LPG Feasibility Study Pakistan

8/8/2019 LPG Feasibility Study Pakistan

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Pre-Feasibility Study

LLPPGG MMaar r k k eettiinngg && DDiissttr r ii b buuttiioonn BBuussiinneessss

(((SSSMMMEEEDDDAAA DDDOOOCCCUUUMMMEEENNNTTT)))

Small and Medium Enterprise Development Authority

Government of Pakistan


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Government of Pakistan

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 anyof 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 PREF-25


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11.. PPRROOJJEECCTT PPRROOFFIILLEE

11..11 OOPPPPOORRTTUUNNIITTYY RRAATTIIOONNAALLEE

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 northernPakistan 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. Besidesthat, 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 gasindustries. Commercial Propane predominantly consists of hydrocarbons containing

three carbon atoms, mainly propane (C3H8). Commercial Butane predominantlyconsists of hydrocarbons containing four carbon atoms, mainly n- and iso - butanes

(C4H10).

h h h i l f b i li id h i if


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allocated by one of the LPG producer and this allocated LPG will be supplied to the

marketing company through Bowzer (gas supplying trucks). The company will store

this LPG in its storage facility from where, supply to the sub-distributors will be made.

Sub-distributors will bring their cylinders and get them filled against payment.

11..33 MMAARRKKEETT EENNTTRRYY TTIIMMIINNGG

There is no specific time for the entry in LPG marketing. After allocation of quota from

the producer, a marketing company can start its operations immediately as demand is persistent in urban and rural markets.

11..44 PPRROOPPOOSSEEDD BBUUSSIINNEESSSS LLEEGGAALL SSTTAATTUUSS

The legal status of business tends to play an important role in any setup; the proposedLPG Marketing and Distribution business is assumed to operate on as a private limited

company. It is mandatory for an oil or gas company to register as a private limitedcompany.

11..55 PPRROOPPOOSSEEDD LLPPGG BBOOTTTTLLIINNGG / / DDIISSTTRRIIBBUUTTIIOONN PPLLAANNTT CCAAPPAACCIITTYY

The capacity of the proposed LPG storage and distribution facilities would be around

80 M. Ton, whereas, filling capacity would be about 5 ton per day (based on 8 hoursshift).

11..66 PPRROOJJEECCTT CCOOSSTT

Total project cost of the LPG Marketing & Distribution business would be

approximately Rs. 48.92 million. Out of this, capital cost of the project is around Rs. 47million and remaining will be the working capital.

11..77 PPRROOJJEECCTT IINNVVEESSTTMMEENNTT


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11..99 PPRROOPPOOSSEEDD LLOOCCAATTIIOONN

Location for setting up a LPG distribution plant has imperial implications on fixed

costs, operational costs and procedures. The proposed LPG plant can be established at

Port Qasim, Karachi in Sindh, and Multan Road in Punjab. These locations have basic

infrastructure and facilities required for LPG bottling and distribution plant, however

for the purpose of this pre-feasibility study Port Qasim industrial area has been

assumed.

11..1100 KKEEYY SSUUCCCCEESSSS FFAACCTTOORR && PPRRAACCTTIICCAALL TTIIPPSS

Following are the key success factors in LPG business:

LPG quota allocation: Most of the existing plants with fully operationalfacilities are out of work because of delays in their quota allocation by the LPG

producers.

Dealing with the sub-distributors: Sub-distributors play important role in the

successful operations of a LPG Marketing company because they distribute gasamong agency holders who further sale it to the retailers.

Survival during the critical period when cheap Irani LPG is available in the

market: In such circumstances when cheap Iranian gas is available, 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.

22.. SSEECCTTOORR && IINNDDUUSSTTRRYY AANNAALLYYSSIISS

LPG is a derivative of two large energy industries: natural gas processing and crude oil


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LP Gas supplies although the ratio between gas processing and refining varies among

regions.

LP Gas production from these sources is a natural derivative. 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. Although tied to

the production of natural gas and crude oil, LP Gas has its own distinct marketingadvantages and can perform nearly every fuel function of the primary fuels from which

it is derived.

