Feasibility study on environmental improvement and energy ...

NEDO-IC-00ER07 04

Feasibility Studyon

Environmental Improvement and Energy Conservation

ofa Mercury / Diaphragm Cell

Chlor-Alkali Plant

March, 2 0 0 1

2 005 092-0

New Energy and Industrial Technology Development Organization

Consignee : Japan Consulting Institute

Feasibility Study on Environmental Improvement and Energy Conservation of a Mercury / Diaphragm Cell Chlor-Alkali Plant

Japan Consulting Institute March, 2001

Page: 156The investigation target :

This basic survey is to be carried out for the State Concern Azerchimia. Azerbaijan.This project is the basic investigation for cutting down the greenhouse gas by the energy conservation introduction of technology of our country.The energy conservation modification in the chemical plant is planned, and the energy conservation cost performance of the project, the greenhouse-gas curtailment cost performance, profitability, circulation, etc. are investigated.It aims at investigating that it should consider as the promising project connected Clean Development Mechanism (henceforth CDM) which our company will carry out in the future.

Introduction

This report is summarized the conclusions on the feasibility study on mercury-chlorine antipollution project for State Concern Azerchimia of Azerbaijan Republic, which Japan Consulting Institute was contracted as a joint implement project in the 2000 fiscal year from the New Energy and Industrial Technology Development Organization (NEDO).

The Third Conference of the Parties to the United Nations Framework Convention on Climate Change (COPS) was held in Kyoto, Japan in December 1997, and at the conclusion of the conference, the Kyoto Protocol was targeted for developed countries (including former USSR and Eastern Europe) to reduce their overall averaged emission rate of greenhouse effect gases such as carbon dioxide by at least 5 percent below 1990 levels between 2008 to 2012 in order to prevent the global warming. In the Kyoto Protocol, the reduction target for Japan is adopted to 6 percent. Joint Implementation(JI) and Clean Development Mechanism(CDM) are possible measures provided by the Kyoto Protocol to afford flexibility for achieving this goal positively acted to reduce the emissions of greenhouse effect gases collaboratively and distributing the result among numerous countries.

The purpose of this basic survey is to contribute to the reduction of the greenhouse effect gas by introducing the Japanese energy conservation technology. It is also to aim at finding the possible project, which will be realized as Clean Development Mechanism with the corporation in Japan, through this feasibility study.

Considering the above background and objective, this energy conservation project is selected and feasibility studies are conducted for State Concern Azerchimia, Sumgait, Azerbaijan.

We, Japan Consulting Institute, wish to express our gratitude to the persons to be cooperated with this feasibility study, and sincerely hope that this report will be useful to all persons concerned .

March, 2001Japan Consulting Institute

Table of Contents

Introduction

Outline 1

Chapter 1. Basis of Project Planning 1-11 Present Status for Partner's Country 1-31.1.Political, Economic and Social Conditions 1-31.1.1 Political, Social Conditions 1-31.1.2 Economic Condition 1-71.2 Energy Situation 1-121.3 Needs of Project of CDM 1-202 The Need for Introduction of the Energy Conservation Technology in the Target

Industry 1-223 The Significance of the Project: Needs, Results, and Dissemination of

Information within the Industry 1-23

Chapter 2 Materialization of Project Planning 2-11 Project Planning 2-31.1 Outlines of the Regional Conditions for the Project Site 2-31.2 Description of the Project Scope 2-41.3 Greenhouse Gas to Be Reduced 2-182 Outlines of Counter Partner 2-192.1 Concerns of Counter Partner for Project Implementation 2-192.2 Status of the Related Existing Facilities at Counter Partner 2-192.3 Capability of Project Implementation at Counter Partner 2-232.3.1 Technical Capability 2-232.3.2 Management Organization 2-232.3.3 Company Management Policy 2-242.3.4 Financing Capability 2-242.3.5 Manning Mobilization 2-252.3.6 Project Organization 2-252.4 Project Scope of Works and Technical Specification for the Related Facilities

after Modification at Counter Partner 2-262.4.1 Production Facilities 2-26(1) Design Conditions 2-26(2) Production Process 2-29(3) Plant Layout 2-32

(5) Raw Materials and Utilities 2-35(6) Environmental Countermeasures 2-362.4.2 Plant Operation 2-38(1) Production Schedule 2-38(2) Required Number of Employees 2-39(3) Training Plan 2-39(4) Recruiting Plan 2-392.5 Split of work between Both Parties for Supply of Project Funds, Equipment

and Materials, and Service etc., at the Project Execution 2-402.6 Expected Preconditions and Problems at the Project Execution Stage 2-412.7 Project Execution Schedule 2-433 Materialization of Project Financial Plans 2-473.1 Capital Investment Program for Project Execution 2-473.1.1 Total Investment Cost 2-473.1.2 Financing 2-503.2 Forecast of Project Funds Preparation 2-514 Condition of Relevant Items for CDM 2-524.1 Adjusting Items by the Counter Partner Side for Formation of CDM

Realization such as Project Execution Condition Establishment, Split of Work, etc. which are Based on Project Execution for Actual Condition on Site 2-52

4.2 Possibility to Agreeing on Concerned Project as CDM 2-54

Chapter 3 Results of Project Execution 3-11 Effects of Energy Conservation 3-31.1 Technical Ground of Energy Conservation Effect 3-31.2 Baseline to be used for Calculation of Energy Conservation Effect 3-41.3 Energy Conservation Definite Value, Duration and Cumulative Value 3-61.4 Measurement of Energy Conservation 3-92 Reduction of Greenhouse Gases 3-102.1 Technical Ground of Reduction of Greenhouse Gases 3-102.2 C02 Emission Baseline for Calculation of C02 Emission Reduction 3-112.3 C02 Emission Reduction- Definite Value, Duration and Cumulative Value

3-132.4 Measurement of Greenhouse Gases Reduction 3-153 Effect to Productivity 3-16

Chapter 4 Project Economics 4-11 Economical Effect on Retrieve from Investment 4-31.1 Financial Evaluation 4-3

1.1.1 Conditions for Financial Evaluation 4-31.1.2 Operation Cost 4-61.1.3 Financial Statements 4-101.1.4 Financial Indices 4-211.1.5 Evaluation 4-232 Cost benefit of Project 4-24

Chapter 5 Confirmation of Effect on Promotion for Energy ConservationTechnology 5-1

1 Possibility on Promotion of Introduced Technology in the Partner's Country. 5-32 Effects Considering the Promotion 5-32.1 Energy Conservation Effect 5-32.2 Effect on Reduction of Greenhouse Effect Gas 5-3

Chapter 6 Effects to Others 6-11 Influencing Others Environmentally, Economically, and Socially while

Obtaining Effect on Energy Conservation and Effect on the Reduction of Greenhouse Gas by Implementing the Project 6-3

(1) Environmentally 6-3(2) Economically and Socially 6-6

Conclusion 1

Attachments 11 Reference List 32 Site Survey Report 43 Member List 9

Outlines

In order to prevent the global warming by the greenhouse gas including carbon dioxide etc, the basic survey was carried out for the energy conservation study by means of the new provision of Chlor-alkali plant with ion exchange membrane technology for State Concern Azerchimia located at Sumgait in Azerbaijan Republic.

Our survey team visited this plant site as the 1st site survey in September, 2000. The design data and present operational information on the existing chlor-alkali plant, especially overall plant for electricity, steam, chemical consumption status, were collected from the Azerbaijan partner, and carried out the physical surveys on actual status of facilities and operating conditions.

The capacity of the plants was designed at 145,000 ton per annum. They are composed of the 80,000 ton per annum from the mercury amalgamation plant (Constructed in 1973) (hereafter Mercury section) and the 65,000 ton per annum from the asbestos diaphragm plant (Constructed in 1975) (hereafter Diaphragm section). Due to the old technology application, insufficient maintenance, corruption of politics and economy in this area, the production capacity of its caustic soda plant was rapidly decreased to 20,000 to 40,000 ton per annum only, at this moment..

The facilities of Azerchimia is so aged and it needs much electricity in comparison to the latest technology. If the Azerichemia will replace its caustic soda production facility to the latest one, the saved energy consumption will reach certain volume, and it may contribute to the reduction of the greenhouse gas. It is obviously cleared that the energy conservation effect becomes possible by reducing the purchased power drastically from an external thermoelectric power plant.

Azerbaijan side partner shows the very high interest and the good appraisal on not only for the drastic reduction of carbon dioxide, but also saving of the plenty amount of purchased powers from the outside power station by realization of this project.

Outlines 1

Site survey team visited the plant site in December, 2000 as the 2nd. survey. The general technical presentation was made on an ion exchanged membrane process of chlor-alkali plant, and meeting on discussions for a replacement plan and a system was held at the survey.

Again our site survey team visited the plant site in February, 2001, as the 3rd. survey, and the interim study report was made on the concrete replacement plan and the possible energy conservation effect.

The object of survey was decided to new construction of a new cholor-alkali plant, and carried out the detailed survey and the study.Consequently, if this energy conservation project is realized, the reduction effect of carbon dioxide will be 131,000 ton / year.

Although it became serious problem of the shortage of the production of caustic soda, the pollution of the soil by the Mercury section also became quite serious issue for the region. The mercury amalgamation method leads to the pollution of the soil from its nature and many caustic soda plants are changed to the latest technology around the world. At least, Azerchimia is forced not to increase its production capacity from its Mercury section under this environmental circumstance.

Azerbaijan government is also well aware of the situation and the urgency of the solving this problem, and putone of the top priority on this project among others.

Apart from the environmental preservation, the production demand for the plant shall also be focused. The caustic soda demands comes from the major industries such as Aluminum refining, oil refining, oil & gas exploration, as well as the public usage. The possible demand of the chlorine, of the co­production of the caustic soda has the public demand, such as for the sterilizer, etc as well as the industrial usage, and may reach 100,000 ton per annum basis.

As introduced in the above, the renewal of the caustic soda production

Outlines 2

facility to the latest state of art of the technology is one of the most urgent issue for the Azerbaijan Republic.

In this study report, the loan with soft conditions, such as Japanese Special Environmental Yen Credit is considered, due to the strong request of Azerbaijan side with following reasons:(a) To prevent the extension of the mercury pollution to the Caspian Region.(b) The foreign investments to Azerbaijian are concentrated to the oil and gas

developing industries.( c) The strong hope of the Azerbaijan Government to develop its industries

other than the Oil &Gas Industries.(d) The low viability of the project and the repayment capability of the

Azerbaijan Republic.

And also he respectfully requests for cooperation in a technology and a financial aspect to Japanese side in its promotion and realization. By obtaining of the technology and the financial supports by Japanese side, he has the strong volition to implement this Project.

As an investigation result, it was obtained that this project contributes not only the reduction of the large amount of greenhouse gas, but the energy saving and the profitability of plant operation of the State Concern Azerchimia.

The Japanese side will be due to perform technical assistance, such as the cooperation for support of a detailed FS execution, a project detailed plan, and sending engineers, toward a project implementation from now on.

Outlines 3

TEXT

Chapter 1

Basis of Project Planning

ChapOl 1

ChapOl 2

Chapter 1 BASIS OF PROJECT PLANNING

An explanation of the present status of the Azerbaijan Republic follows, divided in terms of Geographical Features, Social and Economic Conditions, and Energy Status.

1 Present Status for Partner’s Country

1.1 Political, Economic and Social Conditions

1.1.1 Political and Social Condition

Since the Azerbaijan Republic became independent in August 1991, a state of political instability has continued. At present, Azerbaijan is on its third president. The first president, Mr.Mutaribov was forced by pressure from the strong nationalist power to resign in March 1992, about six months after his appointment, and he returned to Moscow. The second president, Mr.Elichibey, was the leader of Azerbaijan’s nationalist front; he was elected in the national elections in June 1992. Campaigning under a slogan of building a Turkish-type modern Islamic state, he rejected CIS membership. However, Turkey and Iran did not actively support Azerbaijan. In addition, under the influence of the Nagorno-Karabakh conflict, the political and economic situation rapidly deteriorated. During this time, the chairman of the highest congress of the self-governing republic of Nakhichevan, which had gained power, was appointed the third president of Azerbaijan in October 1993 and has remained so to this day.

President Mr.Aliev has expanded democracy that “considers local conditions, ethnic traditions and their special characteristics ” and has presented policy to advance the transition to a market economy. In addition, continuing from the previous presidents, he has expressed the goal of terminating domestic military strife.

President Aliev’s achievements since taking office include membership in CIS, restoration of relations with Russia, and entry to and development of international society. The political and social situations have also been comparatively stable.

ChapOl 3

However, despite the 1994 cease-fire to the racial conflict in the self- governing state of Nagorno-Karabakh (75% of the residents of which are Armenian), which seeks union with the Republic of Armenia, in fact, this state and its peripheral areas are widely occupied by Armenia (in around 20% of the territory). In addition, President Aliyev has been strongly criticized for the one million refugees that the conflict has produced. In 1994, for the reason of economic deterioration, there was reshuffling that resulted in Mr.Guriev replacing Mr.Guseinov as prime minister. President Mr.Aliev took the withdrawal of Mr.Guseinov, who had been his foremost political opponent, as an opportunity to strengthen his base of power.

In the parliamentary elections held in November 1995, the “New Azerbaijan” headed by President Mr.Aliev was the overwhelming victor, gaining 78% of the vote. In the national elections held the same month, a draft of a new constitution that would greatly strengthen the president’s authority was adopted. In July 1996, as a gesture of responsibility for the deteriorating economic situation, Mr.Guriev was removed as prime minister and First Vice Prime Minister Mr.Rasi-Zade became the acting prime minister and was then appointed as official prime minister in November 1996. At present, although assassination and abduction attempts involving key people and the like have kept the Azerbaijan Republic’s domestic situation turbulent, Aliev’s regime has nearly a complete grasp of domestic circumstances, and at present, there are no unstable elements in the administration resulting from the authority of this strong president. In October 1998, President Mr Aliyev was re-elected. The problem is that President Mr.Aliev is already of advanced age, over 70, and the political prospects “post Aliev ” are unclear at present.

Country’s Formation: Declared sovereignty in October 1989.Declared independence on August 30, 1991.

Constitution: A new constitution was adopted in November 1995.

National System: Republican, with a president as head of state.

President: Geydar Alievich ALIEV.

ChapOl 4

Born 1923. Following the fallen president Mr.Elichibey (elected in the national elections of June 1992), elected president in October 1993. Reelected in October 1998. Term of office: five years.

Prime Minister: Artur Tair Ogly RASI-ZADE.The prime minister is appointed by the president. After Mr.Guriev was removed as prime minister, Mr. Ras-Izade became acting prime minister and then was appointed as official prime minister in November 1996.

Parliament: Unicameral national party. Quorum: 125.Current parliament elected in November 2000.

Official Name of Country: Azerbaijan Republic

Capital: Baku

Area of Territory: 86,600km2 (one-fourth the size of Japan)

Total Population: 7.862 million (as of end of 1999)

Ethnic Support: Azerbaijans (92.2%), Rezgins (2.4%) Russians (1.4%), etc.(as of 1995)

Major Cities and Their Populations: Baku (2 million), Gianja (300,000),Sumgait (272,000) and Mingechal (100,000); figures as of beginning of 1996)

Language: Azerbaijan (official language)

Religion: Islamic (Shiite sect)

Brief History:13th century: Made part of the Mongol Empire.

15th century, latter half: Entire region of Azerbaijan conquered by Iran’s Safabi Dynasty.

ChapOl 5

18th- 19th centuries: Northern half of Azerbaijan annexed to the Russian Empire; southern half annexed to Iran.

1920: Azerbaijan Soviet Socialist Republic is formed.

1922: Together with Georgia and Armenia, the Zakabkaz Socialist Federation of the Soviet Republic is formed, making it a member of the Soviet Union.

1936: Becomes a member of the Soviet Union as the Republic of Azerbaijan Soviet Socialist Party.

February 1988: Activities of Armenians in the republic seeking the return of the self-governing state of Nagorno- Karabakh to Armenia rise. Azerbaijans opposing this massacre Armenians in Sumgait (the Sumgait Incident). Racial opposition between the two countries intensifies thereafter.

October 1989: Declares sovereignty.

January 1990: State of emergency declared in Nagorno-Karabakh and peripheral regions; the Soviet army is committed.

February 1991: The country is renamed “Azerbaijan Republic.”

August 1991: Declares independence.

January 1992: The Soviet (Russian) army withdraws, and full-scale war with Armenia proceeds.

May 1994: Azerbaijan and Armenia mutually agree to a cease-fire.

(Source: State Statistics Committee; ROTOBO data)

ChapOl 6

1.1.2 Economic Condition

Azerbaijan has long been known as a crude oil-producing area. Since the time of Imperial Russia, its production quantity exceeded half of the world production. In addition, although it is a small country, the fact that it is enclosed by mountain land and the Caspian Sea makes it rich in climatic variation, allowing it to produce a variety of fruits and vegetables in abundance. Its livestock, centering on sheep, and raw cotton cultivation are also thriving.

Although blessed with favorable conditions that contribute to economic development - the climate, resources, etc. - Azerbaijan could not fully utilize them after becoming independent. The conflict with Armenia that began in 1989 concerning the return of the self-governing state of Nagorno-Karabakh; repeated changes in political power; and Russia’s blockage of national borders in the Chechen conflict were a major blow to the economy. In 1995, GDP fell to 42.1% of the 1991 level. In addition, the conflict with Armenia produced one million refugees, spurring on economic deterioration.

However, in the first half of 1994, a cease-fire was established with Armenia. Moreover, from 1995, the Chechen conflict started to come under control, and Azerbaijan’s domestic circumstances gradually recovered stability.

With the stabilization of the political situation, Azerbaijan’s petroleum and gas resources finally began to attract the attention of foreign capital. With the petroleum initiative, the economy has been showing a rousing recovery. Beginning with the September 1994 Azeri-Chilag-Guneshli field deposit development project, since 1996, large oil field development projects have been started one after another, such as Shakh-Deniz field development, Karabav field development, etc. The favorable turn in the economic index actually began in 1996; that year, the GDP recorded its first positive growth (+1.3% from the previous year) since the country became independent. Investments reversed from the 18% reduction of the previous year, 1995, and showed 2.1 times the growth (making it the top CIS country in terms of growth rate). The influx of foreign capital in the

ChapOl 7

petroleum sector, in particular was incredible, and according to an EBRD estimate, Azerbaijan’s direct overseas investment went from 22 million dollars in 1994 to 284 million dollars in 1995, to 661 million dollars in 1996 - an increase of 30 times in 3 years.

Through the full-fledged foreign capital seen in 1996, Azerbaijan’s petroleum development boom enlarged further in 1997, with the spreading effect occurring in each field. In 1997, the GDP grew 5.8% from the previous year, and the scope of growth widened. Industrial production grew 0.3%, at last showing the first positive growth since the country became independent. Investment continued to record major growth: 67%. Taken by sector, the steel industry saw an increase of 530.3% from the previous year; the non-ferrous metal industry a 362.4% increase; the lumber and paper pulp industry a 7.3% increase,. Thus, production in peripheral sectors saw more rapid recovery than the fuel sector itself (which saw a 0.2% increase), with the entire economy continuing to be activated, boosted by petroleum.

In addition, in October 1997, the Baku-Novorossiisk pipeline began operating, and in November of the same year, an AIOC project began commercial production of crude oil (early oil). Thus, crude oil production quantities have been steadily increasing. Moreover, in 1999, in the Shakh-Deniz mining area, a large volume of undergr ound gas condensate was confirmed. Henceforth, the axis of crude oil production is predicted to rapidly expand.

GDP : 40 billion dollars (1999)

Per-capita GDP : 510 dollars (1999)

Economic growth rate : 7.4% (1999)

Price increase rate : 3.7% (1997) Unemployment rate : 1.3% (end of 1997)

Major industries : Petroleum and farming

ChapOl 8

Trade balance : Exports, 781.3 million dollars;Imports, 794.3 million dollars (1997, including CIS)

Major exports : Petroleum products, base metals and textiles

Major imports : Machines, equipment, foods, beverages, and primary plant products

Currency : Manat (introduced on January 1, 1994.)

(The above is ROTOBO data.)

