Key factors in setting up a cement plant
Key factors in setting up a cement plant

Key factors in setting up a cement plant

Shalini Chauhan Negi, Pankaj Sood and Deven Parti of Holtec Consulting
explain the process of setting up a greenfield integrated cement plant, which is generally coined as an integrated unit (IU) in common industry parlance. All other types of cement manufacturing plants are essentially a subset of an IU itself.

Cement industry is a part of the core industrial sector and plays a crucial role in building up of the nation's economy. Cement is a key ingredient of construction sector and is one of the indicators of development in a country. Setting up a cement plant is both time and capital intensive; it could take anywhere between five to seven years from concept to commissioning and an investment of around to Rs 1,800-2,000 crore for a typical integrated plant of 3 million tpa cement capacity. Size of a cement plant could vary from 0.2 million tpa to 5.0 million tpa.

Before starting to build a cement plant, it is imperative to know what the cement making process involves. The cement manufacturing process starts with mining of limestone followed by grinding it with other raw materials like clay, shale, bauxite, iron ore, etc. to prepare a raw meal, which is heated at a sintering temperature of 1,400 to 1,500 degree Celsius in a kiln to manufacture clinker. The clinker is then finely ground along with additives like gypsum, fly ash, slag, etc. to produce the desired type and quality of cement. Cement is then stored in silos from where it is dispatched to the market in 50 kg bags and/or in bulk.

Cement is of various types, but can broadly be classified in the following two categories:

  • Ordinary Portland Cement (OPC) typically consisting of 95 per cent clinker and 5 per cent gypsum.
  • Blended cement like Portland Pozzolana Cement (PPC), Portland Slag Cement (PSC), Portland Composite Cement (PCC), etc. commonly comprising of 35 to 70 per cent clinker, 3 to 5 per cent gypsum and 25 to 65 per cent blending materials like fly ash, slag, etc.
  • Major stages involved in setting up a greenfield integrated cement plant are:
  • Initiation and conception stage: This stage deliberates upon the two enabling pertinent questions ' what kind of plant is to be set up, and where to set up the plant.
  • Pre-project stage: This is the preparatory stage that involves activities like identification of available mines, understanding competition and markets, securing limestone, identifying and procuring land, arranging finances, etc.
  • Project execution stage: Entails project execution related activities like project management, tendering, procurement, detailed engineering, construction, etc.
  • The following sections explain in detail each of these stages:
    Initiation & conception stage

    First step is to decide the kind of plant to be set up for manufacturing cement. There are four major types of plants (units) that can be set up:

  • Integrated unit (IU): This type of unit comprises an all-inclusive facility to produce clinker from limestone, which further is ground with additives to manufacture cement.
  • Grinding unit (GU): This type of unit, as the name suggests, has facility to only grind clinker along with desired additives to manufacture cement. Clinker for a grinding unit is sourced either from its parent unit or from other sources/open market. Most of the grinding units are typically set up near a major cement consumption center to capture the market, subject to it being in reasonable vicinity to the envisaged blending material source(s).
  • Blending unit (BU): This kind of establishment essentially blends Ordinary Portland Cement (OPC) with fine blending material(s) to manufacture different kinds of cement. The objective of setting up a blending unit is also to be near a major market center with a primary function of mixing sourced OPC with a suitable blending material of relatively high fineness (high blaine). Thus, blended or mixed cement product requires less specific power consumption subject to sourcing the blending materials of relatively high fineness.
  • Bulk cement terminal (BCT): This type of unit is primarily a separately located storing and packing/dispatching plant of a parent cement manufacturing plant located elsewhere. Cement is received in bulk essentially by sea, or rail, and stored in a set of silos. It is typically packed and sold in 50 kg bags and can be dispatched in bulk also depending on end users' requirement. The primary objective of such an establishment is to be located in close vicinity of a major cement consumption center, and to cater to its needs ensuring quicker turnaround from the time order is placed by the end-user for delivery of cement.
  • The next major step is to identify the location for setting up the cement plant. A plant location is an irrevocable strategic decision. Parameters for determining the location principally depend on the type of plant envisioned to be set up. Salient parameters in context being:

  • IU: Zeroing-in on the location of an IU is comparatively easier to decide as it ideally must be located as close as possible to a limestone source. However, for this a company needs to secure a limestone mine. Acquisition of limestone deposit is a critical decision; thus, it is important to carry out a detailed study to examine and evaluate the deposit in terms of quality, quantity, ease of mining, etc. before investing in the mines.
  • Downstream units: Decision on location of these units depends upon several factors including access to high consumption markets, future demand growth, competition intensity, blending material sources and availability, prices, etc.
  • At the end of this stage, a broad concept of the project should be in place in terms of plant location(s), capacity and investment requirement. This phase can span anywhere between 0.5 to 2 years depending upon when the board gives its approval to go ahead to the next phase.

