ppback

7/29/2019 ppback

1/101

PP Woven Bag Production

Feasibility StudyIn Azerbaijan

2009-11-30

Prepared byPrepared byPrepared byPrepared byFirst Myung Jin Co. / Kolon Inet Corp.First Myung Jin Co. / Kolon Inet Corp.First Myung Jin Co. / Kolon Inet Corp.First Myung Jin Co. / Kolon Inet Corp.

7/29/2019 ppback

2/101

PP Woven Bag Production Business plan

2

Table of Contents

I. Market Study ...................................................................................................... 51. Country (Azerbaijan) Overview ............................................................................................. 51.1 General Information ............................................................................................................... 51.1.2 Geographical data.............................................................................................................. 6

1.1.3 Economy ............................................................................................................................... 61.2. The important regulation about foreign investments or JV ............................................ 81.3 The procedure of JV establishment ................................................................................... 101.4. Tax System ............................................................................................................................ 141.5. Labor employing circumstance ......................................................................................... 211.6 The Important Business culture to note in advance ........................................................ 232. The General Status of the market of PP woven bags (PPWB) in Azerbaijan ................. 252.1 The General Status of the market ....................................................................................... 252.2 State support for agriculture (specially grain producing) in Azerbaijan ..................... 272.3 The status of the demand and supplying ......................................................................... 282.3.1 Applicable industrial fields .............................................................................................. 282.3.2. Main suppliers of PP bag ................................................................................................. 382.3.3 Quality and Prices in the market ..................................................................................... 42III Business implementation plan ............................................................................... 45IV. The Basic Business Plan ............................................................................................ 481. The factory establishment ..................................................................................................... 481.1 Location Evaluation ............................................................................................................. 481.2. The production Technology & Process ............................................................................ 491.2.1 Price ..................................................................................................................................... 511.2.2 The candition of the payment .......................................................................................... 511.3. Import of the facilities & equipments ............................................................................... 511.4. Production process flow ..................................................................................................... 522. The Production & Sales .......................................................................................................... 532.1. Capacity ................................................................................................................................ 532.2. Cost Analysis ........................................................................................................................ 532.2.1 Raw materials (main and sub materials) ........................................................................ 532.3. Operation .............................................................................................................................. 582.3.1 Organizational chart.......................................................................................................... 58

7/29/2019 ppback

3/101


3

2.3.2 Staff of employees ............................................................................................................. 592.3.3 Cost of Products ................................................................................................................. 612.4. Sales & Marketing................................................................................................................ 62

2.4.1 Annual market share forecasting & selling quantities.77

2.4.2 Target market ..................................................................................................................... 622.4.3 Size of the market .............................................................................................................. 632.4.4 Market positioning ............................................................................................................ 632.4.5 Market segmentation ........................................................................................................ 642. 4.5.1 Product ............................................................................................................................ 642.4.5.2 Pricing strategy ............................................................................................................... 652.4.5.2 The promotion................................................................................................................. 68V. Economic Feasibility Study ....................................................................................... 701. Bases and Assumptions ......................................................................................................... 702. Total investment costs ............................................................................................................ 743. Income statement .................................................................................................................... 763.1 Income Statement, Conservative view .............................................................................. 763.2 Net Income Statement, Negative view .............................................................................. 773.3 Net Income Statement , Optimistic view .......................................................................... 784. Balance Sheet ........................................................................................................................... 794.1 Projected Balance sheet, concervative view ...................................................................... 794.2 Projected Balance Sheet, negative view ............................................................................. 804.3 Projected Balance Sheet, optimistic view .......................................................................... 815. Cash Flow of the project ........................................................................................................ 825.1 Cash Flow For Financial Planning Concervative view ................................................. 825.2 Cash flow for financial planning-Negative view ............................................................. 995.3 Cash flow for financial planning, Optimistic view..996. Payback period of the project ............................................................................................... 867. IRR on total capital invested ................................................................................................. 888. NPV on total capital invested ............................................................................................... 90VI. Qualitative Analysis ................................................................................................... 921. SWOT Analysis of this project .............................................................................................. 922. Five forces Analysis (Competitiveness Analysis) .............................................................. 923. Other Risk Assessment .......................................................................................................... 94

7/29/2019 ppback

4/101


4

VII Further step study.................................................................................113

1. Next step after the mature of PP woven bag....................................................................113

2. Neighbor industrial fields to PP bag business..................................................................113

3. What is necessary for being ready for the next biz and its timing................................113

The final results of F/S.114

7/29/2019 ppback

5/101


5

I. Market Study

1. Country (Azerbaijan) Overview1.1 General Information

The country is well placed on the south eastern border of Europe on the shores of thehydrocarbon resources rich Caspian Sea. It has direct access to the extensive andspeedily emerging markets of the Central Asian states, Caucasus as well as Middle East.Azerbaijan declared the policy of openness for international business. It has an excellentrecord of co-operation with private international businesses, in particular, with oil &gas corporations.

The country by now is well integrated in the international cooperation system throughparticipation in various international organizations such as Council of Europe, OSCE,Commonwealth of Independent States, GUAM (Georgia, Ukraine, Azerbaijan andMoldova alliance), Black Sea Economic Cooperation, Organization of IslamicConference as well as a system of multilateral and bilateral treaties on security andeconomic affairs. Azerbaijan has stakes and is actively engaged with the European Bankfor Reconstruction and Development, Asian Development Bank, World Bank,International Monetary Fund, Islamic Development Bank, Black Sea Trade &

Development Bank etc. all of which have running projects portfolios in the country.

Table 1General Information about the country

Establishment date 28 May 1918Independence Day 18 October 1991Date of joining to the organization of

Security and Cooperation in Europe

30 January 1992

Date of joining to the United Nations 2 March 1992

Date of joining to GIS 19 September 1995Date of joining to Council of Europe 17 January 2001Territory, thsd. square km 86.6Number of population, thsd. person (at

the beginning of 2009 year)

8730.3

Population density, per km2 100.8Capital BakuOfficial language azerbaijanianMonetary unit manat

Political systemAzerbaijan has a republican form of government. The three branches of power include:

Executive headed by the President (5 year term);

7/29/2019 ppback

6/101

7/29/2019 ppback

7/101


7

Indicators 2005 2006 2007 2008

Number of population (end of the

year), thsd. person

8436.4 8532.7 8629.9 8730.3

Gross domestic product 12522.5 18746.2 28360.5 38005.7Industrial products 9290.5 15509.4 22441.4 28108Investments 5769.9 6234.5 7471.2 9081.4Agricultural products 1752.1 1991.5 2793.0 3324.8Freight turnover in transport

sector, mln.ton-km

26534 43294 78007 88607

Retail trade turnover 4622.2 5760.3 7591.4 10876.0Paid services for population 960.7 1400.7 2348.3 3393.0Volume of foreign trade, mln. US

dollars

8558.4 11638.9 11771.7 54919.7

of which:Export 4347.2 6372.2 6058.2 47756.2Import 4211.2 5266.7 5713.5 7163.5Revenue of state budget 2055.2 3868.8 6006.6 10762.7Expenditure of state budget 2140.7 3790.1 6086.2 10680.9Income of population 8063.6 10198.5 14558.2 20058.2Income per capita, manat 974.9 1219.2 1720.6 2343.2Average nominal monthly wage,

manat

123.6 149.0 215.8 268.0

Number of registeredunemployed, person

56343 53862 50651 44481

Consumer goods price and tariff

indices of services:

in comparison with the previous

year, %

109.6 108.3 116.7 120.8

Wholesale index of industrial

production (average annual, in

comparison with to the previous

year, percent)

118.9 117.7 108.0 111.6

The GDP annual surplus in 2004 was 10.2%, a record growth for the year was in 2006and equal to 31.2% , in 2007 was 33,5%. GDP in 2008 year is shown below at the chart:

7/29/2019 ppback

8/101


8

Chart 1. Gross Domestic Product, million AZN

1.2. The important regulation about foreign investments or JV

Regulation of the foreign investments is provided by the law of the Azerbaijan Republicabout Protection of Foreign Investments.

The Law determines legal and economic principles of realisation of foreign

investments at the territory of the Azerbaijan Republic. The Law is aimed toattraction and efficient use of foreign material and financial resources in the economy,modern foreign equipment and technology and managerial experience and guaranteesprotection of rights of foreign investors.The following persons and entities might be foreign investors in the AzerbaijanRepublic by the law:

a) foreign legal entitiesb) foreign citizens, stateless citizens and citizens of the Azerbaijan Republic permane

ntly living abroad, if they have been registered as participants of economic activity

in the country of their citizenship or permanent residencyc) foreign statesd) international organisations.

