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helpdesk-pew@smeda.org.pk
November 2007
Pre-Feasibility Study
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.
PREF-25
Revision
Prepared by
SMEDA-Sindh
Approved by
Issue Date
November, 2007
Issued by
Library Officer
Page 1 of 32
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1.
P ROJECT PROFILE
1.1
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,
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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.
1.3
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.
1.4
The legal status of business tends to play an important role in any setup; the proposed
LPG 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 limited
company.
1.5
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 hours
shift).
1.6
PROJECT COST
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. 47
million and remaining will be the working capital.
1.7
PROJECT INVESTMENT
A total of Rs. 48.92 million will be required to setup and operate the proposed LPG
Marketing and Distribution business.
1.8
Capacity
Storage Capacity: 80 ton
Cylinder Filling capacity: 5
ton per day
Human Resource
21
Technology/Machinery
Local and Imported
Machinery (German and
France)
Location
Port Qasim,
Karachi
Financial Summary
Project Cost
Rs. 48.92 million
IRR
28%
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NPV (Rs)
22.8
Payback Period
4 Years and 6 months
Pre-Feasibility Study
PROPOSED LOCATION
1.9
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.
1.10
2.
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.
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.
LPG is a derivative of two large energy industries: natural gas processing and crude oil
refining. When natural gas is extracted from the earth, it is a mixture of several gases
and liquids. Methane, which is sold by gas utilities as natural gas constitutes about 90
percent of this mixture. Of the remaining 10 percent, 5 percent is propane and 5 percent
is other gases such as butane and ethane. Before natural gas can be transported or used,
the LP Gases (which are slightly heavier than methane, the major component of natural
gas) are separated out. Depending on the wetness of a producing gas field, gas liquids
generally contain 1%-3% of the unprocessed gas stream. Some LP Gases are also
trapped in crude oil. In order to stabilise the crude oil for pipeline or tanker distribution,
these associated or natural gases are further processed into LP Gas. Worldwide, gas
processing is a source of approximately 60% of LP Gas produced.
In crude oil refining, the LP Gases are the first products produced on the way to making
the heavier fuels such as diesel, jet fuel, fuel oil, and gasoline. 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. Worldwide, crude oil refining is the source for the other 40% of
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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 marketing
advantages and can perform nearly every fuel function of the primary fuels from which
it is derived.
2.1
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 is
also 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 in
less 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.
INVESTMENT OPPORTUNITY IN THIS SECTOR
The Government has focused on this sector and has approved LPG production and
distribution policy 2006. This policy aims at increasing LPG supplies, streamlining its
distribution 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,
issues regarding LPG production, LPG licensing, safety standards, pricing, distribution
in under developed areas and import of LPG have been addressed in this policy.
Prior to the announcement of the above policy, there has been a shortage of LPG
particularly during winter when most of the oil refineries shutdown their LPG
production operations for annual maintenance. 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. In order to avoid such situations, now it is mandatory
for the oil refineries to announce a schedule of maintenance ensuring a certain level of
LPG supply to the market.
Besides the oil refineries who produce LPG as a by product, some of the specialized
projects i.e. 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. It is expected that second facility of JJVL will commence its operations
shortly.
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LPG LICENSING
Any company willing to distribute and market Oil and Gas needs to obtain a license
from 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 period
of 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 and
conditions.
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:
o Number of storage tanks and capacity of storage tanks.
o Bottling facility capacity.
o Quantity of LPG to be distributed per day or per month.
o Identification of areas where distribution / marketing of LPG is planned.
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2.2
SECTO R CHARACTERISTICS
2.2 .1 PRODUCTION2
The following table presents production data for the last two years for LPG, Petroleum
and Diesel.
Item
Quantity
LPG
Petroleum
Diesel
000 Liters
000 Liters
000 Liters
August
2006
2005
41,124
40,895
2,097
1,998
276,888
324,691
July August
2006-07
2005-06
82,999
85,450
4,518
4,209
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 in
maintaining demand and supply gap in future.
526.00
http://www.ogra.org.pk/cats_disp.php?cat=95
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526.00
Pre-Feasibility Study
Ratio
LPG price calculation = A x B
Wt. Avg. price US $ /M. TON
Avg. US $ exchange rate for Feb. 07 Rs per US$ *
40
21,040.00
60
31,560.00
526.00
60.74
31,949.45
2.2 .3 DEMAND
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.
