Zahid CNG Business Plan

The Islamia University of Bahawalpur, Rahim Yar Khan Campus (DMS)

A Project Report On CNG

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ACKNOWLEDGEMENT

All the praise is for Allah, the most merciful and beneficent, who blessed me with the knowledge, gave me the courage and allowed me to accomplish this task. I am especially indebted to all my teachers for instilling in me enough knowledge to be able to carry myself efficiently during my project.

Secondly, I am bound to thank all the Manager of Chief CNG Rahim yar khan for his inspiring guidance, remarkable suggestions, constant encouragement, keen interest, constructive criticism and friendly discussion helped me to learn and enabled me to complete this report efficiently.



DEDICATION

I dedicate this report to my parents and friends in recognition of their worth and to my teachers who are the guiding force for me and it is their effort and hard work that showed me the path of success and prosperity which would be there for me for the rest of my life.

My thanks to all those who have generously contributed their theoretical knowledge to this report including my teachers. Without their understanding and support, completion of this work would not have been possible. I hope people find this report useful and the subject matter adds to their knowledge.

“Keep your dreams alive. Understand to achieve anything requires faith and belief in yourself, vision, hard work, determination, and dedication. Remember all things are possible for those who believe.”- (American Researcher)



Introductory Page

Name of the Business: Asian Tigers CNG StationLocation: Tranda Sway Khan Rahim Yar Khan. It will be located near boys high school.Nature of Business: Private Limited.Products: CNG, LPGSize of Business: Medium EnterpriseNumber of Employees: 10 to 15

Statement of Needed Finance:Projected Cost



Executive Summary

This report is all about the Business Plan of a CNG Station in R.Y.Khan prepared by Zahid Masood who is the planning & feasibility coordinator of petroleum association in Pakistan.

Industry Analysis:

At the beginning it is illustrated the industrial analysis in which it is explained the current industry situation of CNG. In the industrial analysis the future outlook & prospective trends of the particular sector is analyzed by keeping in mind & analyzing the competitors in the CNG industry in order to check the strategies used by them & then to use the mix of strategies by applying the innovative ideas in our venture. After that the strategy for marketing is build by using different segmentation report then that of prevailing in the market. For efficient & better utilization of available resources industry & market forecast has been done in order to analyze the true market demand for CNG.

Description of Business:

This head of the Plan covers the introduction stage of the business by defining the nature of the business i.e

Products. Services. Size of Business. Office, Equipment & Personnel. Background of the Entreprise.

Production Plan:

This head covers the following aspects of the Business Plan.

Manufacturing Process Identification. Operations Performing. Physical Plans. Names of the Supplies.

Operational Plan:



It covers the aspects like how we will operate our products or services for the target customers. It covers the following heads of information:

Venture’s Operations e.g Head Office, regional plants etc. Flow of orders of goods & services by the customers. How the technology Utilization is to be carried forward.

Organizational Plan:

The organizational plan covers the following heads of discussions:

Form of ownership. (Sole Proprietorship, Partnership, Company)

Nature of Business. (Public Limited or Private Limited) Identification of Ownership & principal shareholders. Authorities & responsibilities of the employees. Job descriptions & Job specifications. (JDR, KSA

respectively) Organizational Hierarchy. Mission & Vision.

Marketing Plan:

It is an very essential element of the business plan which describes the market conditions & strategies related to the functions that how the product or service will be distributed, priced & promoted. The heads under the marketing plan are:

Conducting the marketing research. Defining the mission & vision of the organization. Situation Analysis:

Environmental Analysis. Pest Analysis. Venture Background. (SWOT Analysis) Competitive Analysis. (Porters Five Forces Model)

Marketing Objectives & Goals. Marketing Strategies & Action Plans:

STP (Segmentation, Target marketing & Positioning) Marketing Mix.

Marketing Budget Decisions. Controlling the marketing plan functions.



Financial Plan:

Financial Plan is the most important part of the Business Plan as it actually describes Resources composition of the business. It includes:

Sources of finance. Performa of Income Statement. Performa of Balance Sheet. Application of Funds. Break Even Analysis. Ratios Analysis.

Risk Assessment:

In this stage we will identify the potential risks that we will have to face in this particular business & then decide about how to minimize them in order to develop the business towards progress. It includes:

What Risks are to taken? How the risks are to be assessed? What shall be the procedure to minimize their effect on our

business?

