Jennifer FEASIBILITY STUDY ON THE ESTABLISHMENT OF A FUEL STATION IN ASABA

FEASIBILITY STUDY FOR THE ESTABLISHMENT OF A

FUEL STATION IN ASABA, DELTA STATE

1. Executive summary

2. Introduction

3. Proposed Business Legal Status

4. Project Cost

Viable Economic Size

Proposed Capacity

Proposed Location

5. Market Analysis

Target Customers

Market Demand

Market Supply

Industry Growth

6. Regulations and Licenses

Guidelines for setting up a fuel filling station

License

Certificate (by DPR)

NOCs

Income Tax

7. The Project CONCEPT

Project Cost

Project Financing

Project Details

8. Manpower Requirement

9. Basis for Financial Projections

Inflation Rate

Revenue Assumptions

No. of Cars

Petrol per Vehicle

Feasibility Report for the Establishment of a Motor-Fuel Filling Station in Asaba by, NKEMDIRIM JENNIFER 1

Depreciation on Assets

Accounting Profit

Taxable Profit

First Year Allowance

Multiple Shift Allowance

Amortization of Preliminary Expenses

Working Capital

Accounts Receivables

Advances to Employees

Accrued Utilities and Power Expenses

Accounts Payable

Value Added Tax Payable

Value Added Tax

Ratio/Financial Analysis

Alternative Investment Opportunity

10. Financial Analysis


1. EXECUTIVE SUMMARY

1.1 PURPOSE OF THE DOCUMENT

The objective of this feasibility study is primarily for academic purpose, but can

aid potential entrepreneurs to facilitate investment and provide an overview about

Petrol Filling Station business. The project feasibility may form the basis of an

important investment decision and in order to serve this objective, the document

covers various aspects of the business concept development, start-up,

production, marketing, and finance and business management. The document

also provides sectoral information, brief on government policies and international

scenario, which have some bearing on the project itself.

This particular pre-feasibility is regarding “Fuel Filling Station” which comes

under “Petroleum” sector.

1.2 CRUCIAL FACTORS &STEPS IN DECISION MAKING FOR INVESTMENT

Key Success Factors

Following factors are the key in making this project profitable:

Location of the project will play a pivotal role in the successful running of the

fuel station. The daily turnover of the cars largely depends on this important

factor.

Selection of proper equipment is another key for carrying out the successful

operations of the proposed project.

1.3 OPPORTUNITIES

The proposed project would have a number of competitive advantages:

The project will increase the number of fuel stations in Asaba and provide fuel

to more customers, reducing the problem of fuel scarcity in the area and

reducing the cost.


Asaba being a state capital and close to the commercial hub of the eastern

Nigeria is a good location because of the high rate of vehicular movement in

and out of the region.

Threats

The proposed project will be facing the following threat:

Market saturation over a longer period of time due to a large number of entrants

and Asaba being a very small town

Threat of likely increase in the prices of the petroleum products by the

government as a result of the planned deregulation and removal of fuel subsidy

2. INTRODUCTION

Petroleum products are among the most valuable natural resources abundantly

available in our country. Nigerians and people everywhere use petroleum

products as a fuel in their automobiles, generating sets, industrial plants and for

cooking purposes, thus making petroleum products an essential commodity that

is needed for the daily operations of individual, industrial and national activities.

Nigeria being an oil producing nation however still relies on imported petroleum

products for the servicing of the economy. Such petroleum products as Petrol

(PMS), Diesel (AGO) and kerosene (DPK) are products utilized by almost

everybody on daily basis at an average of 10 million litres daily usage.

Due to increasing level of standard of living, more Nigerians are increasing the

number of cars on the road, the need for constant power supply to aid

uninterrupted production of goods and services and also for domestic use more

Nigerians are increasing the demand for fuel in order to enjoy the usage of their

generating sets and industrial plants

The total projected cost for setting up a standard Motor- fuel filling station in

Asaba, Delta state has been estimated at N31,127,530 million. It includes land,


building, fuel dispensers and other equipments, spares, along with the

preliminary expenses and working capital.

The available local petroleum products, i.e. Petrol, diesel and kerosene are

basically produced from crude oil, which Nigeria currently seats as the 6 th largest

exported of crude. Notwithstanding the fact that Nigeria depends on the

importation of these petrol products

3. PROPOSED BUSINESS LEGAL STATUS

The proposed legal structure of the business entity is a sole proprietorship

registered as TINOCOO OIL ENTERPRISES.

