Identifying and Evaluating Potential Plant Locations for a Glass Manufacturing Company
Background and Challenge
The client, a leading glass manufacturing company wanted to identify locations for setting up its plants for future expansions. The company had chalked out its capacity expansion based on the five year business plan. However the company wanted to conduct a thorough evaluation of all the possible options of plant locations. The client turned to UC with the following issues:
- Is brown-field expansion beneficial for the company?
- Which are the other locations suited for glass manufacturer?
- What will be the long term benefit of being at such locations?
- Are there benefits of locating in a Special Economic Zone (SEZ)?
- What parameters are to be considered for selecting a new location?
The top management was also evaluating of signing a long term contract for Natural Gas. Thus, it requested UC to provide answers to the following queries:
- What will be the trend in prices of Natural Gas?
- Are the terms of the Gas agreement stacked against the company?
- Should the company sign a long term contract for energy security?
- What quantity of gas should be contracted, if any?
- Should the company shutdown the existing plant facing gas shortage and relocate at the location of new expansions?
Approach and Recommendations
To identify the plant locations for the client, UC adopted the following approach:
- Assessed the existing plant infrastructure for the following parameters:
1) Extent of capacity expansion
2) Capital expenditure required for brown-field expansions
3) Estimated life of existing infrastructure
- Defined the key parameters to be evaluated for glass plant location:
1) Raw material availability and cost (Quartz, Dolomite, Feldspar etc)
2) Logistics cost (Sea port proximity, cost per ton per km etc.)
3) Power availability and cost (Availability of natural gas, HT power, etc)
- Evaluated the requirement of each of the above parameters for future capacities:
1) Tons of raw material required
2) Total outbound logistics requirement (In tons)
3) Requirement of natural gas (mmscmd) and power (KWH)
- Evaluated the benefits of locating at SEZ
1) Direct tax benefits (Sales tax, excise, etc)
2) Indirect tax benefits (100% income tax benefit for 1st 5 yrs, 50% for 6-10 yrs and conditional 50% in 11-15 yrs, No MAT etc)
3) Other benefits (Exemption from electricity duty etc.)
- Identified and evaluated Multi product and Ceramic SEZ set up in the country (Evaluated credibility of developers, SEZ size planned, LOIs received etc.)
- Evaluated economic benefits of locating at SEZ
- Mapped overlaps of locations with raw material, power, port proximity and SEZs to identify attractive locations for setting up the future capacities
To evaluate the long term natural gas contract, UC evaluated the following approach:
- Estimated future gas requirement for the location
- Estimated demand and supply scenario of natural gas for the next 15 years
- Evaluated financial implications of the gas contract for different market scenarios
The client received a detailed analysis of the attractive locations for setting up its future capacities and also the evaluation of the long term contract for the natural gas needed by the company.