FEASIBILITY STUDY FOR THE ESTABLISHMENT OF A

FUEL STATION IN ASABA, DELTA STATE

1. Executive summary
2. Introduction
3. Proposed Business Legal Status
4. Project Cost
Viable Economic Size
Proposed Capacity
Proposed Location
5. Market Analysis
Target Customers
Market Demand
Market Supply
Industry Growth
6. Regulations and Licenses
Guidelines for setting up a fuel filling station
License
Certificate (by DPR)
NOCs
Income Tax
7. The Project CONCEPT
Project Cost
Project Financing
Project Details
8. Manpower Requirement
9. Basis for Financial Projections
Inflation Rate
Revenue Assumptions
No. of Cars
Petrol per Vehicle

Feasibility Report for the Establishment of a Motor-Fuel Filling Station in Asaba by, NKEMDIRIM JENNIFER 1
 Depreciation on Assets
Accounting Profit
Taxable Profit
First Year Allowance
Multiple Shift Allowance
Amortization of Preliminary Expenses
Working Capital
Accounts Receivables
Advances to Employees
Accrued Utilities and Power Expenses
Accounts Payable
Value Added Tax Payable
Value Added Tax
Ratio/Financial Analysis
Alternative Investment Opportunity
10. Financial Analysis

Feasibility Report for the Establishment of a Motor-Fuel Filling Station in Asaba by, NKEMDIRIM JENNIFER 2
1. EXECUTIVE SUMMARY

1.1 PURPOSE OF THE DOCUMENT

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

This particular pre-feasibility is regarding “Fuel Filling Station” which comes

under “Petroleum” sector.

1.2 CRUCIAL FACTORS &STEPS IN DECISION MAKING FOR INVESTMENT

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

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

Feasibility Report for the Establishment of a Motor-Fuel Filling Station in Asaba by, NKEMDIRIM JENNIFER 3
  Asaba being a state capital and close to the commercial hub of the eastern
Nigeria is a good location because of the high rate of vehicular movement in
and out of the region.

Threats
The proposed project will be facing the following threat:
 Market saturation over a longer period of time due to a large number of entrants
and Asaba being a very small town
 Threat of likely increase in the prices of the petroleum products by the
government as a result of the planned deregulation and removal of fuel subsidy

2. INTRODUCTION

Petroleum products are among the most valuable natural resources abundantly
available in our country. Nigerians and people everywhere use petroleum
products as a fuel in their automobiles, generating sets, industrial plants and for
cooking purposes, thus making petroleum products an essential commodity that
is needed for the daily operations of individual, industrial and national activities.
Nigeria being an oil producing nation however still relies on imported petroleum
products for the servicing of the economy. Such petroleum products as Petrol
(PMS), Diesel (AGO) and kerosene (DPK) are products utilized by almost
everybody on daily basis at an average of 10 million litres daily usage.

Due to increasing level of standard of living, more Nigerians are increasing the
number of cars on the road, the need for constant power supply to aid
uninterrupted production of goods and services and also for domestic use more
Nigerians are increasing the demand for fuel in order to enjoy the usage of their
generating sets and industrial plants

The total projected cost for setting up a standard Motor- fuel filling station in
Asaba, Delta state has been estimated at N31,127,530 million. It includes land,

Feasibility Report for the Establishment of a Motor-Fuel Filling Station in Asaba by, NKEMDIRIM JENNIFER 4
 building, fuel dispensers and other equipments, spares, along with the
preliminary expenses and working capital.

The available local petroleum products, i.e. Petrol, diesel and kerosene are
basically produced from crude oil, which Nigeria currently seats as the 6 th largest
exported of crude. Notwithstanding the fact that Nigeria depends on the
importation of these petrol products

3. PROPOSED BUSINESS LEGAL STATUS

The proposed legal structure of the business entity is a sole proprietorship

registered as TINOCOO OIL ENTERPRISES.

4. ESTIMATED COST OF PROJECT

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

Project Investment
Fixed Investment 30,750,140
Working Capital 377,390
Total Investment 31,127,530

The proposed pre-feasibility is based on the assumption of 50% debt and 50%
equity.

The project seems to be viable with the following returns on investment.

