sale price of seeds : Rs.6.00 (based on sale of oil)
5. Planting costs (Labour) : 150 man-days per ha
6. Harvesting and pruning costs : 50 man-days per ha
7. Cost per man-day : Rs.70
8. Interest on term loans : 12% p.a.
9. Depreciation : SLM
10.Corporate Tax : Nil
Year Ending December 31, 2010 (normal year) (Rs million)
Cultivated area (hectares) 100
No of fruiting trees per hectare 1,000
Yield (kg of seeds per fruiting tree) 2.00
Total Output (tons seeds) 200
Total Income 1.20
Weeding costs 0.14
Irrigation costs 0.11
Harvesting and irrigation costs 0.14
Admin. & Misc. expenses 0.06
Total Expenses 0.45
EBIDTA 0.76
Interest on Loans 0.17
Year ending December 31, 2010 (normal year) (Rs. millions)
Profit After Tax 0.59
Net Cash Accruals 0.59
EBIDTA / Total Income 62.92%
PAT / Total Income 48.89%
Return On Capital Employed (ROCE) 25.38%
Average DSCR 2.33 times
IRR 22.46%
24

25. The main assumptions of profitability have been based on the data and
practices recommended by NOVOD and NABARD. Certain parameters have been
adjusted for the local conditions. Even though the project will be able to
negotiate a subsidized rate of interest being in the priority sector, interest rate
for the proposed term loan has been calculated at 12%. The average DSCR of
2.33 times would ensure prompt servicing of the availed term loan. The IRR for
the project (with life of project at 15 years) of 22.46% compares favourably with
the cost of capital of 14.21%.
More details on the projected profitability is included in Annexure 2b. The
projected cash flow statement and the projected balance sheets are included as
Annexure 2c and 2d respectively.
3.22. SELLING ARRANGEMENTS:
The Jatropha seeds have a comparatively longer shelf life as compared to
other popular oil sources like oil palm, etc. This renders them capable of being
transported for reasonable distances for post harvest processing. The oil from
the seeds may be extracted either by oil expellers or through the solvent
extraction process. Currently there is a huge idle capacity in the oil extraction
industry in India. NABARD has estimated following capacities and utilisation
levels in India:
Segment Number of Total Installed Capacity Capacity
Units (million tons) Utilisation
Mechanical Crushers 152,000 55.0 29%
Solvent Extractors 421 26.7 34%
As per current industry practices, especially in rural areas, the seeds are sold
through traders to the oil expellers at prices adjusted to the oil content and
prevailing Jatropha oil prices. Oil recovery of upto 75% happens at the
expellers; the expellers subsequently sell the oil cake to solvent extraction units
where the oil recovery of upto 90% happens.
Given the availability of spare capacity for oil expelling, it is ideal that that
the project would sell Jatropha oil as its final output. Towards this, it would tie
up with a nearby oil-expelling unit having adequate capacity to process the
harvested seeds. The unit would also enter into a long-term arrangement with a
large bio diesel manufacturer for the sale of Jatropha oil on FOR (Nagapattinam)
basis.
3.23. SWOT analysis:
Strengths Opportunities
• Jatropha cultivation is already in • Potential for scale up of operations
vogue in the state of Tamil Nadu bright
• Climatic conditions quite conducive • Capable of implementation in other
for its cultivation areas
• Hardy crop requiring little or no • Intercropping with other
extension services commercially valuable crops
• Low gestation periods possible
• Identification of private sector
partners for the PPP easy
• Good employment potential
25

26. Weakness Threats
• Moderate labour generation • May invade into other more
potential valuable crops currently in vogue
• Scattered land holdings may
hamper large scale cultivation
6.24. CONCLUSION:
Bio fuels – especially bio diesels - are fast emerging to become one of the more
viable, sustainable and cleaner options for meeting the ever increasing energy
demand. Emerging economies such as India with its vast wastelands and
tropical climate can benefit immensely from these renewable energy resources.
The GoI has identified Jatropha cultivation as a thrust area and have initiated
several projects to capitalize on this vast potential – Tamil Nadu has been
chosen as one of the priority states by the GoI in this regard. NABARD has
assessed a credit need of over Rs.3.00 billion for Jatropha cultivation and is
aggressively pushing agriculture loans for Jatropha cultivation. Besides fruitfully
utilizing the lands available at Nagapattinam, this alternative will also serve as a
micro mission to the GoI’s initiative to develop bio fuel alternatives. Being agro
based this initiative is likely to be more adaptable for the community than other
industrial options. Being a perennial crop Jatropha would to some extent ensure
a minimum regular sustenance income to the fishing community that is used to
vast fluctuations in their income streams.
26