22..11 SSEECCTTOORR CCHHAARRAACCTTEERRIISSTTIICCSS AANNDD OOVVEERRVVIIEEWW

LP Gas can be transported, stored, and used virtually anywhere in the world. It does not

require a fixed network and does not deteriorate over time. LP Gas is very clean burning and has lower greenhouse gas emissions than any other fossil fuel when

measured on a total fuel cycle. Originating mainly from natural gas production, it isalso non-toxic and will not contaminate soil or aquifers in the event of a leak.

LP Gas is cost-effective, since a high proportion of its energy content is converted into

heat. LP Gas can be up to five times more efficient than traditional fuels, resulting inless energy wastage and better use of energy resources. LP Gas is a multi-purpose

energy. There are more than a thousand applications, from cooking, heating, air

conditioning and transportation, to cigarette lighters and even the Olympic torch.

IINNVVEESSTTMMEENNTT OOPPPPOORRTTUUNNIITTYY IINN TTHHIISS SSEECCTTOORR

The Government has focused on this sector and has approved “LPG production and

distribution policy 2006”. This policy aims at increasing LPG supplies, streamlining itsdistribution at affordable prices, 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


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LLPPGG LLIICCEENNSSIINNGG

Any company willing to distribute and market Oil and Gas needs to obtain a licensefrom OGRA. Additionally, license from Explosive department is also required for the

proposed LPG marketing and distribution business. OGRA (Oil & Gas Regulatory

Authority) issues provisional licenses to technically and financially sound applicants/

parties for construction of works commensurate with their work program, for a periodof one year. OGRA inducts reputable third party inspectors to check/monitor

compliance with the terms and conditions of licenses.

The licenses can be cancelled in case of non-compliance with licensing terms andconditions.

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.100,000/- in favour of Oil & Gas Regulatory

Authority, as License fee (Payable at Islamabad).

Proof of registration of the Company (Company incorporation certificate).

Memorandum and Articles of Association.

Attested copies of ID cards of all Directors.

Location of the tentative / proposed site.

Financial Competence Certificate issued by a Bank (original and stamped).

Last three years’ Audited Reports (not applicable for new companies).

Minimum Work Program:


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22..22 SSEECCTTOORR CCHHAARRAACCTTEERRIISSTTIICCSS

22..22..11 PPRROODDUUCCTTIIOONN22

The following table presents production data for the last two years for LPG, Petroleum

and Diesel.

August July – AugustItem Quantity

2006 2005 2006-07 2005-06

LPG ‘000 Liters 41,124 40,895 82,999 85,450

Petroleum ‘000 Liters 2,097 1,998 4,518 4,209

Diesel ‘000 Liters 276,888 324,691 596,176 709,773

It is evident from the table that LPG production which was around 40,895,000 liters

during the month of August 2005, increased to 41,124,000 liters during August 2006

which suggests a substantial increase in production. According to last year during July

and August LPG production was 85,450,000 liters, which decreased in during the same

period in 2006-07 around 82,999,000 liters. It is expected that after commencement of

operations of JJVL-II, the production will further increase which would help inmaintaining demand and supply gap in future.

22..22..22 PPRROODDUUCCTT PPRRIICCIINNGG33

During the study of LPG industry, it was observed that product price for LPG are

revised generally every 15 days and government launch its prices on fortnightly basis.

Latest prices for the week as compared to last week are as under.

This is to advise that, in pursuance of the decision of Economic Coordination

Committee (ECC) of Cabinet dated December 06 2006 OGRA has determined the


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Ratio B 40 60LPG price calculation = A x B 21,040.00 31,560.00Wt. Avg. price US $ /M. TON 526.00

Avg. US $ exchange rate for Feb. 07 Rs per US$ * 60.74Maximum Base-Stock price of LPG Rs. /M. TONeffective March 03, 2007 31,949.45

* Monthly average of the mean of the daily Bid andOffer of Weighted Average Exchange Rate quoted bythe State Bank of Pakistan for February 2007, has beenprovisionally adopted pending clarification from theFederal Government, which has already been sought.

22..22..33 DDEEMMAANNDD

About 90% of auto rickshaw and taxi are fueled by LPG, whereas, majority of the rural

population of Pakistan use LPG as cooking and house warming fuel at home. LPG prices move in a similar manner to petrol prices as its demand grows.