(From the Japan-Central Asia Trade Survey/ ROTOBO)

ChapOl 9

Table 1.1.2-1 Economic overview

1994 1995 1996 1997 1998Population(at beg.of year; in millions) 1) 7.4 7.5 7,5 7.6 7.6GDP (billion manats) 1).2) 1,873.4 10.669.0 13.663.2 15.352.2 15,930.0

GDP/person (1,000 manats) 3) 253.2 1.422,5 1.821.8 2.020.0 2.096.1Actual economic growth rate (%) 1) 4) -19,7 -11.8 1.3 5.8 10.0Industrial production rate (%) 1) -22.7 -17.2 -6.7 0.3 2.2Agricultural production rate (%) 1) -13 -7 3 -7 4Investment (compared with previous year, %) 1) 5)

89 -18 2.1 51 45

Retail sales value (compared with previous year, %) 1)

-15.7 2.3 14.1 14.9 9.1

Consumer price index (compared with previous year, x), 1)

17.6 5.1 1.2 1.0 1.0

Monthly average nominal wages (compared with previous year. %) 1)

742 414 139 161 119

Unemployment rate (%) 1) 0.8 1.0 1.1 1.3 1.4 6)Financial revenue/expenditure (billionmanats) 1). 7)

-192.2 -63.9 83.1 -330.3 -210.8

Revenue (100 million manats) 1), 7) 477.6 2,078.0 2.492.4 1,787.9 1,115,5Expenditure (100 million manats) 1), 7) 669.8 2,141.9 2,409.3 2.118.2 1,326.3Financial deficit (against GDP/%) 2), 7) 10.7 0.9 0.6 3.2

Trade revenue/expenditure ( million US$) 1), 8)

-125 -30 -330 -13 -500 6)

Export value ( million dollars) 1). 8) 653 637 631 781 500 6)Import value ( million dollars) 1), 8) 778 667 961 794 1.050 6)

Rev./exp. in trade with Japan (million dollars) 9)

-2.4 -10.4 -33.0 -17.7 -18.2

Export value ( million dollars) 9) 0.6 0,5 0.3 2.3 0.2Import value ( million dollars) 9) 3.0 10.9 33.3 20.0 18.5

Direct foreign investment (million dollars) 10)

22 282 661 1,093 1.155

Foreign debt (end of year; million dollars) 10)

230 420 560 590

Currency reserve(end of year; million dollars) 10)

2 119 214 467

Exchange rate (manat/dollar) 1). 11) 4,182 4,440 4,098 3,888 3,890

1) CIS Statistics Committee data.

2) For 1992, 100 million rubles.

3) Per-capita GDP calculated by this research institute. Unit for 1992 is 1.000 rubles.

4) Rate compared with GDP for the previous year. For this country, almost matches the GDP

rate of the CIS Statistics Committee and the TMF data.

5) Unit for 1996 is times.

6) Estimated.

7) For financial revenue and expenditure, revenue, expenditure and financial deficit. Jan. to

Sept. 1997 are covered. First half of the year is covered for 1998.

ChapOl 10

8) From 1992 to 1993. trade with CIS is excluded.

9) Statistics from Japan s Ministry of Finance.

10) EBRD data. 1997 is an estimate. 1998 was a forecast for throughout the year. 1 l)At end of term. For 1993. the end of January

ChapOl 11

1.2 Energy Situation

Azerbaijan is known as the world’s oldest oil-producing country. Its first dig, in 1848, was made by a Russian. In the year in the 1890s in which it accounted for half of the crude oil produced in the world, it produced 11 million tons. Its peak was in 1941, when it produced 24 million tons. At first, its oil fields were onshore, but following World War II, its oil field development was transferred offshore (to the Caspian Sea). However, it was affected by the collapse of the Soviet Union, and in 1996, the year it accounted for 0.3% of the world’s production, its production of crude oil stayed at the level of 9 million tons per year.

Azerbaijan’s crude oil & gas production and oil & gas refining is under the jurisdiction of SOCAR, a state oil company established in 1992. SOCAR employs around 70,000 people, 20,000 of whom are engineers. To the present, 67 gas fields and oil fields (42 onshore and 25 offshore) have been discovered, and over 1.3 bilhon tons of crude oil have been produced.

Following Azerbaijan’s independence, beginning with the 1994 Azeri- Chilag-Guneshli field development project, through the participation of European and American oil majors, the following 20 oil & gas development projects, to the present, have been started. Oil production is expected to rapidly develop henceforth.

© Azeri-Guneshli-Chilag Field Development Project (AIOC)

(2) Karabakh Field Development Project (CIPCO) - disbanded

® Shakh-Deniz Field Development

@ Danuldoz-Ashrafy Field Development (NAOC)

© Rankaran-Talish Field Development

© Yarama (D-222) Field Development

(7) Apsheron Field Development

ChapOl 12

(D Oguz Field Development

(D Nakhichevan Field Development

® Kurudash Field Development

(Q) Araz-Alof-Sharq Field Development

© Murajanli Jafari Zardav.Field Development

® In am Field Development

© Southeast Gobstan Field Development

® Kyulsengi Garabagly.Field Development

© Yanataba Ateshgav Mugandeniz_Field Development

© Zafal Mashar Field Development

® Lelik Field Development

® Padar Field Development

® Jifhobsan Field Development

From the oil fields that Azerbaijan has developed on its own, around 9 million tons of crude oil are produced annually (1998). Recent crude oil production quantities are shown in Table 1.2-1. (Production quantities from long ago are shown in Table 1.2-2.) In addition, the oil fields possessed by AIOC in “(1),” above, have produced 2.5 million tons (1998) and 4.4 million tons (1999) of crude oil per year.

Henceforth, oil field development is expected to be activated by an international consortium led by European and American oil major companies. It is forecasted that quantity of crude petroleum produced by the whole of Azerbaijan and quantity of gas to be produced accompanying

ChapOl 13

crude oil development are shown in Tables 1.2-1 and 1.2-2, respectively.

At present, crude oil is exported via the Black Sea using the pipeline that will extend to Russia’s Novorossiisk and the pipeline that extends to Supsa city of Georgia. With the transport capacity of the existing pipelines, crude oil exports for the year 2010 cannot be guaranteed; thus, in the near future, construction of a pipeline that extends to Turkey’s Ceyhan via Georgia is being planned. In addition, for gas exports, routes are being investigated for transporting gas to Turkey via Georgia by effectively using existing pipelines. Presently, although the quantity of output of the DD oil and gas in an oil field development is extended favorably, the quantity is not implementing domestic demand. The crude oil mining project with an international consortium is due to activate, and it is thought that quantity of output is also favorably extended as above-mentioned.

On the one hand, the facility of the petroleum refinery which processes crude oil has the capacity more than domestic demand. However, the capacity operating ratio of the plant is as low as 50% or less by the obsolescence of an appliance. Although Azerbaijan has exported crude oil, it is in the status which has imported a part of petroleum product. For this reason, it is making for the Azerbaijan government to aim at independence of an energy and to carry out effective use of the self-domestic energy resource which does not depend from a circumscription country on import for a petroleum product, petrochemicals, and gas provision at a top priority into the policy.

ChapOl 14

Table 1.2-1 Transitions in Crude Oil Production Quantities (Includes production by international consortiums)

Annual crude oil production (million tons)

1990 12.51991 11.71992 11.21993 10.31994 9.61995 9.21996 9.11997 9.11998 11.41999 13.8

(Source: Azerbaijan State Statistics Committee)

Table 1.2-2 Azerbaijan’s Crude Oil Production Quantity: 1975 to 1996(l,000b/d)

Year Onshore oil fields Offshore oil fields Total1975 116.8 227.2 3441980 99.3 194.7 3941985 78.2 184.7 2631990 51.6 198.7 2501991 45.8 198.9 2341992 40.2 181.5 2221993 38.7 172.1 2111994 34.8 155.5 1911995 32.3 150.7 1831996 30.0 140.0 172

(Source: Interfax Petroleum Report, Aug. ’98)

ChapOl 15

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010yrar

Figure 1.2-1 Forecast of Crude Petroleum Production Quantities in Azerbaijan

(Source: Azerbaijan State Statistics Committee and forecast)

ChapOl 16

CO 12

year

Figure 1.2-2 Forecast of Gas Production Quantities in Azerbaijan (Includes production by international consortiums)

(Source: Azerbaijan State Statistics Committee and forecast)

On electric power, tehre are nine hydraulic power stations and five thermal power stations in Azerbaijan (see Table 1.2-3). Heavy oil and gas are used as fuel of a thermal power generation. Although the power-generation capacity of whole Azerbaijan is 5,000 MW, it is not working by obsolescence 40% of a totality. Since this power network is also built by the former Soviet Union date in consideration of the power condition of the Caucasus area, there is a power- generation aptitude more than domestic demand now.

ChapOl 17

Table 1.2-3 Azerbaijan power plant

Thermal power station

Title Power-plant capacity

Mingechaur power plant 2,400 MWAribairamli powerg plant 1,050 MWSimali power plant 150 MWBaku 1 power plant 100 MWBaku 2 power plant 10 MWSumgait 1 powerg plant 200 MWSumgait 2 power plant 220 MWGenge power plant 72 MWNakhichevan power plant 60 MW

Hydraulic power plant

Mingechaur power plant 326 MWBarbali power plant 16.5 MWShamkher power plant 380 MWAras power plant 22 MWTerter powerg plant 50 MW

Since the present electric power demand remains in 3,500 MW in the winter season and remains in summer at 2,400 MW, even if 40% of status quo does not work, domestic demand can be covered somehow. However, the superannuated appliance repeats and gets down from a power fail frequently, modernizes the appliance superannuated in order to correspond to the electric power demand of the future, and is in the status that a capacity usage ratio needs to be raised.

About the hydraulic power plant, modernization is already advanced using the capital of EBRD, and modernization (it transforms into gas firing) is planned also about the thermal power station using overseas soft loan.

ChapOl 18

Till several years before, although gas provision was received from Turkmenistan, the gas import from Turkmenistan is quitted also as the 'independence of Energy' policy as described the above, and it is planning using gas produced at domestic.

It is considered to be in a background that there is a lot of associated gas produced by the crude oil development with a European and American business enterprise.

It is expected also in a power-generation area that heavy oil-firing power plant is converted into gas firing power generation.

Although most of the fuel of the existing thermal power station is heavy oil, the construction plot of a gas firing generating plant is progressing from the attention to the effective exploitation of gas and the environment.

ChapOl 19

1.3 Needs of Project of CDM

Azerbaijan underwrited the United Nations climate-change framework agreement in 1992, and ratified this at his chambers in 1995.A national climate-change board (a chairman is vice-prime minister Sharihof ) was established by presidential law in 1997, and the global- warming prevention issue has been tackled in this country. .

Azerbaijan also underwrited the Kyoto protocol in 1998 (COPS) , and this was ratified in his Congress in 2000. In this protocol, the greenhouse-gas curtailment set point is not set up to this country. However, in view of the moment of an issue, this country performs enquiry under the technical support program of UNDP for a greenhouse-gas reduction, and has set forth basic measures. UNDP of United Nations is presented about the report in 2000. According to the report, the amount of discharge of the greenhouse gas in Azerbaijan is estimated in the future carrying out economic development, as shown in Table 1.3-1.

Table 1.3-1 Forecast Emission Rate of greenhouse gas in Azerbaijan(Unit : G g)

C02 CH4 N20 Total(C02)

1990 44,703 723 2 90 60,785

1995 30,124 587 2.60 43,257

2000 24,689 730 2.80 40,887

2005 41,544 1,253 3.10 68,818

2010 52,322 1,837 3.30 91,922

2015 59,844 1,946 3 50 101,795

2020 65,729 2,050 3 60 109,895

2025 68,735 2,177 3.80 115,630

(Source : National Climate-change Board )

ChapOl 20

Since the amount of emission is increasing every year, by providing the following implements aims at promoting a warming protection.

- Increase in efficiency of efficient introduction of technique of power station, and power-transmission / power-distribution system

- Energy conservation by renewal of plant and equipment, heat, gas andelectric consumption curtailment, and automatic-control-system introduction

- Energy conservation by new introduction of foreign technology in petrochemical and mining industry

- Introduction of hydraulic power into resources.

- Improvement of traffic system

- Introduction of new energies, such as wind force and solar system

It is forecasted that the aggregate of 3,500 million dollars will be required by such business by 2025. Thus, the global warming is positioned as a material issue as this country, and the establishment by national climate- change board constitution has been prepared. A streak that the clean development mechanism (emission exchange) is also examined in the invocation in the above-mentioned project, and the United States has interested in the emission exchange with this country.

It is thought that the study of concrete projects will also be advanced on the basis of the above-mentioned basic policy from now on. When a developed country pays a part of project capital of the aggregate of 3,500milion dollars, it is thought that the possibility of clean development mechanism formation is high.

However, if concrete methodology about the clean development mechanism realization in COP which is not settled now is established by the international council, it will be thought that the project are materialized quickly.

ChapOl 21

2 The Need for Introduction of Energy Conservation Technology in the Target Industry

With the objective of attaining an advanced level of energy conservation technology progress even by world standards, the necessary plant is to be introduced on a priority basis, taking into consideration the conditions in Azerbaijan and the production conditions of the petrochemical industry. Technical improvements will then be made that will enable production to meet the standards set and allow the reduction of energy consumption.

The Azerchimia’s facility using mercury process is so aged and it needs much electricity in comparison to the latest technology.There are 3 (three) typical technologies of Chlor-Alkali production process State Concern Azerchimia established two Chlor-Alkali plants in 1973 and 1975, which process are mercury method and diaphragm method respectively. In this feasibility study ion-exchange membrane method is applied, which is superior to mercury and diaphragm methods because of the less electrical consumption, free of mercury and high purity of products.If the Azerichemia will replace its caustic soda production facility to the latest one, the saved energy consumption will reach certain volume, and it may contribute to the reduction of the greenhouse gas.

In Azerbaijan energy conservation by introducing new advanced technology in the oil industry is listed as one of the national policy for the reduction of the greenhouse gases. Especially, caustic production plant using mercury process has not only a problem of energy conservation but also a problem of mercury and chlorine pollution. Azerbaijan government is well aware of the situation and the urgency of the solving this problem, and put one of the top priority on this project among others.

As the renewal of the caustic soda production facility to the latest state of art of the technology can solve the above problems, the project is one of the most urgent issue for the Azerbaijan Republic.

ChapOl 22

3 The Significance of the Project: Needs, Results, and Dissemination of Information within the Industry

The achievement of the project’s energy conservation goals would have considerable merits for the plant in terms of earnings, protection of the environment, and the securing of a sufficient supply of energy by converting the caustic soda plant from the mercury process to ion exchange membrane process.

(1) Significance, Needs, and Results

1) The project is in accord with the aims of the majority of energy conservation policies being promoted by the Azerbaijan government, as described above.

2) By implementing the project, Azerchimia has the following merits on energy conservation:

(D Since power consumption is reduced in the caustic soda plant, the rate of self support for power consumption is raised in the factory.

@) The production cost of caustic soda and chlorine is reduced, since the energy consumption is decreased in the new process. Therefore, the products will have cost competitiveness.

(3) The reduction of the amount of C02 emissions would help to prevent global warming

@ Since the project can contribute the environmental conservation, there is thus a possibility of the receipt of some form of incentive (easing of regulations, financial assistance, etc.).

3) The external leakage of mercury and chlorine is spreading to theresidential area around Azerchimia Factory, and it is suspected that in the near future, contamination of the environment through mercury and chlorine gas will become a major problem for the factory.

The project is to convert the chlor-alkali plant from mercury process to ion exchanged membrane process not using mercury in the Azerchimia. The project will ease the burden on the environment problem described above in the Azerchimia.

By not using mercury in the production process of the project, mercury lost will not released into to atmosphere, not discharged with waste water or not discharged in plant wastes. Therefore, the project has

ChapOl 23

economical merits against continuing the operation of the existing plant with mercury production process as follows:

(D No investment required for clean-up for mercury containing sludges and for decontamination of the most polluted sediments

© No risk of mercury contamination into ground water and leakage to the Caspian Sea.

(3) No risk of increase of mercury level in sturgeon and other fish in the Caspian Sea and of negative consequences for the sturgeon and caviar markets

@ No risk of severe health associated with mercury in the food chain

© Improvement of chlorine gas leakage problem

(2) Dissemination of Results within the Industry:

The caustic soda plant of Azerchimia is the single source of supply for Azaebaijan, Caucasus area and Caspian Sea coastal area. Therefore, the possibility of its disseminating over the area may not be low.

However, many cholor-alkali plants using mercury method same as the Azerchimia plant have been operated in CIS and East Europe countries. The energy conservation technology not utilyzing mercury that is to be introduced under the project would also be usable at other countries, and thus one of the looked for fruits of the project’s implementation is the spread of usage of such technology to other countries suffering from the same problems.

ChapOl 24

Chapter 2

Materialization of Project Planning

Chap02 1

Chap02 2

Chapter 2. MATERIALIZATION OF PROJECT PLANNING

In this chapter, planning, contents, schedule and budget for the project of energy conservation for the State Concern Azerchimia, Azerbaijan are described.Furthermore, a scheme is described about the valuation, the concern, a bankroll, the prospect of a money raising, profitability for the project.

1 Project planning

1.1 Outlines of the regional conditions for the project siteA petrochemical complex has been built since the USSR age, and Azerchimia was established after the collapse of USSR, in 1992, and the head office is located in Sumgait city where is in the north from capital Baku city about 40km. ( Figure 1.1-1) The State Concern has a sole and the largest petrochemical complex in Azerbaijan and controls the petrochemical industry all of Azerbaijan and a related enterprises. Employees are about 20,000 people. 16 factories (for example, Ethylene- Polyethylene factory, the synthetic rubber factory, the tire factory, and the synthetic resin factory etc.), a Design institute and process design institute are under Azerchimia.

Figure 1.1-1 Location of Sumgait city

Chap02 3

Azerchimia has one Chlor-Alkali Plant with mercury method constructed in 1973, and another with diaphragm method constructed in 1975. At present, chlor-alkali plant with diaphragm method has been closed due to the low efficiency of plant operation.

1.2 Description of the project scope

The caustic soda plant of Azerchimia is the only source of supply for Azerbaijan, Caucasus area and Caspian Sea coastal area.According to demand forecast of caustic soda in 2010, 80,000 ton/year of caustic soda will be demand as described in Chapter 3. It is shortage of supply is a very important issue to be solved for Azerubaijan and the various neighboring countries.

The project is to convert the chlor-alkali plant from mercury process to ion exchanged membrane process not using mercury in the Azerchimia. The project will ease the burden on the environment problem described above in the Azerchimia

And the effective use of chlorine which is a by-product is also studied in this feasibility study.

- Plant capacity : 50% caustic soda, 80,000ton / year(as 100%NaOH base)

- Applied technology : Ion membrane exchange process which hasmany advantages in the view of productivity and environment.

And Japanese technology is applied to the project since it has many experiences and reliability.

(1) Production CapacityThe caustic soda plant of Azerchimia is the only source of supply for Azerbaijan, Caucasus area and Caspian Sea coastal area.According to demand forecast of caustic soda in 2010, 80,000 ton/year of caustic soda will be demand as described in Chapter 3. It is shortage of supply is a very important issue to be solved for Azerubaijan and the various neighboring countries.

Chap()2 4

This feasibility study is carried out in the production capacity of caustic soda of 80,000 ton/year, which is the same capacity as of the existing mercury process plant.

Production capacity and products are mentioned below;Break down of products is described in block flow chart, Figure. 1.2-1.

Caustic Soda : 80,000 ton/year as 100% NaOH ©Electrolyzer exit 50% Caustic soda = 29,500 ton/year Solid caustic soda = 44,000 ton/year

Chlorine : 70,000 ton/year ©Electrolyzer exit

Hydrochloric acid: 10,000 ton/year

Chap02 5

Chap02

05

BLOCK FLOW CHART (80.000 TON/Y CASE)

Cl, GAS 64,000-70,000 T/YRECTIFIER

(VENT SCRUBBER)BRINE TREATMENT SECTION

0-10,000 T/Y35% HCI >

(0.000 T/Y)

18,000,000 NMW H2 GAS >

29,500 T/Y

(6,500 T/Y]

44,000 T/Y FLAKE NaOH >

SOLUTION

MUDSEPARATION

18,000 T/YHCI UNITSECONDARY

BRINEPURIFICATION

BRINEFILTER

BRINETREATMENT

SALTSATURATION

ELECTROLYSISUNIT

80,000 T/Y

CI2 GAS LIQUEFACTION

UNIT70,000 T/Y

CI2 GAS PROCESSING

UNIT70,000 T/Y

NaOHEVAPORATION

UNIT80,000 T/Y

NaOHSOLIDIFICATION

UNIT44.500 T/Y

H2GASPROCESSING

UNIT22,000,000 NMW

Fig. 1.2-1 BLOCK FLOW CHART

(2) Plant Site

The new chlor-alkali plant will be built in the land area owned by State Concern Azerchimia adjacent to the existing chlor-alkali plant. It is located in the city of Sumgait in Azerbaijian. Following is the summary of various information on the city, and especially on the environmental problems prevailing in the city.Sumgait, the city with 350,000 population, is situated 40 km northwest from Baku on the northern part of Absheron peninsular. The city is densely industrialized and used to be the biggest center of chemical industry in the former SU.