4. ESTIMATED COST OF PROJECT

The cost of project has been estimated as N31.13 million including land, civil

works, fuel Dispenser equipment, underground tanks and office equipment.

Preliminary expenses and Petroleum licensing and other regulatory charges are

estimated at N0.82 million and N1.8 million respectively. The Petrol, diesel and

kerosene equipment comprises of dual hose dispensers and electric control

panels.

Project Investment

Fixed Investment 30,750,140

Working Capital 377,390

Total Investment 31,127,530

The proposed pre-feasibility is based on the assumption of 50% debt and 50%

equity.

The project seems to be viable with the following returns on investment.


Project Returns

Internal rate of return (project) 23.1%

Internal rate of return (equity) 45.1%

Net Present Value @ 20% 3,401,246

Payback period – based on cash inflows 4 years

4.1 VIABLE ECONOMIC SIZE

A minimum of 202 cars is required to be filled daily in order to operate at

breakeven. Considering the market trends and number of vehicles in use in

Asaba, this ranges of fleet of government vehicles, fleet of transporters plying

within the town, Asaba – Onitsha route, Asaba – Ibusa, Ogwashiukwu, Ilah and

other neighboring towns and villages. Also, the heavy vehicular traffic of travelers

from other parts of the country to the east, it is estimated that, the project would

be able to attract and serve at-least 202 vehicles per day. This does not include

the increasing number of motor cycles and those who purchase fuel for their

generating sets.

4.2 PROPOSED CAPACITY

The equipment for dispensing petroleum products that has been considered for

preparing this prefeasibility study is of German origin. This equipment is relatively

more efficient and effective of the all types of equipment available in the market.

Various other types of equipment are also available at lower prices. The chosen

equipment is capable of refueling 50 vehicles per hour. Twin hose dispenser

accompanies this equipment and it handles refueling of two vehicles at a time.

4.3 PROPOSED LOCATION

The proposed locations for the Motor- fuel filling station in Asaba are as follows;

Onitsha Benin Expressway

Nnebisi Road


Summit Road Junction

Ibusa Road Junction,

Okpanam Road

The project may also be established in commercially viable area of town.

5. MARKET ANALYSES

The efficient distribution of petroleum products has always been part of the

Government’s petroleum policy, which is reflected in the efforts made by the

government establishing NNPC mega stations across various states in the

country in order to meet the increasing demand for petroleum products.

5.1 Target Customers

The target customers for the proposed project would be the private and

commercial vehicles running on Petrol fuel, private and commercial motor cycles,

owners of generating sets for private and commercial usage.

5.2 Market Demand

At present there are more than 15,000 vehicles plying within Asaba being a state

capital and its environs;, which includes transporters from Onitsha, Ibusa,

Okpanam, and those ply the Onitsha – Benin Expressway on daily basis. Due to

the increasing epileptic nature of power supply, the demand for petroleum

products have been on the rise as a result of steady increase in rate of migration

into the state capital, also, almost every business and residential apartment in

Asaba and its environs now rely more on generators for constant and

uninterrupted power.

5.3 Market Supply


Total number of Petrol Stations that are fully operational in Asaba is only 21,

which is quite low for meeting the growing demand for petroleum products. Apart

from these 21 petrol stations, there are many other stations that are not

functioning while a few others are springing up.

5.4 Industry Growth

There has been a tremendous growth in the downstream petroleum sector over

the years. The total number of vehicles within Asaba and its environs was 5,000

and functional petrol filling stations were 10 at the end of year 2000. Currently,

the number of vehicles and petrol filling stations has increased to over 15,000

vehicles and 21 functional stations respectively and by the year 2015 they would

have tremendously grown up to 26 functional Stations and over 20,000 vehicles

as a result of increasing commercial activities and the building of an airport in

Asaba which is close to Onitsha the commercial nerve centre of the east. The

growth in terms of percentage is given in the following table:

Table 5-1 Growth Percentage of Vehicles

Year 2010 2015 Percentage

Increase

No. of Vehicles 15,000 20,000 33%

Petrol Filling Stations 21 26 24%

The above growth rates present an opportunity for the new entrants to earn

profits by setting up new petrol filling stations to meet the growing demand.