22..22..44 TTHHRREEAATTSS TTOO TTHHIISS IINNDDUUSSTTRRYY

LPG Distributors Association Pakistan said on November 11, 2006, that the sale ofLiquefied Petroleum Gas (LPG) had dropped 30 percent due to unprecedented increase

in its prices by producer and marketing companies for the past 7 months4.

The association said that the LPG domestic consumers had abandoned its use and

turned to firewood while rickshaw owners and other transporters preferred petrol anddiesel as LPG firms had been fleecing them by constantly raising LPG rates without

any justification.


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forming potential (a measure of the tendency to generate photochemical smog),

between 10 and 15 per cent lower greenhouse gas emissions and only one fifth air

toxics emissions.

5LPG delivers clear environmental benefits over diesel and petrol. Recent independent

automotive tests submitted to the Department for Transport have shown that LPG

emits:

120 times less particulate matter compared to diesel;

less than half the NOs of petrol and less than one twentieth the NOs of diesel;

and 17 per cent less CO2 compared to petrol and 2 per cent less CO2 compared

to diesel, 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. 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.

22..22..66 PPRROODDUUCCTT / / PPRROOJJEECCTT SSTTAANNDDAARRDDSS AANNDD CCOOMMPPLLIIAANNCCEE IISSSSUUEESS

Rules and regulations which govern any explosive material also apply on LPG. Its

transportation, storage, construction of storage facility, filling of cylinders and their

transportation, etc. all need to be carried out according to the standards and

specifications provided by the explosive department, government of Pakistan. For LPG

business, a license will be required from explosive department of the concerned

province. Details have been provided in the following lines.

22..22..77 RREEQQUUIIRREEMMEENNTTSS FFOORR GGRRAANNTT OOFF PPEERRMMAANNEENNTT LLIICCEENNSSEE UUNNDDEERR EEXXPPLLOOSSIIVVEESS

I) Formal application with attested photocopy of National Identity Card briefly

i h f b i i i d j ifi i


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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. 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.

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, and

site with full surroundings and important land marks to facilitate its location. The

distances maintained around the proposed LPG storage site shall be marked

clearly.

VII) Documents showing the extent of possession/ownership of land for maintaining

required safety distances from the explosives storage magazine.

VIII) Present consumption of explosives in the area and nature of work requiring use 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, complete postal addresses, nearest Police station(s), approximate dailyconsumption of explosives by each consumer stating their nature of work

requiring explosives.

6


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XV) Certificate to the effect that guard over the magazine7 will be provided 24 hours

by the license.

An LPG tank after ten years shall be examined for re-qualification. Re-qualification is

a procedure by which a cylinder is inspected and retested to determine its acceptability

for continuous service. This method determines if a tank is condemned (a cylinder that

does not pass the required tests and can not be repaired), or, repairable. A tank shall berepaired for cuts, corrosion or dents five years after the time of re-qualification. Repair

is defined as the removal and replacement of parts or attachments of LPG cylinders andother corrective measures.

A condemned cylinder, as the standard specifies, is a scrap and should be destroyedeither by cutting diagonally, or crushing the cylinder or any part so that it can no longer

be used.

Consumers are enjoined to make sure that the embossed markings of the brand name or

name of the owner is printed on the cylinder.

To ensure safety throughout the LPG supply chain, LPG storage tanks, cylinders

bowzers, and distribution outlets of the licensees should meet the minimum safetystandards as laid down in applicable Rules.

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.

22..22..88 SSPPEECCIIFFIICCAATTIIOONNSS FFOORR TTEEMMPPOORRAARRYY SSTTOORRAAGGEE OOFF EEXXPPLLOOSSIIVVEESS

Following detailed guidelines have been provided by the explosive department of thegovernment for the companies dealing in explosive materials. It is mandatory for the

LPG businesses to comply with the following.


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7. 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.

8. Shelves, benches and fitting shall be of wood or bamboo free from iron nails and

grit.

9. The capacity of a pit or a cabin per 16 sq.ft. of the base area with 30% more area asworking space.

10.At least 6 feet high barbed-wire fencing shall be provided all round at a distance o

not less than 30 feet from the storage cabins/pits. Other safety distance shall bemaintained as per Schedule VI of the Explosives Rules, 1940.