Annexure:

This will be the last stage of the Business Plan describing the sources of information & the supportive material used in order to shape this business plan. It includes:

Supportive material. Related Articles. Related Journals. Websites for this particular venture. News Papers. Magazines. Etc etc



Industrial Analysis:

Introduction:

Natural Gas is one of the most valuable natural resources abundantly available in ourCountry. The people of Pakistan have been using the petroleum products as a fuel in theirautomobiles, thus spending a huge amount of foreign exchange on import of petroleumproducts. Moreover, the Government of Pakistan has taken certain concrete steps in orderto promote the use of natural gas as a fuel substitute in the automobiles. Due to the effortsmade by the Government and comparatively low prices of gas, more than 600,000*

vehicles have already been converted to operate on Compressed Natural Gas (CNG)fueling system all over Pakistan.

Due to high cost of petroleum products, lots of vehicles are switching over to CNG. Atpresent, there are more than 2500 CNG stations operating in the Country and this number is insufficient to meet the rising demand of CNG in the coming years. The total project cost for setting up the CNG filling stations has been estimated at Rs.31.13 million. It includes land, building, CNG equipment and machinery, spares, along with thepreliminary expenses and working capital.

Compressed Natural Gas (CNG) is produced when the natural gas is compressed intocylinders to be used as a fuel in the automobiles. The compressed natural gas has been used as an automobile fuel since 1940, and over the years, the technology has been modified and refined. In the recent years, the usage of CNG as an automobile fuel has significantly increased because of its low cost and environment friendly nature.

CNG Policy:

The Government of Pakistan has offered number of incentives for encouraging the use ofCNG in the country. Some of these are summarized below:

Strong Government commitment to promote usage of CNG. Liberal policy of providing license for CNG retailing. Deregulated market price of CNG (for the consumers). Priority of providing natural gas connection to CNG stations. Exemption of import duty and sales tax till June 2005 on

import of machinery and equipment, CNG kits and cylinders.



Future Outlook & Market Demand:

Transport is one of the most essential sectors of an economy and direct customer for this project. This sector facilitates the peoples not only in traveling but also in the transportation of goods and services throughout the country. The population of Pakistan is growing with the rate of around 2.0 percent per annum which shows an increase of 3.2 Million people each year. In order to facilitate the growing population not only the number of motor vehicle is increasing (5.287 to 5.366 Million in years 2006, 2007 respectively) which has increased the demand for petroleum products throughout the country. Not only transport sector, but Industrial, agriculture and other sectors of the economy are also growing with a greater pace hence further strengthening the demand for petroleum and lubricant products.

According to the GOP statistics the petroleum products and gas consumption accounts forapproximately 70 percent of modern energy supply in Pakistan. Electricity (15 percent), LPG and coal account for the balance. The transport sector (the direct customer for this project) is the largest user of petroleum products (59 percent), followed by power (29 percent); industry accounts for about 12 percent, and the balance is used in other sectors – including the residential sector.

Till the end of 1990s the market was mainly captured by the four oil marketing companies (OMCs), PSO, Caltex (Chevron), Shell, and Attock Refineries. After analyzing the strapping market demand and special government incentives, few other OMCs have also entered the industry, and expanding their businesses through the establishment of petroleum retail outlets (fuelling stations) throughout the country.



Market Demand:

The petroleum products account for approximately 40 percent of modern energy consumption in Pakistan. Consumption of petroleum products grew sharply during the 1980s at about 7 percent per annum, but slowed to about 2.5 percent during late 1990s and has gained a momentum in 2007-08 to about 9.31%.

Fluctuations in Demand of Petroleum Products

The demand is expected to increase around 17 million tones per annum by the year 2010-11. Thereafter, it is expected to further increase to around 19 million tones by the year 2017-18. The production of refined products by the local refineries during the year 2003-04 was 10.27 million tons. The deficit products import were 5 million tons in 2003-04 while it will remain around 5-6 million tons per annum up to year 2010-11. Thereafter, it is expected to increase to a level of around 8.0 million tons per annum by the year 2017-18.



Pakistan has incurred an import bill of $ 4.7 billion for crude and petroleum products in 2008-09 and projected import bill for the year 2009-10 is about US $ 5.4 billion. Recent up-ward price trend in the international market indicate increasing gap between import of crude and finished products.In order to bridge up the above demand and supply gap and to improve the Petroleum products supply infrastructure, different incentives have been given under the PetroleumPolicy/Investment Policy 2005 to attract local and foreign investments in the sector.

Analysis of Competitors:

The market of competitors for CNG business is highly concentrated. The PSO has got the major market share of around 65% and the remaing portion of market is shared by other oil marketing companies (OMCs) like Shell, Caltex, Attock Refineries, Total Parco and Admore. The market shares are listed in the table below:

The above diagram explains the percentage of market share that each company possesses.