    Pre-project stage
    Initiation/conception stage lays the foundation for the next important milestone of setting out the action plan for the "pre-project activities". The pre-project stage is the preparatory stage where the concept and configuration of the proposed cement plant needs to be transformed to a relatively structured form from the initial broad concept.

    The major milestones of pre-project stage are:
    Securing limestone:
    Limestone is the key ingredient in cement manufacturing and thus, it is very critical to secure limestone before going ahead with setting up of a cement factory.

    This involves following activities:

  • If the company does not own mines, then limestone mines can be acquired either through auction process (prevalent in India) or through acquisition of any existing company holding a mining lease or by applying for mining license in some other countries
  • The acquisition of limestone in India has become very critical as limestone mines can now be obtained only through mining lease auctions carried out by the Government. With this, the process of mine leasing has become relatively challenging and cost intensive, which calls for assiduous planning in fulfilling cost and strategy effective bidding expertise
  • Geological investigations for estimating the limestone reserves
  • Mine planning
  • Statutory approvals for mines
  • Techno economic feasibility report (TEFR)/detailed project report (DPR): to establish the technical feasibility and financial viability of the project. This also helps the stakeholders in evaluating associated risks and exploring possible mitigative measures.

    The salient features of a typical TEFR/DPR are as follows:

  • Input materials: Availability of limestone, correctives, additives, fuel, etc. It also includes availability and cost of utilities.
  • Markets: Market transparency, estimation of achievable sales volume and ex-factory realisation.
  • Location and Infrastructure.
  • Technology: Suitable technology, equipment sizing and estimation of storage capacities, broad civil design, electrical and instrumentation engineering concepts, environment control measures, etc.
  • Human resource: Manpower count and cost
  • Implementation: Implementation strategy and schedule
  • Financial analysis: Investment cost, financial returns and sensitivity analysis
  • Risks and mitigation measures
  • Land procurement: Acquisition of land for mines and plant is a tedious and time taking process. This typically involves the following steps:

  • Identification of land for setting up the plant and ascertaining its land use pattern.
  • Establishing the land use pattern and applying for change in land use, if required.
  • Acquisition and registration, and allied works pertaining to the land patches.
  • Regulatory and statutory clearances: Many regulatory and statutory clearances are required for setting up of a plant and starting operations, the few major ones out of many such required clearances/permissions are:

  • Environment clearances for mines and plant
  • Forest clearance
  • Consent to establish the mines and plant (CTE)
  • Consolidated approvals for sourcing utilities (power, water, etc.) and handling effluents
  • Consent and/ or no objection certificate from local pollution control board(s)
  • Certificate of commencement
  • Financial closure: Ideally the company should arrange for the funds before starting the project. Although some large business houses begin the project by first putting in a portion of the equity and then parallelly commencing the process of arranging for other types of finances.

    Detailed techno-economic feasibility report is usually submitted to the financial institutions for obtaining loan. The project is appraised by financial institutions based on their own paraments to validate the results highlighted in the TEFR. Once the institution is satisfied with feasibility, loan is sanctioned for the project. The institution can either grant the loan on its own or form a consortium of financial institutions that together finance the loan.

    The aforementioned activities play an important role in determining the overall success of the proposed cement project. Pre-project activities can span across 1 to 2 years dependent primarily on the time taken on securing limestone mines and getting financial closure.

    Project execution stage
    Project execution is a crucial stage and needs to be carefully planned to avoid cost and time overrun. Mostly companies set up a multi-functional team of technical professionals for project execution. Liaison, finance and administration functions are also important to ensure that land acquisition, clearances and funds availability do not create a bottleneck in project execution, as many of these activities from pre-project stage continue well into the project execution stage. Project execution has two main components ' planning and monitoring, and implementation.

    Project planning and monitoring: Establishment of an efficient system for project planning and monitoring, including exporting procedures for progress review and coordination, is very vital for successful project execution. This can either be done by an in-house team or can be outsourced to a project management consultant.

