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

FEASIBILITY STUDY FOR THE ESTABLISHMENT OF A FUEL STATION IN ASABA, DELTA STATE 1. Executive summary 2. Introduction 3. Proposed Business Legal Status 4. Project Cost Viable Economic Size Proposed Capacity Proposed Location 5. Market Analysis Target Customers Market Demand Market Supply Industry Growth 6. Regulations and Licenses

Guidelines for setting up a fuel filling station License Certificate (by DPR) NOCs Income Tax 7. The Project CONCEPT Project Cost Project Financing Project Details 8. Manpower Requirement 9. Basis for Financial Projections Inflation Rate Revenue Assumptions No. of Cars Petrol per Vehicle

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

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Depreciation on Assets Accounting Profit Taxable Profit First Year Allowance Multiple Shift Allowance Amortization of Preliminary Expenses Working Capital Accounts Receivables Advances to Employees Accrued Utilities and Power Expenses Accounts Payable Value Added Tax Payable Value Added Tax Ratio/Financial Analysis Alternative Investment Opportunity 10. Financial Analysis


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1.

EXECUTIVE SUMMARY

1.1

PURPOSE OF THE DOCUMENT The objective of this feasibility study is primarily for academic purpose, but can aid potential entrepreneurs to facilitate investment and provide an overview about Petrol Filling Station business. The project feasibility may form the basis of an important investment decision and in order to serve this objective, the document covers various aspects of the business concept development, start-up, production, marketing, and finance and business management. The document also provides sectoral information, brief on government policies and international scenario, which have some bearing on the project itself. This particular pre-feasibility is regarding “Fuel Filling Station” which comes under “Petroleum” sector.

1.2

CRUCIAL FACTORS &STEPS IN DECISION MAKING FOR INVESTMENT Key Success Factors Following factors are the key in making this project profitable:  Location of the project will play a pivotal role in the successful running of the fuel station. The daily turnover of the cars largely depends on this important factor.  Selection of proper equipment is another key for carrying out the successful

operations of the proposed project. 1.3

OPPORTUNITIES The proposed project would have a number of competitive advantages:  The project will increase the number of fuel stations in Asaba and provide fuel to more customers, reducing the problem of fuel scarcity in the area and reducing the cost.


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 Asaba being a state capital and close to the commercial hub of the eastern Nigeria is a good location because of the high rate of vehicular movement in and out of the region. Threats The proposed project will be facing the following threat:  Market saturation over a longer period of time due to a large number of entrants and Asaba being a very small town  Threat of likely increase in the prices of the petroleum products by the government as a result of the planned deregulation and removal of fuel subsidy 2.

INTRODUCTION Petroleum products are among the most valuable natural resources abundantly available in our country. Nigerians and people everywhere use petroleum products as a fuel in their automobiles, generating sets, industrial plants and for cooking purposes, thus making petroleum products an essential commodity that is needed for the daily operations of individual, industrial and national activities. Nigeria being an oil producing nation however still relies on imported petroleum products for the servicing of the economy. Such petroleum products as Petrol (PMS), Diesel (AGO) and kerosene (DPK) are products utilized by almost everybody on daily basis at an average of 10 million litres daily usage. Due to increasing level of standard of living, more Nigerians are increasing the number of cars on the road, the need for constant power supply to aid uninterrupted production of goods and services and also for domestic use more Nigerians are increasing the demand for fuel in order to enjoy the usage of their generating sets and industrial plants The total projected cost for setting up a standard Motor- fuel filling station in Asaba, Delta state has been estimated at N31,127,530 million. It includes land,


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building, fuel dispensers and other equipments, spares, along with the preliminary expenses and working capital. The available local petroleum products, i.e. Petrol, diesel and kerosene are basically produced from crude oil, which Nigeria currently seats as the 6 th largest exported of crude. Notwithstanding the fact that Nigeria depends on the importation of these petrol products 3.

PROPOSED BUSINESS LEGAL STATUS The proposed legal structure of the business entity is a sole proprietorship registered as TINOCOO OIL ENTERPRISES.

4.