Description of the Business:

This is the third stage of the Business Plan. It includes the following aspects of information:

Products & Services:There are following products under the CNG station.

CNG. LPG.

Size of Business:The size of the business is medium sized having 8 to 10 workers engaged in it.

Project Investment

Project Returns

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 being converted into CNG fuelingsystem, initially the project would be able to attract and serve at-least 202 vehicles per day.

OFFICE, Equipment, Personnel:Building:

There are certain civil works required to be carried out at the proposed location. The civilworks would be carried out on an area of 2250 square feet. The rest of the area will be floored with tuff tiles. Civil work includes the following:

Office. Control Room. Compressor and Cascade/Cylinder Storage Room. Shed for Dispenser. Toilet/washroom. Underground Gas Piping and Power Cables.



Flooring.

The total cost of construction is estimated at Rs.1.7 million. Details for the said cost are as follows: Construction Cost

Equipment:

The following equipment is required for a CNG filling station:

Gas Compressor:The purpose of compressor is to compress the gas enabling it to discharge the gas forrefueling. This compressor requires an input pressure of 8 or 15 PSIG5 from the main gassupply 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. This panel will be mounted in the control room. Storage Cascade:Storage cascades/cylinders are used to store the natural gas.

Priority Panel for Vehicle Priority:During rush hours, the compressor is directly connected to the dispenser, bypassing thestorage cascades/cylinders with the help of priority panel, facilitating the refueling ofvehicles at a faster rate.

CNG Dispenser high flow dual hose:Gas is filled into the vehicles with the help of dispenser. This dual hose dispenser iscapable of handling two vehicles at a time.There are various foreign manufacturers providing the CNG filling station equipment. Inthis pre-feasibility report, a British origin compressor6 has been selected. This equipment is selected because of its low electricity consumption, higher outlet pressure, lowmaintenance, durable working, longer periods between overhauls and good market reputeand presence.



Personnel Requirement:Manpower requirement for the CNG 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:

Background of Enterprise:

Natural gas is nothing new. In fact, most of the natural gas that is brought out from under the ground is millions and millions of years old. However, it was not until recently that methods for obtaining this gas, bringing it to the surface, and putting it to use were developed. During most of the 19th century, natural gas was used almost exclusively as a source of light. Without a pipeline infrastructure, it was difficult to transport the gas very far, or into homes to be used for heating or cooking. Most of the natural gas produced in this era was manufactured from coal, as opposed to transport from a well. Near the end of the 19th century, with the rise of electricity, natural gas lights were converted to electric lights. This led producers of natural gas to look for new uses for their product.

In Pakistan:CNG is abbreviation of Compressed Natural Gas. It is considered to be Environment Clean. Natural Gas is widely used as a fuel in homes, industries and factories in Pakistan. When we compress or pressurize the Natural Gas to 250 bar pressure then its called CNG. CNG is made of methane CH4. Natural Gas or CNG consists of at least 85% methane and 10% of nitrogen and carbon dioxide. At the end of 2007 the CNG Industries of Pakistan has invested over Rs 70 billion during the last few years as a result of encouraging policies of the government. Nowadays 2,700 CNG stations are operating in the country in 85 cities and towns, and 1000 more would



be setup in the next three years. It has provided employment to above 30,000 people across the country.

According to the International Association for Natural Gas Vehicles, Pakistan has the third-largest number of natural gas vehicles. Argentina and Brazil are the two countries with the largest Consumption of CNG vehicles. As of 2005, Pakistan is the largest user of CNG in Asia, and third largest in the world. In March 2009 over 2 million vehicles converted to CNG, and the Ratio of 35% annually. 291678 Motor vehicles converted to CNG per Month. All Pakistan CNG Association (APA) Sana-ur-Rehman confirms that CNG stakeholders have invested Rs.90 billion in this sector and another Rs 20 billion investment is in pipeline. The CNG consumers had invested around Rs 60 billion in converting their vehicles to CNG. CNG replace 6.12 billion liters of petrol every year and saved the foreign exchange by turning the of billion of dollars.

Production Plan

Perquisites of CNG Station:

The process of opening up a CNG station includes few essential steps that need to be followed in order to full fill the criteria of oil marketing company (OMC) as well as the government.

Application:An entrepreneur interested in franchisee business submits a written application (expression of interest) to an oil marketing company (OMC). The applicant requests the OMC to asses the feasibility of his land for the purpose of retailer ship of their petroleum & lubricant products.

