The Company has been operating a refinery in Republic of Kalmykia in Russia for a little over a year. Prior to that the refinery had been working in some small way for several years. Since acquired by Zaraha the plant has been made truly productive and profits have been generated. With concentration on quality and efficiency the company has gained a good reputation along with government acknowledgements by way of full operating licences. The order book has always exceeded supply and it is for this reason that the company has set out on a programme of substantial redevelopment.
The overall plan is to increase production. This will be done in 4 stages in order to ensure that there are no major issues and to provide for an orderly level of expansion.
Stage 1 will see the present level of production 15,000 tons per year increase to to 45,000 tons.
Stage 2 will see that number grow to 225,000. The figures attached show the effect of these increases.
The present site has sufficient area to allow for both of these stages to be completed without the need to acquire more land. But with the aim to start stage 3, a further redoubling to 450,000 tons, as soon as possible after the completion of stage 2, there will be an immediate start to the negotiations to acquire the adjacent land. As can be seen from the images in the Appendices, there are no buildings nearby and therefore the purchase should not prove difficult. Indeed preliminary discussions have indicated that such a move would be very welcome by the local authorities.
The management of this redevelopment will be handled by Serco, a UK based consultancy firm, who will also be responsible for the procurement of the funding. The funding will be by way of a rolling line of credit, against works completed, with repayments starting from the end of stage 1. The funding of stage 2 will follow the same pattern. The attached figures in the DPR will demonstrate the company’s ability to cover the repayments from its ever increasing revenues and profits.
At the present time crude oil comes under contract from RussNeft at a discount and is sold to over 20 customers. Payment terms for both purchase and sale is cash before delivery. The whole production even after the completion of stage 2, would be taken up by the existing set of customers thus indicating that there would not need to be any substantial advertising or marketing campaign.
It is assumed for purposes of these calculations that the labour force and payroll costs would increase very substantially at each stage in proportion to the increase in production but, in reality, there would almost certainly be savings of scale. There would however be a strong need to increase the fees and costs of management, which at the present time is largely carried out by the shareholders who are not currently drawing commenserate salaries.
The consultancy agreement with Serco will include the full costs on a time and expense basis for all the staff and contractors employed by that firm together with an overall uplift fee of 20% of costs.
It is anticipated that stage 1 will be completed during the latter part of 2019 and stage 2 a year after that. On each occasion the new level of production and turnover will be instant and not gradual. Plans will be made accordingly for an immediate doubling of both acquisition of crude oil and sale of the products. Thus profitability will increase at one moment and not on a staged basis.
In overall terms, it is anticipated within the attached figures that stage 1 will cost £10 million with stage 2 costing £30 million.
Profitability, which at present, as seen on the attached accounts, is under 2 million per year, would increase as a result of stage 1 to at least 5.5 million and then up to more than 15.5 million as a result of stage 2. This would be after all costs including finance charges.
A detailed project report can be provided upon interest from any prospective and credible lender.