At present production has decreased twice as a result of general economic decline of the country, which in its turn dramatically decreased demand for production in this industry. Deficit or lack of funds caused destruction of industrial facilities and thus, production is either completely stopped or has very small capacities.

Activity of industrial plants resulted in serious environmental pollution in the area of Sumgait and Caspian Sea. Population health indices, such as child mortality are considerably higher in Sumgait than in other regions of the Republic.

1) Geology and topography:Sumgait is situated in the northwest part of the Absheron peninsular close to the north coast of the Caspian Sea. Relatively small and low slopes of hills gradually turning into plains, rich of white alkaline soils are characteristics of this area. Absolute height ranges from 20-40 m to 90-110 m.

2) ClimateThe climate of semi-deserts and dry steppes with hot summer. Maximum temperature in summer comes up to 42 °C whereas minimum winter temperature is -21 °C.Average annual precipitations make 185mm/year and most part of precipitation (60-70% of the general annual amount) falls to the cold season.

Chap02 7

Level of evaporations is fairly high (1000mm of the annual amount). Average specific humidity in the area makes 17.4%. North, northwest, south and southwest winds are prevailing here.Average annual wind velocity is 7.2 m/s.Independent of the season north storms with wind velocities up to 20- 35m/s often take place.

3) Environmental problem(a) Mercury in Sumgait and Caspian Sea

Mercury pollution is caused by the work of chlorine-alkaline producing plant located in the Sumgait industrial area. One of the plants is still operational, whereas another earlier situated on this site was closed in 1981. Precise amount of mercury leakage from chlorine-alkaline producing plant are not known. Losses of mercury in the form of wastes, emissions into air, soil and water sometimes come up to 1 kg per a tone of produced chlorine and now are on the level of 300 gr per tone. Chlorine production at presently operated plant ranges between 20000 and 30,000 tones per year and for the last years achieved the level of dozens of thousands of tones. Drop of production for 5-6 years resulted as a consequence in fewer losses.

It is not known how deeply this mercury penetrated into the Caspian Sea or how it influenced the health of Sumgait population. The most part of the mercury not taken into account is apparently in the form of slag and liquid mercury in concrete foundations and soil under the plant building. The volume of leakage to the Caspian Sea is not known, but mercury in soil and slag will become potential source of serious pollution of the Caspian Sea unless timely measures are taken to dispose of polluted materials in a safe materials.The general risk connected to the mercury emissions to the Caspian Sea is the danger of bio-accumulation in the marine food chain.

During preventive works high level of mercury was found in the sediments of Sumgait River and in fewer volumes in marine sediments. This preliminary investigation also revealed the fact, that mercury, which accumulated in marine ecosystem (sea plants,

Chap02 8

mussels, and fish) and methyl mercury may be found in fish organisms in the concentrations exceeding allowable levels.

(b) Air qualityThe level of air quality observed in big Azerbaijan cities exceeds safe level for human health. Destruction of industrial system produced some positive impact on the qualitative levels of the air due to the decrease in transport traffic and industrial production. The monitoring of air condition is carried out in Sumgait with the aim of determining the presence of sulphuric oxide (S02), nitric oxide (NOX), dangerous particles of carbonic oxide (CO), fluorine hydrogen (HF) and other hazardous substances. Data of 1991-1995 testifies that concentrations of hazardous substances in Sumgait 5 times exceed admissible levels under the air quality standards, adopted in Azerbaijan (maximum admissible concentrations).

(c) Water resources

River Sumgait flowing into the Caspian Sea represents the main water resource. River Sumgait crosses the project area in the west in the Sumgait industrial area at a distance of several kilometers from the chlorine producing plant. Water supply of the Absheron peninsular, including Baku, Sumgait and a number of other settlements is fulfilled from Samur-Absheron channel. The channel goes northwest and southeast and crosses 5km of the industrial area. The channel reaches Jeyranbotan water basin, water of which is also used for irrigation at the Absheron peninsular.

(d) Biological environmentCaspian sea due to its peculiar geological history has unique and highly productive flora and fauna. The top of productive chain is characterized by the danger of extinction for seals, some birds’ species and certain species of sturgeons. Sturgeons and other fish species are highly important for the regional economy as food products, and export of sturgeon caviar to many of the world countries represents very profitable activity.

ChapOZ 9

(3) Production Process

There are 3 (three) typical technologies of Chlor-Alkali production process. The comparison among each technology is described in Table 1.2-1.State Concern Azerchimia established two Chlor-Alkali plants in 1973 and 1975, which process are mercury method and diaphragm method respectively.Renovation of the above plants were implemented but diaphragm method plant were stopped in 1998. Mercury method plant has been operated after its renovation in 1980.

In this feasibility study ion-exchange membrane method is applied, which is superior to mercury and diaphragm methods because of the less electrical consumption, free of mercury and high purity of products. Generally, electrolyzers using ion-exchange membrane are classified into 2 (two) types, mono-polar and bipolar system, depending on the configuration of electrical arrangement of unit cells of an electrolyzer..

The technical comparison of both electrolyzers as shown in Table 1.2-2

The ion-exchange membrane process has a different point from conventional mercury and diaphragm processes. Brine purity should be much higher than those of conventional processes in order to maintain longer life of ion-exchnage membrane. To achieve high purity of brine, chelate resin column shall be provided additionally.

Chap02 10

Chap02

Table 1.2-1Comparison of Electrolysis Methods

Process Outline

Block Flow of Process

Mercury MethodElectrolyzer has an easy slope at the bottom, on which mercury flows.This mercury has a function of the cathode.Sodium ion in the brine reacts with the mercury and sodium amalgam is formed.

Sodium amalgam discharged from electrolyzer reacts with water, which results in producing Hydrogen and Sodium hydroxide

Diaphragm Method- Electrolyzer is partitioned by diaphragm into

cathodic room and anodic room.- Brine discharged to cathodic room is electrolyzed

and sodium and hydroxide ion move to anodic room through a diaphragm.

- Separation of Sodium chloride and concentration of sodium hydroxide is required due to high sodium chloride content in sodium hydroxide solution from electrolyzer.

- Diaphragm has function of avoiding mixing hydrogen gas and Chlorine gas.

Ion-exchanged Membrane Method- Electrolyzer is partitioned by ion-exchanged

membrane into cathodic room and anodic room.- Only sodium ion goes to anodic room by an action

of ion-exchanged membrane.Therefore Sodium hydroxide solution from electrolyzer does not include sodium chloride.

- Non-reacted sodium chloride is discharged from electrolyzer as a lean brine.

_____ J Kyd ro9«n Ga; ] _ Hydi' Tftatnent j * 6»s

J Chltnm £» | ChloiTreatment | 6i»

Riw J TnTiSalt * pg11f i ca ti6i

TTTTtTFTTdl j Cavsi

J Chl onrit Gas } Chi i | Trt atitfi t | Cae

Comparison SavingEnergy

Big Electric consumption is required for formation of Sodium amalgam.

Less electric consumption with compared to Mercury Method.

O- The least electric consumption.

Environmental

Protection

High purity of sodium hydroxide(Approx. 70%) by mercury decomposition.Concentration of sodium hydroxide solution is not necessary.

X

Concentration of Sodium hydroxide from electrolyzer is low (Approx. 10%).Much energy is required for concentrating sodium hydroxide solution.

A

- Higher concentration of sodium hydroxide with compared to diaphragm method.Less energy consumption for concentrating sodium hydroxide solution. 0

There is a fear of environmental pollution by - No risk of environmental pollution by mercury- Usage of asbestos as a diaphragm affects the

health.

- No risk of environmental pollution by mercury- Highest energy efficiency with compared to other

methods, which results in low energy consumption and reducing C02 emission to atmosphere.

- High energy consumption for separation of sodium chloride and concentrating sodium hydroxide solution, which results in high CQ2 emission to

ProductionQuality

O X O- High purity of Sodium hydroxide.

TotalEvaluation

X

Low purity of sodium hydroxide due to residual sodium chloride in the level of its solubility.

X

High purity of sodium hydroxide as same as mercurymethod. O

- Less energy efficiency and risk of environmental pollution by mercury in exchange for high production purity.

- Low purity of sodium hydroxide.Unhealthy by Usage of asbestos.No risk of environmental pollution by mercury

- Highest energy efficiency with compared to other methods.NO risk of environmental pollution by mercury and unhealthy by asbestos.High purity of sodium hydroxide as same as mercury method.

Table 1.2-2

Comparison of general characteristics of monopolar and bipolar electrolyzers:

Voltage across electrolyzer

Current across electrolyzer

Current density

Current regulation

Bus bars se-up

Bus bar voltage drop

Preventing of gasket leaks

Electrolyte circulation

Production fluctuation

during maintenance of

an electrolyzer

Operation for load change

Action for power outage

Monopolar Bipolar

low high

high low

uniform uniform

dependent independent

between between cells and

electrolyzers between electrolyzers

relatively large relatively small

relatively easy relatively complicated

Natural Natural and Forced

Large Small

relatively tedious relatively simple

(large number of valves)

relatively simple Protective measures must

be taken immediately.

AC Power AC Power

RectifierOn 1, A OKHX7

+ 350V p 1

/

Monopolar

350V

Chap02 12

(4) Environmental PreservationFrom an environmental point of view, new ion-exchanged membrane process for chlor-alkali production plant has following advantages with compared to the existing plant with mercury method.

1) Mercury-freeDue to mercury contamination of soil in Sumgait site, the World Bank invested a credit in mercury clean up in 1998. However, the mercury clean up cannot be made good progress effectively because continuous operation of the existing plant results in pollution of soil and water by mercury.The existing plant cannot leave off its operation prior to construction of a new plant due to constant demand of caustic soda in refinaries in the Caspian Sea area.In this feasibility study an ion-exchanged membrane process will be applied for a new chlor-alkali plant, in which mercury is not used at all.

2) Reduction of carbon dioxide emissionThe mercury method is one of the oldest process of chlor-alkali plant. Energy efficiency of mercury method is lower than ion-exchanged membrane method. Therefore, electrical power consumption of mercury method plant is bigger than that of ion-exchanged membrane. This means that larger amount of carbon dioxide is discharged into atmosphere indirectly at power stations. Cut down of carbon dioxide by application of ion-exchanged membrane process will contribute to the brake on “Greenhouse effect”.

3) Stop of chlorine leakageMoreover, the new plant must be designed to eliminate all possible leakage of chlorine into surrounding atmosphere.

Chap02 13

(5) UtilitiesAnew chlor-alkali plant requires utilities as listed below;

• Steam [*]• Cooling water(Sea Water) [*]• Raw water [*]• Process Water (Demineralized water)• Plant air[*]• Instrument air• Nitrogen gas[*]• Electricity [*]

Utilities with a mark of [*] can be supplied from the existing plant in the State Concern Azerchimia. However, other utilities cannot be supplied due to the limitation of utility capacity of the existing plant. Thus, demineralized water unit and air dryer for instrument air shall be provided newly for the new chlor-alkali plant.

(6) Project Scope

The chlor-alkali plant complex to be newly constructed consists of the following units and facilities:

1) Process Units(a) Primary Brine Purification(b) Dechlorination(c) Secondary Brine Purification(d) Electrolysis(e) Caustic Evaporation(f) Solid Caustic(g) Chlorine Gas Drying and Compression(h) Chlorine Gas Liquefaction(i) Hydrochloric Acid Synthesis j) Waste Gas Treatment

Chap02 14

2) Utility Facilities(a) Process Water Facility(b) Instrument Air Drying Facility

3) Offsite Facilities(a) Liquid Chlorine Loading Facility

Existing chlorine storage and loading facilities are used except that loading arms and related measuring instruments are replaced with newly purchased ones.

(b) Central Control Room / Laboratory(c) Main & Unit Substations / Emergency Diesel Generator House

Note :The following existing facilities will be used for the project.

1. Aqueous caustic soda storage and loading facility.2. Raw water tank is assumed to have sufficient capacity to supply

intermittent needs of new demineralizer unit.3. Liquid chlorine storage and loading facility4. Other utilities supply facilities

(7) Escalation

According to materials of the state statistics committee of Azerbaijan, the main economic indexes are as described in Table 1.2-3.

The financial analysis of the project is to be made under the following conditions for escalation based on economic indexes:

1) The analysis is made under US$. The change in the exchange rate between manat and US$ is stable in recent years. Therefore, the escalation of the exchange rate is not considered.

2) The escalation for operating cost of the project is not considered, because of being stable consumer’s price index in recent years.

3) The escalation of personnel expenses for plant operation is applied the

Chap02 15

index shown in Figure 1.2-2

Table 1.2-3 Economic indexes in Azerbaijan

Year 1995 1996 1997 1998 1999

Rate of increase of Consumer price index 84.60 6.80 0.40 -0.76 -0.50

Rate of increase of Wages 308 43 58 18.9 9.5

Rate of decrease of exchange rate between Manat and US$

- -7.2 -2.7 -3.0 13.0

Rate of increase of GDP -11.8 1.3 5.8 10.0 7.4

(Source : Azerbaijan State Statistics Committee)

Years after

Fig. 1.2-2 Expected Rate of Increase in Personal Expences

Chap02 16

(8) Sales Price

In the financial analysis, prices in December 2000 are used without escalation. Prices of products are shown in the following tables. No difference was found between the prices for domestic and foreign markets.

Caustic Soda

Year 1995E 96B 96E 97B 97E 98B 98E 99B 99E 2000B/

ELiquid,US$ 417 417 417 417 417 417 417 384 384 362

103 manat 1900 1900 1900 1900 1900 1900 1900 1750 1750 1650Solid,US$ 548 548 439 439 439 548 548 526 526 439

10 s manat 2500 2500 2000 2000 2000 2500 2500 2400 2400 2000(Source : Azerbaijan State Statistics Committee)

Chlorine

Year 1995E 96B 96E 97B 97E 98B 98E 99B 99E 2000B/

ELiquid,US$ 263 263 263 263 263 263 208 208 208 208

manat 1200 1200 1200 1200 1200 1200 950 950 950 950(Source : Azerbaijan State Statistics Committee)

Prices are given in thousand manat per metric ton and in US$ per metric ton without VAT. Exchange rate = 4560 manat per US$

“E” denotes end of the year; “B” denotes beginning of the year.

Chap02 17

(9) Official Incentives

Since the project has a possibility to be taken up as a national project, it will be exempted from all and any taxes and duties which may be imposed by the government of Azerbaijan, including, but not limited to the followings:

- Corporate income tax on project consultant, the construction contractor

- Personnel income tax on foreign staff

- Import duties on imported equipment and materials

- Road usage fees

1.3 Greenhouse Gas to be reduced

The greenhouse gases which are treated in the Project is carbon dioxide(COs).

In the project, a large aount of electricity consumed in electrilysis reaction will be reduces by converting the chlor-alkali plant from mercury process to ion exchanged process, and purchased power from the nearby power station is reduced.

The quantity of greenhouse gas to be reduced is calculated on the basis of the reduction rate of purchased power from the power station in which oil is used as a fuel When fuel is incinerated, carbon included in the fuel is oxidized and emitted to atomosphere as carbon dioxide.

Chap02 18

2 Outlines of counter partner

2.1 Concerns of counter partner for project implementation

In 1996, Azerchimia requested a Japanese company to investigate facility condition and operating condition in his caustic plant. Due to the results of the investigation, the project for the renewal of the caustic soda production facility to the latest state of art of the technology is one of the most urgent issue for the Azerbaijan Republic.

The fund for the project implementation by Azerbaijan Government has not been materialized, yet. However, the master plan for the oil, gas and petrochemical industries of the Azerbaijan, which was completed and approved on February 2000 by Azerbaijan Government in co-operation with some Japanese companies, also put its top priority on this project. The government of the Azerbaijan has keen interest for the implementation of this project at the earliest possible. In this feasibility study report, the loan with soft conditions, such as Japanese Special Environmental Yen Credit is considered, due to the strong request of Azerbaijan side.

In response to the request from Azerbaijan side, this report for the renewal of the caustic soda plant in Sumgait will highlight the environmental preservation and restoration of the production capacity with the latest technology from the economical and mechanical point of view.

2.2 Status of the related existing facilities at counter partner

The facility are on the object in this study as follows:

80.000 ton / year caustic soda plant with mercury process65.000 ton / year caustic soda plant with diaphragm process

As described above, the operation of the diaphragm process plant was sopped and has been decommissioned. In this section, facility condition and operating condition of the mercury process plant which is operating

Chap02 19

are described below.Process and main facilities which are constituting the mercury chlor- alkali plant are mostly the same as those of ion-exchange membrane plant to be newly planned for construction, except electrolysis section and caustic concentration section.

(1) Outlines of the facility1) Process Units

(a) Brine PurificationRaw salt is transported to the site via rail cars and dumped onto a dissolving basin where salt is dissolved with water. This section is provided to prepare and purify the brine as suitable feed to Electrolysis.

(b) DechlorinationThis section is provided to remove chlorine from depleted brine before recycling to brine purification section.

(c) ElectrolysisThe electrolysis section consists of appropriate numbers of electrolyzers to produce 50% caustic soda, chlorine gas and hydrogen gas. Depleted brine is recovered from electrolyzers to dechlorination section.

(d) Solid CausticSolid caustic is produced by highly concentrating 50% caustic to about 99%, followed by cooling to solidify it. Caustic soda flakes are manufactured and packaged in plastic bags.

(e) Chlorine Gas Drying and CompressionChlorine gas is cooled and washed by spray water at coolers, dried by concentrated sulfuric acid at dryer and finally compressed by compressor for delivery to chlorine liquefaction and hydrochloric acid synthesis.

(f) Chlorine Gas LiquefactionChlorine gas is liquefied by refrigeration and sent to the liquefied chlorine storage. Sniff gas is sent to the waste gas treatment to recover chlorine as sodium hypochlorite.

Chap02 20

(g) Hydrochloric Acid SynthesisApart of the compressed chlorine gas and a part of hydrogen gas from the hydrogen compression are sent to synthesis unit to produce 35% the hydrochloric acid.

(h) Waste Gas TreatmentWaste gas treatment system is provided to remove toxic chlorine gas from the waste gas which is vented to the atmosphere.During normal operation the waste gas from dechlorination is treated by caustic soda solution in this system and sodium hypochlorite is produced.During the start up and shutdown (including emergency shutdown),chlorine gas from electrolysis section and chlorine handling section is introduced to this system and treated.

2) Utility Facilities

3) Offsite Facilities

(2) Facility conditionThe existing plant is an outdated plant of an FSU type.Caustic soda plant with mercury process is now operating, but diaphragm process plant ceased from operating and has been decomossioned.

Moreover, it originates in the obsolescence of a plant and an equipment corrosion is remarkable, and in order that chlorine leakage may occur frequently, operators must operate the plant wearing a gas masking inside a factory. The reaction of chlorine has been the big problem for the attendant of a factory, the plant and the denizen of a circumscription.

Furthermore, it is anxious that the external discharge of mercury may occur from a mercury-process plant due to the obsolescence of a plant and poor administration. Already, the soil pollution by mercury has been the problem and the project of the soil-pollution abatement by the World Bank

Chap02 21

accommodation loan is progressing.

If mercury flows into the Caspian Sea, serious damage may be done to a circumscription environment. Since the operating rate of a plant is falling now, the big reaction by mercury is not generated. However, unless the radical measure by the realization of this project is taken, even if it carries out soil-pollution abatement, the appreciation of quantity of output is holding the dilemma of causing a serious environmental issue.

(2) Operating ConditionThe caustic soda plant of Azerchimia has long history, starting from 1940’s and took the role of the major supplier for the soap /detergent among FSU. The designed capacity of 145, 000 ton per annum, which was composed of the 80,000 ton per annum from the mercury amalgamation plant (Constructed in 1973) (hereafter Mercury section) and the 65,000 ton per annum from the asbestos diaphragm plant (Constructed in 1975) (hereafter Diaphragm section), dropped down to the production capacity of20,000 to 40,000 ton per annum only, at this moment.

On the one hand, the caustic soda produced here now is used as a chemistry raw material for aluminum refinement and a petroleum refinery. Moreover, chlorine which is a by-product is used for linear alkylbenzene chlor-paraffin, propylene oxide, epichlorhidrine, and sodium hypochlorite, etc. For this reason, such demand is flourishing. However, since provision is not made for the above-mentioned cause, these products are in the status depending on import.

Chap02 22

2.3 Capability of project implementation at counter partner

2.3.1 Technical Capability:

The State Concern Azerchimia has experienced construction works to the chlor-alkali project of utilizing mercury and diaphragm method.