Foreign investments might be represented by any kind of property and proprietaryrights, including right for results of intellectual activity and other immaterial rights

being contributed by foreign investors to the objects of business activity and other kindsof activity with the objective of obtaining the profits.Foreign investors might make investments at the territory of the Azerbaijan Republic bythe way of:

a)

participation in enterprises, organisations established together with legal entities and citizens of Azerbaijan Republic on the sharing basis;b) establishment of enterprises completely belonging to foreign investors;

7/29/2019 ppback

9/101


9

c) purchase of enterprises, proprietary complexes, buildings, structures, shares in enterprises, other shares, bonds, securities and also other property which according to legislation of the Azerbaijan Republic might belong to foreign investors;

d) acquisition of rights for use of land and other natural resources and also other proprietary rights;

e) conclusion of agreements with legal entities and citizens of the Azerbaijan Republic providing for other forms of realisation of foreign investments.

Legal regime of foreign investments and also activity of foreign investors in connectionwith their implementation might not be more favorable than regime for property,proprietary rights and also investing activity of legal entities, citizens of the AzerbaijanRepublic except cases envisaged by the present Law.

Additional tax privileges and other privileges might be established for foreigninvestments in the priority spheres of economy of the Azerbaijan Republic and also on

specific territories thereof.Enterprises with foreign investments might exercise any kinds of activity if they havenot been prohibited by legislative acts of the Azerbaijan Republic. Some kinds ofactivity (following regulations of the Cabinet of Ministers of the Azerbaijan Republic)might be accomplished by the enterprises with foreign investmentsonly after obtainingspecial permit (license).

Foreign investments on the territory of the Azerbaijan Republic enjoy full legalprotection that is guaranteed by the law Protection of Foreign Investments, otherlegislative acts and international agreements of the Azerbaijan Republic.

Enterprises with foreign investments are established in the form of stock companies,limited liability companies and other economic companies and enterprises and also inany other forms not contradicting the legislation of the Azerbaijan Republic. Thefollowing companies might be established and act on the territory of the AzerbaijanRepublic: enterprises with participation of foreign investors (joint ventures);enterprises being full property of foreign investors (foreign companies);representations (bureau, offices, agencies) of foreign legal entities.

Enterprises fully belonging to foreign investors and joint ventures with more than

30% of foreign investments in the partnership fund have the right to exportproducts (works, services) without licenses. Enterprises with foreign investmentshave the right to import products (works, services) for their own economic activity.Procedure of ascribing products (works, services) to the products of self-activity ofthe enterprises with foreign investments is defined by the Cabinet of Ministers ofthe Azerbaijan Republic.

Profits obtained by enterprises with foreign investments as a result of export of theirproducts remain at their disposal.

Foreign investments are protected by certain guarantees provided by the government,including:

Guarantee againist deterioration of legislation the general rule is that legislatio

7/29/2019 ppback

10/101


10

n in force at time of making an investment continues to apply for subsequent 10years.

Guarantee againist nationalization and requisition foreign investments are not subject to nationalization (except in caases of harm to population and state interest) and requisition (except in cases of natural disaster, epidemics, accidents, emergencies). Foreign investors are guaranteed immediate, adequate and effective compensation in case of nationalization and requisition. Compensation should be commensurate to the amount of the investment at time of nationalization or requisition, payable in foreign currency and may be freely transferred abroad;

Guarantee of compensation of damages foreign investors are entitled to compensation of damages, including lost profits, incurred as a result of unlawful acts of state authorities;

Guarantee of repatriation of profits foreign investors are entitled to repatriate profits derived from foreign investments subject to payment of applicable taxes and duties.

1.3 The procedure of JV establishment

According to the Law on Protection of Foreign Investments, foreign investors mayestablish the following legal entities:

1. An enterprise with participation of foreign investors on a shared basis (jointventures);2. A wholly foreign-owned enterprise (foreign enterprises);3. A representative office.

This table summarizes the procedures and costs associated with setting up jointventures in Azerbaijan.

Registration Requirements:

Table 3. Procedures for registration

No: Procedure Time to complete Cost to complete

1. Obtain a confirmation of the legaladdress of the company from theproposed lessor

1 day no charge

2. Deposit the charter capital in a bankand obtain a receipt; pay the stateregistration fee and get a receipt

1 day AZN 11 + AZN 20

3. File documents with the companyregistrar at the One Stop shop Taxes,register for VAT purposes

5 days no charge paid inProcedure 3 (AZN11)

7/29/2019 ppback

11/101

7/29/2019 ppback

12/101


12

Comment: 100% of registrations are carried out through one stop shop.

Procedure 4 Obtain a company seal

Time to complete: 1 dayCost to complete: AZN 22

Comment: No state duty is charged. The cost of the stamp depends onthe price of the private contractor and varies between AZN 4and AZN 40. Various companies produce the seals, and thelaw does not restrict a company to any particular producer.

Procedure 5 Open a permanent bank account

Time to complete: 1 dayCost to complete: AZN 30Comment: Opening a permanent bank account requires the issuance a

special authorization form (the notification duplicate) by the

local tax authority (in the jurisdiction where the company isregistered) and the local department of the Social SecurityFund. The notification duplicate is addressed to the bank inwhich the companys account is to be opened. The companymust open its permanent bank account within 10 days afterthe notification duplicate is issued. Each bank accountrequires two notification duplicates: one from the tax officeand one from the Social Protection Fund. Generally,companies open two bank accounts, one in U.S. dollars and

one in Azeri Manats. Four notification duplicates are thusrequired (one notification duplicate from each agency foreach bank account). The bank must fill in the requiredinformation and return the portions of the notificationduplicates to the Tax Office and to the local office of the StateSocial Protection Fund.

Procedure 6 Obtain workbooks for employees from the Ministry ofLabor

Time to complete: 7 days

Cost to complete: nominalComment: -

To register foreign-invested commercial legal persons, (procedure 3) application forState Registration of Commercial Legal Person shall be submitted to a related tax body.The application is signed by the founder(s) and notary certified. The following areattached to the application:

Charter approved by the founder(s) of the entity to become a legal person (2copies);

the founders (founders) resolution signed to establish the entity to become alegal person and approve Charter;

7/29/2019 ppback

13/101


13

Addendum to Application for State Registration of Commercial Legal Person onthe founders details; If established by natural and legal persons, two forms areseparately filled in. If passport details of the natural-person founder are notconfirmed by the Ministry of Internal Affairs database related, attaching ID-copies to the application may be required;

if the founder is a foreign legal person, the notary-certified copy of documents toconfirm the foreign registration of this legal person: a certificate of registration(registry extract) or Charter. In this case, the document should be properlylegalized by the Republic of Azerbaijan's diplomatic mission to the legal person'scountry or by another foreign mission representing the Republic of Azerbaijan inthat country (if not available, by the Consulate Office of the Republic ofAzerbaijans Ministry for Foreign Affairs as an exceptional case);

if the founder is a foreign or no-citizenship person, a properly legalizeddocument to confirm his/her economic activity in any country;

if the supervisory board has been elected by the submission date of the stateregistration application to the tax body, data on its members are provided withthe according addendum of Application for State Registration of CommercialLegal Person. If the members passport details are not confirmed by the Ministryof Internal Affairs database related, attaching ID-copies to the application may

be required; a copy of the resolution by the founders to appoint a legal representative or chief,

authorized for executive and administrative powers (if the representativespassport details are not confirmed by the Ministry of Internal Affairs database

related, attaching ID-copies to the application may be required); the document to confirm the address of the entity to be a legal person; a document to confirm paying the charter capital in case of establishing a limited

liability company, joint-stock company, bank or an insurance company (bankreceipt, real-estate mortgage, etc.);

if the entity to be a legal person is going to act under the special tax regime, therelated data is provided with the according addendum to Application for StateRegistration of Commercial Legal Person;

if signed by the founders (founders) proper agent, the letter of attorney isprovided with the application. two copies of the founding contract.

It is prohibited to require other documents not stipulated by the legislation.

7/29/2019 ppback

14/101

7/29/2019 ppback

15/101

7/29/2019 ppback

16/101


16

Custom duties rates to be levied on the value of the imported commodities vary from0,5% up to 15% of the value of the goods imported depending on the type of the goods.

Property tax

Companies operating in Azerbaijan are required to pay property tax at the rate of 1% of

the annual average residual value of fixed assets.Land Taxes

Tax on land is calculated as a fixed payment irrespective of the results of the economicactivity of owners and users of land.

Physical persons and entities who own or use the land plots in the territory of theAzerbaijan Republic shall be the payers of land tax.

Road Tax

Legal entities and individuals of foreign states pay this tax when entering into theterritory of the Azerbaijan Republic. Taxes are assessed on cars, buses and trucksdepending on seat number and days spent in Azerbaijan.

Simplified Tax

This tax is intended to ease tax burden for small size businesses and is in lieu of generalprofit tax. Simplified tax is charged at the following rates on the gross revenue of thetaxpayers:

4% for taxpayers operating in Baku 2% for taxpayers operating in other regions of Azerbaijan

In order to qualify for this tax, the total revenue should not exceed 25000 manat (from 1January 2010 should not exceed 150 000) in a three month period. The payers of thesimplified tax are also exempt from VAT, profits tax and property tax.

Simplified tax is payable on a quarterly basis.