22..22..99 CCOONNDDIITTIIOONNSS FFOORR TTRRAANNSSPPOORRTT OOFF CCOOMMMMEERRCCIIAALL EEXXPPLLOOSSIIVVEESS IINN AA VVAANN BBYY RROOAADD88

1. The vehicle shall be in perfect serviceable condition in all respects.

2. 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.

3. 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. The interior of vehicle shall be kept thoroughly clean from grit, oil rag, wasteand other combustible material at all times.

5. All electric cables must be heavily sheeted. No junction boxes, switches, fuses,

lamp fittings or other electrical appliances or cable joints shall be allowed within thecargo compartment.

6. A quick action cut-off valve shall be fitted to the fuel pipe in an accessible


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11. 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, Karachi and to the

Inspector of Explosives and District Magistrate in whose jurisdiction the magazine9 in

situated.

12. Loading and unloading shall NOT be done in the vehicle while its engine is

running or its fuel tank is being filled.

13. Explosives in excess of the authorized limit shall NOT be carried on the vehicle.

14. Damaged packages shall NOT be loaded in the vehicle.

15. Explosives shall NOT be carried in the Driver s Cabin under any circumstances.

16. 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 betransported separately.

17. All packages must be well secured and effectively protected against weather

and the risk of pilferage or sabotage.

18. All packages must be appropriately labeled as to the nature of Explosives.

19. If loading, unloading takes place in wet weather, adequate stops shall be taken

to keep the packages of Explosives dry.

20. The loading or unloading of explosives when once begun shall be proceededwith all due vigilance until the same has been completed.

21. No extra fuel shall be carried during conveyance other than in the fuel tank ofthe vehicle.

22. Vehicle shall not be taken to any garage or repair station while carrying

l i d diti f t b k d l i h ll b h k d ft h t


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27. The vehicle shall NOT be driven at the speed more than 30 miles (50

Kilometers) an hour on smooth road.

28. Populated areas shall be avoided as far as possible and vehicle SHALL NOT be parked in any building during journey.

29. 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.

30. Explosives shall be delivered to authorize consignee only.

31. In case of any emergency, one person shall warn other traffic and one personshall inform police, and the consignor or consignee, as may be convenient by the

quickest possible means.

32. One copy of the drawing approved by the Department of Explosives shallalways be kept with the driver of the vehicle for production on demand by an

inspecting officer.

33.. MMAARRKKEETT IINNFFOORRMMAATTIIOONN

33..11 CCUURRRREENNTT MMAARRKKEETT

Currently there are 61 LPG marketing and distribution companies operating in

Pakistan10

. Based on the information provided by the existing players, about 50 of themare operating and rests are waiting for the allocation of LPG quota.

LPG’s use as fuel for cooking and household requirements is most common in the ruralareas of Punjab and NWFP (with a daily demand of about 500 to 800 ton). In thesouthern region of the country, Karachi is the biggest consumer of LPG with an

approximate daily demand of about 250 to 300 ton. These indicative figures are


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saving of Rs. 140 per day, and for a CNG operated vehicle, the saving is Rs 160 per

day. This clearly suggests a cost benefit of LPG and CNG over petrol hence has a

greater attraction for vehicle operators.

With a view to ensure adequate supplies of LPG in remote, rural and hilly areas of the

country, and to halt deforestation, OGRA has ruled out a policy that all LPG marketing

companies receiving LPG from sources in Punjab and NWFP will be obligated tosupply at least 7% of their local LPG in Northern Areas, 7% in AJK and 6% in FATA.

All LPG marketing companies receiving LPG from sources in Sindh and Balochistanwill be obligated to supply at least 10% of their local LPG in Balochistan province.

33..33 LLOOCCAALL PPRROODDUUCCTTIIOONN OOFF LLPPGG1111::

At present, the following eight producers are producing around 1600 M. Tons of LPG

per day in the country.

S.No. Name of Producers Location/Phone No.

