Project Feasibility Study

Project Name LPG Marketing and Distribution Business at Mid Country Refinery

Project Number PAR-PPG-1415-001

Customer PARCO PEARL GAS Prepared By PAK ARAB REFINERY LIMITED Marketing and Commercial Department

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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 dependingupon the technology and methodology employed for the extraction and processing ofLPG. However, LPG Marketing and distribution needs comparatively less investmentand can be considered by the Small and Medium scale investors. The proposed projectenvisages setting up of a LPG marketing and distributing company which is generallyknown 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 quotaThe 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.

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3.0 Background

Currently out of 25 million households in Pakistan, 4.3 million are connected to naturalgas 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 thecountry are run on LPG. The demand of LPG in Karachi is consistent throughout theyear 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 tonCylinder Filling capacity: 5 ton per dayTechnology and Machinery: Local and Imported Machinery (German and France)Location: Port Qasim, KarachiLocation for setting up a LPG distribution plant has imperial implications on fixedcosts, 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. LPG’s use as fuel for cooking and household requirements is most common in the rural areas of Punjab and NWFP (with a daily demand of about 500 to 800 ton). 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 minimumsafety 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 4,972Fon Gas 3,350

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Wak Limited 3,219Shell Gas 2,786Pakistan State Oil 1,719Caltex 1,984Eirad company 2,112

Lub Gas 4,466Pakistan Oil Fields Limited 6,079Mehran LPG 2,483Baluchistan Gas 836Cap Gas 625Sun Gas 607Petrosin Gas 385Muhammadi Gas 2,048Ravi 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/SupplierGas filling dispensers French SiragaPumps German CE SterlingStorage 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 DirectorDeputy Managing Director (Operations)Director Company SecretaryManager 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 1Plant Staff

Plant Incharge 1 Supervisor - Operations 1Supervisor - Dispatch 1 Operators - Dispenser 3 Clerk / Gate Keeper 2 Technical Staff 1 Guard 2

Total Plant Staff 12

General Administration/ Marketing StaffMarketing Manager 1 Accountant 1 Office Assistant 2 Guard 2Driver

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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 whileselecting filling equipment, storage tanks and filling pumps. For the proposed projectfollowing technology options have been assumed:

Technology Company/SupplierGas filling dispensers French SiragaPumps 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 HeadquartersLahore18 km Ferozepur Road, Lahore,53000PakistanTel: (92 42) 5990034, 5805134UAN : (92 42) 111-DES-CONFax: (92 42) 5811005, 5811135Email: descon@descon.com.pkDescon Karachi Office9th Floor Business Avenue, 26-A Block-6,P.E.C.H.S,Main Shahrah-e-Faisal, Karachi,75400 - PakistanPhone: +92.21.454.4481-4Fax: +92.21.454.4480E-mail: desconkarachi@descon.com.pkContact 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.

UtilityTotal MonthlyCost (Rs.)TotalAnnualCost (Rs.)Annual%ageIncrease1. 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 Start-Up 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 Risk Factors Probability Impact Rating Priority Owner

Functional/Technical Brief description of the risksVery Low/ Low/Moderate//High/Very High

Low/Medium/High 1-10 Identify Personnel

Customer RequirementProduct RequirementResource RequirementTechnical InfrastructureTimingExternal ConsiderationFinancialIndustry RequirementOther

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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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