Employment Taxes and Contributions

Income Tax

Income tax in the Azerbaijan is charged at a series of progressive rates ranging from14% to 35% of gross income.

Social Insurance Fund

Both employers and employees make payments to this fund. The employer is requiredto pay an amount equal to 22% of an employees gross salary to the Social InsuranceFund. Employees are required to pay 3% of their gross salary to the Social InsuranceFund (this is withheld from their salary by the employer).

All payroll taxes and withholding should be paid to the relevant State Budget bankaccounts on the same day that employees are paid their net (take home) salaries.

7/29/2019 ppback

17/101

7/29/2019 ppback

18/101


18

Table 6. Paying taxes and terms to provide tax returns

Tax name Deadline to pay Taxand Provide TaxReturn

Tax name Deadline to pay Taxand Provide TaxReturn

Natural persons'income tax:

(1) current payment

1 year's final

payment and

providing tax returns

15.04, 15.07, 15.10and 15.1.31.03

6. Tax on Land:for legal persons- providing

calculations

For legal andnatural persons

- years finalpayments:

15.5.15.08 and 15.11

Profit tax:

(2) current payments

2 year's final

payment and

providing tax return

15.04, 15.07, 15.10and 15.0131.03

7. Road tax forforeign vehicles -tax payment

For legal personsowning or using avehicle in theterritory of theRepublic of

Azerbaijan- providing taxreturns and payingthe taxFor natural personsowning or using avehicle in theterritory of theRepublic of

Azerbaijan- paying the tax

Custom bodiesroad-tax foreignvehicles when theyenter the Republic ofAzerbaijan andtransfer thepayments into thenational budget

Prior to March 312009 for 2008Prior to March 312010 for 2009During technicalexamination of thevehiclesA vehicle is notregistered, re-

registered orexamined withoutthe document toconfirm the road-taxpayment provided.

3. VAT payment

and providing the tax

return

20.01 12. 8. Royalty (miningtax) payment andproviding the taxreturn

20.01 12.

4. Excise taxpayment and

providing the tax

20.01 12. 9. Simplified taxpayment andproviding the tax

20.04, 20.07, 20.10and 20.0115.03

7/29/2019 ppback

19/101

7/29/2019 ppback

20/101


20

national budgetduring two bankingdays; the state dutyfor consul service bythe Republic of

Azerbaijan'sdiplomatic missionsabroad is transferredto the national

budget during amonth; other stateduties aretransferred to thenational budget

during a bankingday; all paymentsare reported prior tothe 20th day of theaccount quarter, orprior to 20.04, 20.07,20.10 and 20.01.

Table 7 Penalties for past due tax payments and tax returns

Financial sanction and interest rates Administrative fine

1. According to Article 57.1 of Tax Code,the financial sanction in the amount ofAZN 40 is applied against a taxpayer bythe resolution of the tax body's chief ordeputy chief in case of tax returns or no-

business statements being past due with

no ground

1. According to Article 247 of Code forAdministrative Fines, officials and legalpersons are charged in the amount,respectively, of 25-30 and 40-60 nominalmonetary units for tax returns and othermandatory-payment reports being past

due.

2. According to Article 58.1 of Tax Code, ifthe tax charge (including taxes at thesource of income) is reported lower than itshould be or if the tax amount to pay is notreported and not paid, the taxpayer shallpay a financial sanction as much as 50% ofthe lower-reported or concealed tax

amount (except VAT calculated as a resultof cameral tax inspection)

2. According to Article 248 of Code forAdministrative Fines, officials chargingstate duties wrongly or not transferringthem to the national budget in time andfully are fined 70-90 nominal monetaryunits

7/29/2019 ppback

21/101


21

3. With reference to Articles 59.1 and 59.2of Tax Code, if the tax or current taxpayment is not paid in time stipulated byTax Code, the taxpayer or tax agent ischarged 0.1% of the amount for every daypast due. The interest rate is valid withreference to all the past period related tocurrent tax payments, but not longer thanfor one year.

1.5. Labor employing circumstance

Labor relations are covered by the Labor Code adopted in 1999 that codified thelegislative acts adopted in early years of Azerbaijans independence and number of

lower tier normative legal acts that expand certain provisions of the Labor Code.A standard working week is 40 hours. Overtimes and work during days-off (which areSaturdays, Sundays, public holidays and a mourning day) are in general compensatedat the double daily rates.Employment relations are established by virtue of execution of an employment contract,which is made without a fixed term in most cases.An employer is under a duty to give a termination notice. The general term of suchnotice is 2 months in case of redundancy. However, certain exceptions to this rule areavailable. (e.g.,in case of gross violation of labor duties.). An employee can terminate a

contract at any time upon giving a 1 month notice.Termination of employment with certain categories of employees (e.g., expectingwomen, women with children below 3 years of age) is prohibited.In cases of termination of employment due to redundancy or liquidation of anenterprise the employer shall pay to the employee a severance payment, which maytotal to up to three months of employees salary.It is strongly recommended that employment and termination procedures establishedin the law be strictly followed as in case of any employer-employee disputes the courtsusually tend to favor employees position.

An average monthly nominal wages and salaries during the last five years are shownbelow at the table*:

Table 8. Monthly nominal wages and salaries, in AZN

2003 2004 2005 2006 2007

January 72.2 87.5 106.4 127.2 175.1February 73.4 87.7 106.8 143.7 192.2March 74.7 88.1 110.6 151.5 200.6April 75.6 89.2 115.6 152.2 207.3May 75.9 90.3 116.7 152.4 211.0June 76.4 92.1 117.7 153.5 211.8

7/29/2019 ppback

22/101


22

July 76.7 95.2 120.3 161.9 212.4August 77.2 96.4 121.7 162.0 217.9September 77.5 102.3 123.7 169.8 218.0October 77.6 102.6 124.0 169.9 222.4November 79.0 103.1 124.6 179.8 225.1December 83.2 106.4 126.6 180.2 233.2*The information is provided by the State Statistical Committee of the Republic ofAzerbaijan Republic. Data for 2008 year is not available at this stage of research.

Average monthly wages of employees by kinds of economic activity in industry areshown below at the table:

Table 9. Average monthly wages of employees by kind of economic activity, in AZN

2003 2004 2005 2006 2007

Industrial, total 137.1 187.0 213.2 260.9 344.8Mining industry 290.3 451.3 505.2 633.7 845.5Manufacturing industry 88.9 98.3 115.3 140.5 190.5

from it:

manufacture of food products,

including beverage and tobacco

50.6 58.3 71.1 85.2 131.3

textiles and seving industry 35.5 39.3 58.4 68.1 100.5manufacture of leather, leather

products and footwear

38.3 40.7 54.0 60.7 124.5

manufacture of food and

woodwork19.7 24.4 51.1 79.3 146.6

pulp and paper industry;

publishing

40.8 52.4 66.8 79.8 114.6

manufacture refined petroleum

products

103.1 126.4 159.6 234.8 340.5

chemical industry 80.3 100.1 118.3 155.4 180.0manufacture rubber and plastics

products

29.7 53.2 59.8 79.3 127.6

manufacture of other non-metallic

mineral products

114.6 120.5 123.1 139.2 221.9

metallurgy industry and fabricated

metal products

171.5 169.8 183.9 222.1 265.9

manufacture of machinery and

equipment

68.7 79.4 79.4 121.0 178.3

manufacture of electrical, optical

and electronic equipments

45.1 57.1 76.0 93.5 178.3

manufacture of transport means

and equipments

160.6 156.6 208.4 240.0 282.6

other sectors of manufacturing 47.2 45.8 58.0 65.0 107.0

7/29/2019 ppback

23/101


23

industry

Production and distribution of

electricity, gas and water

73.2 87.7 121.7 146.7 210.0

Employees right is protected by the law of the Azerbaijan Republic

About labor protection.

1.6 The Important Business culture to note in advance

Decree of the President of the Azerbaijan Republic

In November 11, 2008 President of Azerbaijan Republic issued decree on application of

the single window principle during the inspection of goods and transport means

moved across the pass points at the state border of the Azerbaijan Republic in.

In order to ensure the implementation of Presidential Decree, the Commission has beenestablished within State Customs Committee (SCC) according to SCC Chairmans

decision dated November 18, 2008. The Commission has been charged with the

following functions:

harmonization of the existing legislation; organization of veterinary, phyto-sanitary and sanitary control measures on

goods moved through state border checkpoints within SCC border customs

bodies, and provision of necessary equipments, technical means and otherfacilities, as well as solution of all issues related to the issuance of Permission

forms for vehicles used in international road transportations;

establishment of regional offices of SCC Central Laboratory and setting up localnetwork for the purposes of data exchange between Laboratory and border

customs bodies, the Ministry of Health and the Ministry of Agriculture;

elaboration of technology for the implementation of Single Window principlein customs checkpoints at state borders.

It is planned to complete all works concerning single window at the beginning of the

next year.