1 Pakistan Refinery Limited 7-B, Korangi Industrial Zone, Korangi,Karachi. Ph: 021-5062005.

2 National Refinery Ltd. Karachi. Ph. No.021-5064981-86

3 Attock Refinery Limited Morgah, Rawalpindi. Ph.No.051-5487041.

4Pak-Arab Refinery Ltd

(PARCO)

Korangi Creek Road, Karachi Ph. 021-

5090100-13

5 Pakistan Petroleum LimitedPIDC House, Dr.Ziauddin Ahmed Road, Ph.

021-5682562


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33..33..11 LLPPGG PPRROODDUUCCEEDD1122

Following table provides LPG producers with their production sites and quantity of

produce during 2006-07:

Producer Name of Field LPG Produced (M.Tons)

OGDCL Dhakni 572

Dhodak 5,750

Kunnar 1,104

Bobi 2,500

Sub Total 9,926

POL Dhulian 287

Meyal 622

Pariwali 1,854

Pindori 2,379

Turkwal 3Sub Total 5,145

OPI Ratana Mayal 62

Naimat Basal 1,404

Siraj South 0

Umar 0

Sub Total 1,466

PPL Adhi 2,133PRL 1,192

PARCO 11,332

NRL


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Name of the Company LPG Uplifted (M. Tons)

SHV Energy 4,972

Fon Gas 3,350

Wak Limited 3,219

Shell Gas 2,786

Pakistan State Oil 1,719

Caltex 1,984

Eirad Company Limited 2,112

Lub Gas 4,466

Pakistan Oil Fields Limited 6,079Mehran LPG 2,483

Baluchistan Gas 836

Cap Gas 625

Sun Gas 607

Petrosin Gas 385

Muhammadi Gas 2,048

Ravi Gas 1,216

Aftab Traders 1,180Agha Gas 144

Bolan Gas 184

Pro Gas 1,122

Gas Man 118

Power Gas 283

Links International 448

Synergy Gas 717

Baluchistan Minerals 148

Cress LPG 686

Noor LPG 454


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44.. LLPPGG DDIISSTTRRIIBBUUTTIIOONN PPRROOCCEESSSS ((SSUUPPPPLLYY CCHHAAIINN))

Typical distribution process and supply chain of LPG has been illustrated in the

following diagram:

LPG DISTRIBUTION PROCESS

Marketing and distribution companies uplift LPG from the production site using

own/rented bowzers and store it at their storage site. In Karachi such sites are located atPort Qasim, Hub, Super Highway etc. Marketing/distribution companies which are alsoknown as bottling companies fill gas cylinders with LPG and store them for

distribution. Appointed Distributors/Sub-distributors bring their gas cylinders on theirown vehicles on the marketing company site, get them filled (or exchange them with

the filled cylinders), make payment and carry their cylinders on the distribution point.

From their distribution points cylinders are supplied to the retailers or agents from

where it is provided to the end user. In case of household or commercial use small

capacity cylinders (normally 6 kg to 11.8 kg) are further filled and supplied to the usersdirectly by the sub-distributor. 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, from where they are distributed among households and commercial users i.e.

LPG ProductionCompany

LPG Marketing& Distribution

Company

LPG Distributor /Sub-

Distributor

LPG Retail Agent

LPG Retail SalesShop


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column are fractionated in the solvent regenerator column which separates LPG’s

overhead and lean solvent produced at the bottom. After heat recuperation, the lean

solvent is pre-saturated with absorber overhead gases. The chilled solvent flows in the

top of the absorber column. The separated gas from the presaturator separator formsthe pipeline sales gas.

Depending upon the economics of ethane recovery, the operation of the AET LPG plantcan be switched on-line from ethane plus recovery to propane plus recovery without

affecting the propane recovery levels. The AET LPG plant uses lighter lean oils. Formost applications, there are no solvent make-up requirements. AET can design retrofits

for heavy lean oil facilities.