27. Chapter 4
HYGENICALLY-DRIED FISH PRODUCTION UNITS
Most of modern day fishing is target/species specific. Yet, they bring in large
quantities of unintended, low value/low quality fishes. The sheer quantity of
such fish currently being landed merits more attention, because better
preservation, value addition and proper marketing can bring in considerable
additional income to the fisher folk. Besides, there are several species –
especially those smaller varieties - which are normally harvested in bulk during
certain seasons, often leading to a glut in the market. Mainly due to lack of
adequate and appropriate post harvest solutions, these bountiful catches often
do not offer commensurate returns.
One of the traditional and cost effective methods being employed by fisher
folk all along the Indian coast is salting and sun-drying. Unfortunately, because
of the delay in processing and the crude methods (drying in the open) employed,
the quality of the product is abysmally low mainly due to the presence of dust
and sand, bacterial contamination due to uncontrolled humidity levels during
drying, even faecal contamination, etc. This has resulted in very poor local, as
well as outside market for these products. However, of late small quantities of
quality fish, dried in hygienic conditions, have been gaining acceptance in the
markets. This appears to have a promising potential if the efforts are coupled
with some coordinated raw material procurement and marketing efforts.
Past attempts at developing a suitable method for the large-scale production
of quality dried fish have been unsuccessful due to lack of a suitable and
practical technology. Attempts at producing good quality dried fish using tunnel
driers also did not gain popularity on account of the prohibitive cost of tunnel
driers.
Recently, the Central Institute of Fisheries Technology (CIFT) has successfully
developed an energy efficient solar drier (with auto backup with LPG heating
during periods of low sunlight). The model that has been brought out has a
normal capacity of drying 1 tons of fish per day (8 hours). The unit is successful
in drying vegetables also – when the capacity almost doubles. Since the
equipment is currently going through the process of getting patent rights, the
details of the equipment is not discussed.
4.1. Feasibility Study on Hygienically Dried-Fish Unit:
Nagapattinam is one of the prominent fish landing centers of Tamil Nadu.
Significant quantities of various commercially important varieties including those
that are ideally suited for drying are available here almost throughout the year.
The latter include several commercially important varieties such as anchovies,
lesser sardines, white fish, sharks, skates and rays, ribbon fishes, prawns, etc.
The project envisages setting up a solar drying unit having a capacity of 1 ton
per day for the manufacture of hygienically dried fish. The unit will also have
facilities to store raw fish for upto 5 days to achieve good capacity utilizations.
Two models have been examined:
27

28. Model 1: The unit will operate as an independent drying unit where the users
can pay and use the facility
Model 2: The unit would buy the raw fish at market rates, process it and then
sell the same under an arrangement with a private participant.
It is recommended that the project be implemented under the Model 2 as it
would best serve to fulfill the overall objectives of the ESCAP initiative.
4.2. Project highlights:
Industry : Fishery – fish processing
Cost : Rs.6.0 million
Installed capacity : 600 tpa of raw fish
Employment generation : 12 direct
Income : Rs.12.6 million
IRR : 23.95%
BEP
Operating : 23.62%
Cash : 19.58%
ROCE (normal year) : 16.98%
4.3. Cost of the Project:
As mentioned earlier, Model 2 is the recommended option. However, the cost
details of both the models are given below:
(Rs. in 000’s)
Single Double
drying unit drying unit
Land and development 300 300
Buildings and civil works 900 1150
Plant and machinery 1750 3300
Misc. fixed assets 250 300
Preoperative expenses 100 150
Contingencies 200 300
Margin money for WC 300 500
TOTAL (Model 1) 3500 5500
TOTAL (Model 2) 3800 6000
4.3.1. Land:
An amount of Rs.0.25 million has been allocated towards cost of land for an
extent of 25 cents (0.25 acre) at the currently prevailing rate of Rs.1 million per
acre. A lump sum provision of Rs.50,000 has been provided towards leveling
and fencing.
4.3.2. Buildings:
Foundation space for has been provided at 25 sq.m. and 50 sq.m.
respectively for the single and double unit alternatives. Raw fish storage area of
150 sq.m. and 200 m has been provided at a cost of Rs.4500 per sq.m. A 100
sq.m area has been provided towards reception, sorting and washing area.
28