2.2 .4 TH REATS TO TH IS INDUSTRY
LPG Distributors Association Pakistan said on November 11, 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.
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.
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), which is reported to be self-sufficient.
2.2 .5 ENVIRONMENTAL AND PROTECTIONS ASPECTS
LPG is much cleaner than diesel. The dirty black smoke that we see coming from diesel
vehicles is particulates a known cause of sickness and deaths. By replacing a diesel
engine with an LPG powered equivalent, over 90 percent of this particulate matter can
be eliminated.
LPG powered vehicles emit significantly fewer greenhouse gases and other pollutants
than petrol-powered equivalents. LPG typically has around 20 per cent less ozone
4
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LPG 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
LPGs 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.
2.2 .6 PRODUCT/PROJECT STANDARDS AND COMPLIANCE ISSUES
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.
2.2 .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.
II) Application in the prescribed Form C, dully filled in and signed by the applicant.
III) Distance Form D, dully filled in against all columns there of as per schedule VI of
the Explosives Rules 1940 and signed by the applicant.
IV) Original treasury receipt for the amount payable as per column 5 of schedule IV
of the Explosives Rules, 1940 showing the amount paid under the following Head
of Account in any branch of the National Bank or Government Treasury.
1200000-Receipts from Civil Administration & other Functions
http://www.lpg-mower.co.uk/lpg-groundscare-the-advantages.htm
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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 be
repaired 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 and
other corrective measures.
A condemned cylinder, as the standard specifies, is a scrap and should be destroyed
either 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 safety
standards 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.
2.2 .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. It is mandatory for the
LPG businesses to comply with the following.
1. A temporary storage may be in above ground strong wooden or Bamboo Cabin or
preferably a damp proof pit.
2. The height of a cabin or depth of a pit shall not be less than 6 feet.
3. There shall be no uncovered iron or steel in the construction of cabins.
4. 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.
5. The floor of the temporary storage shall be covered with wooden planks.
6. Main explosives and detonators shall be stored in separate cabins or pits at least 10
feet apart.
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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 as
working space.
10.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. Other safety distance shall be
maintained as per Schedule VI of the Explosives Rules, 1940.
2.2 .9 CONDITIONS FOR TRANSPORT OF COMMERCIAL EXPLOSIVES IN A VAN BY ROAD8
1.
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, waste
and 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 the
cargo compartment.
6.
A quick action cut-off valve shall be fitted to the fuel pipe in an accessible
position.
7.
The driver shall not be under the age of 21 years and the attendant shall not be
under the age of 18 years. The driver shall hold heavy duty driving licence.
8.
Persons incharge of the vehicle must be experienced in the handling of
explosives.
9.
All persons engaged in loading, 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.
10.
No person shall smoke while driving, attending to or working on the vehicle and
no matches or sources or fire of heat, smoking material shall be carried on the vehicle.
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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.
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 be
transported separately.
17.
All packages must be well secured and effectively protected against weather
and the risk of pilferage or sabotage.
18.
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 proceeded
with all due vigilance until the same has been completed.
21.
No extra fuel shall be carried during conveyance other than in the fuel tank of
the vehicle.
22.
Vehicle shall not be taken to any garage or repair station while carrying
explosives and condition of types, breaks and explosives shall be checked after short
breaks during journey.
23.
24.
Efficient chemical fire-extinguisher of adequate capacity shall be carried on the
vehicle.
25.
At least one person (attendant) shall accompany the driver and the vehicle
containing explosives shall not be left unattended except when absolutely necessary.
26.
Other vehicle with its engine running shall NOT as far as possible be allowed
within fifty feet of the vehicle containing explosives.
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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.
31.
In case of any emergency, one person shall warn other traffic and one person
shall 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 shall
always be kept with the driver of the vehicle for production on demand by an
inspecting officer.
3.
MARKET INFORMATION
3.1
CURRENT MARKET
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. Following comparison of different fuels and their respective benefit analysis
gives a clear picture of the LPG attractiveness among the automotive users.
Petrol drive costs Rs. 5.25 per kilometer as against Rs. 1.75 for L.P.G and Rs. 1.25 for
CNG. On an average mileage of 40 kilometers, an average driver using LPG makes a
10
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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 to
supply 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 Balochistan
will be obligated to supply at least 10% of their local LPG in Balochistan province.
