Project Feasibility Study

Project Name

Customer

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LPG
Marketing
and
Distribution Business at Mid
Country Refinery
PARCO PEARL GAS

Project Number

PAR-PPG-1415-001

Prepared By

PAK ARAB REFINERY LIMITED

Marketing
and
Commercial
Department

Project Feasiability Study Roadmap

1.0 Introduction....................................................................................................................... 5
2.0 Executive Summary.......................................................................................................... 6
3.0 Background....................................................................................................................... 7
4.0 Study Parameters/Area..................................................................................................... 7
5.0 Constraints........................................................................................................................ 8
6.0 Assumptions...................................................................................................................... 8
7.0 Market Analysis Research................................................................................................. 9
7.1 What is the Market?......................................................................................................... 9
7.2 What is the Target Market?............................................................................................. 10
7.3 How is the Target Market structured?.............................................................................10
7.4 What is the projected growth rate for the product or service in the area?.......................11
7.5 Who are your competitors for the proposed product or service?....................................11
7.6 What is your competitive advantage?.............................................................................12
8.0 Organizational and Technical Assessment...................................................................13
8.1 What is the proposed organizational structure to support this new product or service?. 13
8.2 What is the current management structure?..................................................................14
8.3 What is the recommended management structure to support the new product or
service?................................................................................................................................ 14
8.4 What is the condition of your current technical infrastructure?.......................................15
8.5 What are the technology needs of the proposed product or service?.............................15
8.6 Where and how will you obtain the needed technology and equipment?.......................16
8.7 What is the cost to acquire the technology and equipment?..........................................16
9.0 Financial Issues............................................................................................................... 17
9.1 What are your Start-Up Costs?......................................................................................17
9.2 What are the Operating Costs?......................................................................................18
9.3 What are the Revenue Projections?...............................................................................18
9.4 What are the Sources of Financing?..............................................................................19
9.5 Profitability Analysis........................................................................................................ 20
10.0 Risk of Proposed Solution.............................................................................................. 21
11.0 Risk Assessment............................................................................................................. 22
11.1 Customer Requirement................................................................................................22
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11.2 Product Requirement.................................................................................................... 22

11.3 Resource Requirement................................................................................................. 23
11.4 Technical Infrastructure.................................................................................................23
11.5 Timing........................................................................................................................... 24
11.6 External Considerations/Market Conditions..................................................................24
11.7 Finance......................................................................................................................... 25
11.8 Industry Requirements.................................................................................................25
11.9 Other............................................................................................................................ 26
12.0 Conclusion....................................................................................................................... 27
13.0 References....................................................................................................................... 28
14.0 Tables and Figures.......................................................................................................... 29

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1.0 Introduction
This section should contain an introduction statement that describes the objectives of the study,
methodology used to obtain the data of the study and the principals (stakeholders) involved in the
lifecycle of this study. Also, this section should describe the purpose of the study and state the
salient points of the study, including (but not limited to) deliverables (Proposed Plan), scope
(study parameters), and assumptions/constraints.
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.
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
Stakeholders are :
Pak Arab Refinery Limited
Parco Pearl Gas (Private) Limited
Pak Arab Refinery (Marketing and Commercial Department)
Parco Pearl Gas (Private) Limited: (Corporate and Legal Department )

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2.0 Executive Summary

This section should contain a summary or brief abstract of the critical business drivers for this
study.

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
The company will store this LPG in its storage facility from where, supply to the subdistributors will be made. Sub-distributors will bring their cylinders and get them filled
against payment.

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3.0 Background

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
4.0 Study Parameters/Area

Recommended Project Parameters:

Storage Capacity: 80 ton
Cylinder Filling capacity: 5 ton per day
Technology and Machinery: Local and Imported Machinery (German and
France)
Location: Port Qasim, Karachi
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.

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5.0 Constraints

Industry Analysis:
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 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.
Market 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.
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.
6.0 Assumptions
This section should state, in concise terms, the leading assumptions for the study.

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7.0 Market Analysis Research

This section should contain the recommended project objectives based on the business drivers.
7.1 What is the Market?
This section should contain a description of the current market conditions in regards to the needs or
projected demands for the proposed product or service. This section should define whether the market is
a domestic, international, new/emerging market, mature market, shrinking market, or stagnate market.