Moreover,, Azerchimia, various kinds of operation and repair work containing chlor-alkali plant have been carried out since start up of the plant.

Azerchimia has many experiences which made the success of examination of the process equipment specification newly installed, a master plan, engineering works for equipment, piping, instrumentation, electricity, procurement work for equipment and materials, and construction work.

Taking into consideration for the above things, Azerchimia has sufficient technical capability that this project can be jointly carried out the Japan side..

2.3.2 Management organization

On the management of the petrochemical industry of Azerbaijan, each governmental agency and Azerchimia become an entity. Since the ministry of petrochemical does not exist in the country, Azerchimia is substantially treated as a ministry. Moreover, in this government, petrochemical industry has been administrated by the petroleum and gas office under the prime minister and the petrochemical office of the ministry of economy. On the one hand, on the construction work, in order to confirm whether it is based on the national codes and standards, the national construction committee is also involving on construction.

The jurisdiction of each agency as shown in Figure 2.3.2-1 under

Chap02 23

Office of petroleum and gas

Office of prime minister

construction

committee

National State concern

Azerchimia

Ministry of economy

office of petrochemical

Figure 2.3.2-1 Administration establishment for petrochemical industry

2.3.3 Company management Policy

The petrochemical complex of Azerchimia was established during the period of the former-Soviet-Union Azerchimia supphed semi manufactured products to other republics from Sumgait, and had a procution system to produce the final products by receiving semi manufactured products from other republics. Therefore, after independence of Azerbaijan, the semi­manufactured-products provision from other republics has stopped, and there is difficulty in one company of Azerchimia. producing final products.

In order to solve the problem, various kinds of modernization projects have been planned. It is the strategy of the company to advance modernization, to decrease a production cost and to produce the products which have price- competitiveness in the world market, utilizing the existing appliance well.

2.3.4 Financing Capability

Since Azerchimia. is a state enterprise, it needs the government's acknowledgement for working out of project capital. The company already has petrochemical complex and the infrastructure required for this project invocation is fixed to some extent.

Although the government also shows concern to this project, since government budget has little additional coverage about the construction work (foreign-currency portion), the accommodation loan from overseas is expected of it.

Chap02 24

2.3.5 Manning mobilization

Since the educational system was established by former-Soviet-Union date, the engineers with high educational level are also equal to it in Azerbaijan now after the Soviet Union decay.

Moreover, since Azerchimia has had basis of the concerned technology through the operation of the existing caustic-soda plant, it will be satisfactory on the execution of this project.

It is easily solvable to associate to new technology that is ion exchange membrane process in terms of training the engineers by overseas business enterprises.

2.3.6 Project organization

For the project implementation, Azerchimia. serves as an entity. Moreover, when the company receives the accommodation loan from overseas, the investment office of the company takes charge of agreement negotiation and the adjustment activities with the government or the factory.

On the one hand, since the existing caustic-soda plant and equipment belongs to the surface active agent factory (business entity) affiliated with Azerchimia, this surface active agent factory serves as an entity, about the actual construction works.

As each correlation chart being shown in Figure 2.3.6-1.

(Project implementation)

(Agreement)

(Construction)Other plant

Caustic soda plant

Investment office

Surface active agent factory

Azerchimia

Figure 2.3.6-1 Project organization of Azerchimia

Chap02 25

2.4 Project scope of works and technical specification for the related facilities after modification at counter partner

2.4.1 Production Facility

(1) Design ConditionNew ion-exchange membrane plant are constructed based on the following design conditons:

1) Raw Material and Product Specification (a) Specification of Raw Salt

NaCl 97.5 wt%Mg 0.5 wt% max.Ca 0.4 wt% max.S04 5-8 g/kg-NaClMoisture 5 wt% max.

(b) Specification of ChemicalsSoda Ash 99 wt% min.(Na2C03)Barium Chloride 98.5 wt% min.(BaCl2-2H20)Sodium Sulfite 95 wt% min.(Na2S03 7H20)Sulfuric Acid(H2SOj

98 wt%

Caustic Soda Produced in the new plant(NaOH, xx%)Hydrochloric Acid Produced in the new plant(HCl,xx)

(c) Quality of Productsa) Caustic Soda Solution

NaOH 50 ± 1 wt%NaCl 150 wt ppm max.(anhydr

b) Solid Caustic SodaNaOH 99 wt%

Chap02 26

NaCl : 150 wt ppm max.(anhydrous basis)

c) Chlorine Gas (Electrolyzer outlet, dry base)C12 : 98.5 vol% min.02 : 1.0 vol% max.

d) liquid ChlorineC12 : 99.4 wt% min.Moisture : 50 wt ppm max.Nonvolatile residue : 100 wt ppm max.

e) Hydrogen Gas (Hydrogen Blower outlet, dry basis)H2 99.9 vol% min.Moisture : Saturated

f) Hydrochloric AcidHC1 : 35 ± 1 wt%Free Chlorine : 5 wt ppm max.

2) Utility(a) Steam (available in Azerchimia site)

- Pressure (normal) : 6 bar A: 13 bar A at boiler

- Temperature : saturated

(b) Sea water (available in Azerchimia site)- Pressure : 3 barG (supply)- Temperature : 28 °C(supply)

(delta T = 5 °C)

(c) Raw water (available in Azerchimia site)The raw water will be supplied to the new chlor-alkali plant from the existing utility facility. For the feed of a new demineralizer of this chlor- alkali plant, raw water with the following quahty is required as minimum.

(d) Process water (New facility required)- Source : Demineralizer- Pressure : 6 barG(supply)

Chap02 27

(e) Plant air (available in Azerchimia site)- Pressure (normal supply) : 5 barG (supply)- Dew point : saturated(oil free)

(f) Instrument air- Pressure (normal supply)

- Dew point: 5 barG (supply)

>40 °C(oil free)

(g) Nitrogen gas (For chlorine handling and system purge)- Pressure (maximum) : 5 barG (supply)-Dew point : 50 ppm max.(oil free)

(h) Electricity (available in Azerchimia site)- Purchased (Frequency of failure) :Stable supply- Generated (Only for emergency) : No interruption- Emergency Power Supply

250 kW generator driven by diesel engine is installed for supplying power to the following facility:-a Emergency lighting fixture (also battery back-uped)-b Fire & gas alarm system-c Other particularly selected emergency loads

3) Climatic Condition(a) Barometric Pressure

Yearly average Minimum average

(b) Temperature Lowest temperature Highest temperature

(c) Relative Humidity Coldest month Hottest month

(d) Wind

1016.4 mb a 1006.3 mb a

-13 °C 40 °C

72 % 46 %

Chap02 28

Prevailing direction Maximum velocity Design wind pressure

North 42 m/s

60 kg/m2 at 10 m height

(e) RainfallMaximum rainfall in one hour 15.8 mmMaximum rainfall in one day 65 mmAnnual precipitation 245 mmDesign drainage 30 mm/hr

(f) SnowMaximum depth 50 mmDepth snow load 50 kg/m2

4) Site Condition(a) Elevation above mean sea level -17,450 mm

(b) Soil ConditionsUnderground Water 3 m below gradeSoil Bearing Value 20 t/m2 as estimate baseType of Soil

Greenish-gray dusty, carbonate, slightly wet and highly plastic clays

Due to high content of sulfates and chlorides and their high corrosiveness towards metal and sulfate-proof concrete, underground facilities and foundations outer surfaces must be carefully insulated from the soil.

(c) Seismic Factor UBC Zone 2B(defined in UBC, American Code) (Soil Type S2)

Peak ground acceleration value to be used as design basis shall be 0.2 g. UBC Zone “B is equivalent or rather severe than seismic factors based on seismic number Baku and Sumgait in Azerbaijan, in SNIP 11-7-81.

(2) Production ProcessThe latest ion-exchange membrane process is adopted for a new chlor-alkali

Chap02 29

plant. The plant receives raw salt from outside battery limit and the raw salt is dissolved with water. The resulting brine is treated with chemicals, in order to remove impurities (e.g. magnesium and calcium) in raw salt.

The impurities are formed to insoluble salts using caustic soda and sodium carbonate, and the insoluble salts are precipitated to separate in the thickener. This process is referred to as the primary brine purification.

The electrolysis process by the ion-exchange membrane cells has a different point from conventional electrolysis processes by the asbestos diaphragm and mercury processes; brine should be much more purified than that used in conventional process, in order to protect the ion-exchange membrane, and, because of this, a chelate resin absorption column for thorough removal of impurities in the brine is additionally installed.

NaCl is electrolyzed in the electrolyzer to produce caustic soda, chlorine, and hydrogen gases. Generally, addition water (pure water) is added to the cathode chamber to control the caustic soda concentration so that it is suitable for the ion-exchange membrane.

As the catholyte is an aqueous caustic soda solution of about 30 to 35%, water in the catholyte is evaporated to concentrate to an aqueous caustic soda solution of about 50% as a product. NaCl is not all decomposed in the electrolyzer, and hence it is circulated to the raw salt dissolver for re-use.

Because of electrolysis carried out at a temperature as high as 80 to 90°C., a considerable amount of water is contained in the chlorine and hydrogen gases. Wet chlorine has strong corrosiveness. Therefore water should be carefully removed (chlorine should be dried) using concentrated sulfuric acid.

Synthetic hydrochloric acid (32 to 35%) is produced using the chlorine gas and hydrogen gas produced as raw materials. The new plant has chlorine liquefaction equipment. Equipment to fill cylinders or tank cars is required if liquid chlorine is shipped as a product.

Solid caustic soda is produced by highly concentrating caustic soda of 50% concentration to about 98%, followed by cooling to solidify.Solid caustic soda is manufactured and packaged in plastic bags.

Chap02 30

The process and main equipment and facility constitute the caustic plant are shown below:

1) Process Facility(a) Primary Brine Purification Section

- Salt dissolving tank- Brine thickener- Brine filter- Filter press- Filtrated brine tank

(b) Dechlorination Section- Dechlorination tower

(c) Secondary Brine Purification Section -Chelating resin towers- HC1 measuring tank- NaOH measuring tank- Auxiliary equipment- Secondary purified brine tank

(d) Electrolysis Section- Electrolyzer (bi polar type)- Electrolyzer maintenance facility

(e) Caustic Evaporation Section- Evaporator- Auxiliary equipment

(f) Solid Caustic Section- Falling film type evaporator- Solidification facility

(g) Chlorine gas drying- Chlorine gas drying column

(h) Chlorine Gas Liquefaction Section- Chlorine gas compressor

Chap02 31

- Chlorine condenser- Liquefied chlorine separator

(i) HC1 Synthesis Section- HC1 synthesis column- HC1 absorber column

(j) Hydrogen Compression Section- Hydrogen cooler

- Hydrogen compressor

(k) Waste Gas Treatment Section- Chlorine gas absorber- Circulation liquid coooler

2) Utility Facilities(a) Demineralized water unit

Raw water shall be fed to cation exchanger and degasifier. Degasified water shall be fed to anion exchanger. One (1) train of ion exchanger and one (1) degasifier shall be provided.

3) Electrical Facilities(a) Normal Power Supply System

Two (2) dedicated 35KV Power Feeders will be provided by the owner through aboveground wiring.Inside of the new substation building, new 35kV Switchgear, which is composed of two (2) incoming panels, one (1) bus-tie panel and other four (4) feeder panels, will be provided.

(b) Emergency Power Supply SystemOne (1) diesel engine driven generator (250KW, 400V) will be provided for emergency loads, which will be automatically started upon normal power outage and electrically interlocked with the above 400V switch gear.

(3) Plant Layout

Apian of the overall layout of the new chlor-alkali plant is presented in Figure

Chap02 32

2.4.1-1The total chlor-alkali area is estimated at 490,000 ft2(46,000m2).

The plan includes the following areas:

1) Process Plant(a) Primary Brine Purification(b) Dechlorination(c) Secondary Brine Purification(d) Electrolysis(e) Caustic Evaporation(f) Solid Caustic(g) Chlorine Gas Drying and Compression(h) Chlorine Gas Liquefaction(i) Hydrochloric Acid Synthesis(j) Hydrogen Compression(k) Waste Gas Treatment

2) Utility Facility(a) Demineralized Water Facility

3) Offsite F acility(a) Central Control Room / Laboratory(b) Main & Unit Substations / Emergency Diesel Generator House(c) Salt Storage

Note :- Two (2) dedicated 35KV Power Feeders will be provided by the owner

through aboveground wiring.- Since liquid chlorine loading facilities are located at the existing facilities of

Azerchimia, they are not shown in the layout.

Chap02 33

Chap

02

co4^

ALegend:

0Z3 Compressor

o Tank

nn Area for process unit

If—il Pit

c=i Building

Eor-~

-)<

EoCO

Salt Storage Area

Salt Dissolver

Demineralizer

Laboratory

ControlRoom

HydrogenTreating

SecondaryBrine

Treatment

0m 10m 20m 30m

O OHCI Synthesis

ChlorineAbsorption

OOChlorine Gas

HandlingO O

No. 1

MCC

Chlorine waterOperator cabin

I I 1=13No.2 MCC

MaintenanceArea

Cell Room (Bi-polar)

Tank pitRectifier Room

CausticConcentration

ChlorineLiquefaction

C3

FlakeStorage

FlakeCaustic

K- 230 m ->

Fig. 2.4.1-1 Plant Layout

(4) Raw Materials and UtilitiesEstimated consumption of raw materials and utilities is tabulated below.

Raw Materials and ChemicalsMaterial Specification Consumption

Raw salt >98.6 wt.% 1.5 ton/ton-NaOH

Na2C03 >99 wt.% 56 kg/ton-NaOH

BaCl,-2H20 >98.5 wt.% 30 kg/ton-NaOH

Na2S03-7H20 >95 wt.% 1 kg/ton-NaOH

h2so4 >98 wt.% 24 kg/ton-NaOH

Flocculation aid 0.01 kg/ton-NaOH

Corrosion inhibitor 0.05 kg/ton-NaOH

UtilitiesService Conditions Consumption

Sea water 28°C, A=5°C 600 ton/ton-NaOH

Demineralized water 28°C, 6 barG 3.5 ton/ton-NaOH

Raw water 28°C 12 ton/ton-NaOH

Steam 13 bar A (sat) 8 ton/ton-NaOH

Nitrogen 5 barG 20 Nm3/ton-NaOH

Electricity 35 KV 2,500 kWH/ton-NaOH

Note.: Plant air is omitted in this table due to small amount.

Chap02 35

(5) Environmental Countermeasures1) Waste Gas Treatment

The waste gas treatment section consists of two (2) scrubbers (vent scrubber and emergency vent scrubber), in which the toxic chlorine gas from the process facilities is treated by caustic soda solution before venting to atmosphere.During normal operation, the chlorine is removed from the depleted brine in the dechlorinator for protection of the chelating resin.Removal of chlorine from the depleted brine results in discharging the toxic chlorine gas as off gas.The chlorine gas from dechlorinator is sent to the waste gas treatment section, in which the chlorine gas is treated by caustic soda solution at the vent scrubber. After treatment of chlorine, the off gas is vented to atmosphere.During start up and shut down of the plant, all chlorine gas from the electrolysis section, chlorine gas drying/compressing section is sent to the waste gas treatment section. At the emergency shut down case (even if power failure case) also, the emergency vent scrubber can treat the all chlorine gas from process facilities.

2) HC1 Tail Gas ScrubberAll HC1 synthesis systems require a scrubber to collect any unabsorbed HC1 leaving the bottom of the synthesis section, and to prevent HC1 from escaping into the atmosphere. Emission level of no more than 10 ppm will be expected, under normal, stable operating conditions.

3) Waste Water TreatmentAll drains and spills from the production facilities are collected and reused within the facility, or treated to an acceptable pH value before discharging to the outside waste water systemRain water collection system is provided to recover salt and to prevent environmental problem due to salt.

4) Prevention of Chlorine LeaksAll process drains containing chlorine, such as the condensate from chlorine gas coolers, are collected and sent to the Dechlorinator to recover chlorine and water.All gases and vents from production facility in normal and emergency

Chap02 36

conditions are collected and treated as mentioned in sec. 5.6.1 above Gas detection system is installed covering whole plant area to detect any chlorine leaks as early as possible. Emergency shut-off buttons will be installed adjacent to the areas handling liquid chlorine. The shut-off buttons must be located at a safe location where an operator can safely actuate the buttons.

Chap02 37

2.4.2 Plant Operation

As described in Chapter 2 of this study report, the domestic demand of Azerbaijan for caustic soda in 2010 is considered to recover to the level of 80,000 tons/year.

(1) Production Schedule

The caustic soda operation rate and the production-wise production schedule are as below.

The initial domestic market scale is 50,000 T/Y which is less than the plant production capacity after the project. Therefore, the plant will be forced to operate below its design capacity. However, the operation rate will increase in parallel with the domestic demand increase, and the plant will be put in a full operation in 2010.

Table 2.4.2-1 shows the operation rates of the plant.

Table 2.4.2-1 : Operation Rates of the Plant

Year Operation Rate Caustic Soda Output (T/Y)

2005 63% 50,000

2006 73% 58,000

2007 79% 63,000

2008 86% 69,000

2009 92% 74,000

2010 100% 80,000

After 2010 100% 80,000

Chap02 38

(2) Required Number of EmployeesThe Azerchimia has a long history of self sufficiency in management, operation and maintenance. The staff of the plant including operators, maintenance workers and other employees are well educated and trained and understood to be capable of performing their works satisfactory.

After the project, the facilities and configuration of the plant will basically stay the same as before. The method of operation will not have to be drastically changed, either. Therefore, no significant obstacle is anticipated in the operation of the facilities after completion of the project. The required personnel will be expected approx. 80 persons to cope with the operation of the plant, as shown in Table 2.4.3-2.

(3) Training PlanAlthough the Azerchimia plant has manufactured caustic soda for more than 50 years, the ion exchange membrane process to be installed is a new process, one for which special operating methods are required. Therefore, for efficient and safety operations, it is desirable that operations training will be provided in advance.

These members are trained in advance in vendor’s shops, and after training they are in charge of training other operators and maintenance personnel in the new plant. After commencing operation of the new plant, they will be the leaders of the plant operations.

(4) Recruiting PlanThe new caustic soda plant using the ion exchange membrane process will be adopted modernized technology such as ion exchange membrane, DCS and instrumentation.

If it is required to recruit plant operating personnel in the new plant, it is desirable that Azerchimia will start to issue a public announcement from the beginning of 2004.

ChapOZ 39

2.5 Split of Work between both Parties for Supply of Project Funds, Equipment and Materials, and Services etc., at the Project Execution

In this project, it was confirmed that the split of works, funds, equipment and materials and the service, etc. between the Japanese side and the Azerbaijan side as follows.

(1) Works supplied by the Japanese sideSicse international concrete strategy in COP is uncleared at this time, for the implementating the project in advance, the Japanese side will supply in principle the followeijng works ;

- Co-operation for executing detailed FS based on this study

- Co-operation for planning detailed project description

(2) Works supplied by the Azerbaijan sideExecution of detailed FS, request of project funds, procurement of equity, selection of EPC contractor, and operation and maintenance of facilities

However, when Japanese and Azerbaijan agree that the project will be proceeded as CDM, the scope of works to be supplied by both countries will be decided concretely for materializing the project.

Chap02 40

2.6 Expected Preconditions and Problems at the Project Execution Stage

The precondition and the problems about CDM at the time of carrying out this project are as follows:

(1) It needs to agree after discussing the concrete means scholarly problems about CDM among each country .

(2) The Azerbaijan government clarifies the strategy which promotes CDM positively.

(3) The counter partner fully examines the description,, a merit, profitability, and the financing means of this project, and obtain a counter partner's that a project deserves performing knowledge.

(4) Azerbaijan side acquire a federation's approval.

(5) The counter partner performs cooperation assistance requisition to the Japan side.

(6) The Japan side obtains the license to a financial-support agency.

(7) In order to calculate the definite cost of this project, both partners arrange the detailed execution plan.

(8) Both arrange a covenant and agree.

Especially, it is asked for many projects for making a social foundation and an infrastructure firm in the Azerbaijan. However, since there is no additional coverage in national finance, it is not the status of recognizing many projects as a country.

It is material to recognize that this project is a project of the top priority for Azerbaijan. And it is the precondition to which that must be solved for [ this ] carrying out project enforcement, and is an issue.

Chap02 41

Also for the reason, the Japan side is obtaining the recognition of the couter partner the merit, the profitability and the accommodation-loan means of a project for environmental preservation and energy saving deserving this project invocation.