Competition

Azerbaijan regulates competition policy with a system comprizing various legislativetexts. The major laws dealing with competition issues are: the Law on AntimonopolyActivity no. 526 of 1993 which was amended by Law 381-IGD of October 10, 1997,hereby analysed; the law on Natural Monopolies No 590-IG of December 15, 1998,published in the Azerbaijan newspaper on 19 March, 1999; the Law on Unfair

7/29/2019 ppback

24/101


24

Competition No 62.Law No. 1049 June 2, 1995; and the Law on Protection of ConsumerRights.

Respective body of the executive power implementing state control on prevention ofeconomic subjects abuses of key positions or their actions, restricting competence in thefollowing cases:

amalgamation and association of economic subjects (if it will be resulted inestablishment of economic subjects, the share of which exceeds 35% at respectivecommercial market);

association and amalgamation of economic subjects, the total value of whichassets exceeds 75-ths-fold minimal amount of salary;

liquidation (except for cases of liquidation of enterprises according to judgementof court) and division of the enterprises, the total value of assets of whichexceeds 50-thsfold minimal amount of salary, and also municipal enterprises (if it

will be resulted in establishment of economic subjects, the share of whichexceeds 35% at respective commercial market).

President of Azerbaijan issued a decree on Improving Antimonopoly Policy andProtection of Consumers' Rights in June 25, 2009.

On the basis of the state services for antimonopoly policy and control on consumermarket under the Ministry of Economic Development, it was created a single StateService for Antimonopoly Policy and Protection of Consumers' Rights under theMinistry.

The new service will prevent monopoly in the economy and strengthen the combat withunfair competition. Its activity will be also aimed at upgrading the state management inthe field of protection of consumers' rights.

Now this service is under the establishment process.

7/29/2019 ppback

25/101

7/29/2019 ppback

26/101


26

production and market researches allows to tell that there are great reserves to increaseproduction.

Main branches of industry which requires PP bag areprimary agricultural industry, theindustry on processing the agricultural production for food, of which sugar industry,fodder industry for livestock and poultry, construction materials industry, chemicalindustry, charcoal industry and construction and building repair industry. Amongthem a special place have agricultural industry and close related with them branches asindustry on processing the agricultural production for food, also sugar industry andfodder industry.

According to the preliminary opinion of experts the demand of chemical industry,charcoal industry and construction and building repair industry is no more than 10percent of total demand of Azeri industry.

First position on PPWB demand in Azerbaijan has primary agricultural industry

(producing no processed agricultural production). Manufacture of agriculturalproduction for direct consumption and for the food-processing industry (formanufacture of a flour, groats, processed nuts, fodder for cattle and poultry, formanufacture of food oils and fats, for manufacture of sugar, etc.) is historically veryimportant branch of Azeri industry. PP bag are in need on all stages of this productionprocess as a packaging material. Collected harvest is necessary to gather in one placeand then transport to warehouses for storage or reception point of processor or directlyto the retail business for sale to end-users.

Main types of agricultural crops in Azerbaijan which required for collecting and

transporting are all kind of PPWB is cereals (grain-wheat, barley, oats, corn) and driedpulses (millet, lentil beans, peas and other beans).

There some cereal (grain) processing and storage facilities in Azerbaijan. Mainly thesefacilities consist special grain storages and huge mills. Most of them were built duringpost Soviet Union period. But there are some new facilities also. Now according to theexperts total capacity of all storages in Azerbaijan (which have metallic or concert silosfor grain storage) is about 260 thousand tons. In silos grain stored in the loose and noneed bags. But for transportation from farmers storages to grain processing companiesit is necessary PP bags. About 67 percent of cultivated cereal (grain) in Azerbaijan iswheat- from which produced flour for bread-main food of Azeris. Only small part ofcrops which are cultivated by big agriculture companies transports and storages it inthe looses.

Small producers of cereal (grain) and dried pulses dont storage this crops in the loose,they package this with PP bag. Farmers of the regions where is poultry industrycompanies grow barley for poultry fodder.

Supplying system in primary agricultural industry is depends who is buyer and howmany he or she needs bag.

7/29/2019 ppback

27/101


27

2.2 State support for agriculture (specially grain producing) in Azerbaijan

There is great growth in production volume of agricultural industry last years inAzerbaijan.

Realization of the important projects on exploitation and development of hydro

carbonic resources of Azerbaijan is not an ultimate goal, it is only a key fordevelopment of all sectors of economy, social and humanitarian development. In thispoint of view the great value was given to development of an agriculture and it isprovided not only growth of volume of primary agricultural production, but also togrowth of productivity, quality, reduction of the cost price. The attention was given asto questions to development of capacities for processing a crop, reduction of losses atgathering, transportation, storage and processing.These questions it is considered in a complex with a question of food safety on whichcreation of the state stocks of the important kinds of the foodstuffs is stipulated. In

January, 2007 the President of Azerbaijan Ilham Aliev has signed the decree About thestate support to manufacturers of agricultural production . Under this decree it wasprovided the assistance especially to farmers of grain manufacturers. With this purposein August, 2008 the State program on reliable maintenance of the population of theAzerbaijan Republic with the foodstuffs in 2008-2015 has been accepted.

The Azerbaijan President, Ilham Aliyev ordered also to create the State Grain Fund ofAzerbaijan, as one of measurement of given Program and according to the Law onGrain. The government is in charge of purchasing and importing grain, fulfilling thestate orders, etc. The Fund will be a public property run by the Ministry of Emergency

Situations. The law on Grain was passed in 2000. The creation of the State Grain Fundwas already considered by the Parliament a few years ago. In 2009 State Grain Fundwas provided by necessary financial means and it began activity to purchase standardhigh quality wheat from grain producers. Because Ministry of Emergency Situations notfinished yet construction special silo storages for this grain was decided that this yeargrain will stored on private silos.

Also large-scale work directed to stimulation of manufacture of agricultural productionof food assignment began. For performance of requirements of this decree the Cabinetof Ministers has executed a number of measures. For example, the document providing

payment of indemnifications for used at cultivation of a crop of fuel and motor oils hasbeen accepted. Also It was provided sale by "Agroleasing" JSS to farmers raisingagricultural production of mineral fertilizers for reduced prices.

In 13 November, 2007 was accepted other decree of Cabinet of Ministers On additionalmeasurement for increasing of financial interests of wheat producers and stimulation ofwheat producers in Republic of Azerbaijan. According of this decree to the farmersand other producers for each hectare field sown with wheat grain was paid 40 AZNfinancial aid. With purpose from state budget in 2007 was directed 64.483,4 thousandand in 2008 year 90.196 thousands manats. The resulting in 2007 were sown 863thousand hectares grain and collected 2.835,9 thousand tons of crops. (Source: OfficialAzerbaijan newspaper. 14 July, 2009).

7/29/2019 ppback

28/101


28

Except this were also other decrees for stimulation agriculture industry in Republic. Forexample, was accepted special state program for construction huge storages for keepingagricultural products in long term.

2.3 The status of the demand and supplying2.3.1 Applicable industrial fields

Main industrial fields that use PP bag as packaging material are following:

Primary agricultural industry

Manufacture of agricultural production for direct consumption and for thefood-processing industry (for manufacture of a flour, groats, processed nuts,dodder for cattle and poultry, for manufacture of food oils and fats, formanufacture of sugar, etc.)

This included also cultivation of cereals and legumes (wheat, pulse, bean, pea, andlentil) also potatoes, onions, sugar beets, sunflower seeds, various nuts.

Manufacture of agricultural production for light industry (consumer goods). Cotton growing industry. Cotton is one of the strategic products in

Azerbaijan. Production of animal products. For use of PPWB is interesting basically

manufacture of sheeps and goats a wool. Production of cocoons of a mulberry caterpillar.

Production of cereals and legumes.

Production of mainly wheat and other grains for flour milling, other grains andlegumes for food (except flour), fodder for livestock and poultry are growing every yearin Azerbaijan.

The country carries out the State Program on Food Security. The main purpose of thisprogram is independence of country from import of food grains. In 2008 was produced2, 835 mln. tons. of grains.

Forecast for present year is 3 mln. tons of which 2,2 mln tons is food grain (wheat). In

addition, in Azerbaijan grows a large volume of different varieties of pulses, beans,peas, lentils. All the above mentioned products are packaged with PP bag.

According the report of Mr. Ismat Abasov, Minister of Agriculture in Presidentsmeeting harvest collection situation for 20th of July, 2009 was collected cereals 2. 557,33ths. tons on 976.474 ths. hectares. It is 89% of fields. From which of 713.532 hectares arewheat fields. It is 88% of wheat fields. It was collected 1.918.673 tons wheat. (From thereport of Minister of Agriculture of the Azerbaijan Republic. July 22, 2009).

Minister forecasted that in current year will be collected 3 mln. cereals (Official

newspapers give other forecast -2, 960 mln. ton) and of which 2.200 ths. tons are wheatwhich suitable for flour producing. But according the food security expert only 0,5 mln.tons of this grain is suitable for flour producing.