Currently there are 61 LPG marketing and distribution companies operating in Pakistan 10. Based on
the information provided by the existing players, about 50 of them are operating and rests are waiting
for the allocation of LPG quota. LPGs use as fuel for cooking and household requirements is most
common in the rural areas of Punjab and NWFP (with a daily demand of about 500 to 800 ton). In
the southern 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 expressed by the LPG marketing
company representatives and could vary based on specific market circumstances.

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7.2 What is the Target Market?

This section should contain a description of the potential Target Audience. This section should
provide evidence that the Target Market is identifiable and that the Target Market can be
segmented (such as demographic characteristics) into distinguishable categories/groups of
potential consumers or project stakeholders.
Target audience is as already mentioned above is auto industry and highly identifiable.
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 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.

7.3 How is the Target Market structured?

LPG DISTRIBUTION PROCESS ( SUPPLY CHAIN)

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
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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.
7.4 What is the projected growth rate for the product or service in the area?
This section should contain a description of the opportunities for growth of the product or service in the
area (industry, geographic, or target market segmentation).

Sector Characteristics and Market Growth:

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. 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.

7.5 Who are your competitors for the proposed product or service?
This section should contain a list of competitors that currently provide a similar product or
service. This section should describe their value proposition, such as benefits, promotions, and
market share.
Name of the Company LPG Uplifted (M. Tons)
SHV Energy
4,972
Fon Gas
3,350
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Wak Limited
Shell Gas
Pakistan State Oil
Caltex
Eirad company

3,219
2,786
1,719
1,984
2,112

Lub Gas 4,466

Pakistan Oil Fields Limited 6,079
Mehran LPG
2,483
Baluchistan Gas
836
Cap Gas
625
Sun Gas
607
Petrosin Gas
385
Muhammadi Gas
2,048
Ravi Gas
1,216

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7.6 What is your competitive advantage?

This section should contain your approach and strategy to establish a market niche for your product or
service that will enable you to establish an identity to compete effectively with your competitors offering a
similar product or service.

Being the leading marketing company and the regular quota holder we held the business and
customer together with best technology available to feed in the customer in specified area.
Technology Company/Supplier
Gas filling dispensers French Siraga
Pumps German CE Sterling
Storage Tanks Pakistani Descon Engineering

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8.0 Organizational and Technical Assessment

This section should contain an overview of the current organizational structure in your company.

Managing Director
Deputy Managing Director (Operations)
Director
Company Secretary
Manager of respective division and its team

8.1 What is the proposed organizational structure to support this new product or service?
This section should contain your approach and strategy to establish how to change the current
organizational structure to support this new product or service. This section should discuss your
approach to the organizational change management, such as, training needs assessment for staff, gap-fit
analysis of the current technical infrastructure, and potential realignment of services to customers and
vendors.

Business Unit Manager/Owner 1

Plant Staff
Plant Incharge 1
Supervisor - Operations 1
Supervisor - Dispatch 1
Operators - Dispenser 3
Clerk / Gate Keeper 2 Technical Staff 1
Guard 2
Total Plant Staff 12
General Administration/ Marketing Staff
Marketing Manager 1
Accountant 1 Office Assistant 2
Guard 2
Driver

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8.2 What is the current management structure?

This section should contain an analysis of the current management structure including their credentials
and areas of responsibility.

Managing Director
Deputy Managing Director (Operations)
Director
Company Secretary
Manager of respective division and its team

8.3 What is the recommended management structure to support the new product or service?
This section should contain an analysis of the current management and recommended changes to the
management structure to support this new product or service. This section should also list any risks
identified as a result of your analysis, such as, changing staff levels (turnovers, creation of new positions,
reclassification of current positions, or etc).

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Same as above.

8.4 What is the condition of your current technical infrastructure?

This section should contain an analysis of the current technical infrastructure.

Technology imported from Ger and France , in very good condition.

8.5 What are the technology needs of the proposed product or service?
This section should contain an analysis of the current technical infrastructure and its ability to meet the
needs of the proposed product or service. This section should also describe the gap-fit analysis that was
done to render your findings, and list other equipment needed.

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:
Technology Company/Supplier
Gas filling dispensers French Siraga
Pumps German CE Sterling
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Storage Tanks Pakistani Descon Engineering

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8.6 Where and how will you obtain the needed technology and equipment?
This section should contain a plan to acquire the needed technology or equipment. This section should
state your procurement strategy, if you plan to acquire such technology or equipment from a contractor.