Feasibility Study:After Initial survey OMC scrutinizes the applicant on the bases of his credibility (both social and financial), & skills, and then a feasibility study is conducted by the OMC’s expert to measure the viability of applicant’s land with respect to its location. After fulfilling the feasibility criteria for the project the OMC signs a retailer ship agreement with the applicant and acquire his land on rental lease for the period of minimum 15 years. The rent is just a nominal amount based on the location of the land.

No Objection Certificates (NOCs):After signing the agreement the OMC’s architects draw a map for the sight representing the anticipated structure of the sight as per the national standards. The application is then submitted to the district coordinator officer (DCO) along with the map in order to acquire a no objection certificates from the concerned departments for this project. The DCO calls a consultative meeting including the representatives of the concerned departments to critically analyze the project and share if they have some objections or not regarding the



project. With the view of all the representatives regarding the project the DCO issues a no objection certificate for the prescribed project.

NOCs:No Objection Certificate will be required from the following departments prior to thecommencement of the business:

Concerned development authority of the city 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

License of Explosives:The explosives department is a supreme authority for issuing a license to store or sale theexplosive (petroleum) items. The OMC finally submits the application to the department of explosives for the grant of license. The application includes NOC and the sight map issued and approved by the DCO respectively.

Construction phase:After the permission of explosives department the infra structure construction is to be started according to the approved map. The cost of infra structure is shared between the entrepreneur and the OMC. The company totally pays for the machinery and equipment and the civil work is the responsibility of entrepreneur. After the completion, the sight is inspected by an expert engineer of OMC. The sight constructed according to the standards qualifies for the certificate of “safety and completion” issued by the OMC’s engineer.Grant of License:The last and final step is the sight inspection by the inspector of explosives from the explosives department. The inspector critically inspects the site (specially the fuel storage tanks) according to the pre defined rules of explosives department and grants the license to the franchisee (entrepreneur) to start his business.



Natural Gas Processing:

Manufacturing Process Identification:

The natural gas inside the gas pipeline is between 2 and 60 bar. The compressor increase this pressure up to 200/250 bar, according to the standards in each country. Once compressed, CNG is stored in cylinders to guarantee refueling stations have permanent pressure of gas ready to be sold. Dispensers are the devices that supply vehicles with CNG fast and safely. Each dispenser has a pair of highly resistant flexible hosepipes to fill two vehicles simultaneously. The whole process is monitored by a control panel. This panel monitors alarms, controls pressure, gas discharge from the compressor to the storage cylinders and the use of dispensers. In addition, the panel can register all filling data for better sales control.


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Name of Suppliers:

The Central Board of Revenue (CBR) has specified the list of compressors, storagecylinders, CNG vehicle cylinders, CNG machinery & equipment and conversion kits inSRO 38(1)/98. For the convenience of investor, a list of some of the available equipmentand machinery is given below:

Suppliers

Operational Plan

Operations performed in the Plant:



Compressors: A gas compressor is a mechanical device that increases the pressure of a gas by reducing its volume. Compressors are similar to pumps: both increase the pressure on a liquid and both can transport the liquid through a pipe. As gases are compressible, the compressor also reduces the volume of a gas. Liquids are relatively incompressible, so the main action of a pump is to pressurize and transport liquids.

CNG is Compressed Natural Gas stored at high pressure of 250 bar. Natural gas is a gas that comes from within the earth and consists of 85% methane, 10% nitrogen and carbon dioxide, and the balance is ethane, propane, and butane. The octane rating of natural gas is 130. One GGE of CNG has more energy than 1 gallon of gasoline so the amount of CNG used is a little lower than that of gasoline. The octane rating of natural gas is 120.

Compressor

MANOMETER:Pressure indicator installed between the supply valve and pressure regulator to permanently measure and show cylinder CNG pressure. The amount of gas in the cylinder is in close relation to pressure, therefore the pressure gauge sends a signal and indicates on the panel the amount of CNG available.

PRESSURE REGULATOR:



Regulates pressure of CNG to the engine and has different regulating stages. Through these stages the cylinder pressure, varying according to consumption, is regulated to a steady and unique pressure for the operation of the engine.

FILLING VALVE:Multi-valve with quick closing supply device, that keeps CNG stored in the cylinder. Through this valve the vehicle is refueled with CNG.

MIXER:Controls the amount of CNG inside the engine, setting the ideal air/gas relation for good operation.

ACTUATOR:It is an essential part to improve the engine performance and reduce excessive environmental consumption

ELECTRONIC UNIT:It enables the automatic correction of the air/gas relation. It controls actuators and sensors to improve the mixture.