Chap02 42

2.7 Project Execution Schedule

After completion of the Basic Survey Project for Joint Implementation, the action plan and the enforcement process to a commercial agreement are described which are assumed when the invocation of this project is adopted between Japan and the Azerbaijan government, or among the concerned business enterprises.

This project execution schedule is planed with divided into the following two- stage as shown in Figure 2.7-1.

(1) The first stage

As a definite action plan;

- Financial support request of the counter partner

- Loan agreement arrangements and conclusion

- Preparation of Contract and negotiation for design, procurement, and a construction work

Before selection of a contractor, Azerchimia select a consultant who advise on preparing tender documents to be presented contractors.

- Conclusion of a contract for design, procurement and a construction work. Hereinafter design, procurement, and a construction work are called EPC works (Engineering/Procurement/Construction).

(2) Second stage-EPC works

The second stage is the quantity from an agreement activation to EPC activities and a trial run completion, and the enforcement quantity is made into 32 months.

- Contract effectuation- Basic-design works

Chap02 43

- Detailed-design works- Procurement service of equipment and materials- Shipping / transportation works- Field construction works- Supervision of test operation and turn over.

An overall construction schedule for executing the Project’s EPC (Engineering, Procurement and Construction) is presented in Figure 2.7-2. The total period for performing EPC is 33 months.

It is envisaged that the construction project on a basis of the contract will be started from January 2002.

As soon as the contract becomes effective, the contractor must carry out the engineering and procurement of equipment and materials for construction. Then, about 10 months after that, field work will start. All mechanical work must be completed within 33 months after the effect date of the contract.

The existing mercury process facility will be operate until 1 month before mechanical completion. During 3 weeks before completion, all existing facilities will be halted for tie-in procedures, such as changing the power connections for rectifiers, improving or changing the common facilities, and connecting pipes. Consequently, during this term, production quantity is zero.

As soon as the mechanical aspects of the renovation project are completed, commissioning will be taken place. It is envisaged about 3 months are required from the initial start of salt feed, to brine system, until energizing the DC power to electrolyzers Within 3 months of commissioning, guarantees for operation performance of the new electrolytic ion exchange membrane facility, the secondary brine purification facility, the caustic soda evaporation facility, the in-house power generator, and other facilities will be executed. After that, the plant will go into commercial operation.

Azerchimia will have to plan the dismantling and removal of the mercury process electrolyzers and other needless equipment.

ChapOZ 44

Chap02

Oi

Project MonthYear 1 Year 2 Year 3 Year 4

1 2 3 4 5 6 7 8 9 10 11 12 131415 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48

First Step— FS to Contract

Request for i »Application to Soft Loan

Preparation forApplication to Soft Loan

Loan Agreement i >

Preparation of Tender Documentd

Tendering [ ..n

EPC Contract Conclusion r~

Second Step — EPC to Test Operationontract Award

ooo_LU

Contract Agreement

Basic Design

Detail Design c .... IProcurement 1 1 1 Mechanical Completion _Transportation

___________X ..I I

Field Constructionr i

ITest Operation

Fig. 2.7-1 Project Overall Schedule

Chap02 Project Month

Year 1 Year 2 Year 31 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36

tru Contract Award

EngineeringPrefabricationTransportationConstructionCommissiioning

—......... ......... I

Procedures i

i i i i i i i i ii

Basic Design—

«MMMI

7777777?,1

Detail Design i i

- - - -Procurement 1 l

HOMOOOd

Transportation 111 ill 111 I II 1 II II 1 II III 1 1 II III III 1 II

Civil & Building czd ---------------- 1WOCWOOMOW

Piping i i

MMflMw

Instrumentation i i bcHSSSH?®

Electrical . i

Precommissioning P77777777777?V,/Z/A

Azerchimia

Commissioning V///)////////////.■■

Azerchimia

Fig.2.7-2 Project Construction Schedule (EPC)

3 Materialization of Project Financial Plans

3.1 Capital Investment Program for Project Execution

3.1.1 Total Investment CostTotal capital requirements are the sum of cost which are incurred the plant starts commercial operations such as plant construction cost, interest during construction and initial working capital.

The calculation basis on the estimation of required fund is as follows:

(1) Plant Construction CostThe calculation basis for the plant construction cost is as follows:

1) EPC Cost(a) Construction fee has been estimated in accordance with the scheduled

mentioned in Chapter 2.7 hereof.

(b) The EPC cost has been estimated by the cost data basis.

(c) The project is a national project and therefore will be exempted from all and any taxes and duties which may be imposed by the government of Azerbaijan, including, but not limited to corporate income tax on project consultant, the construction contractor, personnel income tax on foreign staff, import duties on imposed equipment and materials, road usage fees, etc

2) Hiring cost for the project consultant is assumed.

In the total fund for the entire program, the estimation for the plant construction cost is as follows:

1) EPC Cost2) Consultant Cost

Total

US$ 100.0 million US$ 3.0 million US$ 103.0 million

Chap02 47

(2) Others Project CostThe calculation basis for other project costs is as follows:

1) The cost for site preparation, land leveling, maintenance and repairing of the existing utilities facilities and off-site facilities to be used for the new plant operation is assumed.

2) The training cost is assumed on the basis of its schedule described in Chap.7.3, however the recruitment of new employees is not considered.

3) As the project management cost, personnel cost for project staff of the owner for 36 months as per the scheme.

The other project costs estimated on the above basis are as follows:

1) Site preparation cost & others2) Training cost3) Project management cost

Total

US$ 14.1 million US$ 3.0 million US$ 1.0 million US$ 18.1 million

(3) Working CapitalAmong the operation costs explained in Chapter 9 hereof, the following costs to be procured before commencement of the plant operation have been assumed:

1) Raw saltThe raw salt procurement cost for 1 month has been considered.

2) Chemicals and additives100 % of required inventories for 1 month has been considered.

3) Utility100 % of the required Utility for 1 month has been considered.

4) Labor costEmployee salary for lmonth has been considered.

C-hap02 48

5) Maintenance costMaintenance cost for 1 month has been considered.

The initial working capital calculated on the basis above is as follow:

US$ 0.3 million US $ 0.2 million US $ 0.7 million US$ 0.1 million US$ 0.3 million US$ 1.6 million

(4) Interest During ConstructionThe total of interest during construction (3 years in this study) has been assumed as follows;

1) Yen Credit Case : US$ 2.3 million (Interest = 0.75%)

2) Commercial Loan : US$ 11.3 million (Interest = 8.0% )

(5) Total required investment costTotal required investment cost is summarized below:

1) Plant Construction Cost(a) EPC cost US$ 100.0(b) Consultant cost us$ 3.0

Total us$ 103.0

2) Others cost(a) Other project cost us$ 18.1(b) Initial operating cost us$ 1.6(c) Interest during construction us$ 2.3Total us$ 22.0

Total required investment cost .US$125.0

i; naw salt

2) Chemical and Additives3) Utility4) Labor Cost5) Maintenance

Total

Chap02 49

3.1.2 Financing

(1) Funding Plan

1) Plant Construction CostThe amount requiring the additional fund is US$ 103.0 million for the EPC cost and the consultant cost as shown above.

2) Other Project Cost and Initial Working CapitalThe out of the total fund required, the total amount of US$ 19.7 million for other project cost and the initial working capital fund is relatively small. Therefore, the pre-operation fund of other project cost and initial working capital will be possible to be arranged by equity.

(2) Fund for Plant Construction CostAmong the foreign aids available to Azerbaijan, the Yen Credit is most preferable, when possibility, superiority of loan conditions, etc. The Yen Credit is expected to much contribute to success of the project by the low interest rate which will drastically make the financial burden on the project and the long repayment period which will smoothen the cash flow.

For Azerbaijan, the Yen Credit is a special Yen Credit for Environmental Preservation which offers lower interest rate and longer repayment period than the other Yen Credit. Since one of the primary objectives of the project is environmental issue, the project seems to be eligible for the environmental Yen Credit. Hence, implementation of environmental Yen Credit is strongly requested.

Chap02 50

3.2 Forecast of project funds preparation

Generally at the Azerbaijan present circumstances, it seems that the countermeasure against energy conservation has a low priority compared with the capitalization of productive facilities from the operative viewpoint to a cost.

However, the cost competitiveness upswing of the production company by energy conservation is a national requirement, since substantial import of of good quality and low-priced crude oil and petrochemicals becomes positive by WTO accession planned within the year. Moreover, The Azerbaijan government requests achievement to clear the severe environmental standards to nationalized enterprise etc., in order to improve the pollution regarded as the most serious in the world now. Since the countermeasure against energy conservation contributes to environmental preservation greatly, it can also expect a central government's assistance.

Toward the basis of the above situation, and the realization of a project, a central government is made to understand the significance of the concerned project well, and it is necessary to gain a high priority by the Azerbaijan side. Then, support requisition to a Japanese government will be done from the Azerbaijan side. Also in such a case, as for 15% to 25% of the project total budget, self-supplying by Azerbaijan side is needed.

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4 Condition of Relevant Items for CDM

4.1 Adjusting items by the counter partner side for formation of CDM realization, such as project execution condition establishment, split of work, etc. which are based on project execution for actual condition on site

The precondition and the issue at the time of realizing the concerned project as CDM with the Azerbaijan partner are as follows.

(1) The concrete means scholarly issue about CDM needs to be discussed among each country, and it needs to agree.

(2) The Azerbaijan government clarifies the strategy promoted positively to CDM. However, in COP, since a concrete strategy is indefinite, the government has taken the capacity in which it is difficult to clarify enforcement conditions about CDM realization in status quo.It needs to talk and agree with the Azerbaijan government the concrete means scholarly issue, enforcement conditions, etc. about CDM.

About the adjustment way by the partner country for CDM realization of a project, in order to develop as a more concrete and realistic enforcement plot, the prior confirmation and the co-ordination of a related agency to the issue and the adjustment way which are described below are required.

(1) Agreement of this project implemetation with State Concern Azerchimia and the Azerbaijan government.Especially the Azerbaijan government recognizes that this project is a project of the highest priority.

(2) Confirmation of technical sides (for example, the determination of the design base, the code, the standard, the norm which are applied, etc.). Calculation of the project total necessary capital frame by detailed cost estimation in accordance with the activities written down in the Chapter 2.2.5 clause.

(3) Investigation of the appointed date of delivery of the equipment apparatus and the material which each supplies determination of the project implementation schedule and confirmation of the traffic channel

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of material apparatus and the installation procedure.

(4) Confirmation of a result of financial analysis and economical profitability for the project.

(5) Determination of a concrete capital plot required for an implementation. A capital plot required for animplementation is determined from an economical profitability.However, the terminal decision of the capital plot is carried out, regulating with Azerchimia and the Azerbaijan government.

(6) The Azerbaijan partner talks with the related government corporation of Azerbaijan in advance in order to acquire approval of the project. Accession of approval needed for the construction of a smooth project is performed.

(7) Cooperation request to a Japanese government from the Azerbaijan government side.

(8) Determination of a cooperator method to this project between governments.

(9) Conclude to the agreement between governments according to a cooperator method.For example, conclusion of loan agreement

(10) Conclusion of a consultant agreement and EPC agreement.

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4.2 Possibility of Agreeing on Concerned Project as CDM.(Requisites for being based on the view of the partner country government corporation in connection with CDM, and a counter partner site), and a partner country agreeing)

The consciousness of Azerbaijan to a global-warming protection is high as the Chapter 1 1.3 clause described.A national climate-change committee is floated and the establishment which accepts a clean development mechanism is ready.

This project is an issue for not only mercury and chlorine contamination protection but the great energy-saving cost performance."Energy saving by the new introduction of foreign technology in a petrochemical industry" is mentioned to one of the greenhouse-gas reduction means upon which national climate-change committee decided, and this project also becomes the candidate.

Since great capital is needed for a greenhouse-gas reduction, when a developed country pays a part of this capital, possibility of agreeing on this project as a clean development mechanism is high in Azerbaijan.

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Chapter 3

Results of Project Execution

Chap03 1

Chap03 2

Chapter 3 RESULTS OF PROJECT EXECUTION

In this chapter, results of energy conservation effects, reduction of greenhouse gas and effects to the productivity of the plant by the implementing the project are described.

1 Effects of Energy Conservation

1.1 Technical Ground of energy conservation effect

In this project, the existing chlor-alkali plant of mercury method will be ceased from operating and decommissioned, and new plant with ion exchange membrane process will be constructed.

Caustic soda is produced by electrolyzing salt which is dissolved in water in both process. In mercury process, due to using mercury as cathode, required voltage in electrolyzing is theoretically higher than one in ion membrane process in which mercury is not used. Therefore, electric power for electrolyzing in mercury process is much required than in ion membrane process.

The mercury process for caustic soda and chlorine production in Azerbaijan has become an old-fashioned technology, and has required more electric power as 4,284 kWH per ton of caustic soda production.

By the new plant of ion membrane process, electric power will be reduced to 2,500 kWH / ton of caustic soda Consequently energy consumption in the caustic production will be reduced and energy conservation is also achieved by the project.

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1.2 Baseline to be used for calculation of energy conservation effect

When the project is not implemented, the operation of the existing mercury process will continue for producing the caustic soda. Although the existing plant is the capacity of 80,000t/a year, in status quo, the production rate is 20,000-40,OOOt a year. A baseline is taken as the amount of energy consumed when existing plant continues the output corresponding to future demand. .

The reasons of setups of the baseline are as follows;- When the project is not implemented, the existing plant will continue with its

operation- Amount of energy consumption can use actual value in the existing plant.- Since the energy consumption is not fixed depending on the production rate of

a plant, it is taken as the consumption value at the time of carrying out output corresponding to demand.

Since the production rate of the plant is less than 100% from 2005 establishment plant start-up years in 2009 as the Chapter 2 2.4.3 clause described, the calculation of the energy-saving effect uses the amount of power consumption equivalent to the production rate of the every year in this plant, and energy consumption for the parity in power plant as the base.

The energy consumption in power plants is based on combustion of heavy oil in Azerbaijan. These are consumed also as a part for the amount of electric power demands of the caustic-soda plant of Azerchimia.

Annual operation-hours of Azerchimia s Chlor-Alkali plant is taken as 8,000 hours a year.The electricity to be consumed as an example in the existing mercury process at 100% of production rate is shown below:

Production Rate of Caustic Soda : 80,000 ton/year Electricity Consumption : 4,284 kWh/ton-caustic sodaYearly Elec. Consumption : 3.43 x 108 kWh/yearYearly Energy Consumption : 1,234 TJ/year( *1) (*2)

Energy consumption at power plant

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Electricity is fed from a power station in which it is generated by oil-fired boiler and turbine system Power generation efficiency of a power station in Azerbaijan including transmission loss is 30 % .

The consumption figures of a power station, the part equivalent to a quantity of electricity consumed in the mercury chlor-alkali plant at 100% of production rate, are as follows:

Power generation efficiency of Receiving terminal : 0.3 (including transmission loss)

consequentlyEnergy Consumption : =1,234 TJ/year / 0.3

=4,113 TJ/year

Oil Consumption : =4,113 TJ/year /42.08 TJ/ kt (*3)=97.7 kt/year

(note)(*1) lkWh=3.6xlO 6TJ (*2) TJ = 1012 J(*3) Low Heating Value of Oil : 42.08 TJ/ kt

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1.3 Energy Conservation Definite Value, Duration and Cumulative Value

(1) Definite value of Energy conservation Energy conservation definite value is reduction of energy consumption i.e., difference of energy consumption Baseline which is calculated in Section 1.2 and energy consumption after the Project implementation.

Energy conservation definite value is calculated as follows;Annual operation hours of the Azerchimia Chlor-Alkali plant is assumed to be 8,000 hours.

Production Rate of Caustic Soda : 80,000 ton/year Electricity Consumption : 2,500 kWh/ton-caustic sodaYearly Elec. Consumption : 2.00 x 108 kWh/yearYearly Energy Consumption : 720TJ/year( *1) (*2)

Energy consumption at Power plantThe consumption figures of a power station, the part equivalent to a quantity of electricity consumed in the ion exchanged membrane chlor-alkali plant at 100% of production rate, are as follows:

Power generation efficiency of Receiving terminal (including transmission loss)

consequentlyEnergy Consumption : =720TJ/year / 0.3

=2,400 TJ/year

Oil Consumption : =2,400 TJ/year /42.08 TJ/ kt (*3) =57.0 kt/year

Reduction of energy consumption after the Project implementationEnergy Reduction : =4,113 -2,400 TJ/year

=1,713 TJ/year

Oil Reduction : =97.7 -57.0 kt/year (*3) =40.7 kt/year = 40,700 toe/yr

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(reduction ratio is approx,40%)

(note)(*1) lkWh=3.6xlO 6TJ (*2) TJ = 1012 J(*3) Low Heating Value of Oil : 42.08 TJ/ kt

(2) Duration of Energy conservationGeneral life time of oil refinery is more than 25 years in case that proper maintenance is performed.Therefore, fife time of 25 years is taken in this report.

(3) Cumulative value of Energy conservationAnnual energy conservation after the Project implementation is 1,713 TJ/yr at 100% of production rate as calculated in para. (1).

The cumulative energy conservation of total plant life time is 40,980 TJ as shown in Table 3-1.

Cumulative energy conservation = 40,980 TJ.(973,800 toe)

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Table 3-1 Energy & Fuel Consumption and 002 Emission Rate of a Power Plant for Production Yearly Rate of Caustic Soda Plant

00

No.of

yearYear

Prediction Rate (%)

NaOH Production (ton/year)

Energy Consump. At Power Plant (TJ/year)

Fuel Consump. At Power Plant (toe/year)

C02 emission Rate (ton-C02/year)

Mercury Ion Ex.Membrane Mercury Ion Ex.Membrane Mercury Ion Ex.Membrane1 2005 63% 50,000 2,571 1,500 61,100 35,600 196,900 115,0002 2006 73% 58,000 2,982 1,740 70,800 41,300 228,400 133,4003 2007 79% 63,000 3,239 1,890 76,900 44,900 248,100 144,9004 2008 86% 69,000 3,547 2,070 84,300 49,200 271,700 158,7005 2009 92% 74,000 3,805 2,220 90,400 52,700 291,400 170,2006 2010 100% 80,000 4,113 2,400 97,700 57,000 315,000 184,0007 2011 100% 80,000 4,113 2,400 97,700 57,000 315,000 184,0008 2012 100% 80,000 4,113 2,400 97,700 57,000 315,000 184,0009 2013 100% 80,000 4,113 2,400 97,700 57,000 315,000 184,000

10 2014 100% 80,000 4,113 2,400 97,700 57,000 315,000 184,00011 2015 100% 80,000 4,113 2,400 97,700 57,000 315,000 184,00012 2016 100% 80,000 4,113 2,400 97,700 57,000 315,000 184,00013 2017 100% 80,000 4,113 2,400 97,700 57,000 315,000 184,00014 2018 100% 80,000 4,113 2,400 97,700 57,000 315,000 184,00015 2019 100% 80,000 4,113 2,400 97,700 57,000 315,000 184,00016 2020 100% 80,000 4,113 2,400 97,700 57,000 315,000 184,00017 2021 100% 80,000 4,113 2,400 97,700 57,000 315,000 184,00018 2022 100% 80,000 4,113 2,400 97,700 57,000 315,000 184,00019 2023 100% 80,000 4,113 2,400 97,700 57,000 315,000 184,00020 2024 100% 80,000 4,113 2,400 97,700 57,000 315,000 184,00021 2025 100% 80,000 4,113 2,400 97,700 57,000 315,000 184,00022 2026 100% 80,000 4,113 2,400 97,700 57,000 315,000 184,00023 2027 100% 80,000 4,113 2,400 97,700 57,000 315,000 184,00024 2028 100% 80,000 4,113 2,400 97,700 57,000 315,000 184,00025 2029 100% 80,000 4,113 2,400 97,700 57,000 315,000 184,000

Total Energy & Fuel Consumption and C02 Emission Rate

98,400

(TJ)

57,420

(TJ)

2,337,500

(toe)

1,363,700

(toe)

7,537,000

(COg-toe)

4,402,000

(C02-toe)Cumulative Reduction Rate 40,980

(TJ)973,800

(toe)3,135,000(COg-toe)

1.4 Measurement of Energy conservation

The data to be measured as shown below:

- Power demand of the Plant, and purchasing power & generated power consumption

- Operating load of shlor-alkali production facility

The concrete confirmation method of the energy conservation performance makes a numeric value power consumption in the electrolysis process of the caustic-soda plant by the ion exchange membrane process established newly, is made to display it within distributed-control-system (DCS) equipment, and is attained by recording this continuously.

Moreover, by keeping on record in distributed-control-system (DCS) equipment simultaneously, the valuation with consideration to the equipment production rate of every year also of the caustic-soda quantity of output of a new plant becomes possible.

