Factory will consist of equipment to process 3,500 tons of beets per day with a refinery capability of approximately 500 tons sugar per day. This shall include all the main sugar processing equipment, together with all the ancillary equipment such as boilers, electrical generating equipment, rail and road access, effluent treatment and animal feed palletizing plant. Agricultural equipment envisaged to be purchased should include tractors, harvesting machines, seed machines and general farming implements. Infrastructure requirements include capital provided to assist the farmers in re-establishment of infield irrigation and drainage
channels, together with minor irrigation equipment. Funds are allocated to provide seed and operating capital to start developing the 6,000 ha for beet production. Project and Engineering Fees cover items such as engineering, project management, site construction management, freight, insurance, construction interest, etc.
Legal Status:
The Spitak Sugar Corporation Ltd. shall be a legally registered company in accordance with internationally accepted practices, stock ownership and equity participation.
Local Strategic Partners:
In parallel with the ongoing feasibility study, various Armenian and US entities have been approached for strategic partnerships. SAIL has expressed an interest in participating as the technical partner assisting in design and management of the factory. Additional partnerships are being solicited and developed with transporters of raw materials / finished product and distributors of refined sugar. Supply contracts will be set up with the local fruit canning and fruit juice industries. Once the feasibility nears completion other trade partnerships will be investigated for exporting and distributing refined sugar in neighboring countries. In addition partnerships with the local dairy and beef industries to supply high grade animal feed, and with local distillers to sell off the excess molasses are being pursued Several international parties have also expressed a willingness to take up some equity. Once the feasibility study is completed, an extensive marketing effort shall be undertaken to identify further interested investors and financiers
Current Operations: None.
Sales and Marketing Plan:
It is anticipated that the factory will process 300,000 tons of beet per annum with an approximate sugar production of 42,000 tons in 110 days. Another 86,400 tons of refined sugar is expected to be refined from imported raw sugar. This represents a total of approximately 128,400 tons of sugar. A projection of annual official figures indicates that over next five years, sugar consumption will even out at between 80,000 and 100,000 tons annually, allowing approximately 30,000 tons to be exported to neighboring countries. The entire production is to be sold in 50 kg bags and distributed to the local retail market as Spitak Sugar Corporation Ltd. sugar. It is currently too early to determine the retail sugar price. The factory will also benefit from producing approximately 25,000 tons of high-grade animal-feed pellets that will compete with world market quality. This will largely replace costly animal feed and support the beef and dairy industries. A small amount of molasses, i.e., approximately 3,500 tons, will be produced and sold to distillers.
Business Plan:
After finalizing the technical aspects and the feasibility of the project, a business plan will be developed. Current indications suggest that full factory production could be anticipated in 5 years after commissioning with positive cash flows expected after the 3rd year of operation. Current IRRs and ROEs are expected between 14-18% and 40-46% respectively. Most importantly, the economic return of the project derives from generating urgently needed employment opportunities and obviating the need for costly imports. It is therefore anticipated that the economic rates of return will be approximately 60% -- the largest economic benefits accruing to the Spitak region.
Competition: Currently competition is from imported sugar brought in from Iran and other neighboring countries.
Investment, Capital Cost and Financing Structure Proposed: As detailed above, the estimated capital cost at this early stage is between $110-135 million. The financing structure will be developed in due course.
Regulatory Considerations:
It is expected that the Government will levy taxes on imported refined sugar for a period of 5 years thereby allowing domestic sugar industry to establish itself and grow thereafter. Subsequently, once international transport barriers are removed this protection is expected to be phased out.