6. REGULATIONS AND LICENSES

6.1 License

Obtaining a license from Ministry of Petroleum and Natural Resources and

Department of Petroleum Resources (DPR) is a pre-requisite for setting-up the

Motor Fuel Filling station. The cost associated with this license is N 25,000

6.2 Certificate (by DPR)

After the installation of the required equipment for the Fuel filling station, DPR will

inspect the working of the equipment, and once satisfied, will issue a certificate

verifying that the installed equipment is up to the required standards. The cost

associated with this certification is N 35,000.

6.3 NOCs

No Objection Certificate will be required from the following departments prior to

the commencement of the business:

Concerned development authority of the city (Lahore Development

Authority in case of Lahore)

Traffic Engineering and Planning Authority (TEPA)

Traffic Police (SSP)

Department of Civil Defense

National Highway Authority (NHA)

Central Board of Revenue (CBR)

Civil Administration - Tehsil Municipal Administration (TMA)

Irrigation Department

Forest Department

Explosives Department

The cost associated for obtaining the above NOCs is estimated at Rs.100, 000


6.4 Income Tax

The income of the Petrol filling station is not exempted from the income tax. The

investor has to pay tax on his/her income according to the nature of the business

entity. The current project is being operated as a private limited company, so the

income tax is payable at the prevailing rate.

6.5 GUIDELINES FOR SETTING UP OF MOTOR-FUEL FILLING STATIONS

BASIC PRINCIPLES

The governing consideration is to minimize, as much as possible, interference to

normal flow of traffic on the road by vehicles using the amenity and also to

ensure safety.

General Conditions of Sitting:

1. The Clear distance between two adjacent fuel filling stations (these will

also include fuel filling – cum – service station) should not be less than

300 Metres.

2. Fuel filling stations should be well distributed on both sides of the road so

that vehicles do not have to cut across the traffic to reach a fuel filling

station. The fuel filling station on opposite sides shall be staggered.

3. Sitting of fuel filling stations near existing check barriers should be

avoided. They should be at least 1 km away from the check barrier.

4. The distance between the tangent points of the curves of the side road

and that of the fuel filling station measured in a direction parallel to the

centre line of the road should not be less than 100 metres and the station

should be located only in the outbound direction. However, on expressway

and arterial road having dual carriageway, the distance from the junction

should not be less than 300 metres.


Frontage:

For free flow of vehicles into and out of the fuel filling station, the site should

permit construction of wide entrance and exit with easy access. It is, therefore,

desirable to have the longest possible frontage, the minimum being 30 Metres.

The minimum Entry and Exit width should be 9 metres.

Area: (as per NBC Clause 6.6.3.3 – Part III Development Control Rules and

General Building Requirements)

The size of the petrol filling station shall not be less than

a) 31 X 17 M in the case of petrol filling station with kiosk without service bay

b) 37 X 31 M in the case of petrol filling station with service bay

Buffer Strip

1. A buffer strip of at least 12 metres long and 3 metres wide should be

provided.

2. The outer edge of buffer strip should be along the outer edge of road land

boundary for rural sections and that of footpath or cycle tract or service

road, if any, for urban sections. However, the future widening of the road

should be kept in mind so that there is no obstruction to the improvement

to the road. In all such cases, the distance from the outer edge of buffer

strip from the centre line of the carriageway should not be less than 7

metres for National Highways and State Highways and 6 metres for other

roads where no cycle tracks are required now or in future and this

distance should not be less than 12 metres where cycle tracks exist or

may be required in future. In case of dual carriageway, these distances

should be measured from the centre line of the nearest two lanes of the

carriageway.


7. THE PROJECT CONCEPT

7.1 Project Cost

The details of the cost of project are as follows:

Table 7-1 Project Costs

Items in Naira

Land (9,000 Sq. ft) 13,000,000

Building – Civil Works 5,000,000

Dispensers, Underground tanks & Other Equipment 9,945,140

Office Equipment 100,000

Furniture & Fixtures 85,000

Licenses / Permits 1,250,000

Preliminary Expenses 820,000

Working Capital 927,390

Total 31,127,530

7.2 Project Financing

The total cost of the project is N31.13 million including the working capital of

N0.927 million. The sponsors of the project will contribute N15.56 million and the

bank will finance the remaining amount of N15.56 million.

7.3 Project Details

7.3.1 Location

For setting up a Fuel filling station, location is the prime factor. As per the

requirements of the Federal Government, the filling station must be situated in a

commercial area. Fuel filling stations are not allowed to be installed in the

residential areas.


