Pre-Feasibility StudyLPG Marketing & Distribution Business (SMEDA DOCUMENT) ENT) C S EDA Small and Medium Enterprise Development Authority Government of Pakistan www.smeda.org.pk HEAD OFFICE 6th Floor L.D.A Plaza, Egerton Road Lahore. Pakistan 54000 Tel: (042) 111-111-456, Fax: (042) 6304926-7
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[email protected] November 2007 Pre-Feasibility Study LPG Marketing & Distribution Business DISCLAIMER The purpose and scope of this information memorandum is to introduce the subject matter and provide a general idea and information on the said area. All the material included in this document is based on data/information gathered from various sources and is based on certain assumptions. Although, due care and diligence has been taken to compile this document, the contained information may vary due to any change in any of the concerned factors, and the actual results may differ substantially from the presented information. SMEDA does not assume any liability for any financial or other loss resulting from this memorandum in consequence of undertaking this activity. Therefore, the content of this memorandum should not be relied upon for making any decision, investment or otherwise. The prospective user of this memorandum is encouraged to carry out his/her own due diligence and gather any information he/she considers necessary for making an informed decision. The content of the information memorandum does not bind SMEDA in any legal or other form. DOCUMENT CONTROL Document No. Revision Prepared by Approved by Issue Date Issued by PREF-25 1 SMEDA-Sindh Provincial Chief - Sindh November, 2007 Library Officer Page 1 of 32 PREF-25/November, 2007/Rev1 Pre-Feasibility Study LPG Marketing & Distribution Business 1. 1.1 P ROJECT PROFILE OPPORTUNITY RATIONALE Currently out of 25 million households in Pakistan, 4.3 million are connected to natural gas network and the rest are relying on LPG and conventional fuels like coal, firewood, kerosene, dung cake etc, which indicate the strong demand for Liquefied Petroleum Gas (LPG) sector. Liquefied Petroleum Gas (LPG) is used as fuel for cooking and heating in the northern Pakistan particularly in Punjab. It is also used as fuel in vehicles particularly taxi and rickshaws. More than 30,000 rickshaws and taxis in Karachi and other parts of the country are run on LPG. The demand of LPG in Karachi is consistent throughout the year and increases during winters in Punjab and Northern Pakistan. Although demand of LPG is persistent throughout the year, supply of LPG from producers (or extractors) to distributors and marketing companies has been limited due to maintenance and overhauling shutdowns, which often creates shortages. Besides that, LPG producers are also limited in numbers and LPG marketing companies need to have a quota of gas to be allocated by the producer. This factor makes LPG business vulnerable in the hands of LPG producers. LPG (Liquefied Petroleum Gas) is the generic name for commercial propane and commercial butane. These are hydrocarbon products produced by the oil and gas industries. Commercial Propane predominantly consists of hydrocarbons containing three carbon atoms, mainly propane (C3H8). Commercial Butane predominantly consists of hydrocarbons containing four carbon atoms, mainly n- and iso - butanes (C4H10). They have the special property of becoming liquid at atmospheric temperature if moderately compressed, and reverting to gases when the pressure is sufficiently reduced. Advantage is taken of this property to transport and store these products in the liquid state, in which they are roughly 250 times as dense as they are when gases. 1.2 PROJECT BRIEF LPG production is a capital intensive business and requires huge investment depending upon the technology and methodology employed for the extraction and processing of LPG. However, LPG Marketing and distribution needs comparatively less investment and can be considered by the Small and Medium scale investors. The proposed project envisages setting up of a LPG marketing and distributing company which is generally known as LPG bottling plant business. LPG marketing and distribution business will setup a bottling plant with storage tanks and filling dispensers. The business facility will hold a certain quantity of LPG quota, Page 2 of 32 PREF-25/November, 2007/Rev1 supply to the sub-distributors will be made. 1. 1.7 PROJECT INVESTMENT A total of Rs.8 RECOMMENDED PROJECT PARAMETERS Human Resource 21 Technology/Machinery Local and Imported Machinery (German and France) Location Port Qasim. 1. After allocation of quota from the producer. filling capacity would be about 5 ton per day (based on 8 hours shift). Out of this.92 million IRR 28% NPV (Rs) 22. 1.Pre-Feasibility Study LPG Marketing & Distribution Business allocated by one of the LPG producer and this allocated LPG will be supplied to the marketing company through Bowzer (gas supplying trucks).92 million.5 PROPOSED LPG BOTTLING/DISTRIBUTION PLANT CAPACITY The capacity of the proposed LPG storage and distribution facilities would be around 80 M.8 Payback Period 4 Years and 6 months Cost of Capital (WACC) 17. capital cost of the project is around Rs.4 PROPOSED BUSINESS LEGAL STATUS The legal status of business tends to play an important role in any setup. It is mandatory for an oil or gas company to register as a private limited company.3 MARKET ENTRY TIMING There is no specific time for the entry in LPG marketing.5% Page 3 of 32 PREF-25/November. 1. whereas. 1. 48. 2007/Rev1 . 48. a marketing company can start its operations immediately as demand is persistent in urban and rural markets.92 million will be required to setup and operate the proposed LPG Marketing and Distribution business. Sub-distributors will bring their cylinders and get them filled against payment. 48. The company will store this LPG in its storage facility from where.6 PROJECT COST Total project cost of the LPG Marketing & Distribution business would be approximately Rs. 47 million and remaining will be the working capital. Ton. the proposed LPG Marketing and Distribution business is assumed to operate on as a private limited company. Karachi Capacity Storage Capacity: 80 ton Cylinder Filling capacity: 5 ton per day Financial Summary Project Cost Rs. these “associated” or “natural gases” are further processed into LP Gas. 5 percent is propane and 5 percent is other gases such as butane and ethane. operational costs and procedures. it is a mixture of several gases and liquids. These locations have basic infrastructure and facilities required for LPG bottling and distribution plant. 