7/29/2019 ppback

29/101


29

But it does not influence to demand of bags and in any case PP bag are necessary fortheir packaging. We have take in account that the big and medium grain (a speciallywheat) producers sometimes keep grain harvest not packaged but in the loose. Thismethod they use also for transportation from warehouses to the grain processingcenters (elevators) and huge mills. According the experts estimation this method reduce

demand for bags for grain 20%. In result for 2 mln tons grain bag demand become 48mln. bag instead of 60 mln. bags.

In this case demand for packaging only of this product is about 48 mln. PPWB yearly.

Production of vegetable crops

Vegetable harvest production is growing every year in Azerbaijan. Potato and onion arethe main part of them. They are stored in stocks and separated, without packaging. Butfarmers package these products with PP bag when they sale these products tocustomers. Production of cabbages, food beets, eggplants, carrots and other vegetable

products are in growth too.For packaging of vegetables are used other kinds of bags - waved bags from cords, as agrid, made of a polymeric film, etc. But according to experts and to our fieldsupervision not less than 75 percent of a crop of vegetables from total of this crop arepacked in PP bag. Also those bags which usually contain 50 kg of a grain at packagingvegetables (for example fresh green vegetables) contain 30-40 kg of the goods that isconnected by their smaller densities. Taking into account all these conditions is possibleto consider that PP bag demand for this crops is about 24,6 mln PP bag yearly.

Demands for packaging only potato crops is about 22 mln. PP bag yearly.Total for packaging of all kind of above mentioned primary agriculture production it isnecessary 106,6 mln. PP bag.

If we will take into account that farmers, buyers, and sellers and others who are theconsumers of agriculture crops use used bags and according to experts opinion andfield research, about 20% of demand covered by used (second hand) bags. In this casereal demand for new PP bag is about 85 mln.

The breakdown of this demand by crop is shown below table:

Table 11. Demand to PP bag, million bag

Products 2003 2004 2005 2006 2007 20082009

Forecast

Current

demand to

PP bag

Cereals and dried pulses

(Grain etc.)

2057,8 2158,2 2126,7 2078,9 2004,4 2498,3 3000 38,4

Potato 769 930,4 1083,1 999,3 1037,3 1077,1 1100 17,6Other vegetables 1046,3 1030,2 1046,3 1076,2 1227,3 1228,3 1230 19,68Sugar beets 128,9 56,8 36,8 167,2 141,9 190,7 200 3,2Sunflower seed 18,3 14,3 16,1 15,9 13,4 16,5 17 0,4

Tobacco 4,7 6,5 7,1 4,8 2,9 2,5 2,5 0,16Cotton 99,6 135,7 196,6 130,1 100,1 55,4 50 4

Nuts (walnut, Chestnut) 36 38 40 0,64

7/29/2019 ppback

30/101

7/29/2019 ppback

31/101


31

Products share in total demand is shown below chart:

Chart 3. Products share in total demand

The industry on processing the agricultural production for food

Flour-grinding (mill) and croup manufacture Sugar industry

Flour-grinding (mill) and croup manufacture

At present, the population of the Republic consumes more than 2,1 million tons of foodgrain (mainly wheat) annually.(Official statistic often doesnt reflect real situation inthis area. For example, according official statistic in 2007 was imported 1.411,580 tons ofwheat. (Statistical Yearly, 2008).

It was imported 2.224,3 thousand tons grain in 2008 year. From this 1.520 thousand tons

of wheat used for flour and other part for fodder manufacture. For flour manufacturealso it has been used 456 thousand tons of local wheat. (According and expertsopinion).

There are about seven major and some small mills, which produce flour, and cereals. Ifearlier in the Republic were imported ready flour, now needs of the population aremeet by the local flour mills. This change has resulted in significant increase in demandto PP bag.

All the products of these mills packed with PP bag.

Output from 1 tons wheat

7/29/2019 ppback

32/101


32

Medium output of flour from wheat is about 25% and may change according to sort ofwheat. Rest part of output is bran and croup. For grinding the wheat and making flourand croup it is necessary to add 160 liters water per ton of grain. This water givesadditional weight.

According the experts opinions output from 1 tons wheat after milling approximatelyis:

1. Flour -800-810 kg - 16 pieces of 50 kg bags of flour2. Bran -260- 270 kg - 14 bags (each bag consist 16-18 kg of bran)3. Croup-20-27 kg-0,3 bags

For packaging of products that received at grinding process of one tons wheat it isnecessary 32 bags in average.

Table 13. The list of main flour producers, their market share

Name of mill Location

Capacity(Quantity of

early processed

wheat, tons)

PP bag

demand,

mln

PP bag

supplying

source

1 Karat Xirdalan set.(near Baku)

635 000 20,3 Has own PPWBfactory

2 Araz (formerkombinat named after

Z.A. Tagiyev)

Zig set. (nearBaku)

150 000 4,8 Trade Centers

3 Darnagul mill Darnagulset.(near Baku)

300 000 9,6 Trade Centers

4 Zangazur Binaqadiset.(near Baku)

50 000 1,6 Has own PPWBfactory

5 Jala un of Gilanholding

Ceyranbatan set 50 000 1,6 Has own PPWBfactory

6 Montin mill (Anvarsmill)

Baku 150 000 4,8 Trade Centers

7 Aveta Kurdamir town 50 000 1,6 Trade Centers

8 Fatoglu Ganca city 60 000 1,76 Trade Centers

9 Xacmaz (Sari Sunbul) Xacmaz reg. 50 000 1,6 Trade Centers

11 Davaci Davaci reg 50 000 1,6 Trade Centers

13 Ganca Neon Ganca city 50 000 1,6 Trade Centers

Main mills total, ton 1 595 000 51,04

14 Other (small) mills 655 000 20,96

Total 2 250 000 72

If we will calculate demand for packaging of mill output - wheat flour and otherproducts proceeding from very cautious figure- 2,1 mln. tons of wheat we will getyearly demand about 72 mln. PP bag.

7/29/2019 ppback

33/101


33

Market share of flour producers are shown below table:

Chart 4. Market share of flour producers

Sugar industry

In 2006 year, it was started to operate the first sugar factory in Azerbaijan namedImishly Sugar Factory. Processing capacity of the factory is average 1200 tons of sugar

beets per day. As a packaging material of sugar it is used PP bag. Production capacitychanges in different seasons of the year.

It was produced in 2006 year 212,276.20 tons, in 2007 year 302,091.15 tons and in 2008year 350,000 tons crystal sugar:

Table 14. Demand to sugar bag

Year Production, ton Demand to PP bag,

piece

Increase in

demand, %

2006 212,276.20 4,246,0002007 302,091.15 6,042,000 42,22008 350,000 7,000,000 15,85

2009 (forecast) 400,000 8,000,000 14,28

7/29/2019 ppback

34/101


34

The properties of the bag that applicable in this field of industry:

Size - 55 cm x 105 cmWeight- average 120 gr.Density- 10X10 and more.

Fodder industry for livestock and poultry;

The country is well developed in cattle and poultry industry. The General Status of themarket at present has the growing tendency. In result of this Azerbaijan hasnt anydependence from import of livestock and poultry and their products.

There are many companies that invest to this field of industry. The part of this financedirected to develop livestock and poultry field of agricultural industry.

During the last years, it has been observed great rising trend in the agricultural andspecially, in livestock and poultry industry in Azerbaijan (See below. Source Officialyearbook. The agriculture of Azerbaijan 2009).

Table 15 Livestock quantity, thousand pieces

Year Cattle and buffaloes

2001 2031,62002 2086,92003 2178,62004 2241,82005 2315,82006 2380,02007 2445,02008 2511,8

2009 (forecast) 2569,6

7/29/2019 ppback

35/101


35

Chart 5 Quantity of cattle and buffalos

For these types of agricultural industry necessary fodders produced from differentkinds of grains with mineral additives. In Azerbaijan, there are a number of factoriesand plants producing fodder for livestock and poultry. All the products of thesefactories and workshops are also packed with PP bag.

As stated above only 67% of wheat is reliable for flour production. Other part of wheat

is directed to fodder (animal feed) production (According to the opinion of foodsecurity experts). If we consider that it is added mineral additives to this products,which is equal to 20% of total weight of the product, total demand will be 24 mln. PP

bags. The demand growth tendency is shown below table:

Table 16. Demand to PP bag for animal feed production

2003 2004 2005 2006 2007 2008 2009

Wheat, mln ton 686 719 709 693 668 833 1000Additives, mln ton 137 144 142 139 134 167 200

Total weight, mln. ton 823 863 851 831 802 999 1200Demand to PP bag, mln 16,5 17, 3 17 16,6 16 20 24

7/29/2019 ppback

36/101


36

Chart 6 Demand to PP bag for animal feed packaging

The properties of PP bag that mainly applicable in this field:

Size - 55 cm x 105 cmWeight- 50 gr and less.Density- less from 10X10.

Construction materials industry;Throughout the world, PP bag is used for packing of cement, dry fillings, dry mixes forplaster, gypsum, etc.