Feasibility Report for the Establishment of a Motor-Fuel Filling Station in Asaba by, NKEMDIRIM JENNIFER 5
 Project Returns
Internal rate of return (project) 23.1%
Internal rate of return (equity) 45.1%
Net Present Value @ 20% 3,401,246
Payback period – based on cash inflows 4 years

4.1 VIABLE ECONOMIC SIZE

A minimum of 202 cars is required to be filled daily in order to operate at

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

4.2 PROPOSED CAPACITY

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

4.3 PROPOSED LOCATION

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

Feasibility Report for the Establishment of a Motor-Fuel Filling Station in Asaba by, NKEMDIRIM JENNIFER 6
  Summit Road Junction
 Ibusa Road Junction,
 Okpanam Road

The project may also be established in commercially viable area of town.

5. MARKET ANALYSES

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

5.1 Target Customers

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

5.2 Market Demand

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

5.3 Market Supply

Feasibility Report for the Establishment of a Motor-Fuel Filling Station in Asaba by, NKEMDIRIM JENNIFER 7
 Total number of Petrol Stations that are fully operational in Asaba is only 21,
which is quite low for meeting the growing demand for petroleum products. Apart
from these 21 petrol stations, there are many other stations that are not
functioning while a few others are springing up.

5.4 Industry Growth

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

Table 5-1 Growth Percentage of Vehicles

Year 2010 2015 Percentage
Increase
No. of Vehicles 15,000 20,000 33%
Petrol Filling Stations 21 26 24%

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

Feasibility Report for the Establishment of a Motor-Fuel Filling Station in Asaba by, NKEMDIRIM JENNIFER 8
6. REGULATIONS AND LICENSES

6.1 License

Obtaining a license from Ministry of Petroleum and Natural Resources and

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

6.2 Certificate (by DPR)

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

6.3 NOCs

No Objection Certificate will be required from the following departments prior to

the commencement of the business:
 Concerned development authority of the city (Lahore Development
Authority in case of Lahore)
 Traffic Engineering and Planning Authority (TEPA)
 Traffic Police (SSP)
 Department of Civil Defense
 National Highway Authority (NHA)
 Central Board of Revenue (CBR)
 Civil Administration - Tehsil Municipal Administration (TMA)
 Irrigation Department
 Forest Department
 Explosives Department
The cost associated for obtaining the above NOCs is estimated at Rs.100, 000

Feasibility Report for the Establishment of a Motor-Fuel Filling Station in Asaba by, NKEMDIRIM JENNIFER 9
6.4 Income Tax

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

6.5 GUIDELINES FOR SETTING UP OF MOTOR-FUEL FILLING STATIONS

BASIC PRINCIPLES
The governing consideration is to minimize, as much as possible, interference to
normal flow of traffic on the road by vehicles using the amenity and also to
ensure safety.

General Conditions of Sitting:

1. The Clear distance between two adjacent fuel filling stations (these will
also include fuel filling – cum – service station) should not be less than
300 Metres.
2. Fuel filling stations should be well distributed on both sides of the road so
that vehicles do not have to cut across the traffic to reach a fuel filling
station. The fuel filling station on opposite sides shall be staggered.
3. Sitting of fuel filling stations near existing check barriers should be
avoided. They should be at least 1 km away from the check barrier.
4. The distance between the tangent points of the curves of the side road
and that of the fuel filling station measured in a direction parallel to the
centre line of the road should not be less than 100 metres and the station
should be located only in the outbound direction. However, on expressway
and arterial road having dual carriageway, the distance from the junction
should not be less than 300 metres.

Feasibility Report for the Establishment of a Motor-Fuel Filling Station in Asaba by, NKEMDIRIM JENNIFER 10
 Frontage:
For free flow of vehicles into and out of the fuel filling station, the site should
permit construction of wide entrance and exit with easy access. It is, therefore,
desirable to have the longest possible frontage, the minimum being 30 Metres.
The minimum Entry and Exit width should be 9 metres.
Area: (as per NBC Clause 6.6.3.3 – Part III Development Control Rules and
General Building Requirements)

The size of the petrol filling station shall not be less than
a) 31 X 17 M in the case of petrol filling station with kiosk without service bay
b) 37 X 31 M in the case of petrol filling station with service bay

Buffer Strip
1. A buffer strip of at least 12 metres long and 3 metres wide should be
provided.
2. The outer edge of buffer strip should be along the outer edge of road land
boundary for rural sections and that of footpath or cycle tract or service
road, if any, for urban sections. However, the future widening of the road
should be kept in mind so that there is no obstruction to the improvement
to the road. In all such cases, the distance from the outer edge of buffer
strip from the centre line of the carriageway should not be less than 7
metres for National Highways and State Highways and 6 metres for other
roads where no cycle tracks are required now or in future and this
distance should not be less than 12 metres where cycle tracks exist or
may be required in future. In case of dual carriageway, these distances
should be measured from the centre line of the nearest two lanes of the
carriageway.