2. a LPG marketing and distribution company may face a situation where it would be forced to lift its quota as per agreement from the producer at a higher cost and sell it at lower price.10 KEY SUCCESS FACTOR & PRACTICAL TIPS Following are the key success factors in LPG business: LPG quota allocation: Most of the existing plants with fully operational facilities are out of work because of delays in their quota allocation by the LPG producers. the LP Gases are the first products produced on the way to making the heavier fuels such as diesel. Roughly 3% of a typical barrel of crude oil is refined into LP Gas although as much as 40% of a barrel could be converted into LP Gas. Some LP Gases are also trapped in crude oil. Of the remaining 10 percent. 1. Methane. the major component of natural gas) are separated out. SEC TOR & INDU STRY ANA LYSIS LPG is a derivative of two large energy industries: natural gas processing and crude oil refining. and Multan Road in Punjab. Worldwide.9 PROPOSED LOCATION Location for setting up a LPG distribution plant has imperial implications on fixed costs. gas liquids generally contain 1%-3% of the unprocessed gas stream. and gasoline. 2007/Rev1 . The proposed LPG plant can be established at Port Qasim. Before natural gas can be transported or used. crude oil refining is the source for the other 40% of Page 4 of 32 PREF-25/November. When natural gas is extracted from the earth. however for the purpose of this pre-feasibility study Port Qasim industrial area has been assumed. jet fuel. In crude oil refining.Pre-Feasibility Study LPG Marketing & Distribution Business 1. which is sold by gas utilities as “natural gas” constitutes about 90 percent of this mixture. In order to stabilise the crude oil for pipeline or tanker distribution. Dealing with the sub-distributors: Sub-distributors play important role in the successful operations of a LPG Marketing company because they distribute gas among agency holders who further sale it to the retailers. Karachi in Sindh. Worldwide. gas processing is a source of approximately 60% of LP Gas produced. Survival during the critical period when cheap Irani LPG is available in the market: In such circumstances when cheap Iranian gas is available. the LP Gases (which are slightly heavier than methane. fuel oil. Depending on the “wetness” of a producing gas field. pricing. That means production of LP Gas is assured since the primary motive for gas processors and refiners is to produce fuels other than LP Gas but first the LP Gases are produced. issues regarding LPG production. Prior to the announcement of the above policy. LP Gas production from these sources is a natural derivative. Besides the oil refineries who produce LPG as a by product. it is also non-toxic and will not contaminate soil or aquifers in the event of a leak. There are more than a thousand applications. heating. some of the specialized projects i. from cooking.e. stored.1 SECTOR CHARACTERISTICS AND OVERVIEW LP Gas can be transported. 2. LP Gas can be up to five times more efficient than traditional fuels. LP Gas has its own distinct marketing advantages and can perform nearly every fuel function of the primary fuels from which it is derived.Pre-Feasibility Study LPG Marketing & Distribution Business LP Gas supplies although the ratio between gas processing and refining varies among regions. Page 5 of 32 PREF-25/November. since a high proportion of its energy content is converted into heat. distribution in under developed areas and import of LPG have been addressed in this policy. resulting in less energy wastage and better use of energy resources. there has been a shortage of LPG particularly during winter when most of the oil refineries shutdown their LPG production operations for annual maintenance. now it is mandatory for the oil refineries to announce a schedule of maintenance ensuring a certain level of LPG supply to the market. especially to LPG starved areas of the country and promoting healthy competition or growth of LPG market while ensuring minimum safety standards across the Liquefied Petroleum Gas supply chain. To achieve this goal. In order to avoid such situations. INVESTMENT OPPORTUNITY IN THIS SECTOR The Government has focused on this sector and has approved “LPG production and distribution policy 2006”. LPG licensing. to cigarette lighters and even the Olympic torch. Although tied to the production of natural gas and crude oil. LP Gas is cost-effective. It does not require a fixed network and does not deteriorate over time. Originating mainly from natural gas production. LP Gas is very clean burning and has lower greenhouse gas emissions than any other fossil fuel when measured on a total fuel cycle. streamlining its distribution at affordable prices. 2007/Rev1 . safety standards. and used virtually anywhere in the world. Most of the refineries had a practice to close LPG production at the same time which resulted in severe shortage leading to a consequential increase in price. This policy aims at increasing LPG supplies. JJVL (Jamshoro Joint Venture Limited) are focusing on producing only LPG which would help in consistent supply of LPG to the marketing and distribution companies. air conditioning and transportation. LP Gas is a multi-purpose energy. It is expected that second facility of JJVL will commence its operations shortly. Last three years’ Audited Reports (not applicable for new companies). o Quantity of LPG to be distributed per day or per month. The licenses can be cancelled in case of non-compliance with licensing terms and conditions. Proof of registration of the Company (Company incorporation certificate). 2007/Rev1 . Financial Competence Certificate issued by a Bank (original and stamped).100. for a period of one year.in favour of Oil & Gas Regulatory Authority. OGRA inducts reputable third party inspectors to check/monitor compliance with the terms and conditions of licenses. Additionally. Location of the tentative / proposed site. o Bottling facility capacity. as License fee (Payable at Islamabad). Pre-Qualification for LPG License1 Following requirements are required to be fulfilled for obtaining a license: Application on the prescribed proforma in triplicate Pay Order / Bank Draft of Rs.Pre-Feasibility Study LPG Marketing & Distribution Business LPG LICENSING Any company willing to distribute and market Oil and Gas needs to obtain a license from OGRA. Attested copies of ID cards of all Directors. OGRA (Oil & Gas Regulatory Authority) issues provisional licenses to technically and financially sound applicants/ parties for construction of works commensurate with their work program. o Identification of areas where distribution / marketing of LPG is planned. 