Two years ago, the only cement plant in Azerbaijan (with a complete production cycle)Garadagh Cement Factory planned to give up paper bags and move to the use ofPPWBs. But because of the risk of re-use of empty bags in illegal workshops for themanufacture of counterfeit products, the factory abandoned those plans.

Production of construction gypsum

According the Yearbook, 2008 report of State Statistical Committee of the RATable 82002 2003 2004 2005 2006 20072 286 t 3 848 t 884 t 28 242 t 35 034 t 22 037 t

A number of companies engaged in dry mixes for plastering and repairs using PP bagfor packaging their products. In Azerbaijan, PP bag is used for packaging of an ordinary

building sand, and containers for the removal of construction debris.Currently, the production of PP bag is indeed a lucrative business. The demand forthese products is steadily increasing in the short term, this business will remain

profitable.

7/29/2019 ppback

37/101


37

Total demand of Azeri agricultural and food industry for new (unused) PPWB yearly

are shown at below table:

Table 17. Total demand to PP bag in agricultural and food industry

Name of production Quantity of PP bagmln. pieces

1 Agriculture Production (primary harvest) 852 Flour-grinding(mill) and croup manufacture 723 Sugar industry 84 Fodder industry for livestock and poultry 24

Total 189

Total yearly demand of Azeri agricultural, food industry and related branches for new

PP bag is 189 mln. bags:

Chart 7 Demand to PP bag by industries

Another fields that uses PP bags are:

Chemical industry;The industry on manufacture of charcoal;Construction and building repair industry (they use bags for gathering and

transportation of old plaster, broken bricks and other repair waste);The main industry in Azerbaijan, which requires PPWB is an agricultural industry;

7/29/2019 ppback

38/101

7/29/2019 ppback

39/101


39

Company

name,

Owner

Location,

Address

Capacity

, yearly,

mln bag

% of

total

suppl

y

PP

origin

Customers Price,

AZN

Grain bag

Price,

AZN

Sugar

bag

5. Qafqaz

YTF(yumsaqtaratarabriki )(soft packingmaterialsfactory)

Sabirabad

town

20** 0% n/a Farmers in

Sabirabadregion andotherregionsaround

50 cm x

105 cm- 40gr. 14qapik

--

6. KaratHoldingCo., Owner-

presidentAsabilQasimov

Office Bak,AZ 1065,M.Muxtarov

Str.. 201Tel: (+99412)4368666,Faks:(+99412) [email protected];Bak,Xirdalan set.

Baku-Shmakhihighway, 8thkm.

20,3 46,14%

n/a Selfsupplying

53 cm x105 cm-65gr.

--

7. SmallproducersfromSumqait,Mashtaga,Binaqadi

etc.

10 22,73%

n/a Small mills,constrictionmaterialplants.Retailmarket (for

hardwareshops)

--

Total 56 million bag

*Ram Ltd is the main competitor. Now Ram Ltd. uses only 10% of its capacity for thelocal market and produces only 12 million grain bags that requires market. **QafqazYTF has stopped working. That is why its capacity deducted from total supply.

Ram ltd. is the main producer and supplier. It is the second big factory in CIS. Thiscompany also has factory in Krasnodar Russia (Has dealers in Ryazan, Saratov,

Moscow regions, in Ukraine etc. Produces sugar bag, grain bag, cement bag and alsobig bags. The production equipment is Austria origin. ). The full capacity of the factory

7/29/2019 ppback

40/101


40

is 220 million bags. They sell only 10% of their production to local market and therest part (90%) to abroad, especially to Russia.

Caspian is the part of Gilan holding and mainly supplies mill of this holding-Jala.Now the company finishes installing new equipment in new wide building, not farfrom former place. Given capacity is for factory.

Karat PPWB factory is the part of Karat Holding company who is main producer offlour in Azerbaijan. The produce bags for their own use.

Zangazurs product used first of all by companys mill. Company was the mainsupplier of Sun holdings Sugar factory until 2009. Now company sell 50 thousandsugar bags produced for Sun holding for 25 qapik. Company isnt able to receiveorders from new customer, because they have lot of orders for bags from constantpartners.

Qafqaz YTF in Sabirabad current year the stood more than worked, and releasedproduction in a small amount is very poor quality. People or company that dealt withthe delivery of equipment, deceived investors by buying poor-quality equipment(second hand equipment China origin). That is why the production equipment is often

breaks down. Besides this, factory hasnt good specialists.

Taking into account all above mentioned total offer of PP bag of different sizes in themarket is equal to 66 million bags. The market share of the suppliers are shown at

below chart:

Chart 8. Market share of main suppliers

If we take into account that Karat Holding and Caspian produces PP bag for its ownuse total offer by local suppliers will be equal to 42,7 million PP bags.

7/29/2019 ppback

41/101


41

Another part of demand is meeting by imported product. In 2007 year Azerbaijanimported in total 15.553 t. (cost 21.188 thousand USD) polymers of propylene(According the Yearbook, 2008 report of State Statistical Committee of the RA)

Table 19 Export to Azerbaijan Polypropylene polymer

CountryVolume

(tons)

Value

thousand USD

1 Turkmenistan 10.626.0 17.808,42 Republic of Korea 1.646,5 691,33 Russia 1 348,0 930,24 Turkey 689,9 765,05 Ukraine 585,0 84,86 Hungary 396.0 507,1

7 Iran 167,5 187,28 Other countries 94,0 213,9

7/29/2019 ppback

42/101


42

2.3.3 Quality and Prices in the market

As stated above one of the main consumers of PP bag is farmers who are the producersof primary agricultural products. Experts divide conditionally these farmers to 4groups:

First- producers who grow crops more than 1000 tons of crops;Second - producers who grow between 100 - 1000 tons of crops;Third -producers who grow between 10 - 100 tons of crops;Fourth - producers who grow less than 10 tons of crops.

Experts opinion is that market share of first group is not less than 30 percent.

There some difference between choice of big, medium and small producers of primaryagricultural production.

Big producers first group-usually use high quality, 10X10 and more density and 50-65gr. weighted bags. Because they have enough information about the quality of theproduct and they are ready to pay money for it. Big producer of primary agriculturalproduction (who produces thousand or more tons of crops) order PP bag directly infactory or produce it themselves. This demand volume allows them to order muchquantity of PP bag and it gives them to get chipper price- AZN 0,14 and normal quality.They could buy it from wholesalers of PP bag that operate in Baku Sadarak TradeCenter and Bina Trade Centers. Market behavior of second group is very similar.

Farmers who grow less quantity of crops third group- get the bags from wholesaletraders in Baku, mainly in Baku Sadarak Trade Center and other markets, also inregions for AZN 0,15-0,16. In last case it gives him to save money on transport expensesto Baku and back.

Farmers who grow very little quantity of crops-fourth group- producers who grow lessthan 10 tons of crops satisfied their bag demands usually in region center or very oftenin nearest shops-directly in village or neighbor village shops. The prices in village shopare AZN 0,2-0,4 higher compared prices in Baku, but farmer save money ontransportation and also could buy bags and pay after month. Very often they have hard

financial problems and couldnt allow themselves high density bags (55-60 grams) andprefer 45-50 grams bags and they havent any information about the quality of the bags.

Flour producers use high quality PP bag for their products. They commonly use PPbags which is 65 gr. weighted and density is equal to 10X10 and more as stated above.They select high quality PP bag, because it is affect their future sales.

There is only one sugar producer in Azerbaijan and they import PP bag from Turkeyfrom 2009 year. Till the 2009 year they used Zangazur PP bag factory. After theyrefused from their products because of bad quality and high prices. That is why for

sugar industry quality is very important.

7/29/2019 ppback

43/101


43

For fodder industry quality and density is not very important too. It is not requiredhigh density PP bag from the nature of fodder. Mainly they use 50 gr. and less weighted

bags for packaging.

Total demand to high quality and density PP bag is equal to 105,5 million bags. It is 56%of total demand:

Chart 9. Demand to high and low quality product

Common used PP bags in the market are:Table 20. Common used PP bag in the market

Size: Density: Weight:

55 X 105 sm. 10 X 10 inch and less 120 gr. 53 X 105 sm. 115 gr.

50 X 100 sm.

65 gr.

50 gr. and lessPrices per 50, 55, 65 gr. weighted bags range from AZN 0,14 to AZN 0,20 in Baku.

Price per bag is AZN 0,14 when customer buys it directly from factory and quantity is10 thousands or more pieces.

As stated above only 30% of primary agriculture products prefer high quality productsand buy it from the PP bag producers. Other part buys PP bags from village shops.

Village shops usually sell low quality, so low density and weighted bags (45-50 grams).Because their main costumers- local farmers hasnt any information about the density,

7/29/2019 ppback

44/101


44

weight of the bag. So, they prefer chipper bags. They take it on local village shops forAZN 0,23-0,25.

For potato it is used 50 gr. and less weighted and 55 X 105 sm or 53 X 105 sm sized bags.They buy bags from the Trade Centers in Baku and other markets, also in regionaltraders. Prices for these types of bags range from AZN 0,16 to 0,18.