CNG CYLINER:Stores CNG, Faultless steel manufactured and prepared to operate with pressure levels ranging from 200 kg/cm² to 250 kg/cm².

CYLINDER VALVEInstalled at the cylinder gas outlet with safety devices for over pressure and for a quick closing.

VENTILATION SYSTEM:Made up of safety equipment that allows the system to ventilate.

CONNECTION TUBES:Hard high pressure tubes connect the CNG cylinder to the engine.

PRESSURE REGULATOR:It regulates pressure of CNG to the engine and has different regulating stages. Through these stages the cylinder pressure, varying according to consumption, is regulated to a steady and unique pressure for the operation of the engine.

DISPLAY LEVEL OF COMBUSTIBLE SELECTION INDICATOR:Operates combustible changes electrically from the interior of the vehicle. Indicates CNG level available in the storage cylinder of the vehicle.

FILLING VALVE:Multi-valve with quick closing supply device, that keeps CNG stored in the cylinder. Through this valve the vehicle is refueled with CNG.



PRESSURE GAUGE:It is a pressure indicator installed between the supply valve and pressure regulator to permanently measure and show cylinder CNG pressure. The amount of gas in the cylinder is in close relation to pressure, therefore the pressure gauge sends a signal and indicates on the panel the amount of CNG available.

Technology Utilization:

Typical CNG Mother Station

TYPICAL DAUGHTER BOOSTER STATION

Organizational Plan



Form of Ownership:

The ownership of the venture will be of sole proprietorship or partnership depending upon the amount of finance, as it is a sort of organization which is run by the private people having sufficient finance to start this venture.

Nature of Business:

The nature of the venture will be of private limited as it does not involve the issuing of prospectus for the purpose of calling for investment in the shares.

Identification of the Ownership:

The ownership of the business will be in the hands of the only entrepreneurer who is going to start the venture in case of sole proprietorship & in the hands of all the partners in case of partnership business.

Responsibilities of Employees:

Fuelling the vehicles. Selling the lubricants. Counting and accepting the cash Operating the machinery Cash Management. Book Keeping

CNG Distribution Hierarchy



Marketing Plan

Mission & Vision:



Vision:Goal to build around 100 standard stations in three to five major cities of the country by the end of 2020.

Mission:Adoption of high quality compressed natural gas for transportation fuel driven by inherent environmental benefits, economic advantages, and strong government support under high customization level for the people of Pakistan.

Situation Analysis:In the situation analysis our focus will be on the environmental forces affecting this particular venture & understanding other contaminating factors affecting this venture in the society & then we will see that how can we minimize the impact of these factors.These factors are as under:

Environmental Analysis:

General Overview:Natural Gas is one of the most valuable natural resources abundantly available in ourcountry. The people of Pakistan have been using the petroleum products as a fuel in theirautomobiles, thus spending a huge amount of foreign exchange on import of petroleumproducts. Moreover, the Government of Pakistan has taken certain concrete steps in orderto promote the use of natural gas as a fuel substitute in the automobiles. Due to the effortsmade by the Government and comparatively low prices of gas, more than 600,000*

vehicles have already been converted to operate on Compressed Natural Gas (CNG)fueling system all over Pakistan.

Due to high cost of petroleum products, lots of vehicles are switching over to CNG. Atpresent, there are more than 2700 CNG stations operating in the Country and this number is insufficient to meet the rising demand of CNG in the coming years. The total project cost for setting up the CNG filling stations has been estimated at Rs.31.13 million. It includes land, building, CNG equipment and machinery, spares, along with the preliminary expenses and working capital.

Compressed Natural Gas (CNG) is produced when the natural gas is compressed intocylinders to be used as a fuel in the automobiles. The compressed natural gas has been used as an automobile fuel since 1940, and over the years, the technology has been modified and refined. In the recent years, the usage of CNG as an automobile fuel has significantly increased because of its low cost and environment friendly nature.

Current Situation:



Natural gas presently accounts for the largest share of Pakistan’s energy use, amounting to about 50% of total energy consumption. Pakistan currently consumes all the domestic natural gas it produces. Over the past six years’ period, natural gas consumption in the country has risen by an average annual rate of 10.4%, liquefied petroleum gas (LPG) by 17.6%, and coal by 22.8%. Despite a slight increase in production recently, Pakistan, with its growing level of consumption will need to become an importer of natural gas in the next three to five years, provided no major discoveries are executed. Consequently, Pakistan is currently exploring several pipeline options (Iran-Pakistan-India, Turkeministan-Afghanistan-Pakistan-India) and the import of liquefied natural gas from Qatar, to meet the expected growth in demand for natural gas. Coal plays a minor role in country’s energy mix, although Pakistan sits on one of the largest coal reserves estimated at 185 billion tons in Thar in Southern Pakistan.