ESTIMATED COST OF PROJECT The cost of project has been estimated as N31.13 million including land, civil works, fuel Dispenser equipment, underground tanks and office equipment. Preliminary expenses and Petroleum licensing and other regulatory charges are estimated at N0.82 million and N1.8 million respectively. The Petrol, diesel and kerosene equipment comprises of dual hose dispensers and electric control panels. Project Investment Fixed Investment Working Capital Total Investment

30,750,140 377,390 31,127,530

The proposed pre-feasibility is based on the assumption of 50% debt and 50% equity. The project seems to be viable with the following returns on investment.


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Project Returns

4.1

Internal rate of return (project)

23.1%

Internal rate of return (equity)

45.1%

Net Present Value @ 20%

3,401,246

Payback period – based on cash inflows

4 years

VIABLE ECONOMIC SIZE A minimum of 202 cars is required to be filled daily in order to operate at breakeven. Considering the market trends and number of vehicles in use in Asaba, this ranges of fleet of government vehicles, fleet of transporters plying within the town, Asaba – Onitsha route, Asaba – Ibusa, Ogwashiukwu, Ilah and other neighboring towns and villages. Also, the heavy vehicular traffic of travelers from other parts of the country to the east, it is estimated that, the project would be able to attract and serve at-least 202 vehicles per day. This does not include the increasing number of motor cycles and those who purchase fuel for their generating sets.

4.2

PROPOSED CAPACITY The equipment for dispensing petroleum products that has been considered for preparing this prefeasibility study is of German origin. This equipment is relatively more efficient and effective of the all types of equipment available in the market. Various other types of equipment are also available at lower prices. The chosen equipment is capable of refueling 50 vehicles per hour. Twin hose dispenser accompanies this equipment and it handles refueling of two vehicles at a time.

4.3

PROPOSED LOCATION The proposed locations for the Motor- fuel filling station in Asaba are as follows;  Onitsha Benin Expressway  Nnebisi Road


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 Summit Road Junction  Ibusa Road Junction,

 Okpanam Road The project may also be established in commercially viable area of town. 5.

MARKET ANALYSES The efficient distribution of petroleum products has always been part of the Government’s petroleum policy, which is reflected in the efforts made by the government establishing NNPC mega stations across various states in the country in order to meet the increasing demand for petroleum products.

5.1

Target Customers The target customers for the proposed project would be the private and commercial vehicles running on Petrol fuel, private and commercial motor cycles, owners of generating sets for private and commercial usage.

5.2

Market Demand At present there are more than 15,000 vehicles plying within Asaba being a state capital and its environs;, which includes transporters from Onitsha, Ibusa, Okpanam, and those ply the Onitsha – Benin Expressway on daily basis. Due to the increasing epileptic nature of power supply, the demand for petroleum products have been on the rise as a result of steady increase in rate of migration into the state capital, also, almost every business and residential apartment in Asaba and its environs now rely more on generators for constant and uninterrupted power.

5.3

Market Supply


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Total number of Petrol Stations that are fully operational in Asaba is only 21, which is quite low for meeting the growing demand for petroleum products. Apart from these 21 petrol stations, there are many other stations that are not functioning while a few others are springing up. 5.4

Industry Growth There has been a tremendous growth in the downstream petroleum sector over the years. The total number of vehicles within Asaba and its environs was 5,000 and functional petrol filling stations were 10 at the end of year 2000. Currently, the number of vehicles and petrol filling stations has increased to over 15,000 vehicles and 21 functional stations respectively and by the year 2015 they would have tremendously grown up to 26 functional Stations and over 20,000 vehicles as a result of increasing commercial activities and the building of an airport in Asaba which is close to Onitsha the commercial nerve centre of the east. The growth in terms of percentage is given in the following table: Table 5-1 Growth Percentage of Vehicles Year

2010

2015

Percentage

No. of Vehicles

15,000

20,000

33%

Petrol Filling Stations

21

26

24%

Increase

The above growth rates present an opportunity for the new entrants to earn profits by setting up new petrol filling stations to meet the growing demand.


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6.