As mentioned above, the consumed electric power corresponding to the caustic-soda quantity of output of monthly or every year in a new plant can be calculated.

On the one hand, when the existing plant continues operation and the caustic soda of the same quantity is produced, the consumed electric power of monthly or every year, i.e., the value of a baseline, can be achieved with the value of an old run performance.

The difference of the amount of power consumptions in both the above- mentioned cases will show the energy-saving performance.

Moreover, the amount of power consumptions is converted into the energy consumption and the fuel consumption in power plant.

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2 Reduction of Greenhouse gases

2.1 Technical ground of Reduction of Greenhouse Gases

This project can be contributed to the reduction of the greenhouse gas by converting plant and equipment into an ion-exchange-membrane-process from the existing mercury-process process used at Azerchimia.

The new plant which uses an ion exchange membrane process described in this chapter 1.1 clause, has a far low power consumption as compared with the mercury-process plant which is working at Azerchimia, because of high power efficiency, and can obtain the energy-saving performance.

A power plant is a thermal power station by fuel oil combustion. By implementing this project, it is enabled to decrease the part equivalent to the electric energy cut down in the caustic-soda plant of the amount of electric power of power plant. Therefore, the amount of fuel combustion in power plant is also reduced, and the amount of carbon dioxide emission by combustion is cut down similarly.

In the system of a caustic-soda plant and a power plant, it is enabled to attain the reduction of the amount of carbon-dioxide emission as a result.

The electric power which the chlor-alkali plant purchases from a power plant will be considered to decrease from present 3.43x 108 kWh/a to 2.00x 108 kWh/a year by the induction of a new process if a production rate is made into 100%. This project can reduce the amount of carbon-dioxide emission equivalent to the decrement of the electric power.

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2.2 C02 emission Baseline for calculation of C02 emission reduction

When the project is not implemented, the operation of the existing mercury process will continue for producing the caustic soda. Although the existing plant is the capacity of 80,000t/a year, in status quo, the production rate is 20,000-40,OOOt a year. A baseline is taken as the amount of carbon dioxide emission to be generated in power plant when existing plant continues the output corresponding to future demand. .

The reasons of setups of the baseline are as follows;- When the project is not implemented, the existing plant will continue with its

operation- Amount of carbon dioxide emission can use actual value in the existing plant.- Since the carbon dioxide emission is not fixed depending on the production

rate of a plant, it is taken as the consumption value at the time of carrying out output corresponding to demand.

Annual operation-hours of Azerchimia’s Chlor-Alkali plant is taken as 8,000 hours a year.The electricity to be consumed as an example in the existing mercury process at 100% of

production rate is shown below:

C02 emission at a Power StationPower generation efficiency is assumed to be 30%.Fuel is assumed to be heavy oil which is most common in Azerbaijan.

Production Rate of Caustic Soda : 80,000 ton/year Electricity Consumption : 4,284 kWh/ton-caustic sodaYearly Elec. Consumption : 3.43 x 108 kWh/yearYearly Energy Consumption : 1,234 TJ/year

Electricity is fed from a power station in which it is generated by oil-fired boiler and turbine system Power generation efficiency of a power station in Azerbaijan including transmission loss is 30 % .The consumption figures of a power station, the part equivalent to a quantity of electricity consumed in the mercury chlor-alkali plant at 100% of production

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rate, are as follows:

Energy Consumption Oil Consumption

: 4,113 TJ/year : 97.7 kt/year

Low Heating Value of Oil Carbon emission factor Fraction of Carbon Dioxized

42.08 TJ/ kt (*1) 21.1 tC/TJ (*2) 0.99 (*3)

Molecular weight ratio of C02 and C : 44/12

Consequently , C02 emission from a power station at 100% of production rate of caustic soda mercury plant is as follows:

C02 emission = (97.7)x(42.08)x(21.1)x(0.99)x(44/12) =315,000 ton-C02/year

(note)(*1) IPCC Guidelines for Natural Greenhouse Gas

Inventories : Workbook Table 1-3 Selected Net Calorific Values (*2) IPCC Guidelines for Natural Greenhouse Gas

Inventories : Workbook Table 1-2 Carbon Emission Factor(CEF) (*3) IPCC Guidelines for Natural Greenhouse Gas

Inventories : Workbook Table 1-4 Fraction of Carbon Oxidized

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(1) Definite value of C02 emission reductionDefinite value of C02 emission reduction is difference of the C02 emission Baseline which is calculated in section 3.2.2 and C02 emission after the Project implementation.

2.3 C02 emission reduction - Definite Value, duration and cumulative value

C02 emission at a power station is reduced because purchasing power at Azerchimia is reduced due to decrease of power consumption in the new chlor-alkali plant with ion exchanged membrane process.The electricity and energy to be consumed in the new process at 100% of production rate is as follows:

Production Rate of Caustic Soda : 80,000 ton/yearElectricity Consumption : 2,500 kWh/ton-caustic sodaYearly Elec. Consumption : 2.00 x 108 kWh/yearYearly Energy Consumption : 720 TJ/year

The consumption figures of a power station, the part equivalent to a quantity of electricity consumed in the ion exchanged membrane chlor- alkali plant, are as follows:Energy Consumption : 2,400 TJ/yearOil Consumption : 57.0 kt/year

42.08 TJ/ kt (*1) 21.1 tC/TJ (*2) 0.99 (*3)

Low Heating Value of Oil Carbon emission factor Fraction of Carbon DioxizedMolecular weight ratio of C02 and C : 44/12

Consequently, C02 emission from a power station at 100% of production rate of ion exchange membrane process plant is as follows:

C02 emission = (57.0)x(42.08)x(21.1)x(0.99)x(44/12)=184,000 ton-C02/year

Achievable Reduction of Greenhouse Effect Gas:

Chap03 13

In the plant, for which the energy saving project is studied and having the annual processing capacity of 80,000 tons (100% of production rate), the annual reduction of greenhouse gas (C02) is achieved after the project implementation as follows:

C02 reduction = 315,000 ton-C02/year - 184,000 ton-C02/year = 131,000 ton-C02/year (100% of production rate)

As an investigation result, it is obtained that this project contributes not only to the energy saving and profitability of plant operation, but to the reduction of the large amount of greenhouse gas by realization of this project.

(note)(*1) IPCC Guidelines for Natural Greenhouse Gas

Inventories : Workbook Table 1-3 Selected Net Calorific Values (*2) IPCC Guidelines for Natural Greenhouse Gas

Inventories : Workbook Table 1-2 Carbon Emission Factor(CEF) (*3) IPCC Guidelines for Natural Greenhouse Gas

Inventories : Workbook Table 1-4 Fraction of Carbon Oxidized

(2) Duration of C02 emission reductionGeneral life time of oil refinery is more than 25 years in case that proper maintenance work is performed. In this report, fife time of 25 years is taken.

(3) Cumulative value of C02 emission reductionCumulative C02 emission reduction of total plant life time is 3,140,000 ton (approx. 3.1 milhon ton) as shown in Table 3-1.

Cumulative amount = 3,131,500 ton-C02

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2.4 Measurement of Greenhouse gases reduction

The data to be measured as shown below:

- Power demand of the Plant, and purchasing power & generated power consumption

- Operating load of shlor-alkali production facility

The concrete confirmation method of the energy conservation performance makes a numeric value power consumption in the electrolysis process of the caustic-soda plant by the ion exchange membrane process established newly, is made to display it within distributed-control-system (DCS) equipment, and is attained by recording this continuously.

Moreover, by keeping on record in distributed-control-system (DCS) equipment simultaneously, the valuation with consideration to the equipment production rate of every year also of the caustic-soda quantity of output of a new plant becomes possible.

As mentioned above, the consumed electric power corresponding to the caustic-soda quantity of output of monthly or every year in a new plant can be calculated.

On the one hand, when the existing plant continues operation and the caustic soda of the same quantity is produced, the consumed electric power of monthly or every year, i.e., the value of a baseline, can be achieved with the value of an old run performance.

The difference of the amount of power consumptions in both the above- mentioned cases will show the energy-saving performance.

Moreover, the amount of power consumptions is converted into the energy consumption and the fuel consumption in power plant.

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3 Effect to productivity

It is expected that the productivity of the chlor-alkali plant is improved by implementing the project as follows ;

Operation cost to produce caustic soda and chlorine can be drastically reduced.

- Mercury free products can be achieved.

Sludges including mercury is not generated

- No chlorine leakage

Chap03 16

Chapter 4

Project Economics

Chap04 1

Chap()4

Chapter 4 PROJECT ECONOMICS

By carrying out this project, the investigation result which it not only can gain the reduction of the large greenhouse gas, but is that which satisfies the energy conservation goal and the profitability of refinery operation of the West Pacific Petroleum Refinery was obtained. For project realization, the detailed plot including the money raising will be examined with the counter partner, and it will correspond from now on.

The cost required for implementing the project, merit for fund from energy conservation and unit cost for reduction of C02

1 Economical Effect on Retrieve from Investment

1.1 Financial Evaluation

1.1.1 Conditions for Financial Evaluation(1) Production and Marketing Plan

1) Total DemandThe total demand for the caustic demands in the year 2005 which is the starting year of the plant operation will be 50,000 T/Y and will thereafter grow at the average annual rate of approx. 9%. The total demand will reach the plant design capacity of 80,000 T/Y in 2010.

2) The product of the domestic market is assumed not to change throughout the project life

(2) Raw Salt and Product Caustic PricesAs product prices, the figures mentioned in Chapter 4 of this study report were applied. Raw salt price was set at US$ 32 .

(3) Project Period and Cost Basis 1) Project Period

Taking into consideration the characteristics of the project and repayment period of the Soft Loan (30 to 40 years), the project period has been set as 25 years from commencement of the plant operation after completion of the project, instead of 15 to 20 years usually

Chap04 3

applied for financial analysis of plant related projects.

2) Cost and Price BasesAll the costs and prices in U.S. Dollar values have been assumed based on product price mentioned in Section 4.8 and raw material & utility cost applied in Azerchimia. The escalation thereafter has not been taken into account in this study.

3) Currency Exchange RatesThe following currency exchange rates have been applied:

1US$ = 4560 Manat

(4) Taxes and Amortization1) Corporate Income Tax

The present corporate income tax rate of 27% in Azerbaijan is applied in this study. The corporate income tax may be underestimated by US$ 4.7 million at maximum a year without interest charge.

2) AmortizationThe basis depreciation of facilities in Azerbaijan is less than 13%. Amortization for facilities not functioning in a period may be deferred. The following amortization method has been applied in this study.

1) For New Investment Straight-line in 10 years: 100% write-off

(5) Assumptions for Finance The following have been assumed:

1) Financing Sources(a) EPC Cost(b) Consultant Cost(c) Other Project Cost(d) Initial Working Capital(e) Interest during Construction

Case-Y Case-CSoft Loan Commercial loanSoft Loan Commercial loanEquity EquityEquity EquityEquity Equity

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Notes: Soft Loan such as Special Yen Credit for Environmental Preservation

2) Investment Disbursement ScheduleIn this study following investment disbursement schedule is set for simplification of calculation.Year Percentage of Investment 2002 20%

2003 50%2004 30%

3) Financing ConditionsThe basic conditions of the finance are assumed as follows:

(a) Soft Loan (Case-Y)(Special Yen Credit for Environmental Preservation)

- Interest : 0.75% p.a. paid semi-annually- Repayment : 40 years paid semi -annually- Grace Period : 10 years from loan agreement

Note: For simplifying of calculation, the interest during construction period is added to the capital.

(b) Commercial Loan(Case-C)-Interest : 8% p.a. paid semi-annually- Repayment : 10 years paid semi -annually

(6) Working CapitalThe working capital has been assumed as 1-month cost of raw materials, chemicals, additives, utilities and operator salary.

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1.1.2 Operation cost

There are two kinds of operating costs, i.e., the direct operating costs and the capital related expenses such as interest on borrowed funds, amortization, and return on investment. The operating costs estimated here are direct operating costs ( or cash operating expenditures).

The direct operating costs consist of the five kinds of fixed costs and three kinds of variable costs as follows:

Fixes costs : Manpower CostMaintenance Cost Operating Supplies Tax on Property and on Land Insurance Cost Environmental Cost

Chemicals and Additives Purchased Utilities

Variable Costs

The summary of the direct operating costs in case of the plant operation at the design caustic soda producing capacity of 80,000 tons per year is presented in Table 1.1.2-1.

The following describes the respective direct operating costs:

(1) Fixed Costs1) Manpower Costs

This cost includes basic salaries, income tax, pension fund, social protection fund, employee fund and miscellaneous expenses basically in relation to personnel activities. The above funds to be borne by the Azerchimia have been included as the percentages against the average basic salary as follows:

- Average Basic salary : 4000 US$/year/person including;

- Income tax- Pension fund

: 12% of net salary : 1% of net salary

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- Social protection fund- Employee fund

: 30% of gross salary : 2% of gross salary

Note: Gross salary = Net salary + Income tax + Pension fund Basic salary = Gross salary + Social protection fund

+ Employee fund

The salary of the year 2005 is assumed to be 1.1 times higher than the present salary without applying escalation.

2) Maintenance CostThe maintenance cost, 4% p.a. on hypothetical facility cost , has been assumed in this study.

3) Insurance CostThis cost has been assumed as 0.5% p.a. of the hypothetical facility cost described.The fire insurance and leakage insurance have been included.

4) Operating SupphesThe operating supphes cover such costs as lubricants, greases, instrument charts, office supplies, vehicle fuel, etc. These costs has been assumed as follows;- Direct overhead : same as manpower cost- Plant overhead : 65% of manpower and maintenance costs

5) Tax on Property and on Land- Tax on property : 1% of the average annual value of the property- Tax on land : 200 Manat/m2/year (Plant area: approx. 46,000m2)

Approx. US$ 2,000/year , US$ = 4560 Manat

The 1% p.a. of hypothetical facility cost has been assumed as total of the above taxes.

6) Environmental CostThe 0.5% p.a. of hypothetical facility cost has been assumed as environmental cost, which will be necessary for environmental preservation.

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(2) Variable Costs1) Chemicals and Additives

For operation of a plant, periodical re-fill of the chemicals for process equipment are necessary. Hence, this cost is included for this item. The estimated costs have been assumed in 2000 without any escalation.

2) Purchased Utility CostThe item includes purchased electrical power, water (seawater, raw water and demineralized water), nitrogen gas and steam.

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Table 1.1.2-1 Operaing Cost (100% NaOH Base)Plant Capacity (©Electrolyzer Exit) 80000 Ton/year (as 100%NaOH)

Capital CostISBL MM$ 103OSBL MM$ 0Total Plant MM$ 103Other Project Cost MM$ 18Total Capital MM$ 121Working Capital MM$ 1.6

Production Cost (as Operating rate = 100 %)Raw Material and Additives

Unit Price Consump. Annual Cost Prod.($/Unit) Unit/ton-Prod. MM$/yr $/ton-prod

Salt t 32 1.52 3.9 48.6Chem. 1 98%H2S0‘ kg 0.1 24 0.2 2.6Chem.2 Na2C03 kg 0.3 56 1.2 15.3Chem.3 Na2S03 kg 0.2 1 0.02 0.2Chem.4 BaCl2 kg 0.2 30 0.5 6.0Chem. 5 Floculant kg 3.2 0.0054 0.001 0.02Chem.6 Filter aid kg 3.0 0.25 0.06 0.7Chem.7 Corr.Inhibt kg 1.2 0.05 0.005 0.06Chem.8 for Utility kg 2.5 0.006 0.001 0.02Total Raw Material Cost 5.9 73.6

By-Product Credit or treatment($/Unit) Unit/ton-Prod. MM$/yr $/ton-prod

Liq. Chlorine t 200 -0.8 -12.8 -160.035% HC1 t 54 -0.13 -0.5 -6.8NaCIO t 26 -0.015 -0.03 -0.4Total By-Product -13.4 -167.1

Utility($/U nit) Unit/ton-Prod. MM$/yr ^/ton-prod

Power,kWH kWH 0.03 2500 6.0 75.0Sea Water ton 0.03 600 1.4 18.0Demin. Warer ton 1.75 3.5 0.5 6.1Raw Water ton 0.5 12 0.5 6.0Cold Brine Gcal 32 0 0.0 0.0N2 nm3 0.02 20 0.03 0.4IA nm3 0 0 0.0 0.0Steam 13barg ton 6 0.8 0.4 4.8Total Utility 8.8 110.3

Total Variable Cost 1.4 16.8Direct Fixed Cost Unit (-) Men MM$/yr $/ton-prod

Labor 1000$ 4 80 0.32 4.00Maintenance % of ISBL 4 4.1 51.5Direct O/H °0 Labor,SV 100 0.3 4.0Total Direct Fixed Cost 4.8 59.5

Allocated Fixed CostPlant O/H 65 % of Labor, Maint.. 2.9 36.1Insr, Tax 1.5 °o of Total Plant 1.5 19.3Environmental 0.5 °o of Total Plant 0.5 6.4

Total Allocated Fix Cost 4.9 61.8Production Cost of NaOH 11.1 138.1

Chap04 9

1.1.3 Financial Statements

(1) Sources of FinanceFor development of Azerchimia Chlor-alkali plant by new technology, substantial fund must be required.In this study following two types of finance have been assumed.

- Equity financeIn this study equity finance ratio on total capital investment is 15%, which is supplied by Government of Azerbaijan, e.g.In addition, Azerchimia will provide interest during plant construction, and initial working capital.

- Debt financeFor obtaining remaining 85% of total capital investment, two types of loan, Yen credit and typical commercial loan, has been assumed as described in Section 9.1.5.

(2) Cash Flow projection1) Cash Flow Projection for Soft Loan Case (Case-Y)

The projection of cash flow on investment and equity for the Soft Loan case, based on the preconditions described in Section 9.1.5, is shown on Table 1.1.3-1 and 1.1.3-2.

(a) Cash Flow on InvestmentDuring project period of 25 years, a sound financial statement is maintained from initial year of plant operation because of advantage of long-term loan( Repayment period 40 years, Grace period of 10 years and interest of 0.75%).Pay-out period of 9 years is expected from a cumulative cash flow curve as shown in Figure 1.1.3-1

Note: Project period of 25 year has been set from a point of view of plant life.

(b) Cash Flow on EquityAs same as cash flow on investment, a sound financial statement is

Chap04 10

maintained during project period. After project period, cash flow shows a deficit due to no income by plant not operation. However, repayment of debt will be continued by disbursing from cumulative revenue.

2) Cash Flow Projection for Commercial Loan Case (Case-C)The projection of cash flow on equity for the typical Commercial Loan case , based on the preconditions, is shown on Table 1.1.3-3. The cash flow on investment is same as that of Yen Credit case.

Cash Flow on Equity:During 5 years from starting plant operation, there will be deficit due to less gross profit, which is caused by less product selling depending on domestic market demand and repayment of commercial loan (Repayment period 10 years without grace period and interest of 8%).