1 Oil & Gas Regulatory Authority Page 6 of 32 PREF-25/November. Memorandum and Articles of Association. Minimum Work Program: o Number of storage tanks and capacity of storage tanks.000/. license from Explosive department is also required for the proposed LPG marketing and distribution business. 1 PRODUCTION2 The following table presents production data for the last two years for LPG.000 liters. It is expected that after commencement of operations of JJVL-II.Pre-Feasibility Study LPG Marketing & Distribution Business 2. 31.00 526.2 .209 596.ogra. ton) (US $/ M. the production will further increase which would help in maintaining demand and supply gap in future. 2007/Rev1 . Petroleum and Diesel.518 4.999. in pursuance of the decision of Economic Coordination Committee (ECC) of Cabinet dated December 06.org.statpak.450.895 2.176 709.000 liters during the month of August 2005. per attached computation sheet.2 PRODUCT PRICING3 During the study of LPG industry.htm ) http://www. ton) February.895. it was observed that product price for LPG are revised generally every 15 days and government launch its prices on fortnightly basis.pk/depts/fbs/statistics/qim/qim. OGRA has determined the maximum base-stock Price of LPG. which decreased in during the same period in 2006-07 around 82.097 1. increased to 41.999 85. Item LPG Petroleum Diesel Quantity ‘000 Liters ‘000 Liters ‘000 Liters August 2006 2005 41.998 276. 2.450 4.php?cat=95 3 Page 7 of 32 PREF-25/November. Latest prices for the week as compared to last week are as under. This is to advise that. According to last year during July and August LPG production was 85.000 liters during August 2006 which suggests a substantial increase in production.124.124 40. 2007 A 526.00 2 Federal bereau of Statistics website ( http://www.pk/cats_disp. 2007 FOB Saudi ARAMCO Contract Price Propane Butane (US $/ M.gov.888 324.Ton.2 . 2006.2 SECTO R CHARACTERISTICS 2.691 July – August 2006-07 2005-06 82. OIL AND GAS REGULATORY AUTHORITY Maximum Base-Stock Price of LPG effective March 3.949.773 It is evident from the table that LPG production which was around 40. effective March 03. 2007 as Rs.45 / .000 liters. TON effective March 03. Page 8 of 32 PREF-25/November. has been provisionally adopted pending clarification from the Federal Government.4 TH REATS TO TH IS INDUSTRY LPG Distributors Association Pakistan said on November 11.2 . 2.45 2. 07 Rs per US$ * Maximum Base-Stock price of LPG Rs. By replacing a diesel engine with an LPG powered equivalent. Sunday. The dirty black smoke that we see coming from diesel vehicles is particulates – a known cause of sickness and deaths.00 60. 2007/Rev1 .949. price US $ /M.74 31. The LPG association chairman said that the price of a gas cylinder for domestic use in neighboring India was Rs 236 while it was Rs 650 to 700 in our country (during November and December 2006). that the sale of Liquefied Petroleum Gas (LPG) had dropped 30 percent due to unprecedented increase in its prices by producer and marketing companies for the past 7 months4. Avg.00 60 31. 2006.2 . US $ exchange rate for Feb.5 ENVIRONMENTAL AND PROTECTIONS ASPECTS LPG is much cleaner than diesel. November 12.560.2 . 2. LPG typically has around 20 per cent less ozone 4 Daily Times. over 90 percent of this particulate matter can be eliminated. /M. LPG prices move in a similar manner to petrol prices as its demand grows.Pre-Feasibility Study LPG Marketing & Distribution Business Ratio LPG price calculation = A x B Wt. majority of the rural population of Pakistan use LPG as cooking and house warming fuel at home.040. The association said that the LPG domestic consumers had abandoned its use and turned to firewood while rickshaw owners and other transporters preferred petrol and diesel as LPG firms had been fleecing them by constantly raising LPG rates without any justification. 2007 * Monthly average of the mean of the daily Bid and Offer of Weighted Average Exchange Rate quoted by the State Bank of Pakistan for February 2007. TON Avg. which has already been sought. 2006. whereas. which is reported to be self-sufficient. LPG powered vehicles emit significantly fewer greenhouse gases and other pollutants than petrol-powered equivalents. B 40 21.3 DEMAND About 90% of auto rickshaw and taxi are fueled by LPG.00 526. 5 LPG delivers clear environmental benefits over diesel and petrol. storage. less than half the NOs of petrol and less than one twentieth the NOs of diesel.co.Pre-Feasibility Study LPG Marketing & Distribution Business forming potential (a measure of the tendency to generate photochemical smog). 1940 showing the amount paid under the following Head of Account in any branch of the National Bank or Government Treasury. a license will be required from explosive department of the concerned province.6 PRODUCT/PROJECT STANDARDS AND COMPLIANCE ISSUES Rules and regulations which govern any explosive material also apply on LPG.2 . dully filled in against all columns there of as per schedule VI of the Explosives Rules 1940 and signed by the applicant. 1200000-Receipts from Civil Administration & other Functions 5 http://www. Its transportation. Recent independent automotive tests submitted to the Department for Transport have shown that LPG emits: 120 times less particulate matter compared to diesel. Details have been provided in the following lines.uk/lpg-groundscare-the-advantages. construction of storage facility. all need to be carried out according to the standards and specifications provided by the explosive department. and 17 per cent less CO2 compared to petrol and 2 per cent less CO2 compared to diesel. etc. 2. government of Pakistan. III) Distance Form D. It therefore readily disperses without combustion and with no contamination of water courses or surrounding land – unlike petrol or diesel where spillage is a major environmental concern.7 REQUIREMENTS FOR GRANT OF PERMANENT LICENSE UNDER EXPLOSIVES I) Formal application with attested photocopy of National Identity Card briefly stating the purpose of obtaining License and justification.2 . between 10 and 15 per cent lower greenhouse gas emissions and only one fifth air toxics emissions. on a well to wheel basis LPG’s impact on the environment in the unlikely event of a spillage is minimal as propane is lighter than water. II) Application in the prescribed Form C. dully filled in and signed by the applicant. For LPG business.lpg-mower. IV) Original treasury receipt for the amount payable as per column 5 of schedule IV of the Explosives Rules.htm Page 9 of 32 PREF-25/November. 