Production Process Flow Diagram


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Technology Company/Supplier

Gas filling dispensers French Siraga

Pumps German CE SterlingStorage Tanks Pakistani Descon Engineering

Contact addresses of the companies are given below:

Descon Headquarters

Lahore

18 km Ferozepur Road, Lahore,53000Pakistan

Tel: (92 42) 5990034, 5805134UAN : (92 42) 111-DES-CON

Fax: (92 42) 5811005, 5811135Email: [email protected]

Descon Karachi Office

9th Floor Business Avenue, 26-A Block-6,

P.E.C.H.S,Main Shahrah-e-Faisal, Karachi,75400 - Pakistan

Phone: +92.21.454.4481-4Fax: +92.21.454.4480

E-mail: [email protected] Contact Person: Murtuza Ali

([email protected])

Siraga France and CE Sterling Germany can be contacted using the following URLs

http://www.siraga.com/siraga/siraga-contacts.php?langue=uk

http://www.sterlingfluid.com/sterlingsites/group/index.htm

44..44 PPLLAANNTT AANNDD MMAACCHHIINNEERRYY RREEQQUUIIRREEMMEENNTT

Machinery required for the LPG distribution plant would include the following:

PLANT AND MACHINERY


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There are few local suppliers/ manufacturer of storage Tanks and other relatedmachinery for LPG distribution setup. During the course of study for this pre-feasibility, we have contacted the following local manufacturer and fabricator of LPG

distribution setup:

44..66 PPLLAANNTT AANNDD MMAACCHHIINNEERRYY MMAAIINNTTEENNAANNCCEE

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. We have assumed an average of 3% of the initial plant

and machinery cost as the annual maintenance cost.

55 LLAANNDD AANNDD BBUUIILLDDIINNGG RREEQQUUIIRREEMMEENNTT

55..11 SSIITTEE DDEEVVEELLOOPPMMEENNTT

LPG Plant is sophisticated and require fool proof system, because Liquefied Petroleum

Gas is flammable and during site development, prescribed instructions for fireextinguishment systems must be complied with. Qualified Consultant Engineers shall

be engaged for preparing structural drawings for LPG site.

55..22 LLAANNDD RREEQQUUIIRREEMMEENNTT FFOORR PPLLAANNTT

In order to comply with structural standards prescribed by the explosive department and

provisioning for the future expansion in the storage capacity, a minimum of 2 Acre area

would be required for the proposed LPG setup.

55..33 BBUUIILLDDIINNGG CCOONNSSTTRRUUCCTTIIOONN CCOOSSTT

The LPG storage and distribution site can be divided into three areas:

1 Ad i i t ti bl k/Offi


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Total Construction Cost 3,028,000

As the plan and machinery to be installed on the site would be of permanent nature and

would be immovable for a longer period, it has been assume that the plot will be

purchased for the proposed business purpose. This will cost around Rs. 20 million.

66 HHUUMMAANN RREESSOOUURRCCEE RREEQQUUIIRREEMMEENNTT

A team of approximately 20 staff would need to be hired for establishing and running

LPG marketing and distribution business. The following table presents details about the

staff to be hired and their estimated payroll requirements.

Staff Title No of

Persons

Individual

Salary

Monthly

Salary

Annual

Salary

Business Unit Manager/Owner 1

Plant Staff

Plant Incharge 1 60,000 60,000 720,000

Supervisor - Operations 1 25,000 25,000 300,000

Supervisor - Dispatch 1 18,000 18,000 216,000Operators - Dispenser 3 8,000 24,000 288,000

Clerk / Gate Keeper 2 6,000 12,000 144,000

Technical Staff 1 10,000 10,000 120,000

Guard 2 6,000 12,000 144,000

Total Plant Staff 12 161,000 1,932,000

General Administration/ Marketing Staff

Marketing Manager 1 45,000 45,000 540,000

Accountant 1 10,000 10,000 120,000

Office Assistant 2 5 000 10 000 120 000


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77 FFIINNAANNCCIIAALL AANNAALLYYSSIISS && KKEEYY AASSSSUUMMPPTTIIOONNSS

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. The projections cover the cost of land, Plant, machinery and equipment

including office equipment, fixtures etc. Specific assumptions relating to individual

cost components are given as under.

77..11 LLAANNDD && BBUUIILLDDIINNGG

Land for setting up the proposed LPG Production & Distribution unit would be

purchased which will cost around Rs. 20 million {for a 2 Acre Plot at industrial area ofPort Qasim}.

For the site development, construction and renovation of office approximately Rs. 3

million will be required, which has been assumed to be depreciating at 10% per annum

using diminishing balance method.

