Detailed Feasibility Report and its Preparation in Steel Sector

Detailed Feasibility Report and its Preparation in Steel Sector

A feasibility study aims to objectively and rationally uncover the strengths and weaknesses of a proposed project, opportunities and threats present in the environment, the resources needed to carry through, and ultimately the prospects for success. In its simplest terms, the two criteria to judge feasibility are cost needed and the value to be attained. A well-designed feasibility study provides a background for the project, a description of the project, accounting statements, technical details, and financial data. Generally, feasibility study includes technical development and project implementation. It evaluates the project’s potential for success and hence, perceived objectivity is an important factor in the credibility of the feasibility study for potential investors and lending institutions. It is necessary, therefore, that the feasibility study is conducted with an objective, unbiased approach to provide information upon which decisions can be based.

Feasibility report is a base document for a steel project for the decision making with respect to investment in the project. Depending of the stage of the project, when the feasibility report is made, it is known as pre-feasibility report (PFR), feasibility report (FR), or detailed feasibility report (DFR). It is obvious that DFR is more accurate than FR both in technical aspect or financial analysis aspect.

PFR study is a preliminary study undertaken to determine, analyze, and select the best alternative among several alternatives, both technically and financially. It is difficult and it takes time if each of the alternatives is studied deeply. Hence, shortcut method deems acceptable in the early stage is used to determine minor components of investment and production cost. If the selected alternative is considered feasible, then normally the study at the FR or DFR is taken up to get deeper analysis of the selected project scenario.

Technically FR and DFR are a ‘go/no-go’ decision point, thereby implying that sometimes the answer can be ‘no’. However, once a project is advanced to these stages, organizations often have committed considerable capital and professional reputation and hence it is usually considered that the project is feasible.

Sometimes, the term bankable is used before feasibility report. Adding this term simply means that the level of effort that has been incorporated into the report is sufficient for outsourcing financing. Normally bankable feasibility report considers that the project is feasible.

FR and DFR are engineering studies based on test work and engineering analysis, which presents enough information for the steel project, when it is advanced to the final engineering and construction stage, to proceed.

DFR is nearer to the detailed project report (DPR) which is a complete document for investment decision-making, approval, planning. Preparation of DFR is a step in firming up the project proposal. DFR is a basic document based on which further work on the project is carried out.  It firms up the proposal for the capital cost as well as the various facilities. One more report which is needed to obtain environment clearance for the project is ‘environment impact assessment and environment management plan (EIA and EMP) report. Different types of reports normally prepared for a steel project are shown in Fig 1.

Types of reports for steel project

Fig 1 Types of reports for a steel project

DFR is similar in content to feasibilities report. In this report the project details are worked out with the greater accuracy in following an optimization process, with feedback and inter-linkages, including the identification of all commercial, technical and entrepreneurial risks. In the report all the included features are examined more closely. All of the assumptions made, data used and solutions selected are described and justified in order to make the project more comprehensive so as to facilitate not only the investment decision but also the project engineering.

DFR normally examines the following in sufficient details.

  • All the alternatives possible for the project.
  • Basis and justification of the concept selected for the project.
  • Any aspects of the project which are critical to the project and there is necessity for the in-depth investigation through functional or support studies such as market surveys, laboratory tests or pilot-plants tests etc.
  • The financial analysis which includes the cost benefit analysis.
  • The environmental aspects of the project at the planned site and the potential impact of the projected production process are in line with national standards. However the feasibility report is not the environment analysis and environment management plan report, which is to be made as per the norm in more detail separately.

Basic engineering of the steel project is required to be carried out for the preparation of the DFR. The basic engineering of the project helps in freezing the plant concepts, product mix as well as in the selection of appropriate technology of the plant.

DFR generally details the following aspects of the steel project based upon the available information of the project. It usually covers the following areas in separate chapters and provides details which are worked out in quite a detail based on the information available for the project.