2007/Rev1 . 2. filling of cylinders and their transportation. and B-III regarding purchase. of Explosives. VI) Six copies of plan duly signed by the applicant and drawn to scale on durable paper showing full constructional details of the proposed LPG storage site. No objection certificate if not submitted by the applicant will be obtained by the Department from the District Authority after receipt of other complete particulars from the applicant. VIII) Present consumption of explosives in the area and nature of work requiring use of explosives. use etc. XI) Details of other explosives magazine(s) 6 existing if any within a radius of 50 KM from the site of proposed magazine.Pre-Feasibility Study LPG Marketing & Distribution Business 1260000-Economic Services Receipts 1264000-Industrial and Mineral Resources 1264100-Industiral and Mineral Resources Industrial Safety Explosives Department V) No objection certificate along with the signed plan from the District Authority concerned to the effect that the Authority has No objection to the grant of license to the application for possession/sale of Explosives. XIII) Details of vehicle to be used for transport of explosives from source of supply to the storage magazine and the approximate distance in between. nearest Police station(s). approximate daily consumption of explosives by each consumer stating their nature of work requiring explosives. XIV) Undertaking by the applicant to the effect he will observe strictly all the requirements of Explosives Rules 1940 and submit Fortnightly Reports on the three prescribed Forms B-I. 6 LPG or other explosive storage site(s) Page 10 of 32 PREF-25/November. B-II. XII) Any proof/certificate showing competence and experience of the applicant or his authorized worker/agent/employee/supervisor in the handling of explosives. IX) Expected market potential in 5 years from now with full justification. X) Complete details of the present consumers of explosives in the area giving their names. The distances maintained around the proposed LPG storage site shall be marked clearly. 2007/Rev1 . VII) Documents showing the extent of possession/ownership of land for maintaining required safety distances from the explosives storage magazine. complete postal addresses. and site with full surroundings and important land marks to facilitate its location. Main explosives and detonators shall be stored in separate cabins or pits at least 10 feet apart. 2. Consumers are enjoined to make sure that the embossed markings of the brand name or name of the owner is printed on the cylinder. This method determines if a tank is condemned (a cylinder that does not pass the required tests and can not be repaired). Decanting of LPG from cylinder to cylinder is prohibited and OGRA can cancel licenses of the LPG marketing companies involved in this activity directly or indirectly. A condemned cylinder. corrosion or dents five years after the time of re-qualification. 2. A tank shall be repaired for cuts.Pre-Feasibility Study LPG Marketing & Distribution Business XV) Certificate to the effect that guard over the magazine7 will be provided 24 hours by the license. 6. To ensure safety throughout the LPG supply chain. is a scrap and should be destroyed either by cutting diagonally. 5. The floor of the temporary storage shall be covered with wooden planks. as the standard specifies. LPG storage tanks. 1. cylinders bowzers. The height of a cabin or depth of a pit shall not be less than 6 feet. or crushing the cylinder or any part so that it can no longer be used. 7 LPG or other explosive storage site(s) Page 11 of 32 PREF-25/November. For above ground cabin it is necessary to have an earthen mound or screen wall in between the Explosives cabin and the cabin containing detonators.2 . repairable. A temporary storage may be in above ground strong wooden or Bamboo Cabin or preferably a damp proof pit. There shall be no uncovered iron or steel in the construction of cabins.8 SPECIFICATIONS FOR TEMPORARY STORAGE OF EXPLOSIVES Following detailed guidelines have been provided by the explosive department of the government for the companies dealing in explosive materials. Repair is defined as the removal and replacement of parts or attachments of LPG cylinders and other corrective measures. 3. and distribution outlets of the licensees should meet the minimum safety standards as laid down in applicable Rules. An LPG tank after ten years shall be examined for re-qualification. It is mandatory for the LPG businesses to comply with the following. 2007/Rev1 . or. 4. Re-qualification is a procedure by which a cylinder is inspected and retested to determine its acceptability for continuous service. The vehicle shall be in perfect serviceable condition in all respects. A quick action cut-off valve shall be fitted to the fuel pipe in an accessible position.2 . The explosives shall be covered with tarpaulins awaning so as to protect against sun and rain and the margin of a pit shall be so raised as not to allow rainwater to drain inside it. All electric cables must be heavily sheeted. 1940. 7. 9. 5. The driver shall not be under the age of 21 years and the attendant shall not be under the age of 18 years. No person shall smoke while driving. 10.9 CONDITIONS FOR TRANSPORT OF COMMERCIAL EXPLOSIVES IN A VAN BY ROAD8 1. 9. benches and fitting shall be of wood or bamboo free from iron nails and grit. All persons engaged in loading. Other safety distance shall be maintained as per Schedule VI of the Explosives Rules. The interior of vehicle shall be kept thoroughly clean from grit. No junction boxes.At least 6 feet high barbed-wire fencing shall be provided all round at a distance of not less than 30 feet from the storage cabins/pits.ft. 2007/Rev1 .Pre-Feasibility Study LPG Marketing & Distribution Business 7. waste and other combustible material at all times. There shall be no naked iron or steel in the interior of vehicle and no footwear with exposed iron or steel shall be worn by attendants on the vehicle. 4. attending to or working on the vehicle and no matches or sources or fire of heat. 3. of the base area with 30% more area as working space. 