REGULATIONS AND LICENSES

6.1

License Obtaining a license from Ministry of Petroleum and Natural Resources and Department of Petroleum Resources (DPR) is a pre-requisite for setting-up the Motor Fuel Filling station. The cost associated with this license is N 25,000

6.2

Certificate (by DPR) After the installation of the required equipment for the Fuel filling station, DPR will inspect the working of the equipment, and once satisfied, will issue a certificate verifying that the installed equipment is up to the required standards. The cost associated with this certification is N 35,000.

6.3

NOCs No Objection Certificate will be required from the following departments prior to the commencement of the business:  Concerned development authority of the city (Lahore Development Authority in case of Lahore)  Traffic Engineering and Planning Authority (TEPA)  Traffic Police (SSP)

 Department of Civil Defense  National Highway Authority (NHA)  Central Board of Revenue (CBR)  Civil Administration - Tehsil Municipal Administration (TMA)  Irrigation Department  Forest Department  Explosives Department The cost associated for obtaining the above NOCs is estimated at Rs.100, 000


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6.4

Income Tax The income of the Petrol filling station is not exempted from the income tax. The investor has to pay tax on his/her income according to the nature of the business entity. The current project is being operated as a private limited company, so the income tax is payable at the prevailing rate.

6.5

GUIDELINES FOR SETTING UP OF MOTOR-FUEL FILLING STATIONS BASIC PRINCIPLES The governing consideration is to minimize, as much as possible, interference to normal flow of traffic on the road by vehicles using the amenity and also to ensure safety. General Conditions of Sitting: 1.

The Clear distance between two adjacent fuel filling stations (these will also include fuel filling – cum – service station) should not be less than 300 Metres.

2.

Fuel filling stations should be well distributed on both sides of the road so that vehicles do not have to cut across the traffic to reach a fuel filling station. The fuel filling station on opposite sides shall be staggered.

3.

Sitting of fuel filling stations near existing check barriers should be avoided. They should be at least 1 km away from the check barrier.

4.

The distance between the tangent points of the curves of the side road and that of the fuel filling station measured in a direction parallel to the centre line of the road should not be less than 100 metres and the station should be located only in the outbound direction. However, on expressway and arterial road having dual carriageway, the distance from the junction should not be less than 300 metres.


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Frontage: For free flow of vehicles into and out of the fuel filling station, the site should permit construction of wide entrance and exit with easy access. It is, therefore, desirable to have the longest possible frontage, the minimum being 30 Metres. The minimum Entry and Exit width should be 9 metres. Area: (as per NBC Clause 6.6.3.3 – Part III Development Control Rules and General Building Requirements) The size of the petrol filling station shall not be less than a) 31 X 17 M in the case of petrol filling station with kiosk without service bay b) 37 X 31 M in the case of petrol filling station with service bay Buffer Strip 1.

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

2.

The outer edge of buffer strip should be along the outer edge of road land boundary for rural sections and that of footpath or cycle tract or service road, if any, for urban sections. However, the future widening of the road should be kept in mind so that there is no obstruction to the improvement to the road. In all such cases, the distance from the outer edge of buffer strip from the centre line of the carriageway should not be less than 7 metres for National Highways and State Highways and 6 metres for other roads where no cycle tracks are required now or in future and this distance should not be less than 12 metres where cycle tracks exist or may be required in future. In case of dual carriageway, these distances should be measured from the centre line of the nearest two lanes of the carriageway.


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7.

THE PROJECT CONCEPT

7.1

Project Cost The details of the cost of project are as follows: Table 7-1 Project Costs Items in Naira Land (9,000 Sq. ft) Building – Civil Works

5,000,000

Dispensers, Underground tanks & Other Equipment

9,945,140

Office Equipment Furniture & Fixtures Licenses / Permits

100,000 85,000 1,250,000

Preliminary Expenses

820,000

Working Capital

927,390

Total 7.2

13,000,000

31,127,530

Project Financing The total cost of the project is N31.13 million including the working capital of N0.927 million. The sponsors of the project will contribute N15.56 million and the bank will finance the remaining amount of N15.56 million.

7.3

Project Details

7.3.1 Location For setting up a Fuel filling station, location is the prime factor. As per the requirements of the Federal Government, the filling station must be situated in a commercial area. Fuel filling stations are not allowed to be installed in the residential areas.