    Project implementation: Project implementation comprises of the following steps.
    Basic engineering: This step covers the following:

  • Finalisation of technical concept covering basic specifications for plant and machinery and other relevant features
  • Systems engineering for utilities
  • Preparation of plant layout and process flow sheet
  • Decision on execution mode, viz.,
  • Turnkey: One single contractor is responsible for all project activities concluding with the handing over of the plant to the owner.
  • Semi-turnkey: There are usually two agencies - supplier and contractor. The supplier is responsible for all activities that occur offshore, i.e. outside the country/project site. The contractor is responsible for all activities that occur on shore i.e. within the country/ project site.
  • Package: The plant is split up into functional process departments and procured accordingly. Several main suppliers are responsible for the detailed engineering, manufacture and supply of equipment(s).
  • Shopping: In this case the company/consultant formulates the basic design for the project and assists in procuring equipment
  • Most of the companies in India prefer package mode. Thus, this step also involves defining packages and battery limits for each package so that there are no grey areas and no gaps which could potentially create a bottleneck during the plant construction phase.
  • Procurement of main equipment and services: This covers the following:

  • Preparation and release of tender for inviting bids
  • Receipt of offers from various suppliers
  • Evaluation of offers
  • Technical rating of offers
  • Financial negotiation
  • Award and signing of contract
  • Detailed engineering: This covers the following:

  • Engineering of plant and integration of equipment from different suppliers
  • Review of suppliers' drawings
  • Procurement of other auxiliaries and services
  • Civil construction: Construction of civil structures
  • Mechanical erection: Setting up of plant and machinery
  • Electrical erection: Setting up of power system and electrical equipment
  • Mechanical completion: Completion of mechanical erection
  • Electrical completion: Completion of electrical erection
  • Pre-commissioning trials: Trial run(s) to ensure all equipment are operational and identify issues/bottlenecks, if any
  • Commissioning: Commissioning of a plant implies that all components of plant are operational, and the plant as a whole is running smoothly?
  • Performance guarantee (PG) tests: These tests are conducted by the equipment suppliers to ensure/certify that the equipment is delivering the output as per the terms mentioned in the contract
  • Commercial production: After successful PG tests, plant is considered ready to start commercial production
  • Many companies engage a technical consultant for some or all stages of project management/construction monitoring to ensure a smooth execution process. Key factors in setting up of a cement plant Some of the important factors which need to be kept in mind during setting up a cement plant are:

  • Markets: Revenue for the business comes from the market, and thus, it is important to do a thorough research in terms of market transparency to understand the market demand, competition, prices and future prospects before venturing into this business.
  • Limestone: Limestone being the key input material and fuel being important to sustain the energy intensive cement manufacturing process, reliable availability of limestone and fuel are two vital factors in smooth and cost-effective operations of a cement plant.
  • Location: Location of the plant should be selected keeping in view the availability and price economics of input materials, access to all required infrastructure and utilities and proximity to high consumption cement markets.
  • Financial viability: In order to ensure financial viability of the project, it is important to simulate various downside cases and thereby know the possible impact if the cement demands, prices, etc. do not meet future growth assumptions. This sensitivity scenario also brings confidence that the debt component of the business can still be serviced despite an economic slowdown and will keep the business afloat.
  • Funds availability: While it is important to wisely select the location, plant technology, suppliers, etc., it is also critical to ensure funds availability at the right time to avoid delays and thereby cost overruns.
  • Project management: A multi-disciplinary team, internal and/or external, is vital for conceptualisation, planning, procurement, system integration and execution of the project.
  • Rule and regulations: It is important to identify and adhere to all applicable rule and regulation and obtain all the regulatory and statutory clearances for establishing and running the plant. It would also be prudent to foresee possible changes in policies that may impact the cement business.
  • To conclude, setting up the cement plant requires detailed planning from concept to commissioning to avert time and cost overruns.

    ABOUT THE AUTHORS: The article is authored by Shalini Chauhan Negi, Pankaj Sood and Deven Parti of Holtec Consulting. They may be reached at studies@holtecnet.com.

    Holtec Consulting is an advisory firm, primarily positioned to service the entire gamut of consulting needs of the global cement industry. Its portfolio spans services in all disciplines of engineering, business consulting, geology and mining, project and construction management, environment management, performance enhancement, etc.

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