8. 8 Website of Explosive Department Sindh Page 12 of 32 PREF-25/November. The driver shall hold heavy duty driving licence. The capacity of a pit or a cabin per 16 sq. fuses. Shelves. unloading or conveying explosives shall observe all necessary precautions for the prevention of accidents by fire or explosion and no unauthorized person shall be allowed to have an access to the vehicle. oil rag. switches. The words DANGER and EXPLOSIVES shall be written conspicuously in Red color on three sides of the vehicle so as to be clearly visible from a distance and electric lamp with siren shall preferably be fixed on the vehicle for use in emergency. 6. lamp fittings or other electrical appliances or cable joints shall be allowed within the cargo compartment. 8. Persons incharge of the vehicle must be experienced in the handling of explosives. 2. 10. 2. smoking material shall be carried on the vehicle. Pre-Feasibility Study LPG Marketing & Distribution Business 11. 21. Efficient chemical fire-extinguisher of adequate capacity shall be carried on the vehicle. 14. Karachi and to the Inspector of Explosives and District Magistrate in whose jurisdiction the magazine9 in situated. 12. Explosives in excess of the authorized limit shall NOT be carried on the vehicle. All packages must be appropriately labeled as to the nature of Explosives. breaks and explosives shall be checked after short breaks during journey. 20. Damaged packages shall NOT be loaded in the vehicle. 13. The loading or unloading of explosives when once begun shall be proceeded with all due vigilance until the same has been completed. 2007/Rev1 . 25. Vehicle shall not be taken to any garage or repair station while carrying explosives and condition of types. 16. Loading and unloading shall NOT be done in the vehicle while its engine is running or its fuel tank is being filled. 24. No extra fuel shall be carried during conveyance other than in the fuel tank of the vehicle. 22. 26. Every consignment of explosives for transportation shall be accompanied by a license in Form C and a pass issued by licenses in Form H and attested photo-copies of these documents shall be sent to the Chief Inspector of Explosives. Efficient locking arrangement shall be provided at all times. 15. 23. 17. 9 LPG or other explosive storage site(s) Page 13 of 32 PREF-25/November. Explosives shall NOT be carried in the Driver s Cabin under any circumstances. adequate stops shall be taken to keep the packages of Explosives dry. At least one person (attendant) shall accompany the driver and the vehicle containing explosives shall not be left unattended except when absolutely necessary. unloading takes place in wet weather. 18. If loading. Other vehicle with its engine running shall NOT as far as possible be allowed within fifty feet of the vehicle containing explosives. All packages must be well secured and effectively protected against weather and the risk of pilferage or sabotage. 19. Detonators or other explosives containing their own means of ignition and Fire works shall NOT be loaded together or with any other explosives and must be transported separately. One copy of the drawing approved by the Department of Explosives shall always be kept with the driver of the vehicle for production on demand by an inspecting officer. In case of any emergency. as may be convenient by the quickest possible means. The vehicle shall NOT be driven at the speed more than 30 miles (50 Kilometers) an hour on smooth road. Karachi is the biggest consumer of LPG with an approximate daily demand of about 250 to 300 ton. 3. Populated areas shall be avoided as far as possible and vehicle SHALL NOT be parked in any building during journey.75 for L. These indicative figures are expressed by the LPG marketing company representatives and could vary based on specific market circumstances. Petrol drive costs Rs. 5. Based on the information provided by the existing players.1 MARKET INFORMATION CURRENT MARKET Currently there are 61 LPG marketing and distribution companies operating in Pakistan10. 29. In the southern region of the country. about 50 of them are operating and rests are waiting for the allocation of LPG quota. Explosives shall be delivered to authorize consignee only. 3. On an average mileage of 40 kilometers. Following comparison of different fuels and their respective benefit analysis gives a clear picture of the LPG attractiveness among the automotive users. 32. 1. 28. 2007/Rev1 .Pre-Feasibility Study LPG Marketing & Distribution Business 27. and the consignor or consignee. an average driver using LPG makes a 10 Based on discussions with the existing players Page 14 of 32 PREF-25/November.25 for CNG. 31. LPG’s use as fuel for cooking and household requirements is most common in the rural areas of Punjab and NWFP (with a daily demand of about 500 to 800 ton).25 per kilometer as against Rs. one person shall warn other traffic and one person shall inform police. 1. The vehicle shall NOT be driven in any street or public place within the limits of a municipality or cantonment except and in accordance with the conditions of a written permit granted by the District Authority.G and Rs.2 MARKET POTENTIAL Attraction for LPG among the commercial vehicle operators (particularly taxi and auto rickshaw) in Karachi and other large cities & its demand in the rural areas of Punjab which account for about 70% of the total demand makes the LPG sector an attractive business.P. 3. 30. Diplomatic Enclave No. Orient Petroleum Inc. 140 per day. Rawalpindi. Block No. Ph. Karachi. Islamabad Ph. S.021-5064981-86 Morgah.051-5487041. the saving is Rs 160 per day. With a view to ensure adequate supplies of LPG in remote.051-9209701 Morgah. 3. and to halt deforestation. Dr. G-5. 7% in AJK and 6% in FATA. 1 2 3 4 5 6 7 8 9 Name of Producers Pakistan Refinery Limited National Refinery Ltd. 021-5682562 OGDCL. Korangi Industrial Zone. Ph. Street No.2.Ziauddin Ahmed Road. No. Jinnah Avenue.No.051-5487589 Hayat Hall. Pakistan Oilfields Ltd.Pre-Feasibility Study LPG Marketing & Distribution Business saving of Rs. 8. No. Ph. This clearly suggests a cost benefit of LPG and CNG over petrol hence has a greater attraction for vehicle operators. Building.mpnr. Jamshoro Limited Joint Location/Phone No.No. Korangi.3 LO CAL PRODUCTION OF LPG11: At present. 