Pollution & waste management:

Recent studies have identified pollution caused by hazardous gas emissions and solid waste as a key environmental issue confronting Pakistan, with significant health implications. Air Pollution Air pollution in Pakistan is caused by industrial and thermal power plants, but more particularly by vehicular emissions. As a result, the outdoor air quality in Pakistan’s urban areas has deteriorated significantly. In 2001, concentrations of suspended particulate matter in Lahore, Rawalpindi, and Islamabad were four to seven times higher than levels recommended by the World Health Organization. Even higher levels of fine particulate matter were measured in Gujranwala and Faisalabad in 2003 and in Quetta in 2006.A substantial increase in the number of vehicles on urban roads continues to drive up levels of urban air pollution. Common gases emitted by vehicles include carbon monoxide, nitrous oxides, and ozone, and are dangerous to human health beyond certain levels of concentration. Poly-aromatic hydrocarbons released by diesel-powered vehicles are known carcinogens, while smoke from diesel engines has aggravated already elevated levels of airborne soot. Nitrous oxides are emerging air pollutants with the highest concentrations recorded in Karachi, followed by Lahore, Quetta, Peshawar, and Islamabad (Figure 3). Industries located in urban areas are the main source of sulfur dioxide (dangerous to human, animal, and plant life) while brick kilns powered by low-grade coal are notable sources of soot.

Urban Air Pollution: Nitrogen Dioxide Concentrations in Pakistan’s Main Cities



PEST Analysis:

This analysis is a helpful way to understand the “big picture” of Political, Economic, Socio-cultural and Technological environment. By making good use of PEST analysis, it is ensured that what is going to be done is aligned positively with powerful forces of change. It helps in operating in a new country or region and helps in understanding the realities of that environment. It helps in strategy formation in a sense that these factors (Uncontrollable environmental forces) must be kept in view, which may lead to failure if ignored. The position of PEST analysis in understanding the overall picture of environment can be described by the following diagram:

PEST Analysis Diagram

Political Environment:



Political environment, Government agencies and pressure groups have a strong influence upon the activities of any organization in a society. Political environment strongly affects the marketing decisions. The political stability of a country has its impact on the consistency of policies of local government. Importance of public interest groups and business regulations can be found from the political environment.

Nations vary greatly in their political and legal environment. Sometimes, a government can decide violently to respond a popular feeling even without a change. Any new policy can be introduced regarding tax and trade and tariff control etc. This may give benefits to the organization but the thing matters is that how they handle business and financial matters in such unexpected and sudden changes? Political trends may not be of as much importance in stable governments as they are in weak ones, although they can have a significant impact on business. For example, in the United States, the companies in the business of providing social services can have more opportunities when Democrats are in power. Political decisions like awarding of subsidies to any sector either directly in the form of grants or through tax incentives can impact the industry circumstances.

Legal factors include the local rules, regulations and legislation prescribed by the government of that country. Legal issues must be understood clearly and have great importance in strategy formation. Legal environment is one of the main forces that give informational inputs which must be factored into the decision-making process. All business activities are directly related to changes in state and federal tax laws and these changes are influenced by the local political and legal factors. Corruption is also a major factor in many countries in which many political persons are involved. Organizations have to face the problem of corruption as well.

Some important factors of political and legal environment can be listed as tax policies, political stability, Employment laws, competition regulation and safety regulations etc.

Economic Environment:

Economy of a country plays a major role in the profitability and success of any sector and organization in the parameters that how stable, good and growing is the economy of that country. Economic environment consists of factors that affect consumer purchasing power and spending patterns. Nearly all companies examine the economic environment before strategic planning. Economic environment is usually analyzed by keeping in view the following economic indicators: employment, consumer price index, housing starts, personal income, saving rate, industrial production, capacity utilization and productivity etc. Although the gap between living standards of well-developed Western and developing Asian countries is lessening, yet the uncertain economic climate in the Asian economies has important implications for international marketers. Organizations must

determine that how these changing incomes affect purchasing power and how they adopt it for the firm’s profitability.



In general, following are some of the key factors which help in understanding the economic environment of a country: information about economic growth, interest rates, exchange rate, inflation rates, impact of globalization, unemployment and labor supply and levels of disposable income and income distribution.

Socio-Cultural Environment:

During the formation of marketing strategies, companies have to look after a lot of factors. Deep study of local culture and social setups is also one of the major factors which account much in successful strategy formation. Varying types of consumer behaviors are found in different cultures. The study of culture helps to understand the consumer behavior and in turn assists firms to improve their marketing strategies by understanding issues like:

The way how consumers think, feel and select between different brands or products.