Feasibility Report for the Establishment of a Motor-Fuel Filling Station in Asaba by, NKEMDIRIM JENNIFER 11
7. THE PROJECT CONCEPT

7.1 Project Cost

The details of the cost of project are as follows:

Table 7-1 Project Costs

Items in Naira
Land (9,000 Sq. ft) 13,000,000
Building – Civil Works 5,000,000
Dispensers, Underground tanks & Other Equipment 9,945,140
Office Equipment 100,000
Furniture & Fixtures 85,000
Licenses / Permits 1,250,000
Preliminary Expenses 820,000
Working Capital 927,390
Total 31,127,530

7.2 Project Financing

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

7.3 Project Details

7.3.1 Location

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

Feasibility Report for the Establishment of a Motor-Fuel Filling Station in Asaba by, NKEMDIRIM JENNIFER 12
7.3.2 Land

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

feet front opening is required for installing Fuel filling station. An amount of N13
million has been allocated for the acquisition of nine thousand square feet of
commercial land in Asaba in the areas of Onitsha Benin Expressway, Nnebisi
Road, Summit Road Junction, Ibusa Road Junction or Okpanam Road. A
comparison of costs of commercial land in the various areas of Asaba is given
below for reference purpose.

Table 7-2 Approximate Cost of Land in the Proposed Areas

Location Price Range for 9, 000 Sq.ft

Onitsha Benin Expressway 11,500,000 – 15,000,000
Nnebisi Road 9,000,000 – 11,000,000
Summit Road 10,500,000 – 13,500,000

In this report, prices of commercial land Asaba has been considered, however,
prices may considerably vary in the other places like Ibusa road, Okpanam and
other areas of commercial nature

7.3.3 Building

There are certain civil works required to be carried out at the proposed location.
The civil works would be carried out on an area of 2250 square feet. The rest of
the area will be floored with concrete. Civil work includes the following:
 Office
 Shed for Dispenser
 Toilet/washroom
 Underground Tanks and Power Cables
 Flooring

Feasibility Report for the Establishment of a Motor-Fuel Filling Station in Asaba by, NKEMDIRIM JENNIFER 13
 The total cost of construction is estimated at N5 million. Details for the said cost
are as follows:

Table 7-3 Construction Cost (Amount in Naira)

Description Cost
Office, shed and toilet/washroom 2,500,000
Underground Tanks & gas piping - 500,000
Flooring (6,750sq.ft) 1,750,000
Contingencies - 250,000
Total Cost - 5,000,000

7.3.4 Equipment

The following equipment is required for a Fuel filling station:

 Gas Compressor
The purpose of compressor is to compress the fuel enabling it to
discharge the petrol for refueling. This compressor requires an input
pressure of 8 or 15 PSIG5 from the main gas supply with the outlet
pressure of 3,625 PSIG. With this discharge pressure, the equipment can
refuel 50 vehicles per hour.
 Electric Control Panel: Electric control panel is required to operate the gas
compressor.
 Priority Panel for Vehicle Priority: During rush hours, the compressor is
directly connected to the dispenser, bypassing the storage
cascades/cylinders with the help of priority panel, facilitating the refueling
of vehicles at a faster rate.
 Fuel Dispenser high flow dual hose: Gas is filled into the vehicles with the
help of dispenser. This dual hose dispenser is capable of handling two
vehicles at a time.

Feasibility Report for the Establishment of a Motor-Fuel Filling Station in Asaba by, NKEMDIRIM JENNIFER 14
 There are various foreign manufacturers providing the fuel filling station
equipment. In this pre-feasibility report, a German origin compressor has been
selected. This equipment is selected because of its low electricity consumption,
higher outlet pressure, low maintenance, durable working, longer periods
between overhauls and good market repute and presence.

The total capacity of the selected equipment is 400M3/Hr with a total power load
of 93 KW. All the Fuel filling station equipment is foreign manufactured and
imported on the specific requirement of the sponsor by the authorized agent.
Usually, the equipment is delivered within 12 to 16 weeks from the receipt of
purchase order and initial payment.