2007/Rev1 . Karachi. House No. 7-B. Islamabad. Karachi Ph.pk Page 15 of 32 PREF-25/November. Attock Refinery Limited Pak-Arab Refinery Ltd (PARCO) Pakistan Petroleum Limited Oil & Gas Development Company Ltd. F/7-1. Ph: 021-5062005. OGRA has ruled out a policy that all LPG marketing companies receiving LPG from sources in Punjab and NWFP will be obligated to supply at least 7% of their local LPG in Northern Areas.No.gov. All LPG marketing companies receiving LPG from sources in Sindh and Balochistan will be obligated to supply at least 10% of their local LPG in Balochistan province. Rawalpindi. Tons of LPG per day in the country.No. No. Korangi Creek Road. and for a CNG operated vehicle. 0215090100-13 PIDC House. rural and hilly areas of the country. Ph. Ph. 051/2652727-29 11 www. 051-2274261 Venture Associated House.1. the following eight producers are producing around 1600 M. Islamabad Ph.37. 926 287 622 1.145 62 1.3 .514 POL OPI PPL PRL PARCO NRL ARL JJVL.104 2.Pre-Feasibility Study LPG Marketing & Distribution Business 3.gov.438 46. Grand Total Average/day 3.3 .750 1.332 1.854 2.964 1.2 LPG UPLIFTED BY MARKETING COMPANIES13 Data on LPG uplifted by the LPG marketing companies during past one year has been provided in the following table: 12 www.133 1.mpnr.pk 13 Page 16 of 32 PREF-25/November.1 LPG PRODUCED12 Following table provides LPG producers with their production sites and quantity of produce during 2006-07: Producer OGDCL Name of Field Dhakni Dhodak Kunnar Bobi Sub Total Dhulian Meyal Pariwali Pindori Turkwal Sub Total Ratana Mayal Naimat Basal Siraj South Umar Sub Total Adhi LPG Produced (M.481 851 13.404 0 0 1.466 2.gov.mpnr.500 9.192 11.pk www.379 3 5. 2007/Rev1 .Tons) 572 5. 984 2. 2007/Rev1 .972 3.219 2.180 144 184 1.079 2.096 Page 17 of 32 PREF-25/November.122 118 283 448 717 148 686 454 424 656 0 538 261 222 500 124 47.112 4.048 1.Pre-Feasibility Study LPG Marketing & Distribution Business Name of the Company SHV Energy Fon Gas Wak Limited Shell Gas Pakistan State Oil Caltex Eirad Company Limited Lub Gas Pakistan Oil Fields Limited Mehran LPG Baluchistan Gas Cap Gas Sun Gas Petrosin Gas Muhammadi Gas Ravi Gas Aftab Traders Agha Gas Bolan Gas Pro Gas Gas Man Power Gas Links International Synergy Gas Baluchistan Minerals Cress LPG Noor LPG Petroleum Gas Tez Gas Soneri Gas Sam Gas Super Star AB Gas Golden Gas Wyne Gas TOTAL.216 1. Tons) 4.466 6. LPG Uplifted (M.350 3.483 836 625 607 385 2.719 1.786 1. Appointed Distributors/Sub-distributors bring their gas cylinders on their own vehicles on the marketing company site. it should be noted that from natural gas. make payment and carry their cylinders on the distribution point. get them filled (or exchange them with the filled cylinders).Pre-Feasibility Study LPG Marketing & Distribution Business LPG DISTRIBUTION PROCESS (SUPPLY CHAIN) 4. However. From their distribution points cylinders are supplied to the retailers or agents from where it is provided to the end user. hotels etc.8 kg) are further filled and supplied to the users directly by the sub-distributor. The patented AET Process LPG Recovery Unit technology utilizes non-cryogenic absorption to recover C2+ or C3+ natural gas liquids (LPG’s) from natural gas streams. from where they are distributed among households and commercial users i. Marketing/distribution companies which are also known as bottling companies fill gas cylinders with LPG and store them for distribution.e. In Karachi such sites are located at Port Qasim. Hub.1 PRODUCTION PROCESS OF LPG There are three methods for the production of LPG: 1) Extracted from natural gas: 2) By product of Oil refining process: 3) Produced during Oil refining process. Super Highway etc. The absorbed LPG’s in the rich solvent from the bottom of the LPG absorber Page 18 of 32 PREF-25/November. In the following lines production/extraction process of LPG from natural gas has been elaborated. 4. Typical distribution process and supply chain of LPG has been illustrated in the following diagram: LPG DISTRIBUTION PROCESS LPG Marketing & Distribution Company LPG Distributor / SubDistributor LPG Production Company LPG Retail Agent LPG Retail Sales Shop Marketing and distribution companies uplift LPG from the production site using own/rented bowzers and store it at their storage site. In case of household or commercial use small capacity cylinders (normally 6 kg to 11. LPG can only be extracted from the points where propane and butane is mixed with the natural gas in certain quantity. This filling process also be carried out at marketing company site and sub-distributors uplift cylinders from the site and store them at their location. 2007/Rev1 . For most applications.3 TECHNOLOGY OPTIONS For a LPG storage and distribution plant. about 5 ton of LPG will be required as raw material on daily basis at initial stages of the project. the lean solvent is pre-saturated with absorber overhead gases. The chilled solvent flows in the top of the absorber column. 4. there are no solvent make-up requirements. After heat recuperation. technology options are important while selecting filling equipment. the operation of the AET LPG plant can be switched on-line from ethane plus recovery to propane plus recovery without affecting the propane recovery levels. The separated gas from the presaturator separator forms the pipeline sales gas. For the proposed project. AET can design retrofits for heavy lean oil facilities.2 RAW MATERIAL REQUIREMENT The only raw material for the LPG marketing and distribution business would be LPG. Depending upon the economics of ethane recovery. storage tanks and filling pumps. For the proposed project following technology options have been assumed: Page 19 of 32 PREF-25/November. The AET LPG plant uses lighter lean oils. 2007/Rev1 .Pre-Feasibility Study LPG Marketing & Distribution Business column are fractionated in the solvent regenerator column which separates LPG’s overhead and lean solvent produced at the bottom. Production Process Flow Diagram 4. The requirement of LPG would increase by 10% annually with an increase in supply with the same proportion. Piping & Valves Fire Fighting Equipment Total 1 1 4 2 500 500 5.H.com.) S.com/siraga/siraga-contacts. Lahore.4 KG) Support Structure .100.000.21.000 2.4481-4 Fax: +92.000.pk) Siraga France and CE Sterling Germany can be contacted using the following URLs http://www.850.htm 4.com.000 2.S.21. of Units Unit Price Total Cost (in Rupees) Local/ Imported Local Local Imported Imported Local Local Local Storage Tank . 53000 Pakistan Tel: (92 42) 5990034. 2007/Rev1 .454. 5805134 UAN : (92 42) 111-DES-CON Fax: (92 42) 5811005. 26-A Block-6.000 750. 75400 . 5811135 Email:
[email protected] Phone: +92.000 1.800 5.000 1.000 Page 20 of 32 PREF-25/November.Pre-Feasibility Study LPG Marketing & Distribution Business Gas filling dispensers Pumps Storage Tanks Technology French German Pakistani Company/Supplier Siraga CE Sterling Descon Engineering Contact addresses of the companies are given below: Descon Headquarters Lahore 18 km Ferozepur Road.sterlingfluid. No.4480 E-mail:
[email protected] Contact Person: Murtuza Ali (
[email protected] tonne Storage Tank . Karachi.000.454.E.500 3.000 3.900.000. 1 2 3 4 5 6 7 8 Machine Required No. P.000 2.php?langue=uk http://www.500.30 tonne Filling Dispenser Pumps Cylinders (11.com/sterlingsites/group/index.pk Descon Karachi Office 9th Floor Business Avenue.000 3.000 2.8 KG) Cylinders (45.000.C. Main Shahrah-e-Faisal.000 1.500.siraga.4 PLANT AND MACH INERY REQUIREMENT Machinery required for the LPG distribution plant would include the following: PLANT AND MACHINERY (In Rs.200.000 Local 19.000 500. Ft. administration and other official purposes. 2007/Rev1 . It is estimated that around Rs.000 S. LPG dispensing/filling area will be used to fill cylinders. Total Construction Cost 2.200. Ft. LPG dispensing/filling area 3. Four LPG dispensers will be installed at this place.3 BUILDING CONSTRUCTION COST The LPG storage and distribution site can be divided into three areas: 1. Administration block/Office area 2. Qualified Consultant Engineers shall be engaged for preparing structural drawings for LPG site. During the course of study for this prefeasibility. 5 5. We have assumed an average of 3% of the initial plant and machinery cost as the annual maintenance cost.) Civil Works /Construction Cost/Sq. 5.000 400.1 LAND AN D BU ILD IN G R EQUIREMENT SITE DEVELOPMENT LPG Plant is sophisticated and require fool proof system. a minimum of 2 Acre area would be required for the proposed LPG setup. because Liquefied Petroleum Gas is flammable and during site development.2 LAND REQUIREMENT FOR PLANT In order to comply with structural standards prescribed by the explosive department and provisioning for the future expansion in the storage capacity. we have contacted the following local manufacturer and fabricator of LPG distribution setup: 4. prescribed instructions for fire extinguishment systems must be complied with. 5. LPG supply taking area (Bowzer platform and supply area) Administration block will consist of about 800 square feet area which will be used for accounts.000 3. Following table provides detailed breakup: Size/Area (Sq.6 PLANT AND MACH INERY MAINTENANCE All machines require routine cleaning and maintenance after every three months and an annual service which costs around 1% to 5% of the total cost depending upon the use of the machine and operator's skill.Pre-Feasibility Study LPG Marketing & Distribution Business There are few local suppliers/ manufacturer of storage Tanks and other related machinery for LPG distribution setup. 1 2 4 Details Boundary wall of the site Filling Area (plate form & Shade for Dispenser) Office Area Page 21 of 32 PREF-25/November.000 800 150 500 450.No. 3 million would be required for the site development and construction. 000 540.000 12.000 5. it has been assume that the plot will be purchased for the proposed business purpose.000 5.000 10.Dispatch Operators .000 300.080.000 18.000 144. The following table presents details about the staff to be hired and their estimated payroll requirements. filling and dispatch of cylinders to and from the sub-distributors.000 15.000 288. it would need experienced staff for loading/unloading the product.000 144.Pre-Feasibility Study LPG Marketing & Distribution Business Total Construction Cost 3. It is also recommended that the operations staff be provided with proper / regular training for handling of LPG.000 General Administration/ Marketing Staff Marketing Manager 1 Accountant Office Assistant Guard Driver Total TOTAL 1 2 2 3 9 21 6.000 120. Staff Title Business Unit Manager/Owner Plant Staff Plant Incharge Supervisor .000 1.000 90.000 8. Page 22 of 32 PREF-25/November.000 18.000 60.000 45. 2007/Rev1 .000 216.000 251.1 EXPERIENCE Dispatch Manager will be responsible for the collection.000 10.000 120.012.000 10.Operations Supervisor .000 720.000 25.000 24.000 5.028.000 6. As the operations at LPG bottling site will be of technical sort.932. 6 HUMAN R ESOURCE REQUIREMENT A team of approximately 20 staff would need to be hired for establishing and running LPG marketing and distribution business.Dispenser Clerk / Gate Keeper Technical Staff Guard Total Plant Staff No of Persons 1 1 1 1 3 2 1 2 12 45. maintaining of storage tanks and compliance with the safety standards which would be difficult if staff does not has relevant experience.000 6.000 As the plan and machinery to be installed on the site would be of permanent nature and would be immovable for a longer period.000 10.000 10.000 180.000 1.000 3.000 25.000 Individual Salary Monthly Salary Annual Salary 60. 20 million.000 120.000 120. It is proposed that staff with a minimum of 2 to 3 years of relevant experience should be hired. This will cost around Rs.000 10.000 161.000 12. For the site development.000 40. chairs. Specific assumptions relating to individual cost components are given as under.Office Electrical Fittings & Lights .000 Total Cost 20. The breakup of these expenses is given below: S. machinery and equipment including office equipment. 310. 20 million {for a 2 Acre Plot at industrial area of Port Qasim}. 7.1 LAND & BUILDING Land for setting up the proposed LPG Production & Distribution unit would be purchased which will cost around Rs.000 50. 3 million will be required.3 PLANT & OFFICE FURNITURE A lump sum provision of around Rs. Plant.000 30.000 80.Pre-Feasibility Study LPG Marketing & Distribution Business 7 FINANCIAL ANALYSIS & KEY ASSU MP TIONS The project cost estimates for the proposed “LPG Marketing and distribution business” have been formulated on the basis of discussions with industry stakeholders and experts.000 for purchase of furniture is assumed.000 50.000 30. No.000 1.000 Page 23 of 32 PREF-25/November. air conditioner and office decoration articles etc. desk.000 20. 7. This would include table. 