29. 4.3.3. Plant and Machinery:
The main drying unit having a capacity of 1 tons per day is estimated to cost
Rs.1.5 million. The cost of other implements including cleaning and accessories
has been estimated at Rs.0.25 million for the single unit and Rs.0.30 for the
double unit.
4.3.4. Miscellaneous Fixed Assets:
Would comprise facilities for water and utilities, waste disposal, etc. towards
which lump sum provisions have been made at Rs.0.25 million and Rs.0.30
million respectively for the single and double units.
4.3.5. Preoperative Expenses:
Lump sum amounts of Rs.0.10 million and Rs.0.15 million respectively have
been provided for the single and double units.
4.3.6. Contingency Provision: has been made at 5%.
4.3.7. Margin money for working capital:
Implementing the project under the Model 2 would involve payment for raw
material purchases. With a view to eliminate middlemen it is imperative that on
the spot cash payments are made by the unit for purchase of raw materials.
This would also enable the unit to procure raw materials at the most optimum
rates. Towards the above a provision to the extent of around 7 days’
requirement of raw materials has been made in the cost of the project.
4.4. Means of Financing:
The cost of the project is proposed to be financed entirely out of equity.
Given that the main equipment viz. the solar fish drier is more in the nature of
customized item, it is possible that prospective lenders may perceive the same
to be an illiquid security and insist on additional assets as collateral to cover the
loan. However, in case a term loan is possible, mainly based on the credentials
of the private participant, the equity contribution will accordingly be adjusted pro
rata.
Equity from the Corporate/Government : 50%
Equity from the Community : 50%
4.5. Expected implementation schedule:
The identification and acquisition formalities of the land are expected to be
completed by December 2006. Construction of buildings would take
approximately 3 months and after the acquisition and installation of the
machines, the unit is expected to be ready for production by June 2007.
29

30. 4.6. Private Partnership:
The project implementation has been examined under two alternatives –
Model 1 : as a service provider offering drying services on payment of a user
fee and Model 2 : as a full fledged manufacturer of hygienically dried fish. Model
1 could accommodate the participation of the private sector mainly as a funding
agency. For Model 2 the scope of collaboration for the private sector will
encompass marketing (as a buyer) and finance (as a funding agency). Ideal
private sector company for the partnership could be a seafood exporter who is
primarily exporting to the gulf countries having a significant south Indian
expatriate population or a local food chain store such as Nilgris Supermarket
Stores, Spencers, etc. for sales into the domestic market. The role of the
government may be in the form of allotment of land (in lieu of which the
company may allot equity shares), exemption/concessions in sales tax/other
levies, other grants or viability funding to augment the overall viability of the
project, etc. Other government agencies like the Marine Products Export
Development Authority (MPEDA) may also be interested in participating in this
project.
4.7. Projected Profitability:
The main assumptions of profitability are given below:
1. Drying mix: 60% by solar drying and 40% with LPG. A higher LPG usage
is assumed so as achieve higher capacity utilization levels
2. Capacity utilization: 75%
3. Cost of LPG: Rs.40 per kg.
4. LPG consumption:14 kg per ton of raw fish
5. Drying time: 5 hrs for 1 ton with LPG and 8 hr with solar energy
6. Consumables includes, detergents, disinfectants, etc. have been assumed
at Re.0.25 per kg of raw fish
7. Packing costs (including packing materials under Model 2) have been
assumed at Rs.9.75 per kg of dried fish
8. Drying charges have been assumed at Rs.4 for solar drying and at Rs.4.75
for LPG drying
9. Power, water and fuel charges have been assumed at Rs.5000 per month
10.Average cost of raw fish based on a basket of varieties have been
assumed at Rs.20 per kg
11.Average moisture content in fish has been assumed at 70 - 75%
12.Value addition for hygienically dried fish retail packed has been
conservatively assumed at 140%
13.Depreciation has been assumed on SLM basis
14.Corporate tax has been charged at 33.6% including surcharges
30