7.3.2 Land

A minimum of nine thousand (9000) square feet of land with at least 75 feet front

opening is required for installing Fuel filling station. An amount of N13 million has

been allocated for the acquisition of nine thousand square feet of commercial

land in Asaba in the areas of Onitsha Benin Expressway, Nnebisi Road, Summit

Road Junction, Ibusa Road Junction or Okpanam Road. A comparison of costs

of commercial land in the various areas of Asaba is given below for reference

purpose.

Table 7-2 Approximate Cost of Land in the Proposed Areas

Location Price Range for 9, 000 Sq.ft

Onitsha Benin Expressway 11,500,000 – 15,000,000

Nnebisi Road 9,000,000 – 11,000,000

Summit Road 10,500,000 – 13,500,000

In this report, prices of commercial land Asaba has been considered, however,

prices may considerably vary in the other places like Ibusa road, Okpanam and

other areas of commercial nature

7.3.3 Building

There are certain civil works required to be carried out at the proposed location.

The civil works would be carried out on an area of 2250 square feet. The rest of

the area will be floored with concrete. Civil work includes the following:

Office

Shed for Dispenser

Toilet/washroom

Underground Tanks and Power Cables

Flooring


The total cost of construction is estimated at N5 million. Details for the said cost

are as follows:

Table 7-3 Construction Cost (Amount in Naira)

Description Cost

Office, shed and toilet/washroom 2,500,000

Underground Tanks & gas piping - 500,000

Flooring (6,750sq.ft) 1,750,000

Contingencies - 250,000

Total Cost - 5,000,000

7.3.4 Equipment

The following equipment is required for a Fuel filling station:

Gas Compressor

The purpose of compressor is to compress the fuel enabling it to

discharge the petrol for refueling. This compressor requires an input

pressure of 8 or 15 PSIG5 from the main gas supply with the outlet

pressure of 3,625 PSIG. With this discharge pressure, the equipment can

refuel 50 vehicles per hour.

Electric Control Panel: Electric control panel is required to operate the gas

compressor.

Priority Panel for Vehicle Priority: During rush hours, the compressor is

directly connected to the dispenser, bypassing the storage

cascades/cylinders with the help of priority panel, facilitating the refueling

of vehicles at a faster rate.

Fuel Dispenser high flow dual hose: Gas is filled into the vehicles with the

help of dispenser. This dual hose dispenser is capable of handling two

vehicles at a time.


There are various foreign manufacturers providing the fuel filling station

equipment. In this pre-feasibility report, a German origin compressor has been

selected. This equipment is selected because of its low electricity consumption,

higher outlet pressure, low maintenance, durable working, longer periods

between overhauls and good market repute and presence.

The total capacity of the selected equipment is 400M3/Hr with a total power load

of 93 KW. All the Fuel filling station equipment is foreign manufactured and

imported on the specific requirement of the sponsor by the authorized agent.

Usually, the equipment is delivered within 12 to 16 weeks from the receipt of

purchase order and initial payment.

7.3.5 Suppliers

Products will be sourced directly from NNPC accredited marketers with reliable

and high quality products and delivery time. Suppliers such as Capital Oil, Zenon

Oil, MRS, A-Z Petroleum and a host of others will are highly recommended.

7.3.6 Furniture and Fixtures

Furniture and fixtures mainly include tables, chairs, sofas, fans & lights, carpet,

curtains and fire extinguishers. It is estimated that the furniture and fixtures of

N85,000 would be purchased.

7.3.7 Office Equipment

Some office equipment is also required for the proposed project. A provision of

N100,000 have been made for acquiring the required office equipment.


8. MANPOWER REQUIREMENT

Manpower requirement for the Fuel filling station includes manager, cashier,

dispenser, operators, accountant, watchman and sweeper. The total staff

strength would be 13 persons for the two shifts. The staff salaries for year one

are as follows:

Table 8-1 Human Resource Requirement

Designation No. of Employees for Salary per Total salary

two shifts month per month

Manager 1 20,000 240,000

Deputy Manager 1 10,000 120,000

Accountant 1 6,000 72,000

Cashier 2 4,500 108,000

Dispenser 7 3,570 300,000

Operator 2 5,500 132,000

Watchmen 2 3,500 84,000

Sweeper 1 2,500 30,000

Total 954,000

9. BASIS FOR FINANCIAL PROJECTIONS

9.1 Inflation Rate

10% inflation rate has been considered while making the projections for cost of

sales, operational expenses and salaries. The prices for electricity, operational

expenses and staff salaries are increased by 10% every year as a result of

inflation.