3.3
At present, the following eight producers are producing around 1600 M. Tons of LPG
per day in the country.
S.No.
11
Name of Producers
Location/Phone No.
Jamshoro
Limited
Joint
www.mpnr.gov.pk
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POL
OPI
PPL
PRL
PARCO
NRL
ARL
JJVL.
Grand Total
Average/day
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
www.mpnr.gov.pk
13
www.mpnr.gov.pk
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LPG Production
Company
LPG Marketing
& Distribution
Company
LPG Distributor /
SubDistributor
LPG Retail
Agent
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 at
Port Qasim, Hub, Super Highway etc. Marketing/distribution companies which are also
known as bottling companies fill gas cylinders with LPG and store them for
distribution. Appointed Distributors/Sub-distributors bring their gas cylinders on their
own 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 users
directly 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.
hotels etc.
4.1
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.
However, it should be noted that from natural gas, LPG can only be extracted from the
points where propane and butane is mixed with the natural gas in certain quantity. In
the following lines production/extraction process of LPG from natural gas has been
elaborated.
The patented AET Process LPG Recovery Unit technology utilizes non-cryogenic
absorption to recover C2+ or C3+ natural gas liquids (LPGs) from natural gas
streams. The absorbed LPGs in the rich solvent from the bottom of the LPG absorber
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column are fractionated in the solvent regenerator column which separates LPGs
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 forms
the pipeline sales gas.
Depending upon the economics of ethane recovery, 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 AET LPG plant uses lighter lean oils. For
most applications, there are no solvent make-up requirements. AET can design retrofits
for heavy lean oil facilities.
4.2
The only raw material for the LPG marketing and distribution business would be LPG.
For the proposed project, about 5 ton of LPG will be required as raw material on daily
basis at initial stages of the project. The requirement of LPG would increase by 10%
annually with an increase in supply with the same proportion.
4.3
TECHNOLOGY OPTIONS
For a LPG storage and distribution plant, technology options are important while
selecting filling equipment, storage tanks and filling pumps. For the proposed project
following technology options have been assumed:
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Technology
French
German
Pakistani
Company/Supplier
Siraga
CE Sterling
Descon Engineering
Descon Headquarters
Lahore
18 km Ferozepur Road, Lahore,
53000
Pakistan
Tel: (92 42) 5990034, 5805134
UAN : (92 42) 111-DES-CON
Fax: (92 42) 5811005, 5811135
Email: descon@descon.com.pk
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
4.4
Machinery required for the LPG distribution plant would include the following:
PLANT AND MACHINERY
(In Rs.)
S.
No.
Machine
1
2
3
4
5
6
Total
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Required
No. of
Units
Unit Price
1
1
4
2
500
500
5,000,000
3,000,000
500,000
1,100,000
1,500
3,800
Total Cost
(in Rupees)
5,000,000
3,000,000
2,000,000
2,200,000
750,000
1,900,000
2,500,000
Local/
Imported
Local
Local
Imported
Imported
Local
Local
Local
2,500,000 Local
19,850,000
Pre-Feasibility Study
There are few local suppliers/ manufacturer of storage Tanks and other related
machinery for LPG distribution setup. During the course of study for this prefeasibility, we have contacted the following local manufacturer and fabricator of LPG
distribution setup:
PLANT AND MACH INERY MAINTENANCE
4.6
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.
5.1
SITE DEVELOPMENT
LPG Plant is sophisticated and require fool proof system, because Liquefied Petroleum
Gas is flammable and during site development, prescribed instructions for fire
extinguishment systems must be complied with. Qualified Consultant Engineers shall
be engaged for preparing structural drawings for LPG site.
LAND REQUIREMENT FOR PLANT
5.2
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.
BUILDING CONSTRUCTION COST
5.3
The LPG storage and distribution site can be divided into three areas:
1. Administration block/Office area
2. LPG dispensing/filling area
3. 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, administration and other official purposes. LPG dispensing/filling area will
be used to fill cylinders. Four LPG dispensers will be installed at this place. It is
estimated that around Rs. 3 million would be required for the site development and
construction. Following table provides detailed breakup:
S.No.