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7.3.2 Land



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

feet front opening is required for installing Fuel filling station. An amount of N13 million has been allocated for the acquisition of nine thousand square feet of commercial land in Asaba in the areas of Onitsha Benin Expressway, Nnebisi Road, Summit Road Junction, Ibusa Road Junction or Okpanam Road. A comparison of costs of commercial land in the various areas of Asaba is given below for reference purpose. Table 7-2 Approximate Cost of Land in the Proposed Areas Location Price Range for 9, 000 Sq.ft Onitsha Benin Expressway

11,500,000 – 15,000,000

Nnebisi Road

9,000,000 – 11,000,000

Summit Road

10,500,000 – 13,500,000

In this report, prices of commercial land Asaba has been considered, however, prices may considerably vary in the other places like Ibusa road, Okpanam and other areas of commercial nature 7.3.3 Building There are certain civil works required to be carried out at the proposed location. The civil works would be carried out on an area of 2250 square feet. The rest of the area will be floored with concrete. Civil work includes the following:  Office  Shed for Dispenser  Toilet/washroom  Underground Tanks and Power Cables  Flooring


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The total cost of construction is estimated at N5 million. Details for the said cost are as follows: Table 7-3 Construction Cost (Amount in Naira) Description

Cost

Office, shed and toilet/washroom

2,500,000

Underground Tanks & gas piping -

500,000

Flooring (6,750sq.ft)

1,750,000

Contingencies -

250,000

Total Cost -

5,000,000

7.3.4 Equipment The following equipment is required for a Fuel filling station:  Gas Compressor The purpose of compressor is to compress the fuel enabling it to discharge the petrol for refueling. This compressor requires an input pressure of 8 or 15 PSIG5 from the main gas supply with the outlet pressure of 3,625 PSIG. With this discharge pressure, the equipment can refuel 50 vehicles per hour.  Electric Control Panel: Electric control panel is required to operate the gas compressor.  Priority Panel for Vehicle Priority: During rush hours, the compressor is directly

connected

to

the

dispenser,

bypassing

the

storage

cascades/cylinders with the help of priority panel, facilitating the refueling of vehicles at a faster rate.  Fuel Dispenser high flow dual hose: Gas is filled into the vehicles with the help of dispenser. This dual hose dispenser is capable of handling two vehicles at a time.


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There are various foreign manufacturers providing the fuel filling station equipment. In this pre-feasibility report, a German origin compressor has been selected. This equipment is selected because of its low electricity consumption, higher outlet pressure, low maintenance, durable working, longer periods between overhauls and good market repute and presence. The total capacity of the selected equipment is 400M3/Hr with a total power load of 93 KW. All the Fuel filling station equipment is foreign manufactured and imported on the specific requirement of the sponsor by the authorized agent. Usually, the equipment is delivered within 12 to 16 weeks from the receipt of purchase order and initial payment. 7.3.5 Suppliers Products will be sourced directly from NNPC accredited marketers with reliable and high quality products and delivery time. Suppliers such as Capital Oil, Zenon Oil, MRS, A-Z Petroleum and a host of others will are highly recommended. 7.3.6 Furniture and Fixtures Furniture and fixtures mainly include tables, chairs, sofas, fans & lights, carpet, curtains and fire extinguishers. It is estimated that the furniture and fixtures of N85,000 would be purchased. 7.3.7 Office Equipment Some office equipment is also required for the proposed project. A provision of N100,000 have been made for acquiring the required office equipment.


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8.

MANPOWER REQUIREMENT Manpower requirement for the Fuel filling station includes manager, cashier, dispenser, operators, accountant, watchman and sweeper. The total staff strength would be 13 persons for the two shifts. The staff salaries for year one are as follows: Table 8-1 Human Resource Requirement Designation

No. of Employees for

Salary per

Total salary

two shifts

month

per month

Manager

1

20,000

240,000

Deputy Manager

1

10,000

120,000

Accountant

1

6,000

72,000

Cashier

2

4,500

108,000

Dispenser

7

3,570

300,000

Operator

2

5,500

132,000

Watchmen

2

3,500

84,000

Sweeper

1

2,500

30,000

Total 9.