Chap04 11

Table 1.1.3-1 Cash Flow On Investment for Yen Credit and Commercial Loan Cases

Phase Design & Construction ______________________________________________________ Commercisl OperationYear 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021Year from starting operation -3 -2 -1 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17On-stream factor 63% 73% 79% 86% 92% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%

InvestmentPlant Cost MMUS$/yr -24.2 -60.6 -36.3Working Capital MMUS$/yr -1.6

Revenue from productCaustic Soda 50% solution MMUS$/yr 6.5 7.5 8.1 8.8 9.5 10.3 10.3 10.3 10.3 10.3 10.3 10.3 10.3 10.3 10.3 10.3 10.3

Solid MMUS$/yr 11.7 13.5 14.6 15.9 17.0 18.5 18.5 18.5 18.5 18.5 18.5 18.5 18.5 18.5 18.5 18.5 18.5Liquid Chlorine MMUSS/yr 8.1 9.3 10.1 11.0 11.8 12.8 12.8 12.8 12.8 12.8 12.8 12.8 12.8 12.8 12.8 12.8 12.8By-Product MMUSS/yr 0.4 0.4 0.5 0.5 0.5 0.6 0.6 0.6 0.6 0.6 0.6 0.6 0.6 0.6 0.6 0.6 0.6Revenue Total MMUS$/yr 26.6 30.8 33.3 36.3 38.8 42.2 42.2 42.2 42.2 42.2 42.2 42.2 42.2 42.2 42.2 42.2 42.2

CostRaw material & Chemical MMUS$/yr -3.7 -4.3 -4.7 -5.1 -5.4 -5.9 -5.9 -5.9 -5.9 -5.9 -5.9 -5.9 -5.9 -5.9 -5.9 -5.9 -5.9Utility MMUS$/yr -5.6 -6.4 -7.0 -7.6 -8.1 -8.8 -8.8 -8.8 -8.8 -8.8 -8.8 -8.8 -8.8 -8.8 -8.8 -8.8 -8.8Fixed Cost MMUSS/yr -9.7 -9.8 -9.8 -9.8 -9.9 -9.9 -9.9 -10.0 -10.0 -10.0 -10.0 -10.0 -10.1 -10.1 -10.1 -10.1 -10.1Cost Total MMUS$/yr -19.0 -20.5 -21.4 -22.5 -23.4 -24.6 -24.6 -24.7 -24.7 -24.7 -24.7 -24.8 -24.8 -24.8 -24.8 -24.8 -24.9

Net Revenue w/o Tax MMUS$/yr 7.6 10.3 11.9 13.8 15.4 17.6 17.5 17.5 17.5 17.5 17.4 17.4 17.4 17.4 17.4 17.3 17.37.6 10.3 11.9 13.8 15.4 17.6 17.5

Depreciation MMUS$/yr 12.1 12.1 12.1 12.1 12.1 12.1 12.1 12.1 12.1 12.1Income Tax MMUS$/yr 0.0 0.0 0.0 -0.4 -0.9 -1.5 -1.5 -1.5 -1.5 -1.4 -4.7 -4.7 -4.7 -4.7 -4.7 -4.7 -4.7

Cash Flow on investment MMUS$/yr -24.2 -60.6 -37.9 7.6 10.3 11.9 13.3 14.5 16.1 16.1 16.1 16.0 16.0 12.7 12.7 12.7 12.7 12.7 12.7 12.6Cumulative Cash Flow on Invest met MMUS$/yr -24.2 -84.8 -122.7 -115.1 -104.8 -92.9 -79.6 -65.1 -49.0 -32.9 -16.9 -0.9 15.2 27.9 40.6 53.3 66.0 78.7 91.3 104.0

PhaseYear 2022 2023

Commercisl Operation2024 2025 2026 2027 2028 2029 2030 2031 2032 2033

No Operation2034 2035 2036 2037 2038 2039 2040 2041

Year from starting operation 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37On-stream factor 100% 100% 100% 100% 100% 100% 100% 100% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0%

InvestmentPlant Cost MMUS$/yrWorking Capital MMUS$/yr

Revenue from productCaustic Soda 50% solution MMUS$/yr 10.3 10.3 10.3 10.3 10.3 10.3 10.3 10.3 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Solid MMUS$/yr 18.5 18.5 18.5 18.5 18.5 18.5 18.5 18.5 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0Liquid Chlorine MMUS$/yr 12.8 12.8 12.8 12.8 12.8 12.8 12.8 12.8 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0By-Product MMUS$/yr 0.6 0.6 0.6 0.6 0.6 0.6 0.6 0.6 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0Revenue Total MMUS$/yr 42.2 42.2 42.2 42.2 42.2 42.2 42.2 42.2 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Raw material & Chemical UtilityFixed Cost

MMUS$/yrMMUS$/yrMMUS$/yr

-5.9-8.8

-10.2

-5.9-8.8

-10.2

-5.9-8.8

-10.2

-5.9-8.8

-10.2

-5.9-8.8

-10.2

-5.9-8.8

-10.2

-5.9-8.8

-10.3

-5.9-8.8

-10.3

0.00.00.0

0.00.00.0

0.00.00.0

0.00.00.0

0.00.00.0

0.00.00.0

0.00.00.0

0.00.00.0

0.00.00.0

0.00.00.0

0.00.00.0

0.00.00.0

Cost Total MMUS$/yr -24.9 -24.9 -24.9 -24.9 -24.9 -25.0 -25.0 -25.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Net Revenue w/o Tax MMUS$/yr 17.3 17.3 17.3 17.3 17.2 17.2 17.2 17.2 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Depreciation MMUS$/yrIncome Tax MMUS$/yr -4.7 -4.7 -4.7 -4.7 -4.7 -4.7 -4.6 -4.6 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Cash Flow on investment MMUS$/yr 12.6 12.6 12.6 12.6 12.6 12.6 12.6 12.5 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0Cumulative Cash Flow on Invest met MMUS$/yr 116.6 129.2 141.9 154.5 167.0 179.6 192.2 204.7 204.7 204.7 204.7 204.7 204.7 204.7 204.7 204.7 204.7 204.7 204.7 204.7

IRR on Investment before tax 10.1%IRR on Investment after tax 8.6%

Chap04 13-14

Table 1.1.3-2 Cash Flow On Equity for Yen Credit Case

Phase Design & Construction _____________________________________________________ Commercisi OperationYear 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021Year from starting operation -3 -2 -1 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17On-stream factor 63% 73% 79% 86% 92% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%

InvestmentPlant Cost EquityWorking Capital

Revenue from product

MMUS$/yrMMUS$/yrMMUS$/vr

-24.2-3.6

-60.6-9.1

-36.3-5.7-1.6

Caustic Soda 50% solution MMUS$/vr 6.5 7.5 8.1 8.8 9.5 10.3 10.3 10.3 10.3 10.3 10.3 10.3 10.3 10.3 10.3 10.3 10.3Solid MMUS$/vr 11.7 13.5 14.6 15.9 17.0 18.5 18.5 18.5 18.5 18.5 18.5 18.5 18.5 18.5 18.5 18.5 18.5

Liquid Chlorine MMUS$/vr 8.1 9.3 10.1 11.0 11.8 12.8 12.8 12.8 12.8 12.8 12.8 12.8 12.8 12.8 12.8 12.8 12.8By-Product MMUS$/yr 0.4 0.4 0.5 0.5 0.5 0.6 0.6 0.6 0.6 0.6 0.6 0.6 0.6 0.6 0.6 0.6 0.6Revenue Total MMUS$/yr 26.6 30.8 33.3 36.3 38.8 42.2 42.2 42.2 42.2 42.2 42.2 42.2 42.2 42.2 42.2 42.2 42.2

Raw material & Chemical MMUS$/vr -3.7 -4.3 -4.7 -5.1 -5.4 -5.9 -5.9 -5.9 -5.9 -5.9 -5.9 -5.9 -5.9 -5.9 -5.9 -5.9 -5.9Utility MMUS$/vr -5.6 -6.4 -7.0 -7.6 -8.1 -8.8 -8.8 -8.8 -8.8 -8.8 -8.8 -8.8 -8.8 -8.8 -8.8 -8.8 -8.8Fixed Cost MMUS$/yr -9.7 -9.8 -9.8 -9.8 -9.9 -9.9 -9.9 -10.0 -10.0 -10.0 -10.0 -10.0 -10.1 -10.1 -10.1 -10.1 -10.1

Cost

Cost Total MMUS$/yr -19.0 -20.5 -21.4 -22.5 -23.4 -24.6 -24.6 -24.7 -24.7 -24.7 -24.7 -24.8 -24.8 -24.8 -24.8 -24.8 -24.9

Net Revenue w/o Tax MMUS$/yr 7.6 10.3 11.9 13.8 15.4 17.6 17.5 17.5 17.5 17.5 17.4 17.4 17.4 17.4 17.4 17.3 17.3

Depreciation MMUS$/yr 12.1 12.1 12.1 12.1 12.1 12.1 12.1 12.1 12.1 12.1

RepaymentPrincipal MMUS$/yr 0 0 0 0 0 0 0 0 0 0 3.5 3.5 3.5 3.5 3.5 3.5 3.5 3.5 3.5 3.5Interest MMUS$/yr (0.0) (0.3) (0.6) 0.8 0.8 0.8 0.8 0.8 0.8 0.8 0.8 0.8 0.7 0.7 0.7 0.7 0.6 0.6 0.6 0.5Repayment Total MMUS$/yr -0.8 -0.8 -0.8 -0.8 -0.8 -0.8 -0.8 -4.3 -4.3 -4.2 -4.2 -4.2 -4.2 -4.1 -4.1 -4.1 -4.1

Debt 20.6 72.4 105.2 105.2 105.2 105.2 105.2 105.2 105.2 105.2 101.7 98.2 94.7 91.2 87.7 84.2 80.7 77.2 73.6 70.1

Income Tax MMUS$/yr 0.0 0.0 0.0 -0.2 -0.7 -1.3 -1.3 -1.2 -1.2 -1.2 -4.5 -4.5 -4.5 -4.5 -4.5 -4.5 -4.5

Cash Flow on Equity MMUS$/yr -3.6 -9.1 -5.7 6.8 9.5 11.1 12.8 13.9 15.5 15.5 12.0 12.0 12.0 8.7 8.7 8.7 8.7 8.7 8.7 8.7Cumulative Cash Flow MMUS$/yr -3.6 -12.7 -18.4 -11.6 -2.1 9.0 21.7 35.7 51.2 66.7 78.7 90.6 102.6 111.3 120.0 128.8 137.5 146.2 155.0 163.7

Phase ___________________________Commercisi Operation______________________ No OperationYear 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 2038 2039 2040 2041Year from starting operation 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37On-stream factor 100% 100% 100% 100% 100% 100% 100% 100% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0%

InvestmentPlant Cost MMUS$/yrEquity MMUS$/yrWorking Capital MMUS$/yr

Revenue from productCaustic Soda 50% solution MMUS$/vr 10.3 10.3 10.3 10.3 10.3 10.3 10.3 10.3 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Solid MMUS$/vr 18.5 18.5 18.5 18.5 18.5 18.5 18.5 18.5 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0Liquid Chlorine MMUS$/yr 12.8 12.8 12.8 12.8 12.8 12.8 12.8 12.8 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0By-Product MMUS$/yr 0.6 0.6 0.6 0.6 0.6 0.6 0.6 0.6 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0Revenue Total MMUS$/yr 42.2 42.2 42.2 42.2 42.2 42.2 42.2 42.2 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

CostRaw material & Chemical -5.9 -5.9 -5.9 -5.9 -5.9 -5.9 -5.9 -5.9 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0Utility MMUS$/yr -8.8 -8.8 -8.8 -8.8 -8.8 -8.8 -8.8 -8.8 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0Fixed Cost MMUS$/vr -10.2 -10.2 -10.2 -10.2 -10.2 -10.2 -10.3 -10.3 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0Cost Total MMUS$/vr -24.9 -24.9 -24.9 -24.9 -24.9 -25.0 -25.0 -25.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Net Revenue w/o Tax MMUS$/yr 17.3 17.3 17.3 17.3 17.2 17.2 17.2 17.2 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Depreciation

RepaymentPrincipalInterest

MMUS$/yr

MMUS$/yrMMUS$/yr

3.50.5

3.50.5

3.50.5

3.50.4

3.50.4

3.50.4

3.50.4

3.50.3

3.50.3

3.50.3

3.50.3

3.50.2

3.50.2

3.50.2

3.50.2

3.50.1

3.50.1

3.50.1

3.50.0

3.50.0

Repayment Total MMUSS/vr -4.0 -4.0 -4.0 -3.9 -3.9 -3.9 -3.9 -3.8 -3.8 -3.8 -3.8 -3.7 -3.7 -3.7 -3.7 -3.6 -3.6 -3.6 -3.6 -3.5

Debt 66.6 63.1 59.6 56.1 52.6 49.1 45.6 42.1 38.6 35.1 31.6 28.1 24.5 21.0 17.5 14.0 10.5 7.0 3.5 0.0

Income Tax MMUS$/vr -4.5 -4.5 -4.5 -4.5 -4.5 -4.5 -4.5 -4.6 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Cash Flow on Equity MMUS$/vr 8.7 8.8 8.8 8.8 8.8 8.8 8.8 8.8 -3.8 -3.8 -3.8 -3.7 -3.7 -3.7 -3.7 -3.6 -3.6 -3.6 -3.6 -3.5Cumulative Cash Flow on Equity MMUS$/vr 172.4 181.2 190.0 198.7 207.5 216.3 225.1 233.9 230.1 226.3 222.5 218.8 215.1 211.4 207.7 204.1 200.5 196.9 193.4 189.8

|IRR on Equity after tax | 40.2%|

Chap04 15-16

Cum

ulat

ive C

ash F

low

. MM

US$

9as

Project Year, vr

Fig. 1.1.3-1 Cumulative Cash Flow on Investment

Table 1.1.3-3 Cash Flow On Equity for Commerccial Loan Case

Phase Design & Construction _____________________________________________________ Commercisl OperationYear 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021Year from starting operation -3 -2 -1 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17On-stream factor 63% 73% 79=o 86=o 92=o 100=o 100 = 0 100% 100= o 100=o 100% 100% 100% o o 100% 100% 100=0

InvestmentPlant Cost EquityWorking Capital

Revenue from product

MMUS$/yrMMUS$/vrMMUSS/yr

-24.2-3.6

-36.3-5.5

-60.6-9.3-1.6

Caustic Soda 50% solution MMlTS$/yr 6.5 7.5 8.1 8.8 9.5 10.3 10.3 10.3 10.3 10.3 10.3 10.3 10.3 10.3 10.3 10.3 10.3Solid MMUS$/vr 11.7 13.5 14.6 15.9 17.0 18.5 18.5 18.5 18.5 18.5 18.5 18.5 18.5 18.5 18.5 18.5 18.5

Liquid Chlorine MMUS$/vr 8.1 9.3 10.1 11.0 11.8 12.8 12.8 12.8 12.8 12.8 12.8 12.8 12.8 12.8 12.8 12.8 12.8Bv-Product MMUS$/yr 0.4 0.4 0.5 0.5 0.5 0.6 0.6 0.6 0.6 0.6 0.6 0.6 0.6 0.6 0.6 0.6 0.6Revenue Total MMUS$/yr 26.6 30.8 33.3 36.3 38.8 42.2 42.2 42.2 42.2 42.2 42.2 42.2 42.2 42.2 42.2 42.2 42.2

Raw material & Chemical MMUS$/vr -3.7 -4.3 -4.7 -5.1 -5.4 -5.9 -5.9 -5.9 -5.9 -5.9 -5.9 -5.9 -5.9 -5.9 -5.9 -5.9 -5.9Utility MMUS$/yr -5.6 -6.4 -7.0 -7.6 -8.1 -8.8 -8.8 -8.8 -8.8 -8.8 -8.8 -8.8 -8.8 -8.8 -8.8 -8.8 -8.8Fixed Cost MMLJS$/yr -9.7 -9.8 -9.8 -9.8 -9.9 -9.9 -9.9 -10.0 -10.0 -10.0 -10.0 -10.0 -10.1 -10.1 -10.1 -10.1 -10.1

Cost

Cost Total MMUS$/yr -19.0 -20.5 -21.4 -22.5 -23.4 -24.6 -24.6 -24.7 -24.7 -24.7 -24.7 -24.8 -24.8 -24.8 -24.8 -24.8 -24.9

Net Revenue w/o Tax MMUS$/yr 7.6 10.3 11.9 13.8 15.4 17.6 17.5 17.5 17.5 17.5 17.4 17.4 17.4 17.4 17.4 17.3 17.3

Depreciation MMUS$/yr 12.1 12.1 12.1 12.1 12.1 12.1 12.1 12.1 12.1 12.1

RepaymentPrincipal MMUS$/yr 0 0 0 11.4 11.4 11.4 11.4 11.4 11.4 11.4 11.4 11.4 11.4 0.0 0.0 0.0 0.0 0.0 0.0 0.0Interest MMUS$/yr (0.4) (2.7) (6.8) 8.9 8.0 7.1 6.2 5.3 4.3 3.4 2.5 1.6 0.7 0.0 0.0 0.0 0.0 0.0 0.0 0.0Repayment Total MMUS$/yr -20.3 -19.4 -18.5 -17.6 -16.7 -15.8 -14.9 -13.9 -13.0 -12.1 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Debt 21.0 75.2 114.3 102.8 91.4 80.0 68.6 57.1 45.7 34.3 22.9 11.4 0.0

Income Tax MMUS$/yr 0.0 0.0 0.0 0.0 0.0 -0.3 -0.5 -0.8 -1.0 -1.3 -4.7 -4.7 -4.7 -4.7 -4.7 -4.7 -4.7

Cash Flow on Equity MMUS$/yr -3.6 -5.5 -9.3 -12.7 -9.1 -6.6 -3.8 -1.3 1.5 2.1 2.8 3.4 4.1 12.7 12.7 12.7 12.7 12.7 12.7 12.6Cumulative Cash Flow MMUS$/yr -3.6 -9.1 -18.4 -31.1 -40.3 -46.9 -50.7 -52.0 -50.5 -48.4 -45.6 -42.1 -38.0 -25.3 -12.6 0.1 12.8 25.5 38.1 50.8

Phase ___________________________ Commercisl Operation______________________ No OperationYear 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 2038 2039 2040 2041Year from starting operation 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37On-stream factor 100% 100% 100% 100% 100% 100=o 100% 100% 0% 0% 0% 0% 0% 0% 0% 0 = 0 0% 0% 0=6 0%

InvestmentPlant Cost MMUS$/yrEquity MMUS$/yrWorking Capital MMUS$/yr

Revenue from productCaustic Soda 50% solution

SolidLiquid ChlorineBv-Product

MMUS$/yrMMUS$/yrMMLIS$/yrMMUS$/yr

10.318.512.80.6

10.318.512.80.6

10.318.512.80.6

10.318.512.80.6

10.318.512.80.6

10.318.512.80.6

10.318.512.80.6

10.318.512.80.6

0.00.00.00.0

0.00.00.00.0

0.00.00.00.0

0.00.00.00.0

0.00.00.00.0

0.00.00.00.0

0.00.00.00.0

0.00.00.00.0

0.00.00.00.0

0.00.00.00.0

0.00.00.00.0

0.00.00.00.0

Revenue Total MMLIS$/yr 42.2 42.2 42.2 42.2 42.2 42.2 42.2 42.2 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

CostRaw material & Chemical MMLTS$/vr -5.9 -5.9 -5.9 -5.9 -5.9 -5.9 -5.9 -5.9 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0Utility MMUS$/vr -8.8 -8.8 -8.8 -8.8 -8.8 -8.8 -8.8 -8.8 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0Fixed Cost MMUS$/yr -10.2 -10.2 -10.2 -10.2 -10.2 -10.2 -10.3 -10.3 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0Cost Total MMLIS$/yr -24.9 -24.9 -24.9 -24.9 -24.9 -25.0 -25.0 -25.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Net Revenue w/o Tax

Depreciation

MMUS$/yr

MMUS$/yr

17.3 17.3 17.3 17.3 17.2 17.2 17.2 17.2 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

RepaymentPrincipal MMUS$/yr 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0Interest MM L'SS/vr 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0Repayment Total MML!S$/vr 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Debt

Income Tax MMl’S$/vr -4.7 -4.7 -4.7 -4.7 -4.7 -4.7 -4.6 -4.6 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Cash Flow on Equity MMUS$/vr 12.6 12.6 12.6 12.6 12.6 12.6 12.6 12.5 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0Cumulative Cash Flow on Equity MMUS$/vr 63.4 76.0 88.6 101.2 113.8 126.4 139.0 151.5 151.5 151.5 151.5 151.5 151.5 151.5 151.5 151.5 151.5 151.5 151.5 151.5

|IRR on Equity after tax | 9,4%~|

Chap04 19-20

1.1.4 Financial Indices

(1) Internal Rate of Return(IRR)The internal rate of return (IRR) for the above 2 cases are shown as below;

Soft Loan(CaaeiY)

IRR on investment before tax IRR on investment after tax IRR on equity after tax

10%

8.6%

40%

The value of IRR on investment in commercial loan case is the same as one of soft loan case, since the total investment cost is the same value for both cases as analysis basis. However, the value of IRR on equity in commercial loan case is much lower than in soft loan case.Commercial loan has a short term of payment, , and it does not have grace period, either. If required short-term loan is assumed in order to continue the plant operation, payment of short-term loan will exceed accounting capital in the 2nd year after the start up of plant operation. This case falls at insolvency and it becomes impossible operating it.

Commercial Loan(Case-C)

IRR on investment before tax IRR on investment after tax IRR on equity after tax

10%

8.6%

9.4%

(2) Sensitivity AnalysisSensitivity analysis is made to know the change of IRR on investment after tax corresponding with the change of average selling price of products, raw material (salt) cost and utility (electric power) cost.The results of sensitivity analysis for the above factors are shown in Figure.1.1.4-1 and 1.1.4-2.