9.2 Revenue Assumptions

9.2.1 No. of Cars

Based on the survey of some Fuel stations in Asaba, the number of cars

assumed for revenue projections is as follows:

Table 9-1 Detailed Projected Increase in Cars for 5years Financial Period

Years No. of Cars

1 202

2 303

3 363

4 435

5 522

The average number of cars in the first years is estimated at 202 cars per day,

starting from 120 cars per day in the first month and going up to 290 cars per day

in the 12th month. In the second year, it has increased to 303 cars per day. After

second year, number of cars is increasing at a rate of 20% till fifth year because

the project would be in its growth stage. An increase of 15% has been

considered from sixth year, because at that time, the project would be at its

maturity stage.

9.3 Accounting Profit

Depreciation on the assets has been charged at the following rates for the

calculation of accounting profits:

Table 9-3 Depreciation Rates

Building 5%

Fuel Plant & Equipment 10%

Office Equipment 20%

Furniture & Fixture 10%


9.3.1 Taxable Profit

For the purpose of calculating taxable profit, depreciation is calculated on the

rates as per the Income Tax Law, which is as follows:

Table 7-4 Tax Adjustments

Land 0%

Building 5%

Fuel Plant & Equipment 10%

Office Equipment 10%

Furniture & Fixture 10%

9.4 First Year Allowance

Other than the normal depreciation allowances, first year allowance is also

provided on the newly installed Plant and equipment for the purpose of providing

benefit to the entrepreneur. The first year allowance is calculated at 40% of

written down value of fuel plant and equipment.

9.5 Multiple Shift Allowance

In addition to normal depreciation and first year allowances, multiple shift

allowance is also provided for the plant and machinery, which operates on

double or triple shift basis. In this proposed project, fuel plant will run on two-shift

basis during the whole year. So multiple shift allowance is calculated and added

to the depreciation of plant and equipment for all the ten years. Multiple shift

allowance has been taken as 66.6% of the normal depreciation allowance.

9.6 Amortization of Preliminary Expenses

Preliminary expenses amounting to N820, 000/- will be amortized at the rate of

20% per annum.


9.7 Working Capital

Working capital is calculated on the basis of following assumptions:

9.7.1 Accounts Receivables

Mostly, the sale of Petrol is on cash basis. However, some fuel filling stations do

offer a credit facility to reputable companies on agreed terms and conditions.

Therefore, receivables are estimated at 6% of the total sales amount.

9.7.2 Advances to Employees

Advances to employees are calculated on the basis of 30 days of both payroll

and staff benefits.

9.7.3 Accrued Utilities and Power Expenses

Normally, it would take 20 days to deposit the utilities (electricity, water and

telephone) bills. Therefore, utility expenses for 20 days have been taken as the

basis for working capital computation.

9.7.4 Accounts Payable

Cost of electricity for 20 days has been considered in calculating accounts

payable.

9.7.5 Value Added Tax Payable

Every company is required to deposit the amount of VAT collected from the

consumers, within 30 days. The same has been taken as the basis for calculating

the amount of sales tax payable.


9.8 VAT

The Value Added Tax levied by Government is charged to the customers at the

rate of 5% on the sale of fuel. These funds are deposited after every 30 days in

favor of the Federal Government through the Federal Inland revenue service.

9.9 Ratio/Financial Analysis

The figures for the rate of return on investment and return on equity are averaged

for the first five years to make it more reasonable.

9.10 Alternative Investment Opportunity

The cost of land is the major portion of investment in this project. If any investor

does not have enough resources for the acquisition of land, he/she also has

another alternative course of action to setup the fuel filling station without

acquiring the land. The investor can make investments only in the purchase of

Fuel equipment and install this equipment with any existing non functional petrol

station. In this case, the investment for installing the new equipment will be made

by the investor and the space will be provided by the dealer/owner of the existing

petrol station. The investor will pay 15% commission on the total revenue to the

dealer/owner of the petrol station. Moreover, the investor can also avail lease

facility from any leasing company on the purchase of the equipment.

10. FINANCIAL ANALYSIS


Jennifer FEASIBILITY STUDY ON THE ESTABLISHMENT OF A FUEL STATION IN ASABA

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Transcript of Jennifer FEASIBILITY STUDY ON THE ESTABLISHMENT OF A FUEL STATION IN ASABA