Special places in Azeri agriculture have such plants as tobacco and cotton.

Tobacco and cotton have low density and needs bags in same weight with potato orgrain. For packaging of this crops farmers mainly use 55X105 sm. and 45-50 gramweighted bags. Quantity of bags influence to the price of the bag. Prices range for thistype of bags AZN 0,16 to AZN 0,18.

For flour production industry-it is very important high quality high density and newbags. Optimal weight for packaging of mill output - wheat flour is 65 grams. For branand croup it is suitable 55-60 gram weighted bags. and their cost is cheaper. Some flourproducers have their own PPWB factories (Karat, Zangazur, Jala Un and etc.). Thisallow them to save money and not depend from bag producers. Flour producers prefermedium density (65 gram) bags with size 55 x 105 cm. Other huge producer-mills ordernecessary bags directly in PP bag factories. Price for this bags (they order commonly tenthousand-hundred thousand and more bags) bags range from AZN 0,13 to AZN 0,14.Medium and small size mills also prefer to use same quality and density bags. Becausethe quality of bags is the main factor in determining the quality of the wheat by the

buyers. When mills owner hasnt enough money to order before harvest season and bigquantity of bags, he take it in shops a bit expensive-for AZN 0,15 to AZN 0,16.

In Azerbaijan, there are a number of factories and plants producing feed for livestockand poultry. All the products of these plants and workshops is also packed with PP

bags. They use 50-55 grams bags with same size and volume. Price for them is aroundAZN 0,15.

Sugar industry is comparatively young field in Azerbaijan. For the package of sugarused by PP bag. The weight of the bag is equal to 115 or 120 grams. The size of the bagis equal to 55X105 sm. The production capacity is different in seasons of the year. Thecompany exports half of its products. That is why the sugar industry requires high

quality PP bag. Now the company imports PP bag for its production from Turkey.(Ozdal). The price per bag is equal to AZN 0,24.

RESULT

Requirements for size: 55 X 105 sm. or 53 X 105 sm.

Requirements for density: 10 X 10 inch and less

Requirements for weight: 115 gr., 65 gr., 60 gr., 50 gr., and less

Prices:

For grain and vegetable bags: AZN 0,14 -0,20 For sugar bags: AZN 0,24

7/29/2019 ppback

45/101

7/29/2019 ppback

46/101


46

MONTH

1 2 3 4 5 6 7 8 9 10

PROCEDURE

Procurement &

Equipment manufacturing

Civil & Architectural work

Ocean transportation

Custom clearance &

Inland Transportation

Erection & installation

Plant commissioning &test operation

Training for Operation &

Maintenance

The allocations of responsibilities at the business implementation process are shown

below table:

Table 22. Allocation of responsibilities

No

.Section Description

First

Myung-

Jin

JVC

1. Plant Set-up Flooring ; GroutingDistributing panel of electric power supply;Air pressure supply ;Floor work ;Pit for protect wire and pipeAnchor bolting

2. Machinery Design and engineering Manufacturing Delivery Supervision of Installation Test running

7/29/2019 ppback

47/101

7/29/2019 ppback

48/101


48

IV. The Basic Business Plan

1. The factory establishment

1.1 Location Evaluation

Plant is planned to be constructed at Sumgait Industrial Complex which is situated atthe 50 km of the Baku-Quba highway.

Picture 1. The location of the land

The attractiveness for raw material procurement, infrastructure are main reason forselection of this area for plant construction. The attractiveness points of the selectedarea are shown below: It is only 1 km far from the area to the Baku-Quba highway. Baku-Quba highway

was reconstructed in 2008. It takes only an hour to reach to the airport and it is40-50 km from the site to seaport.

In front of the area it is situated railroad area. This branch of railroad is used forraw material procurement to chemical companies operating nearby;

The area is situated not far from Electric power supply station. And it giveadvantage in electric energy supplying;

The water supplying pipeline is 200 meters far from the area; The area is situated in Sumgait and the salaries lower compared with Baku.

The weak points of the area are shown below: It is far from main consumers (buyer and mills). So, main buyers and mills are

situated in Baku. It is far from the Baku Seaport;

7/29/2019 ppback

49/101

7/29/2019 ppback

50/101


50

Barrel Material SACM#645

Auto Hopper Loader AttachedT-Die Die Type Coat hanger type (Double lips)

Die Length mm 750Temperature Control 5 Sectional control

Cooling Cooling Method Water Quenching BathSlitting Slitting Method Single Edged stationary Razor Blade

Stretching

& Annealing

Stretching Method Hot Plate TypeStretching Ratio 5~7 TimesAnnealing Method Hot Plate Type

Winder Winding Method Torque Motor per Each Spindle

Number of Spindle 280Bobbin Diameter (inside) mm 35

Traverse Length inch 8Traverse 4 Lead Single Track Scroll Cam

Tension Control Magnetic SystemLine Speed m/min Max 250

Control Panel Cabinet Stand TypeLayout Space L x W x H m 50.3x 6 x 3.82. Circular Loom -- 30 sets

Model: WCL-80 Type

Item Unit MJ-80 Type

Shuttle Speed RPM 800

Shuttle pcs 4

Weaving Speed PPM 840Tubular Lay Flat Width Cm 26~80cm

Weft Package mm 155

Weft Density p/in 7~14

Warp Creel pcs 640

Dia. of Web Roll mm Max 900

Main Power Hp 7.5

Layout Space M 10.2(L)X2.2(W)X3(H)

7/29/2019 ppback

51/101


51

Item Unit Model

1 Color Printing, Cutting, Folding and Auto Sewing

M/C

MJ-CPS 85

Machine Speed bags/min Max 30

Automatic Stacking bags 0~100Tube Width mm 840Tube Length mm 26~80cm

Sewing Length mm 155

Layout Space m 9.5(L)X5.1(W)

Manual Sewing M/C MJ-25

Seam Double Thread Chain Stitch

Stitch Range mm 7~11

Material Thikness mm up to 8mmNeedle DRx2 #25 or #26

Layout Space m 1.2(L)X0.5(W)X0.7(H)

1.2.1 Price

The price of the production equipment is 1,695,000 US dollars. This price includesanchor bolting, design and engineering, manufacturing, delivery, supervision ofinstallation, test running, supervision of Start operation, design, training of localPersonnel at the plant site, Technical transfer of Manufacturing know-how.

1.2.2The candition of the payment

The value of the contract will be paid by letter of credit by bank transfer. The letter ofcredit must be reliable during whole delivering time plus 60 days.

1.3. Import of the facilities & equipments

Tariffs are set at 15%, 5%, 3%, or 0.5%. Most goods carry the 15% import customs duty.There is also a 18% value-added tax on certain imports. A dividend withholding tax of

15% is applicable to monies sent abroad.

7/29/2019 ppback

52/101


52

For the production equipment it is defined 0,5% custom tariff. (Group 84: Nuclearreactors, boilers, machinery and mechanical appliances; parts thereof, Tariff item 844120 000 0 machines for making bags, sacks or envelopes)

It is defined 18% Value Added Taxes for the production equipment too. But this taxamount is refundable. (Extract from Tax Code of Azerbaijan Republic, Article 164,164.1.5. investment of any property in the form of share into the charter fund (capital) ofenterprise, with exception of imported property (investment of property as a share, if itis not directly related to obtaining of other property))

It will cost 3000$ for each container to bring equipment from Bandar Abbas, Iran to thefactory site with cargo including insurance expenses. (Total 20 container).

1.4. Production process flowPP resin is heated with feeler of CaCo3 and pigment, melted and extruded as a flat film.

It is then slit into tape yarn by the slitting unit and stretched and annealed. Next, a take-up winder winds the heat oriented tape yarn onto a bobbin.

Thread from the bobbin in the circular rooms creel stand is woven into tubular cloth.

After being printed and cut, the cloth is made into a PP woven bag by the sewing

machine.

Picture 2. The production flow

7/29/2019 ppback

53/101


53

2. The Production & Sales

2.1. Capacity

The production capacity of the equipment is 1.564 bags / min. The factory is going towork in three shifts (24 hours) and 365 days per year. The equipment works with 90%efficiency. So the maximum capacity of the factory is 8,2 million sugar bags and 34,8million grain bags per year.

2.1.1 Key factors for making decision on capacity

Key factors for making decision on capacity are stated below:

The planned production capacity of the factory is shown below table:

Table 23. Using of capacity

04.2010-

09.2010

10.2010-

09.2011

10.2011-

09.2012

10.2012-

03.2013

04.2013

-09.2013

10.2013-

09.2014

PP bag 60% 75% 85% 85% 95% 95%

2.2. Cost Analysis

2.2.1 Raw materials (main and sub materials)The following raw materials required for the production of the PP bag:

Poly-propylene (Flat Yarn Grade) CaCo3(Calcium Carbonate) Master batch (Pigment) Sewing threads Printing ink

Poly-propylene (Flat Yarn Grade)

The properties of the poly-propylene (Flat Yarn Grade) are shown below table:

7/29/2019 ppback

54/101

7/29/2019 ppback

55/101


55

Master Batch (Pigment)

The properties of required master batch are shown below:

Table 26. The properties of master batch

Type : Dry color type

Color : According to the specification of color ofbag

Mixing : Resin : Master batch 100 : 1Property : Good resistance to heat, up to 200 - 280

for 10 minutes, to weather up to 200 hoursin weather meter enough to be applied toproduction.