Chap04 21

IRR

(RO

I) %

-♦—NaOH Price #— Liq.C12 Price

95 100 105 110 115 120 125 130

NaOH PRICE & Liq.C12 PRICE %

Fig. 1.1.4-2 Sensitivity of NaOH PRICE & Liq.C12 PRICE

-♦—Elec. CostSalt Cost

05 7.0

100 105 110 115 120 125 130

Elec.Cost & Salt Cost %

Fig. 1.1.4-3 Sensitivity of Electrical Power Cost & Salt Cost

C-hap04 22

1.1.5 Evaluation

The financial evaluation in this study shows that it is difficult to carry out this project in case of debt finance by commercial loan as described in the above section.

However, debt finance by Soft Loan (long-term loan) will cause finance situation of this project to be sound because of advantage of long-term repayment period and preferential interest.

Chap04 23

2 Cost benefit of project

Cost benefit of this project is as follows;

Project costTotal investment approx. 125millionUS$(1 US$ = 110 Yen) (1*) (=13,750millionYen)

Benefit by implementation of this projectReduction of energy consumption 40,700 toe / yr(Energy saving as fuel oil)

Reduction of C02 emission 131,000 ton-C02 /yr( at 100% of production rate )

Cumulative reduction of C02 emission 3,135,000 ton (during 25 years of plant life period)

Reduction of energy consumption per total investment cost= 40,700 / 13,750millionYen = 2.96 toe-y / million Yen

Reduction of C02 emission per total investment cost= 131,000 / 13,750millionYen = 9.52 C02-y / million Yen

Note)(*1) : Exchange rate as of December,2000

Chap04 24

Chapter 5

Confirmation of Effects on Promotion for Energy Conservation Technology

ChapOS

Chapter 5. CONFIRMATION OF EFFECT ON PROMOTION FOR ENERGY CONSERVATION TECHNOLOGY

In relation to the promotion of the same kind of the project after realizing this project, the scheme on promotion effect, energy-saving performance and reduction performance of greenhouse-gas emission is described with consideration to the promotion.

1 Possibility of promotion of introduced technology in the partner’s country

Azerchimia is one of a few chemistry business corporations which supply a caustic soda and chlorine from Azerbaijan down to the Caucasus countries and the Caspian Sea coast countries.

For this reason, supposing it limits a counter partner to Azerbaijan, it can be said that there is almost no possibility that the candidate technology to introduce will be referred to as promoting further.

2. Effect considering the promotion

2.1 Energy conservation effect

Since almost all the possibility of the promotion in a candidate country cannot be found, the energy conservation effect with consideration to promotion is not generated.

2.2 Effect on reduction of greenhouse effect gas

Since almost all the possibility of the promotion in a candidate country cannot be found, effect on reduction of greenhouse effect gas of having taken promotion into consideration is not generated.

Chap05 3

Chapter 6

Effects to Others

Chap06 1

Chap06 2

Chapter 6. EFFECTS TO OTHERS

1 Influencing others environmentally, economically, and socially while obtaining effect on energy conservation and effect on the reduction of greenhouse gas by implementing the project

This project contributes not only to the environmental preservation of this area by reducing the electric power currently consumed and the amount of emission of the greenhouse gas, but also to dissolving the mercury and chlorine problems. And the operating efficiency of the chlor-alkali plant also increases, and high economic cost performance is also obtained.

(1) Environmentally

In the financial evaluation of the project performed in Chapter 4 above, the financial indices of the project are not so high, and implementation of the project on a commercial basis is hardly justified. However, the project will bring the economic merits as described below, and it is necessary to review the project not only from the financial point of view but also economical point of view with consideration to an environment improvement.

1) Effects of project on mercury pollutionAt present, in the existing chlor-alkali plant using mercury process, mercury losses during production have occasionally peaked at 1 kg/ton. Losses average now about 300 g/ton of chlorine produced (compared with 2~3 g/t or less in a well-maintained and controlled factory). Mercury lost during the process is released into the atmosphere, discharged with waste waters, or discharged in plant wastes. At the present production level, the mercury- containing wastes are accumulating by 6 to 7000 tons per year. About 200,000ton of mercury sludge have already accumulated, contained 0.1~0.3 percent mercury. The wastes are inadequately stored, with ground water contamination and leakage to the Caspian Sea a likely risk. The process water discharges have already severely contaminated the sediments in the Caspian Sea outside Sumgayit.

Mercury is a very severe poison to the human nervous system, especially in organic methyl mercury form. The most well-know example of mercury

Chap06 3

poisoning is the Minamata disaster in Japan where people became crippled for life because of mercury discharges from a mine. Metallic mercury is readily transformed into organic mercury in nature bay bacteria. Organic mercury has the ability to biomagnify through the food chain and is therefore often found in high concentrations in fish. It is very likely that sturgeon and other fish species in the Sumgayit area have elevated mercury levels, and are therefore hazardous to the fish-consuming population. Increased mercury levels in sturgeon may also have negative consequences for the sturgeon and caviar market. Since mercury is an element that does not degrade in nature, the pollution situation will continue to increase in severity over time as long as mercury releases continue.

Ensuring safe disposal of mercury sludges and decontamination of the most polluted sediments in the Caspian by dredging is a high priority for action. This investment is urgent because of the severe health risk associated with mercury in the food chain. It is also critical for future economic development (potential foreign investors in the Sumgayit Free Economic Zone have expressed concern about mercury contamination. Investment in clean-up is also likely to be affordable (damage cost are mitigation costs will be determined in follow-up work). To avoid further deterioration of the situation, the NEAP recommends the mercury-based chlor-alkali production cease immediately, and a project for mercury clean-up be launched

The external leakage of mercury and chlorine is spreading to the residential area around Azerchimia Factory, and it is suspected that in the near future, contamination of the environment through mercury and chlorine gas will become a major problem for the factory.

The project is to convert the chlor-alkali plant from mercury process to ion exchanged membrane process not using mercury in the Azerchimia. The project will ease the burden on the environment problem described above in the Azerchimia.

By not using mercury in the production process of the project, mercury lost will not released into to atmosphere, not discharged with waste water or not discharged in plant wastes. Therefore, the project has economical merits against continuing the operation of the existing plant with mercury production process as follows:

Chap06 4

- No investment required for clean-up for mercury containing sludges and for decontamination of the most polluted sediments

- No risk of mercury contamination into ground water and leakage to the Caspian Sea.

- No risk of increase of mercury level in sturgeon and other fish in the Caspian Sea and of negative consequences for the sturgeon and caviar markets

- No risk of severe health associated with mercury in the food chain

- Improvement of chlorine gas leakage problem

2) Effects of project on chlorine pollutionIn addition to the mercury pollution, the facility of Azerichimia is so aged and chlorine gas leakage from the existing chlor-alkali plant has been occurred. If the Azerichemia will replace its caustic soda production facihty to the latest one, it can contribute to the preventing chlorine leakage.

3) Effects of project on other factoriesThe caustic soda is mainly used in the petroleum refinery and the generating plant for environmental preservation besides being used for industry across the board as a raw material in Azerbaijan.In a petroleum refinery, it is used as a solvent for removing the sulfur contained in LPG, and this is the target which cuts down the sulfur content discharged in the atmosphere at the time of LPG combustion. Moreover, in order to remove sulfur from jet fuel and diesel fuel using caustic soda, an alkali-cleaning facihty is now constructed. In power plants, in case wastewater is discharged to river or the sea, PH value of a wastewater is regulated for the purpose of environment conservation by using a caustic soda so that bad conditions may not be started to an ecosystem.

Since this project can supply stably caustic soda which does not contain mercury at all, it is clear it contributes to the arrangement of the atmospheric relevant to other industry, such as these petroleum refineries and generating plants of Azerbaijan, and a water contamination question.

Chap06 5

(2) Economically and socially :1) Reservation of employment and of foreign currency

If a mercury-process plant will be stopped, a caustic soda and chlorine will be imported at 100% in Azerbaijan.

This project is able to contribute also in the field of the reservation of a foreign currency, and the reservation of employment.

2) Development of other industryIt is clear that this energy conservation project can reduce carbon dioxide, sulphur oxide, the nitrogen oxide, and a dust. And the chlor-alkali plant is considered to contribute to environment of a surrounding area and a surrounding denizen.

Moreover, introduction of modernized equipment, system, and technology not only affects the economic cost performance, but becomes clear good affecting an environment simultaneously. This also affects other factories and other industries such as oil refineries, petrochemical industry and aluminum refinement industry and it is fully considered that the new project for energy conservation and reduction of carbon dioxide in these areas.

Chap06 6

Conclusion

Conclusion 1

Conclusion

Conclusion

The State Concern Azerchimia which is the Azerbaijan side counter partner of this basic enquiry has high concern to this energy-conservation project, and the valuation is carried out very much. And they have expressed the strong request of wanting carrying out this project very much under the know how and the capital affiliation by the side of Japan.

Consequently, a total of 131,000 tons per annum of carbon dioxide as a greenhouse gas will be cut down by implementing the project. It became clear that this contributes to CDM greatly.

Accordingly, the revitalization of the chlor-alkali plant must be given the first priority, considering the health and welfare of the people and the preservation of the environment of Azerbaijan.

Implementation of the project, with the improved process technology, is expected to contribute to decrease burden on the environment by producing more environmental friendly products such as (mercury free) caustic soda and chlorine without mercury pollution. Such environmental advantage can be enjoyed not only by Sumgait where the plant is located, but also by all over the land of Azerbaijan and the coatal coutries of the Caspian sea.

The restoration of the petro chemical industries is one of the top urgent issue that need prompt attention and action to restore the domestic economy and industries in Azerbaijan. The Azerchimia is the only facility which can produce various kinds chemical and petro-chemical products domestically. Revitalization of the chlor- alkali plant means restoration of the chemical and petro chemical industry of Azerbaijan. Therefore, the project has been given the highest priority as a national project by Azerbaijan.The start of the new process line of the plant shall be materialized with the highest priority to achieve long term stable operation and environmental preservation with the improvement of product specifications.

Through the financial evaluation, it became clear that the application of the commercial loan for the project would be extremely difficult, as there will be problems in the cash flow, if the commercial loan is applied to the project. However, it will achieve acceptable internal rates of return and generate enough

Conclusion 3

cash flow for loan repayment, if special Yen Credit for environmental preservation is applied. It is judged that this project will achieve enough profitability to justify implementation under the fund through the soft loan, if the special Yen Credit for environmental preservation is granted and the much lower interest rate and longer repayment period than commercial loan are applied. It may not need to be mentioned that Azerchimia does not have the appropriate fund resources of the foreign currencies that is required for implementation of the project.

By this study, it is concluded that implementation of the project is feasible for the technical, financial and economical points of view, if the project fund can be arranged.

The great advantage of this project is that it contributes to restoration of the domestic economy and industries of Azerbaijan by offering a means for self- efforts and to prevent environmental destruction . In this point of view, Azerchimia shall proceed with the next steps toward the materialization of Soft Loan finance for the actual implementation.

Finally, gratitude is said to you who have cooperated in this basic survey project. Our result of this report is very glad if it contributes to the economic development and the environmental preservation of Azerbaijan.

Conclusion 4

Attachments

Attachment 1

Attachment

1 Reference List

— State Statistics Committee ; ROTOBO data

— The Japan - Central Asia Trade Survey / ROTOBO

— CIS Statistics Committee data

— Interfax Petroleum Report, Aug.,’98

— Azerbaijan State Statistics Committee

— Sumgait Meteorological Station data

— Azerbaijan National Cbmate-change Board data

— IPCC Guidelines for Natural Greenhouse Gas Inventories : Workbook Table 1-3 Selected Net Calorific Values

— IPCC Guidelines for Natural Greenhouse Gas Inventories : Workbook Table 1-2 Carbon Emission Factor(CEF)

— IPCC Guidebnes for Natural Greenhouse Gas Inventories :Workbook Table 1-4 Fraction of Carbon Oxidized

Attachment 3

2 Site Survey Report

(1) 1st Survey

Overseas Business Trip Report

11th October,2000

Re : Feasibility Study on Environmental Improvement and Energy Conservation of A Mercury / Diaphragm Cell Chlor-Alkali Plant

Hideyuki Sato Project Manager

1 . Country : Azerbaijan Republic2 . Schedule : 24th September to 1st October ( 8 days)3 . Member : Manager ; Hideyuki Sato (Generalization )

Member ; Ryuichi Araki (Cost estimation)Member ; Madoka Kawakami (Process overall)Member ; Takeshi Hino (Electrolysis engineering)Member ; Shiny a Onodera (Electrical engineering)Member ; Keisuke Ishii (Economic analysis)

4 . Contents :(1) Date : 25th September

Visit place : Nichimen Corporation Office Interview person : Manager KitagawaDescription : Present status for Azerbaijan^ Outline of visit places^

General condition for Azerchimia(2) Date : 26th September

Visit place : Japanese embassy Interview person : Minister MotoyamaDescription : Greetings Outline of the FSN political, Economic and

Social Conditions of Azerbaijan(3) Date : 26th September

Visit place : Cabinet of MinistersInterview person : Mr.Fataliyev Head of Investment Department Description : Greetings Present status for Azerbaijan and Azerchimia

(4) Date : 26th SeptemberVisit place : Ministry of EconomyInterview person : Mr. Talybov Head of Chemical & Petrochemical DepartmentDescription : Discussion nad hearing of investment status of

Azerchimia

Attachment 4

• The conversion project of caustic soda plant meets the strategy of the future of Azerchimia.

• FS may be mixed 3 projects (ethylene, polypropylene, caustic soda), and U.S.EXIM may be asked.

(5) Date : 27th SeptemberVisit place : AZERCHIMIA Caustic Soda PlantInterview person : Mr. Guliyev,(Factory manager) N Mr.Mikhailov

(Head of a production division )x Mr. Soltanov (Head of a design division X Mr. Manafov (Chief

Engineer X Mr. Iskenderov ( Member of Investment bureau )

Description : Factory site survey^ hearing of operating data(6) Date : 28th September

Visit place : AZERCHIMIA Caustic Soda PlantInterview person : Mr.Mikhailov (Head of a production division X

Mr. Soltanov (Head of a design division )N Mr. Manafov (Chief Engineer X Mr. Iskenderov ( Member of Investment bureau )

Description : Hearing and discussion on requested data and information

(7) Date : 29th SeptemberVisit place : AZERCHIMIA Caustic Soda PlantDescription : Discussion on basic conditions of new caustic soda plant

(8) Date : 29th SeptemberVisit place : AZERCHIMIA HeadofficeInterview person : Mr. Sadykhov (Director general X Mr. Rza A.

Rzaev (Head of an investment office )Description : Greeting, Hearing of investment strategy of

AZERCHIMIA• US consultant carried out the FS forcaustic plant having the capacity of 60,000t/y

• Capacity:Min. 150,000 t/yx Max.20,000 t/y• The capacity will be decided by doing case study.• The caustic soda is absolutely required also because of

neighboring countries’ environmental issue arrangement.

Attachment 5

(2)2nd Survey

Overseas Business Trip Report

27th November, 2000

Re : Feasibility Study on Environmental Improvement and Energy Conservation of A Mercury / Diaphragm Cell Chlor-Alkali Plant

Ryuichi Araki Manager

1 . Country : Azerbaijan Republic2 . Schedule : 21th November to 26st November (6days)3 . Member : Manager ; Ryuichi Araki

Member ; Madoka Kawakami Member ; Takeshi Hino Member ; Keisuke Ishii

4 . Contents :(1) Date : 22th November

Visit place : AZERCHIMIA Caustic Soda PlantInterview person : Mr. Manafov (Chief Engineer), Mr. Mikailov (Head

of a production division), Mr. Sultanov (Head of a design division), Mr. Eminov (Electricala chief engineer), Mr. Iskenderov (Member of Investment bureau)

Description : Presentation of the results of site survey and confirmation of utility quantity to be required in the new plant

(2) Date : 23th NovemberVisit place : AZERCHIMIA Caustic Soda PlantInterview person : Mr. Manafov (Chief Engineer), Mr. Mikailov (Head

of a production division), Mr. Sultanov (Head of a design division), Mr. Eminov (Electricala chief engineer), Mr. Iskenderov (Member of Investment bureau)

Description : A confirmation and a reply of a last-time investigation result and a questionnaire entry, discussion

(3) Date : 24th NovemberVisit place : AZERCHIMIA Investment officeInterview person : Mr. Kengerli (Manager), Mr. Iskenderov (Member)Description : Report of apprehension to a plant capacity

Confirmation of a future schedule

Attachment 6

(3)3rd Survey

Overseas Business Trip Report

13th February, 2001

Re : Feasibility Study on Environmental Improvement and Energy Conservation of A Mercury / Diaphragm Cell Chlor-Alkali Plant

Ryuichi Araki Manager

1 . Country : Azerbaijan Republic2 . Schedule : 3th February to 9th February (7days)3 . Member : Manager ; Ryuichi Araki

Member ; Rei Sato Member ; Takeshi Hino Member ; Keisuke Ishii

4 . Contents :(1) Date : 5th February

Visit place : AZERCHIMIA Caustic Soda PlantInterview person : Mr. Manafov (Chief Engineer), Mr. Mikailov

(Head of a production division), Mr. Sultanov (Head of a design division), Mr. Eminov (Electricala chief engineer), Mr. Iskenderov (Member of Investment bureau)

Description : Final confirmation was performed on contents of feasibility study

(2) Date : 5th FebruaryVisit place : AZERCHIMIA Investment OfficeInterview person : Mr. Ruzaief (Head of an investment office)^ Mr.

Kengerli (Manager), Mr. Iskenderov (Member) Description : Presentation of outline of the feasibility study report

(3) Date : 5th FebruaryVisit place : Japanese embassyInterview person : ,Mr. Muto, Second secretaryDescription : Report of an investigation closure, ,Information

acquisition about a spot recent state(4) Date : 6th February

Visit place : Ministry petrochemical officeInterview person : Mr. Gaysin (The first assistant chief)

Mr. Ruzaief (Head of an investment office,

Attachment 7

AZERCHMDescription : Presentation of the feasibility study report

(5) Date : 6th FebruaryVisit place : Ministry of Economy, Petrochemical office Interview person : Mr. Talybov (Head of Petrochemical Office) Description : Presentation of the feasibility study report

(6) Date : 7th FebruaryVisit place : Investment Office, AZERCHIMIAInterview person : Mr. Ruzaief (Head of Investment office)N Mr.

Kengerli (Manager), Mr. Iskenderov (Member) Description : Comments from AZERCHIMIA/Azerbaijan side were

recieved, and the study was performed about description of the final report.

Attachment 8

3. Member List

Company Name Name ChargeJapan Consulting Institute (JCI)

HideyukiSato

Management of the Study

JCI /Chiyoda Branch Office

TakehiroHirobe

Project planning

JCI/Chiyoda Branch Office

RyuichiAraki

Project cost estimation

JCI/Chiyoda Branch Office

HisaoTakahashi

Construction planning.

JCI/Chiyoda Branch Office

MisaoTateno

Utilities facility planning

JCI/Chiyoda Branch Office

SyunichiroMo garni

Environmental analysis

JCI/Chiyoda Branch Office

SyozouMori

Schedule planning

JCI/Chiyoda Branch Office

YasujiEgawa

All technical review.

JCI/Chiyoda Branch Office

MadokaKawakami

All process review.

JCI/Chiyoda Branch Office

TakeshiHino

Electrolysis engineering

JCI/Chiyoda Branch Office

KoichiHino

Engineering of brine treatment facility

JCI/Chiyoda Branch Office

ReiSato

Engineering of caustic soda concentration facility.

JCI/Chiyoda Branch Office

YasuoHosono

Engineering of chlorine facility

JCI/Chiyoda Branch Office

MasahiroSasaki

Civil engineering

JCI/Chiyoda Branch Office

KenMino

Architectural engineering

JCI/Chiyoda Branch Office

NobuyoshiFujimaki

Plant layout

Attachment 9

Company Name Name ChargeJCI/Chiyoda Branch Office

SeiichiKurosaka

Piping engineering

JCI/Chiyoda Branch Office

HiroshiAsada

Electrical engineering.

JCI /Chiyoda Branch Office

TakaoSato

Electrical engineering

JCI/Chiyoda Branch Office

ShoMitani

Instrument engineering.

JCI/Chiyoda Branch Office

HirooTsuruta

Machinery engineering.

JCI/Chiyoda Branch Office

KazuhikoKinoshita

Storage facility engineering

JCI/Chiyoda Branch Office

MototatsuUeno

Equipment engineering

JCI/Chiyoda Branch Office

EtsuyukiHashimoto

Economic evaluation

JCI/Chiyoda Branch Office

KeisukeIshii

Financial evaluation

JCI/Chiyoda Branch Office

SinyaOnodera

Engineering of electrolysis facility

Attachment 10

When you release the description of this report, please obtain beforehand the allowance of International Cooperation Department of New Energy and Industrial Technology Development Organization (NEDO).

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