77..22 OOVVEERRAALLLL PPLLAANNTT && OOFFFFIICCEE RREENNOOVVAATTIIOONN

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.

77..33 PPLLAANNTT && OOFFFFIICCEE FFUURRNNIITTUURREE

A lump sum provision of around Rs. 310,000 for purchase of furniture is assumed. This

would include table, desk, chairs, air conditioner and office decoration articles etc. The breakup of these expenses is given below:

S No Item Number Cost Total Cost


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77..44 DDEEPPRREECCIIAATTIIOONN TTRREEAATTMMEENNTT

The treatment of depreciation would be on diminishing balance method at the rate of

10% per annum on the following. The method is also expected to provide accurate tax

treatment.

1. Machinery & Equipment

2. Land & Building Construction

3. Vehicles

4. Furniture and Fixtures etc.

77..55 UUTTIILLIITTIIEESS

LPG Marketing and distribution business will be operated using electricity for plant

operations. This would draw considerable amount of electricity. The cost of the utilities

including electricity, diesel/fuel, telephone; and water is estimated to be around Rs.

1.35 million per annum. Breakup of the utilities expenses has been given below:

Utility Total MonthlyCost (Rs.)

TotalAnnual

Cost (Rs.)

Annual%age

Increase

1. Electricity 75,000 900,000 5%

2. Diesel for Vehicles 20,000 240,000 5%

3. Water 2,500 30,000 5%

4. Telephone 15,000 180,000 5%

Total 112,500 1,350,000

77..66 WWOORRKKIINNGG CCAAPPIITTAALL RREEQQUUIIRREEMMEENNTTSS

It is estimated that an additional amount of Rs 2 million (approximately) will be


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77..77 VVEEHHIICCLLEE FFOORR SSUUPPPPOORRTT

A loading vehicle would be required for providing services for the transportation ofcylinders and staff traveling from different locations. For this purpose, a minimum oftwo vehicles have been proposed which will cost around Rs. 400,000/- each.

77..88 SSEELLLLIINNGG && DDIISSTTRRIIBBUUTTIIOONN EEXXPPEENNSSEESS

Although marketing, promotion and distribution activities are limited in the LPG

business, for the purpose of this pre-feasibility, 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. The business may also need to give

incentives to the marketing staff for the business development purpose. Besides that,

advertising material would also need to be printed on periodical basis announcingincentives and facilities to the customers. These arrangements would raise a

considerable cost to the business for which an amount equivalent to 1% of the annualsales has been assumed.

77..99 MMIISSCCEELLLLAANNEEOOUUSS EEXXPPEENNSSEESS

Miscellaneous expenses of running the business are assumed to be Rs. 10,000 per

month. These expenses include various items like office stationery, daily consumables,

traveling allowances etc. and are assumed to increase at a nominal rate of 10% per

annum.

77..1100 BBOOWWZZEERR RREENNTT && TTRRAANNSSPPOORRTTAATTIIOONN EEXXPPEENNSSEESS

The business would have to bear the cost of LPG transportation from production site to


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found to be almost zero. It has been assumed that the proposed business will initially

sell 5 ton LPG per day which will grow by 10% annually. Besides that, a 10% increase

in sales price has also been assumed on annual basis.

77..1133 AACCCCOOUUNNTTSS RREECCEEIIVVAABBLLEESS

Considering the industry norm, particular to the LPG Production & Distribution sector

and all of its allied industries, it has been assumed that 100% of the sales will be oncash.

77..1144 FFIINNAANNCCIIAALL CCHHAARRGGEESS

It is assumed that long-term financing for 5 years will be obtained in order to financethe project investment cost. 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. The installments are assumed to be paid at the end of every month.

77..1155 TTAAXXAATTIIOONN

Tax rate used is that applicable on SMEs which is 20%.

77..1166 CCOOSSTT OOFF CCAAPPIITTAALL

The cost of capital is explained in the following table:

Particulars Rate

Required return on equity 20%

Cost of finance 15%

Weighted Average Cost of Capital 17.5%

The weighted average cost of capital is based on the debt/equity ratio of 50:50.

77 1177 OO ’’ WW


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