The psychology of how consumer is influenced by culture, family and social setups.

Understanding of these issues helps to adopt better strategies by taking the consumer into consideration. By understanding the consumer, firms will be able to make a more informed decision as to which strategy to employ.

Each country has its own set of values and traditions. The companies must know that how consumers in different countries think and use different products before planning a marketing program. All the positive and negative impacts which a culture may cause must be identified. There might be different dimensions of culture like the social organization of society, religion, literacy levels, political systems and language.

Social factors also influence behavior of consumers. A person's family, friends and social organizations strongly affect product and brand choices. The person's position within each group can be defined in terms of role and status. A buyer chooses products and brands that reflect his or her role and status.

“Cultural environment is made up of institutions and other forces that affect society’s basic values, perceptions, preferences and behaviors.” People have their beliefs by living in a particular society. These beliefs may be either core beliefs or secondary beliefs. Core beliefs are inherited from parents, reinforced by religious groups, business and government. These beliefs have a high degree of persistence. While secondary beliefs can be changed more easily. Marketers have a chance of changing secondary values but it is

pretty difficult to change core values. So, Marketers should have a better understanding of the cultural environment of the country before making any business strategy.



According to Professor Geert Hofstede, “Culture is more often a source of conflict than of synergy. Cultural differences are a nuisance at best and often a disaster.” Management is a process which is interconnected with many other parts of life and cannot be isolated separately from what is happening in the society. It interacts with what happens in politics, family, school, government and also related to the religion and local traditions. “Cultural Dimensions Model” of professor Greet Hofstede presents a framework describing five different dimensions of values between national cultures.

Power Distance“The degree of inequality among people which the population of a country considers as normal” It means the difference of power and wealth among population of the country. All societies are different with respect to this. But the level of gap in some countries is greater as compared to other ones where it is smaller but it exists in all cultures and societies. In cultures with large power distance, there is respect for old age and status is important to show power. According to Hofstede, Malaysia scores highest on power distance at 104, Pakistan scores 55, whereas Sweden lies at 31 only.

Individualism verses Collectivism:

“The extent to which people feel they are supposed to be take care for or to be cared by themselves, their families or organizations they belong to” There are some societies in which individuals are loosely tied with each other and they are supposed to take care of themselves and look after their immediate family only. On the other hand, the societies which we can call collectivistic societies, the people in these societies are integrated in strong groups and family relations (with uncle aunts and grand parents). They take care of each other without any specific interest. According to Hofstede, Pakistani culture is collectivistic whereas USA has individualistic culture.

Masculinity verses Femininity:

“The extent to which a culture conducive to dominance, assertiveness and acquisition of things versus a culture which is more conductive to people, feelings and the quality of life”

The distribution of roles between the genders is another fundamental issue for any society. In masculine societies, roles of genders are clearly distinct i.e. men are supposed to be aggressive, tough and focused on material success, whereas women are supposed to be modest and concerned with the quality of life. While, femininity are those societies



where role of genders overlap. It means both men and women are supposed to be tender, modest and concerned with the quality of life. Sweden, Norway and Denmark are feminine cultures whereas Pakistan has masculine culture.

Uncertainty Avoidance

“The degree to which people in a country prefer structured over unstructured situations” It deals with the society’s tolerance for unstructured and uncertain situations. It shows that a culture programs its members to feel comfortable or uncomfortable in unstructured situations. Unstructured situations are novel, surprising and different from usual. Uncertainty avoiding cultures avoids such situations by strict rules, security measures and religious believes in absolute truth. People belonging to such cultures are more emotional and motivated. On the other hand, uncertainty accepting cultures are more open to different kind of unstructured situations. Singapore has a low uncertainty avoidance culture whereas Pakistan has a high uncertainty avoidance culture.

Long Term verses Short Term Orientation

“Long term: values oriented towards the future, like saving and the persistence- short term: values oriented towards the past and present, like respect for tradition and fulfilling social obligations” Long term oriented societies are characterized by persistence and thrift. Where as in short term oriented cultures people are more concerned with the traditions and they have strong social values.