Details
2
4
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Size/Area
(Sq. Ft.)
Civil Works
/Construction
Cost/Sq. Ft.
Total
Construction
Cost
2,200,000
3,000
800
150
500
450,000
400,000
Pre-Feasibility Study
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.
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.
No of
Persons
1
Individual
Salary
Monthly
Salary
Annual
Salary
Plant Staff
Plant Incharge
Supervisor - Operations
1
1
60,000
25,000
60,000
25,000
720,000
300,000
Supervisor - Dispatch
Operators - Dispenser
1
3
18,000
8,000
18,000
24,000
216,000
288,000
2
1
6,000
10,000
12,000
10,000
144,000
120,000
Guard
6,000
12,000
144,000
12
161,000
1,932,000
45,000
45,000
540,000
Staff Title
Business Unit Manager/Owner
1
2
10,000
5,000
10,000
10,000
120,000
120,000
Guard
Driver
2
3
5,000
5,000
10,000
15,000
120,000
180,000
Total
TOTAL
9
21
90,000
251,000
1,080,000
3,012,000
6.1
EXPERIENCE
Dispatch Manager will be responsible for the collection, filling and dispatch of
cylinders to and from the sub-distributors. As the operations at LPG bottling site will be
of technical sort, it would need experienced staff for loading/unloading the product,
maintaining of storage tanks and compliance with the safety standards which would be
difficult if staff does not has relevant experience. It is proposed that staff with a
minimum of 2 to 3 years of relevant experience should be hired. It is also recommended
that the operations staff be provided with proper / regular training for handling of LPG.
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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.
LAND & BUILDING
7.1
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 of
Port 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.
OVERALL PLANT & OFFICE RENOVATION
7.2
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.
PLANT & OFFICE FURNITURE
7.3
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
20,000
20,000
20,000
40,000
20,000
80,000
20
1,000
20,000
50,000
50,000
50,000
50,000
30,000
30,000
20,000
20,000
Total
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310,000
Pre-Feasibility Study
DEPRECIATION TREATMENT
7.4
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
1.
2.
3.
4.
Total
7.6
Electricity
Diesel for Vehicles
Water
Telephone
Total Monthly
Cost (Rs.)
Total
Annual
Cost (Rs.)
Annual
%age
Increase
75,000
20,000
2,500
15,000
112,500
900,000
240,000
30,000
180,000
1,350,000
5%
5%
5%
5%
Amount in Rs.
483,000
337,500
30,000
325,000
Raw Material
850,000
Total
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2,025,500
Pre-Feasibility Study
7.7
A loading vehicle would be required for providing services for the transportation of
cylinders and staff traveling from different locations. For this purpose, a minimum of
two vehicles have been proposed which will cost around Rs. 400,000/- each.
7.8
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 announcing
incentives and facilities to the customers. These arrangements would raise a
considerable cost to the business for which an amount equivalent to 1% of the annual
sales has been assumed.
7.9
MISCELLANEOUS EXPENSES
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.
7.10
The business would have to bear the cost of LPG transportation from production site to
the storage plant. For this purpose bowzers will be required to be hired on rental basis.
It has been assumed that the per ton cost of LPG transportation will be between Rs.
700-900 depending on the prevalent market condition and availability of the bowzers. It
is estimated that rental cost of a 30 ton bowzer will be around Rs. 25,000/.
7.11
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. For this
purpose the storage facility will maintain 25 ton LPG at every point in time.
7.12
REVENUE PROJECTIONS
LPG business is carried out on cash basis and no credit policy factually does exist.
Therefore, no credit provisioning has been assumed, whereas, receivable period is also
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Pre-Feasibility Study
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.
7.13
ACCOUNTS RECEIVABLES
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 on
cash.
7.14
FINANCIAL CHARGES
It is assumed that long-term financing for 5 years will be obtained in order to finance
the 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.
7.15
TAXATION
COST OF CAPITAL
Rate
20%
15%
17.5%
The weighted average cost of capital is based on the debt/equity ratio of 50:50.
7.17
OWNERS WITHDRAWAL
It is assumed that the owner will draw funds from the business once the desired
profitability is reached from the start of operations. The amount would depend on
business sustainability and availability of funds for future growth.
7.18
ANNEXURES
7.18.1
7.18.2
7.18.3
7.18.4
7.18.5
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