  • Corporate details, project strategies and scope of project – It provides in brief the details of the corporate implementing the project along with their strengths and weaknesses. It also discusses the need for the project and fixes boundaries for the project. Based on the project boundaries the scope of the project is detailed out for its further elaboration in the DFR.
  • Capacity and product mix – In this chapter the capacity of the plant is elaborated along with the product mix. Product mix consists of the products which the plant is required to produce after its commissioning. DFR includes the details of these products along with their specifications, size ranges and their annual quantities which are required to be produced.
  • Market analysis – Market analysis is done to check the demand and supplies of the steel products included in the product mix in order to find the gap between demand and supplies. The positive gap between demand and supplies provides assurance that the product mix of the plant has got good demand and their marketability is not of a concern when the plant is commissioned.
  • Analysis of site – Site analysis is done to determine its suitability for the steel plant with respect to its location, availability of infrastructure like rail, road, water, and power etc., and impact of the plant on the neighborhood environment. This section also analyzes land levels within the plant boundary so as to roughly estimate the cost of land preparation. Site analysis also analyzes meteorological data of at the plant site so as to determine the extreme weather conditions, possibility of flooding, and earthquake zone since plant and equipment and drainage facilities are to be designed to take care of meteorological extreme conditions existing at the plant site.
  • Selection of appropriate technology – Selection of reliable technology is very important since the technology decides the efficient and economic operation of the plant after its commissioning. Further technology provides capabilities to the process for producing products included in the product mix at the required capacity levels. Also, the selection of the proper technology assures that it does not become outdated during the lifespan of the plant and considerable expenditure for the modernization of the plant will not be needed in future. Availability and specification of available raw materials also have influence on the selection of the technology for the plant.
  • Main facilities and general layout – The selected technologies decides the main facilities and their capacities, number of process streams, and intermediate products 5o be produced in the plant. It also decides the sequences of the processes and the process flow. The facilities of the plant are put in a layout drawing known as the general layout drawing. The development of plant general layout need maximum attention since it is not possible to make major changes in the layout once the detail engineering of the plant starts. Adequate space is required to be provided for all the facilities in the general layout. Also general layout is to ensure smooth unidirectional and shorter movement of materials in the plant. Crossing of movements of different materials as well as reverse and crisscross movement of the materials is to be avoided and if not possible then it is to be minimized.
  • Plant material balance and flow sheet – Material balance is done to work out the technological requirement of raw materials taking into account the specification of the available raw materials as well to plan for the recycling of metallurgical wastes from the various processes. Material balance is usually done taking into account the material consumption on the dry basis. Material balance also reflects the generation of waste materials from the plants. Material flow sheet facilitates the material balance calculations.
  • Major raw materials needed and their linkages – Based upon the technological requirement of the raw materials on dry basis, the quantities needed to be procured are calculated. These quantities include different types of losses such as handling loss, transportation loss, and moisture loss etc. This section also describes the specifications of the raw materials and their linkages to the source of raw materials along with the mode of the movement such as rail or road transport etc.
  • Plant and equipment – This chapter of the report is the largest section of the DFR. This chapter is normally divided into sub-chapters with each sub chapter covering one area/shop of the main production shops of the plant. Each subchapter describes in sufficient details (i) area/shop layout, (ii) description of the process, (iii) requirement of inputs with specifications, (iv) outputs of the shop with specifications, (v) capacity calculations, (vi) process parameters, (vii) specific consumptions, (viii) handling facilities, (ix) detailed list of the equipment, and (x) waste treatment facilities.
  • Auxiliary facilities along with plant and equipment – This chapter is similar to the plant and equipment chapter with respect to the details except that it covers the areas/shops coming under the auxiliary units. Auxiliary units are those units of the plant which supports the operation of the main production shops.
  • Automation, instrumentation and control facilities – This chapter describes the automation philosophy used in various production shops of the plant. It determines the automation level of the plant. The chapter also describes the systems of instruments and control in different areas of the plant.
  • Communication facilities – This chapter describes the communication facilities within the shops and between the shops. This chapter also covers dispatcher control and central monitoring facilities like energy centre and production control centre etc.