31. (Rs million)
Model 1 Model 1
Single Double
Year Ending December 31, 2008 Unit Unit Model 2
Installed capacity (tpa of raw fish) 300 600 600
Output (tpa of dried fish) 56.2 112.5 112.5
Capacity Utilisation (%) 75% 75% 75%
Drying charges (Rs.per kg.) 4.00/4.75 4.00/4.75 -
Total Income 0.97 1.94 12.60
Cost of raw fish - - 9.00
Salaries and Wages 0.11 0.17 0.32
Consumables & packing materials 0.06 0.11 1.13
Power and fuel 0.08 0.16 0.16
Admin. & Misc. expenses 0.02 0.02 0.20
Total Expenses 0.27 0.47 10.81
EBIDTA 0.70 1.47 1.79
Profit Before Tax 0.52 1.29 1.42
Tax 0.05 0.31 0.42
Profit After Tax 0.48 0.98 1.01
Net Cash Accruals 0.65 1.16 1.37
EBIDTA / Total Income 72.03% 75.85% 14.21%
PAT / Total Income 49.22% 50.90% 7.99%
ROCE (Return On Capital Employed) 12.05% 15.31% 14.53%
BEP – Operating 27.89% 16.65% 23.62%
BEP – Cash 12.10% 8.76% 6.48%
Cost of capital (with equity @ 18%) 18.00% 18.00% 18.00%
IRR 14.59% 19.70% 22.39%
The single unit scenario under Model1 appears unviable as the unit will have
to levy a very high drying charge for sustenance. Even at drying rates of
Rs.4/Rs.4.75 per kg, the IRR is only 14.59% for the single unit as against an IRR
of 19.70% for the double unit.
Considering the role the private sector is expected to play in the proposed
initiative, it is the Model 2 that offers more scope to the private participant. The
key financial parameters for the Model 2 also appears satisfactory and on the
overall Model 2 is recommended.
4.8. PRODUCTION and SELLING ARRANGEMENTS
Under Model 1, the unit would function merely as a service point offering
drying services to interested parties. Fisher folk cooperatives, for example,
could take the initiative to coordinate the catches and arrange for the drying and
subsequent sale of the dried product.
Under Model 2 the unit would have active participation from an interested
existing private company. The latter would clearly indicate its preferences as to
the varieties as well as the price ranges based on which the unit would purchase
the varieties directly from the fishing community at the prevailing market prices
31

32. (or at levels lower than the indicated maximum prices) on cash and carry basis.
The processed (dried) fish is converted into retail packs as per buyer
specifications and offered FOR.
4.9. SWOT ANALYSIS
Strengths Opportunities
• Easily adaptable to the communities • Can be implemented in other
as it is an extension of their existing coastal areas
activities • Significant untapped demand for
• Better utilization of the existing quality dried fish products both in
resources the domestic and export markets
• Scope for modular expansion of
capacities
• Easily replicable to other locations
• Adaptable to include other non fish
items, such as vegetables
• Environmentally friendly operations
Weakness Threats
• Corporate role largely restricted to • May encourage over fishing
marketing efforts
• Manufacturing and marketing
distinctly different cultures
• Procuring quality raw materials and
maintaining quality standards may
be challenging
4.10. CONCLUSION
Lack of adequate post harvest facilities have been one of the biggest
challenges faced by the seafood industry. Except for the seafood that is
exported – primarily as frozen seafood – bulk of the catch is marketed either raw
or chilled. The latter has always resulted in fisher folk not getting optimum price
realizations for their catches. Moreover, in a place like Nagapattinam where the
catches are predominantly multi species, lack of adequate post harvest
technologies have a very adverse impact on the fishing community. Given that
dried fish is a popular delicacy with excellent nutritional qualities and improved
shelf life, this unit if successfully implemented, has the potential to trigger a new
post harvest scenario that is scientific, commercially viable and completely in
alignment with the traditional practices of the fishing community.
32

33. Chapter 5
CONCLUSION
The coordinated rehabilitation efforts by the various agencies has restored
near normalcy to an area that was very severely affected by the December 2004
tsunami. Most of the lost and damaged property has since been restored and
time is now appropriate to implement radical and sustainable long-term
measures that would help the community to develop the self vitality necessary
to mitigate future risks, especially economic risks. Radical changes are
important, as only these would have the ability to render some amount of the
much needed psychological comfort to a community deeply traumatized and left
feeling vulnerable after a natural disaster.
Partnerships provide opportunities to synergize their competencies in
designing, financing, constructing and operating enterprises. The role of
partnerships in successfully implementing various critical government/
community based welfare initiatives is well recognized and has become an
accepted option. The three investment opportunities that are discussed in this
report have great potential to extract the best out of the participating private
entities and transform them into successful and mutually rewarding business
models.
While the objective of this ESCAP initiative is to develop a diversified and
sustainable livelihood pattern for the affected communities, the intended goal
would be achieved only if the enterprise delivers its key commitment of creating
value to all the stake holders including the client – a key concept often ignored
in the implementation of various social initiatives. Adequate care should
therefore be taken to ensure that the private participant identified for the project
should have the willingness to value such initiatives. Given that the identified
opportunities are equally rewarding with significant spin off potential and belong
to three different industry segments, it would be worthwhile to attempt
implementing at least two of the initiatives simultaneously.
33