1 2 3 4 5 6 7 8 Item Table & Chair for Owner (at Office) Tables & Chairs (for operations staff) Tables & Chairs (Office) .000 20.2 OVERALL PLANT & OFFICE RENOVATION To renovate the Plant / office premises in Year 5 and Year 10 a cost would incur for which an amount equivalent to 5% of the total construction cost is estimated. The projections cover the cost of land.000 50.Factory Total Number 1 2 4 20 1 1 1 1 Cost 20.000 20.Other Senior Staff Waiting Chairs (Office & Plant) Curtains/AC & Interior Decoration for office Curtains & Interior Decoration for Factory Electrical Fittings & Lights . 7. construction and renovation of office approximately Rs. 2007/Rev1 .000 20. fixtures etc. which has been assumed to be depreciating at 10% per annum using diminishing balance method.000 20.000 310.000 50. 1. 2.000 337. 3.000 325. UTILITIES LPG Marketing and distribution business will be operated using electricity for plant operations. 2. 2 million (approximately) will be required as cash in hand to meet the working capital requirements. diesel/fuel. 3.) 75.5 Machinery & Equipment Land & Building Construction Vehicles Furniture and Fixtures etc.4 DEPRECIATION TREATMENT The treatment of depreciation would be on diminishing balance method at the rate of 10% per annum on the following. This would draw considerable amount of electricity.500 Page 24 of 32 PREF-25/November.000 850. 4. Description First Three Months Salaries (Production staff) First Three Months Utilities Charges First Three Months Misc.500 15. Breakup of the utilities expenses has been given below: Total Monthly Cost (Rs. The cost of the utilities including electricity. 483. telephone. 4.000 240.) 900. Expenses Bowzer Rent & Transportation Raw Material Total Amount in Rs.000 112.000 2.025. These provisions have been estimated based on the following assumptions for the proposed business. The method is also expected to provide accurate tax treatment.000 1.000 2. Total Electricity Diesel for Vehicles Water Telephone 7.35 million per annum.000 Annual %age Increase 5% 5% 5% 5% Utility 1.000 20.Pre-Feasibility Study LPG Marketing & Distribution Business 7.000 180.350.6 WORKING CAPITAL REQUIREMENTS It is estimated that an additional amount of Rs. 1. 7.500 Total Annual Cost (Rs. 2007/Rev1 . and water is estimated to be around Rs.500 30.000 30. it has been assumed that the proposed LPG Marketing and Distribution business would work with the sub-distributors and may require direct supply to the key customers. 25.11 LPG INVENTORY The proposed setup is assumed to maintain a minimum quantity of LPG to act as safety stock against any shortage from supplier and to meet regular market demand. and are assumed to increase at a nominal rate of 10% per annum.9 MISCELLANEOUS EXPENSES Miscellaneous expenses of running the business are assumed to be Rs. For this purpose the storage facility will maintain 25 ton LPG at every point in time. 7.8 SELLING & DISTRIBUTION EXPENSES Although marketing. These arrangements would raise a considerable cost to the business for which an amount equivalent to 1% of the annual sales has been assumed. for the purpose of this pre-feasibility. 7. 7. whereas. 7.000 per month. These expenses include various items like office stationery. It is estimated that rental cost of a 30 ton bowzer will be around Rs. daily consumables.10 BO WZER RENT & TRANSPORTATION EXPENSES The business would have to bear the cost of LPG transportation from production site to the storage plant.000/.7 VEHICLE FOR SUPPORT A loading vehicle would be required for providing services for the transportation of cylinders and staff traveling from different locations. traveling allowances etc. 10. For this purpose.000/. Besides that.Pre-Feasibility Study LPG Marketing & Distribution Business 7. 7. promotion and distribution activities are limited in the LPG business. advertising material would also need to be printed on periodical basis announcing incentives and facilities to the customers. The business may also need to give incentives to the marketing staff for the business development purpose. a minimum of two vehicles have been proposed which will cost around Rs. 2007/Rev1 . receivable period is also Page 25 of 32 PREF-25/November. no credit provisioning has been assumed. 700-900 depending on the prevalent market condition and availability of the bowzers.12 REVENUE PROJECTIONS LPG business is carried out on cash basis and no credit policy factually does exist. 400. Therefore. It has been assumed that the per ton cost of LPG transportation will be between Rs.each. For this purpose bowzers will be required to be hired on rental basis. 18. This leasing facility would be required at a rate of 15% (including 1% insurance premium) per annum with 60 monthly installments over a period of five years.14 FINANCIAL CHARGES It is assumed that long-term financing for 5 years will be obtained in order to finance the project investment cost. 7. a 10% increase in sales price has also been assumed on annual basis.18. 7.2 7.4 7. particular to the LPG Production & Distribution sector and all of its allied industries.5% The weighted average cost of capital is based on the debt/equity ratio of 50:50.15 TAXATION Tax rate used is that applicable on SMEs which is 20%.16 COST OF CAPITAL The cost of capital is explained in the following table: Particulars Required return on equity Cost of finance Weighted Average Cost of Capital Rate 20% 15% 17. 7.Pre-Feasibility Study LPG Marketing & Distribution Business found to be almost zero.18.3 7.18. The installments are assumed to be paid at the end of every month.1 7.18 7. Besides that. The amount would depend on business sustainability and availability of funds for future growth.13 ACCOUNTS RECEIVABLES Considering the industry norm. 2007/Rev1 . 7.18. 7.17 OWNER’S WITHDRAWAL It is assumed that the owner will draw funds from the business once the desired profitability is reached from the start of operations. 7. It has been assumed that the proposed business will initially sell 5 ton LPG per day which will grow by 10% annually. it has been assumed that 100% of the sales will be on cash.5 ANNEXURES SUMMARY OF KEY ASSUMPTIONS CO ST AND REVENUE SHEET PROJECTED INCOME STATEMENT PROJECTED BALANCE SHEET PROJECTED CASH FLOW STATEMENT Page 26 of 32 PREF-25/November. 2007/Rev1 .Pre-Feasibility Study LPG Marketing & Distribution Business Page 27 of 32 PREF-25/November. 2007/Rev1 .Pre-Feasibility Study LPG Marketing & Distribution Business Page 28 of 32 PREF-25/November. Pre-Feasibility Study LPG Marketing & Distribution Business Page 1 of 32 PREF-25/November. 2007/Rev1 . Pre-Feasibility Study LPG Marketing & Distribution Business Page 2 of 32 PREF-25/November. 2007/Rev1 . 2007/Rev1 .Pre-Feasibility Study LPG Marketing & Distribution Business Page 3 of 32 PREF-25/November.