  • Utilities requirements, utilities balance and distribution – This chapter defines the requirement of utilities such as steam, compressed air, water, oxygen, nitrogen, and argon etc. Balancing of utilities consumptions with respect to their generation/procurement is also done. The distribution of utilities and their transport to the consumption point is also described in this chapter.
  • Requirement of power, its sources and power distribution – This chapter describes the power situation of the plant. Here the power requirements along with the voltage levels at different places of the plant are described. The power balancing consisting of its generation, import/export, and its consumption is carried out. Power distribution is very important since there are several voltage levels in the plant. The power distribution consisting of main receiving station, sub-station and load centres are described in sufficient details in the DFR. The chapter also provides information regarding specific consumption power for total plant as well as for the main production units.
  • Fuel and energy balance for the plant – Steel plant uses all the three types of fuels namely solid, liquid and gaseous fuels. Further it also generates certain fuels as by products in different production processes. This chapter describes fuel procurement, fuel generation and distribution, and energy balance of the plant. The specific energy consumption of the entire plant is also calculated and given in this chapter.
  • Site preparation and enabling work needed for plant construction along with the volume of work – For starting the construction activities of the plant, certain preparation are needed which includes site leveling and site preparation, facilities to meet the requirement of construction power and construction water, communication facilities during plant construction, facilities for the storage of equipment and construction materials, weighing facilities for incoming materials, construction road and rail network, administrative block, and housing facilities for construction workers etc. These works are required to be completed by the time construction starts at the site. These works are known as enabling works and are described in this chapter along with the volume of work.
  • Volume of works during construction and requirement of construction materials – In this chapter details are worked out regarding volume of works required to be executed during construction of the project such as volume of civil works, tonnage of building structures and their fabrications, erection tonnage for plant and equipment, lengths of roads and rails to be laid, volume of cabling, and volume of pipeline work etc. The materials such as cement, steel sections, pipes, steel reinforcement bars, and cables etc. are also determined. These data are needed for planning for procurement during the construction of the project.
  • Project planning – This chapter describes the suggested methodology of implementation of the project. It describes the recommended methodology for the procurement of the plant, equipment, and materials as well as for the works to be carried out at the plant site. It also recommends the types of the contracts to be entered so that the project can be completed in scheduled time.
  • Project implementation strategy and schedule – The implementation strategy of the project is described in this chapter. The implementation schedule is usually presented in a detailed bar chart or in a PERT (project evaluation review technique) chart. The information provided in this chapter is useful for project monitoring during its execution.
  • Human resource requirement during construction stage and after commissioning along with its break up and training requirements – The details given in this chapter for human resource are needed for the manpower planning of the project. The manpower break-up is to be done in sufficient details so that it facilitates the recruitment of personnel at different level. The training requirement details are also to be provided since it is needed for planning the training of the work force required for plant commissioning and operation.
  • Plant commissioning and start up requirements – This chapter describes the requirements of materials such as raw materials, store materials, consumables and change parts, and commissioning spares etc. needed during commissioning and the start-up of the plant.
  • Project capital costs with break up – This chapter provides the details of the capital cost of the plant. The details are normally provided shop wise and break- up of the capital cost is usually done based on the projected volumes of construction works. The cost break up also includes the cost of land acquisition, cost needed for regulatory approvals, cost of enabling works, and costs of captive mines but excludes the costs needed for the development of infrastructures and linkages. The capital costs also include the costs incurred due to interest during construction, administrative costs needed during construction, and interest incurred on the working capital till plant commissioning.
  • Budgeting and requirement of funds – This chapter details out the requirement of funds for the project execution based upon the project implementation schedule. The information provided in the chapter is needed for arranging of funds required for the project execution.
  • Plant operating costs with break up – In this chapter the operating costs of the plant is worked out. The operating costs usually have components such as costs of raw materials, fuel, power, utilities and consumables, manpower, overheads, interest, and depreciation etc.
  • Financial analysis of the plant- The financial analysis is done to check the project viability. For this purpose, profit and loss statements as well as cash flow statements are made for a period of at least 20 years of plant operations after the commissioning of the plant. Normally IRR value is calculated to determine the viability of the project.