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
Descon Karachi Office
9th Floor Business Avenue, 26-A Block-6,
P.E.C.H.S,
Main Shahrah-e-Faisal, Karachi,
75400 - Pakistan
Phone: +92.21.454.4481-4
Fax: +92.21.454.4480
E-mail: desconkarachi@descon.com.pk
Contact Person: Murtuza Ali
(mrali@descon.com.pk)

8.7 What is the cost to acquire the technology and equipment?

This section should contain a cost breakdown to acquire the needed technology and equipment to
support the rollout and maintenance cost to support the new product or service.

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9.0 Financial Issues

This section should contain a recommended timeline for accomplishing the work of the project. The
project schedule should be plotted across a calendar year or years, with key milestones and deliverables
indicated.

9.1 What are your Start-Up Costs?

This section should contain a cost breakdown to rollout the new product or service.

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9.2 What are the Operating Costs?

This section should contain a cost breakdown to support the continued delivery of the new product or
service.

Utility
Total Monthly
Cost (Rs.)
Total
Annual
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
9.3 What are the Revenue Projections?
This section should contain projections of revenues for at least a three to five year period. This section
should contain graphics or charts based on your thorough market analysis. It is critical that your market
analysis was thorough enough to provide adequate and accurate information to be able to complete this
section.

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9.4 What are the Sources of Financing?

This section should contain your approach to obtain the necessary capital from a bank, private investors,
or other lending institutions

Government of Pakistan

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9.5 Profitability Analysis

This section should contain a number of financial projections based on your break/even (how much will it
take to, at least, recover the money spent to start up the product or service) and determine when the new
business should bring enough revenue to cover all of the costs, including and not limited to, such as StartUp and Operating expenses.

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10.0 Risk of Proposed Solution

This section should include an analysis of the risks identified in this study. The analysis should be discussed with the Business Owner(s). The
Project Manager and Business Owner should jointly determine possible contingency plans. If the Business Owner(s) commits to action items to
alleviate risk, these should be documented in this section. The following is an example of the contents of this section.

Risk Area
Functional/Technical

Customer Requirement
Product Requirement
Resource Requirement
Technical
Infrastructure
Timing
External Consideration
Financial
Industry Requirement
Other

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Risk Factors

Probability

Impact Rating

Priority

Owner

Brief description of the risks

Very Low/ Low/

Moderate//High
/Very High

Low/Medium/High

1-10

Identify Personnel

11.0 Risk Assessment

This section should contain detail regarding each identified risk with proposed risk mitigation
strategies.

11.1 Customer Requirement

This section should contain detail regarding the risks associated with Customer requirements.
This section should also contain a risk response to each associated identified risk.

11.2 Product Requirement

This section should contain detail regarding the risks associated with Product requirements. This
section should also contain a risk response to each associated identified risk.

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11.3 Resource Requirement

This section should contain detail regarding the risks associated with Resource requirements.
This section should also contain a risk response to each associated identified risk.

11.4 Technical Infrastructure

This section should contain detail regarding the risks associated with the Technical Infrastructure.
This section should also contain a risk response to each associated identified risk.

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11.5 Timing
This section should contain detail regarding the risks associated with time considerations. This
section should also contain a risk response to each associated identified risk.

11.6 External Considerations/Market Conditions

This section should contain detail regarding the risks associated with External considerations,
such as market conditions, competitors, or pending legislative decisions. This section should also
contain a risk response to each associated identified risk.

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11.7 Finance
This section should contain detail regarding the risks associated with financial implications, such
as a capital investment. This section should also contain a risk response to each associated
identified risk.

11.8 Industry Requirements

This section should contain detail regarding the risks associated with regulations in the industry or
other requirements. This section should also contain a risk response to each associated
identified risk.

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11.9 Other
This section should contain detail regarding the risks associated with other factors that were not
identified in sections 11.1 thru 11.8.

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12.0 Conclusion
This section should contain a summary of all the major points in the study and clear stated
whether or not this proposition is a sound business decision.

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13.0 References
This section should contain a list of citations and other reference materials.

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14.0 Tables and Figures

This section should contain a list of tables, figures, and illustrations used in the body of this study.

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