Technological Environment:

Market place is changing radically as a result of advancements in technology. There are three different aspects of technology: type of technology, its process, and the impetus for its development. Type of technology preferred by a company is dedicated by its interest. Technological environment may be the most dramatic force in changing the working style and destiny of the firms. Technology is changing rapidly and every new technology replaces an older one. New markets and opportunities are created by new technologies; the marketers should watch these trends in technology in order to compete. Companies which fail to anticipate and keep up with technological change find their products

outdated soon. Firms must track technological trends and determine that whether their product is fulfilling the customer’s demands still or not. Some major factors of technological environment may be R&D activity, automation, technology incentives, rate of technological change, impact of emerging technologies, impact of internet and



reduction in communication costs. Marketers need to understand the new technologies and the ways that how these technologies can be helpful to serve customers.

SWOT Analysis:

Strengths:

Location of the project will play a pivotal role in the successful running of the CNG 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. As we are importing equipment mostly from abroad hence it will surely affect our performance positively.

Weaknesses:

Lack of expertise might be our weak point. We are going to start a venture when there is prevailing a general shortfall of gas

supply in the country. We have currently no skilled workers for this venture that might be a challenge

for us.

Opportunities:The proposed project would have a number of competitive advantages:

The project will provide cheaper fuel to its customers compared to the petroleum products which are already on the higher side.

Government has exempted the imposition of sales tax and custom duties on the import of CNG kits and CNG plant and equipment,

HDIP, a non-profitable organization working under the umbrella of Ministry of Petroleum and Natural Resources, provides consultancy services to the interested parties for setting up the CNG filling stations.

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. Threat of increase in the prices of the natural gas by the government.

Porter’s Five Forces Model



Marketing Objectives & Goals:

Goals for Next Ten Years:Based on the survey of some CNG stations in R.Y.Khan, the number of cars assumed for



revenue projections is as follows.So our goals & objectives for the next ten years are as under:

Detailed Projected Increase in Cars

Target Market:

The target customers for the proposed project would be the vehicles running on CNG fuel.

Market Demand:

At present there are more than 3000000 vehicles, which have been converted to CNG fuel, and a large number of vehicles are further being converted.

Due to the increasing prices of petroleum products, the trend of converting cars to CNGfueling system has been on a rise. However, there exist a large number of people who were reluctant to convert their vehicles from petrol to gas due to safety concerns. recently, many car manufacturers have started manufacturing the cars with built-in CNG fueling system. This change has led to enhancing the confidence in the minds of the general public regarding the safety concerns, and now, more people are inclined towards purchasing these factory-fitted CNG fueling system cars.

Market Supply:

Total number of CNG stations in Pakistan is only over 2700, which is quite low for meeting the growing demand of CNG. Apart from these 2700 CNG stations, many new CNG stations are being setup across the country.

Price Mechanism:

The final prices of CNG & LPG include value addition at different stages as given in the table below:



Ex-depot Sale Price Build up Formula

The dealer or the owner of the fuelling station gets 4.0% commission for the fuel he sales as explained in the table above.

Promotion Strategy:Promotion is very important for selling any product or service in the market. We will use following tools of promotion in order to market our services:

Advertising through Cable T.V ads.

By publishing pump lifts & placing banners at different places of the city.

By sending Thanks letters to our loyal customers.

By offering visiting cards to every customer who comes to our station.

We will also hire two workers specifically for the purpose of promotion.

We will organize seminars in order to provide useful suggestions to government for enhancing energy resources in the country.

Financial Plan

This is the most important part of the business plan which will describe the level of finance needed for this particular project, the sources of finance, & also covers the



utilization of the funds available to any entrepreneur in different areas for the establishment of this CNG station. This step will cover the following heads:

Projected Cost

Projected Income Statement



Projected Balance Sheet



Projected Cash flow Statement



Revenues



Cost of Sales



Working Capital



Ratios Analysis



Break-Even Analysis



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 being converted into CNG fueling system, initially the project would be able to attract and serve at-least 202 vehicles per day.

BEQ= Fixed cost/ Sale price – Variable cost = 202 Vehicles (Daily)

Risk Assessment



Following Risks are on the way to this venture:

Inflation Rate:10% inflation rate has been considered while making the projections for cost of sales,operational expenses and salaries. The prices for gas, electricity, operational expenses and staff salaries are increased by 10% every year as a result of inflation. The selling price of gas has been increased by 5% every year. This shows that revenue will increase by less percentage than expenses in the earlier years.

High Depreciation Rate:High depreciation rate of different assets will also be a risk for the venture that may ultimately decrease the returns of the venture.

Depreciation Rates

Taxable Profit:For the purpose of calculating taxable profit, depreciation is calculated on the rates as perthe Income Tax Law, which will also be a risk for us. These are as follows:

Tax Adjustments



Annexure


Zahid CNG Business Plan

Documents

Transcript of Zahid CNG Business Plan