BASIS FOR FINANCIAL PROJECTIONS

9.1

Inflation Rate

954,000

10% inflation rate has been considered while making the projections for cost of sales, operational expenses and salaries. The prices for electricity, operational expenses and staff salaries are increased by 10% every year as a result of inflation.


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9.2

Revenue Assumptions

9.2.1 No. of Cars Based on the survey of some Fuel stations in Asaba, the number of cars assumed for revenue projections is as follows: Table 9-1 Detailed Projected Increase in Cars for 5years Financial Period Years

No. of Cars

1

202

2

303

3

363

4

435

5

522

The average number of cars in the first years is estimated at 202 cars per day, starting from 120 cars per day in the first month and going up to 290 cars per day in the 12th month. In the second year, it has increased to 303 cars per day. After second year, number of cars is increasing at a rate of 20% till fifth year because the project would be in its growth stage. An increase of 15% has been considered from sixth year, because at that time, the project would be at its maturity stage. 9.3

Accounting Profit Depreciation on the assets has been charged at the following rates for the calculation of accounting profits: Table 9-3 Depreciation Rates Building

5%

Fuel Plant & Equipment

10%

Office Equipment

20%

Furniture & Fixture

10%


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9.3.1 Taxable Profit For the purpose of calculating taxable profit, depreciation is calculated on the rates as per the Income Tax Law, which is as follows: Table 7-4 Tax Adjustments

9.4

Land

0%

Building

5%

Fuel Plant & Equipment

10%

Office Equipment

10%

Furniture & Fixture

10%

First Year Allowance Other than the normal depreciation allowances, first year allowance is also provided on the newly installed Plant and equipment for the purpose of providing benefit to the entrepreneur. The first year allowance is calculated at 40% of written down value of fuel plant and equipment.

9.5

Multiple Shift Allowance In addition to normal depreciation and first year allowances, multiple shift allowance is also provided for the plant and machinery, which operates on double or triple shift basis. In this proposed project, fuel plant will run on two-shift basis during the whole year. So multiple shift allowance is calculated and added to the depreciation of plant and equipment for all the ten years. Multiple shift allowance has been taken as 66.6% of the normal depreciation allowance.

9.6

Amortization of Preliminary Expenses Preliminary expenses amounting to N820, 000/- will be amortized at the rate of 20% per annum.


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9.7

Working Capital Working capital is calculated on the basis of following assumptions:

9.7.1 Accounts Receivables Mostly, the sale of Petrol is on cash basis. However, some fuel filling stations do offer a credit facility to reputable companies on agreed terms and conditions. Therefore, receivables are estimated at 6% of the total sales amount. 9.7.2 Advances to Employees Advances to employees are calculated on the basis of 30 days of both payroll and staff benefits. 9.7.3 Accrued Utilities and Power Expenses Normally, it would take 20 days to deposit the utilities (electricity, water and telephone) bills. Therefore, utility expenses for 20 days have been taken as the basis for working capital computation. 9.7.4 Accounts Payable Cost of electricity for 20 days has been considered in calculating accounts payable. 9.7.5 Value Added Tax Payable Every company is required to deposit the amount of VAT collected from the consumers, within 30 days. The same has been taken as the basis for calculating the amount of sales tax payable.


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9.8

VAT The Value Added Tax levied by Government is charged to the customers at the rate of 5% on the sale of fuel. These funds are deposited after every 30 days in favor of the Federal Government through the Federal Inland revenue service.

9.9

Ratio/Financial Analysis The figures for the rate of return on investment and return on equity are averaged for the first five years to make it more reasonable.

9.10

Alternative Investment Opportunity The cost of land is the major portion of investment in this project. If any investor does not have enough resources for the acquisition of land, he/she also has another alternative course of action to setup the fuel filling station without acquiring the land. The investor can make investments only in the purchase of Fuel equipment and install this equipment with any existing non functional petrol station. In this case, the investment for installing the new equipment will be made by the investor and the space will be provided by the dealer/owner of the existing petrol station. The investor will pay 15% commission on the total revenue to the dealer/owner of the petrol station. Moreover, the investor can also avail lease facility from any leasing company on the purchase of the equipment.

10.

FINANCIAL ANALYSIS


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

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