It is required 0.03 g and plus 10% technical loss per bag. For full capacity it is required2,45 tons for sugar bag and 4,5 tons for grain bag. For white color bags it is not requiredmaster batch.

Sewing Threads

The properties of required sewing threads are shown below:

Table 27. The properties sewing thread

Material : Vinylon or P.P spread yarnNo. of filament: 20S/6 Clock wise twistWinding : W't : 1 kg/coneTraverse : 6 inchBobbin Taper bobbinTensile strength: More than 6 kgElongation : 10 to 15 %Linear length : approx 5,000m/kg

It is required 1 g and plus 10% technical loss per bag. For full capacity it is required 8tons for sugar bag and 38 tons for grain bags. Totally it is required 46 tons.

Printing Ink

Based material of printing ink is polyamide resin. Content of non-volatiles and of inkcolor is given as below:

Table 28. The properties of printing ink

Color shadeNon-voltaire

(wt %)

Viscosity

poise at 25

FPP Yellow 230 : 431 155FPP Bronze Red 335 : 471 2.20.8

7/29/2019 ppback

56/101


56

FPP Geraum 335 : 451 3.52.5FPP Bronze BlueCF-9-8498 :

411 1.50.5

FPP Blue 800 : 461 1.00.5FPP Gree n E-2604 : 441 105FPP Black 1000 : 461 1.30.7FPP Cream Non-skidvarnish T :

421 3.31.7

It is required 2 g and plus 10% technical loss per bag (one color). For full capacity it isrequired 94 tons.

Thepurchasing prices for main and sub-materials are shown at below table:

Table 29. Prices for raw materials

Raw materials Price per ton

(US dollars)

Supplier Consumption

(Per year, ton)

Poly-propylene (Flat YarnGrade)

1090 Turkmenbashi oilrefining factoriescomplex

3,341

CaCo3(Calcium Carbonate) 210 Wholesaler inlocal market, Iran

175

Utility requirements

Electric Power Supply

Electrical devices of the Machine and Equipments correspond to International standard:

Voltage of Electricity 220V, 380V or 415V (Neutral wire shall be loadable)

Control Voltage 200V single phaseMax. Voltage Fluctuation +/- 10 % of normal valueFrequency 50 or 60 Hz.

Cooling Water

The standards for required water are:

Operating Pressure 2 - 4 kg/cm2

Temperature 15 - 20CHardness Max. 50ppm of CaCo3PH value 7.5 - 8.0Classification Soft water

Compressed Air

The standards for required compressed air are:

7/29/2019 ppback

57/101


57

Operating Pressure 6 - 7 kg/cm2

Dew Point - 30CDust, Oil & Water content None

Table 30. Utility consumption

# Description Quantity Water req. Air req.Electric

Consumption

1. Flat yarn machine 1 5.4ton/hr 900NL/min 410kw/h

2. Circular Loom 40 240 kw/h

3. Printing, Cutting

& Sewing M/C

3 18 kw/h

4. Manual sewing M/Cr 1 0.4

5. Press & Banding M/C 1 0.756. Air Compressor 22.5

Total 5.4 ton 900NL/min 668 kw/h

7/29/2019 ppback

58/101


2.3. Operation

2.3.1 Organizational chart

Chart 10. Organizational chart of the plant

7/29/2019 ppback

59/101

7/29/2019 ppback

60/101

7/29/2019 ppback

61/101

7/29/2019 ppback

62/101

7/29/2019 ppback

63/101

7/29/2019 ppback

64/101


2.4.5 Market strategy

Taking into account all above mentioned issues we will first focus to grain productioncompanies/persons and mills. To realize this purpose our marketing strategy:

Product to offer the product that will satisfy the needs and wants of thecustomers;

Price select the competitive price. Promotion select the most efficient means of promoting and creating

awareness of the product in the marketplace Distribution select the most efficient means of bringing the product to the

marketplace.Marketing strategy is prescribed more detailed below at chart:

Start phase the plant will select target market segments and introduct ti this markets.To achieve to these targets it will be provided active promotion campaign.

Growth phase the plant is planning to increase production capacity from 60% to 85%and increase market share.

Jump phase the plant is planning to increase production capacity from 85% to 95%and market share accordingly.

2. 4.5.1 Product

There are different types of PP bags are in use in local market. Consumers use it forpackaging of sugar, grain, hazelnuts, animal foods and etc. But the properties isdifferent for each type of product that counted above.

Our final products are sugar bag and grain bag. The properties of the PP sugar bag are:

7/29/2019 ppback

65/101


Table 35. Properties of sugar bag

Shape of bag : Bottom sewn

Dimension of the bag : 1000mm(L) x 550mm(W)Weight of the bag: Approx. 115gr/bag

Cutting Length: 1,000mmMaterial: Polypropylene Flat yarn grade.Denier of yarn: 1000 D (1.95mm - width)Density of weaving : 10 warps x 10 wefts/inch

The properties of the PP grain bag are:

Table 36. Properties of grain bag

Shape of bag : Bottom sewn

Dimension of the bag : 1050mm(L) x 550mm(W)Weight of the bag: Approx. 65 gr/bagCutting Length: 1,000mmMaterial: Polypropylene Flat yarn grade.Denier of yarn: 1000 D (1.95mm - width)Density of weaving : 10 warps x 10 wefts/inch

2.4.5.2 Pricing strategy

In selecting the prices for the products the factory takes into account the followingprinciples:

Select the most profitable prices; Select the most competitive prices; Select the prices that allow us to position in the marketplace. Select the price that can affect to the demand of the consumers.

There are two main factors in formulating pricing strategy: Price of polypropylene; Price of competitors.

Price of polypropylene. In the beginning of July Polypropylene prices remained steadyfor long time and increased in second half of the month. Polypropylene granule priceslingered at a low level in the in the beginning of the month, because many of theproducers settled previous goods at low prices. In the beginning of the first week of

July price of Polypropylene in the F E Asian region was US$ 1120/ton and in S E Asianregion price was US$ 1110/ton. In the U.S.A market U.S Total offered a cargo at the levelof US$ 1100/ton but it was hard to find any buyers in poor economic condition. In Asianmarket Reliance offered Polypropylene raffia grade at US$ 1130/ton for the August

delivery. Basell concluded its June quotation of Polypropylene raffia grade at aroundUS$ 1280/ton. APPC in M E Asia announced its August offers at US$ 1150/ton. Tradingvolume in the market was moderate, inquires for imported cargoes were increased as

7/29/2019 ppback

66/101


market faced supply shortage by the end of the first half of the last fortnight. Price ofPolypropylene raffia grade remained stand still and was assessed at the same level ofthe beginning of the last fortnight of July only. Price of PP raffia in the F E Asia and in SE Asia was offered at US$ 1120/ton and US$ 1110/ton respectively. In the U.S.A marketPolypropylene price was expected to rise further up to 8.5 cents/pound which was

assessed in the range of 40 cents/pound to 50 cents/pound. Buyers in U.S.A market werereluctant to purchase more material at current prices due to uncertain short termdemand which could not strengthen the market fundamentals.

In the beginning of the second half of July Polypropylene producers began to releasenew nomination prices and offers, which were mainly accepted by the downstream

buyers which pushed the price ahead. The supply side turned thinner in the second halfwhich provided good fundamental support to the producers and traders' to hike offers.Buyers were not very keen to buy at the higher rate and kept the stance of wait andwatch as price of Crude Oil and Naphtha was decreasing. Price for August nomination

was increased by other firms in Korean and in Chinese region too. S Korea basedHonam Petrochemical offers for August delivery surged to US$ 1170/ton which wassame as the offers from SGC Thailand for August delivery of Polypropylene raffiagrade. China based PetroChina increased its offered rate for Polypropylene raffia toRMB 9900/ton. European polypropylene prices leaped high by around 100/ton due toproduction cutbacks and firm demand. Price of PP in European market was assessed at

900/ton which was earlier at 800/ton. Production of Polypropylene in Europeanregion was reduced in double digits on Y-O-Y volume analysis and current operationalrate of crackers producing Polypropylene in European region was approximately near

75 percent only. Polypropylene raffia grade imported from Mediterranean Sea marketwas offered at 1160/ton in Chinese market whereas Russian raffia was offered in therange of US$ 1150/ton to US$ 1160/ton. A costliest offer was from US Total whichoffered the material at US$ 1190/ton for August delivery. By the end of the second halfof the last fortnight price of Polypropylene raffia grade increased mainly due to tightavailability. In Chinese market mainstre

ppback

Documents

Transcript of ppback