Net Investment
The net investment for the project includes the capital cost of the plant, which is
subject to depreciation, and the associated costs, which are not subject to depreciation. The capital cost of the plant is the contractor’s selling price for the engineering, equipment, materials, and the construction of the facilities. In a process study
using a DCF return on investment calculation, the capital cost should be an estimate
with an accuracy at least that based on an equipment factored type.
The associated costs include the following elements:
• Any licensor’s paid up royalties
• Cost of land
• First inventory of chemicals and catalyst
• Cost of any additional utilities or offsite facilities incurred by the project
• Change in feed and product inventory
• Working capital
• Capitalized construction period loan interest
Revenue
This is the single source of income into the project. In most cases, it is the income
received for the sale of the product(s). This is calculated from projected process
yields of products multiplied by the marketed price of the products. A market
survey should already have been completed to ensure that the additional products
generated by the project are in demand and the prices are in an acceptable range.
Later, a sensitivity analysis of the DCF return on investment may be conducted
changing the revenue recovered by price escalation or other means.
Expenses
This is the major cost of carrying out the project. It consists of the following items:
• Plant operating cost. This includes the cost of utilities used in the process, such
as power, steam, and fuel. It also includes the cost of plant personnel in salaries,
burdens, and indirects and the cost of chemicals and catalysts used.
• Maintenance. There are two kinds of maintenance costs included in this item.
These are the preventive maintenance carried out on a routine basis and those
costs associated with incidental breakdowns and repair.
• Loan repayment. The loan principal is paid back in equal increments over the
economic life of the plant (see later for a discussion). This item includes the
payback increments and the associated interest on a declining basis.
These are incurred running costs and as such are considered tax free.
Petroleum Refinery Planning and Economics
731
The net investment for the project includes the capital cost of the plant, which is
subject to depreciation, and the associated costs, which are not subject to depreciation. The capital cost of the plant is the contractor’s selling price for the engineering, equipment, materials, and the construction of the facilities. In a process study
using a DCF return on investment calculation, the capital cost should be an estimate
with an accuracy at least that based on an equipment factored type.
The associated costs include the following elements:
• Any licensor’s paid up royalties
• Cost of land
• First inventory of chemicals and catalyst
• Cost of any additional utilities or offsite facilities incurred by the project
• Change in feed and product inventory
• Working capital
• Capitalized construction period loan interest
Revenue
This is the single source of income into the project. In most cases, it is the income
received for the sale of the product(s). This is calculated from projected process
yields of products multiplied by the marketed price of the products. A market
survey should already have been completed to ensure that the additional products
generated by the project are in demand and the prices are in an acceptable range.
Later, a sensitivity analysis of the DCF return on investment may be conducted
changing the revenue recovered by price escalation or other means.
Expenses
This is the major cost of carrying out the project. It consists of the following items:
• Plant operating cost. This includes the cost of utilities used in the process, such
as power, steam, and fuel. It also includes the cost of plant personnel in salaries,
burdens, and indirects and the cost of chemicals and catalysts used.
• Maintenance. There are two kinds of maintenance costs included in this item.
These are the preventive maintenance carried out on a routine basis and those
costs associated with incidental breakdowns and repair.
• Loan repayment. The loan principal is paid back in equal increments over the
economic life of the plant (see later for a discussion). This item includes the
payback increments and the associated interest on a declining basis.
These are incurred running costs and as such are considered tax free.
Petroleum Refinery Planning and Economics
731