7.3.5 Suppliers

Products will be sourced directly from NNPC accredited marketers with reliable
and high quality products and delivery time. Suppliers such as Capital Oil, Zenon
Oil, MRS, A-Z Petroleum and a host of others will are highly recommended.

7.3.6 Furniture and Fixtures

Furniture and fixtures mainly include tables, chairs, sofas, fans & lights, carpet,
curtains and fire extinguishers. It is estimated that the furniture and fixtures of
N85,000 would be purchased.

7.3.7 Office Equipment

Some office equipment is also required for the proposed project. A provision of
N100,000 have been made for acquiring the required office equipment.

Feasibility Report for the Establishment of a Motor-Fuel Filling Station in Asaba by, NKEMDIRIM JENNIFER 15
8. MANPOWER REQUIREMENT

Manpower requirement for the Fuel filling station includes manager, cashier,
dispenser, operators, accountant, watchman and sweeper. The total staff
strength would be 13 persons for the two shifts. The staff salaries for year one
are as follows:

Table 8-1 Human Resource Requirement

Designation No. of Employees for Salary per Total salary
two shifts month per month

Manager 1 20,000 240,000

Deputy Manager 1 10,000 120,000
Accountant 1 6,000 72,000
Cashier 2 4,500 108,000
Dispenser 7 3,570 300,000
Operator 2 5,500 132,000
Watchmen 2 3,500 84,000
Sweeper 1 2,500 30,000
Total 954,000

9. BASIS FOR FINANCIAL PROJECTIONS

9.1 Inflation Rate

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

Feasibility Report for the Establishment of a Motor-Fuel Filling Station in Asaba by, NKEMDIRIM JENNIFER 16
9.2 Revenue Assumptions
9.2.1 No. of Cars

Based on the survey of some Fuel stations in Asaba, the number of cars
assumed for revenue projections is as follows:

Table 9-1 Detailed Projected Increase in Cars for 5years Financial Period
Years No. of Cars
1 202
2 303
3 363
4 435
5 522

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

9.3 Accounting Profit

Depreciation on the assets has been charged at the following rates for the
calculation of accounting profits:

Table 9-3 Depreciation Rates

Building 5%
Fuel Plant & Equipment 10%
Office Equipment 20%
Furniture & Fixture 10%

Feasibility Report for the Establishment of a Motor-Fuel Filling Station in Asaba by, NKEMDIRIM JENNIFER 17
9.3.1 Taxable Profit

For the purpose of calculating taxable profit, depreciation is calculated on the

rates as per the Income Tax Law, which is as follows:

Table 7-4 Tax Adjustments

Land 0%
Building 5%
Fuel Plant & Equipment 10%
Office Equipment 10%
Furniture & Fixture 10%

9.4 First Year Allowance

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

9.5 Multiple Shift Allowance

In addition to normal depreciation and first year allowances, multiple shift

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

9.6 Amortization of Preliminary Expenses

Preliminary expenses amounting to N820, 000/- will be amortized at the rate of

20% per annum.

Feasibility Report for the Establishment of a Motor-Fuel Filling Station in Asaba by, NKEMDIRIM JENNIFER 18
9.7 Working Capital

Working capital is calculated on the basis of following assumptions:

9.7.1 Accounts Receivables

Mostly, the sale of Petrol is on cash basis. However, some fuel filling stations do
offer a credit facility to reputable companies on agreed terms and conditions.
Therefore, receivables are estimated at 6% of the total sales amount.

9.7.2 Advances to Employees

Advances to employees are calculated on the basis of 30 days of both payroll

and staff benefits.

9.7.3 Accrued Utilities and Power Expenses

Normally, it would take 20 days to deposit the utilities (electricity, water and
telephone) bills. Therefore, utility expenses for 20 days have been taken as the
basis for working capital computation.

9.7.4 Accounts Payable

Cost of electricity for 20 days has been considered in calculating accounts

payable.

9.7.5 Value Added Tax Payable

Every company is required to deposit the amount of VAT collected from the
consumers, within 30 days. The same has been taken as the basis for calculating
the amount of sales tax payable.

Feasibility Report for the Establishment of a Motor-Fuel Filling Station in Asaba by, NKEMDIRIM JENNIFER 19
9.8 VAT

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

9.9 Ratio/Financial Analysis

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

9.10 Alternative Investment Opportunity

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

10. FINANCIAL ANALYSIS

Feasibility Report for the Establishment of a Motor-Fuel Filling Station in Asaba by, NKEMDIRIM JENNIFER 20