FEASIBILITY STUDY FOR THE ESTABLISHMENT OF A FUEL STATION IN

ADDIS ABABA

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
Depreciation on Assets
Accounting Profit

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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

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1. EXECUTIVE SUMMARY

1.1 PURPOSE OF THE DOCUMENT

The objective of this feasibility study is primarily for BUSINESS 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:

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 The project will increase the number of fuel stations in ADDIS ABABA and provide
fuel to more customers, reducing the problem of fuel scarcity in the area and
reducing the cost.
 ADDIS ABABA being a state capital and close to the commercial hub of the central
Ethiopia 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.
 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 non valuable natural resources & none
abundantly available in our country. Ethiopian’s 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.
Ethiopia 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 liters daily usage.

Due to increasing level of standard of living, more Ethiopians 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 Ethiopians are

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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
Addis Ababa, has been estimated at birr 31,127,530 million. It includes land, building,
fuel dispensers and other equipment, spares, along with the preliminary expenses
and working capital.

3. PROPOSED BUSINESS LEGAL STATUS

The proposed legal structure of the business entity is a sole proprietorship registered as
SHAMIL OIL ENTERPRISES.

4. ESTIMATED COST OF PROJECT

The cost of project has been estimated as birr 31.13 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 birr 0.82 million
and birr 1.8 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.

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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 Addis Ababa, this
ranges of fleet of government vehicles, fleet of transporters plying within the city,
Addis Ababa and other neighboring cities. Also, the heavy vehicular traffic of travelers
from other parts of the country, 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 Addis Ababa are as
follows;
 Beside Expressway

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 Roads
 Summit Road Junction

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

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 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 100,000 vehicles plying within a being a state capital
and its environs;, which includes transporters from other city to Addis Ababa, and
those ply the 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 Addis Ababa and its environs now rely more on
generators for constant and uninterrupted power.

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5.3. MARKET SUPPLY

Total number of Petrol Stations that are fully operational in Addis Ababa is not more
than 150, which is quite low for meeting the growing demand for petroleum
products. Apart from these 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 Addis Ababa and its environs was 50,000
and functional petrol filling stations were 50 at the end of year 2000. Currently, the
number of vehicles and petrol filling stations has increased to over 150,000 vehicles
and 100 functional stations respectively and by the year 2015 they would have
tremendously grown up to 120 functional Stations and over 150,000 vehicles as a
result of increasing commercial activities and the building of an airport in Addis
Ababa. 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 50,000 150,000 33%
PETROL FILLING 50 120 24%
STATIONS
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.

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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 birr 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 birr 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
 Traffic Engineering and Planning Authority (TEPA)
 Traffic Police (SSP)
 Department of Civil Defense
 National Highway Authority (NHA)
 Central Board of Revenue (CBR)
 Civil Administration
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

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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.

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

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have the longest possible frontage, the minimum being 30 Meters. The minimum
Entry and Exit width should be 9 metros.
Area: (as per 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 meters long and 3 meters 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
center line of the carriageway should not be less than 7 meters for National
Highways and State Highways and 6 meters for other roads where no cycle
tracks are required now or in future and this distance should not be less than
12 meters where cycle tracks exist or may be required in future. In case of dual
carriageway, these distances should be measured from the center line of the
nearest two lanes of the carriageway.

7. THE PROJECT CONCEPT

7.1. PROJECT COST

The details of the cost of project are as follows:

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Table 7-1 Project Costs Items in birr

Land (9 00 Sq. M) 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 birr 31.13 million including the working capital of
N0.927 million. The sponsors of the project will contribute birr 15.56 million and the
bank will finance the remaining amount of birr15.56 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

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commercial area. Fuel filling stations are not allowed to be installed in the residential
areas.

7.3.2. LAND

 A minimum of nine thousand (900) square meter of land with at least 75 meter
front opening is required for installing Fuel filling station. An amount of birr 13
million has been allocated for the acquisition of nine thousand square feet of
commercial land in Addis Ababa in the areas of Expressway, Road, Summit Road
Junction. A comparison of costs of commercial land in the various areas of Addis
Ababa is given below for reference purpose.

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

Location Price Range for 9, 00 Sq.m

Expressway 11,500,000 – 15,000,000
Road 9,000,000 – 11,000,000
Summit Road 10,500,000 – 13,500,000
In this report, prices of commercial land Addis Ababa has been considered, however,
prices may considerably vary in the other places 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 225 square m. The rest of the area will
be floored with concrete. Civil work includes the following:
 Office
 Shed for Dispenser
 Toilet/washroom

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 Underground Tanks and Power Cables

 Flooring

The total cost of construction is estimated at birr 5 million. Details for the said cost
are as follows:

Table 7-3 Construction Cost (Amount in birr)

Description Cost
Office, shed and toilet/washroom 2,500,000
Underground Tanks & gas piping - 500,000
Flooring (6,75 sq.m) 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.

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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 400M 3/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 out side the country 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 birr
85,000 would be purchased.

7.3.7 OFFICE EQUIPMENT

Some office equipment is also required for the proposed project. A provision of birr
100,000 have been made for acquiring the required office equipment.

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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:

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

Table 8-1 Human Resource Requirement

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.

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9.2. Revenue Assumptions

9.2.1 NUMBER OF CARS

Based on the survey of some Fuel stations in Addis Ababa, 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%

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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

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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 birr 820, 000/- will be amortized at the rate of 20%
per annum.

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.

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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.

9.8. VAT

The Value Added Tax levied by Government is charged to the customers at the rate of
15% 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 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 nonfunctional 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

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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. FIRE FIGHTING IN CASE OF THE ACCIDENT.

In this project, no fire accident is likely to occur due to the fact that electricity
distribution is well designed and all the fuel pump will be on high quality. In case of fire
accident, there is provision of firefighting equipment (fire extinguishers, fire cabinet
etc). Fire alarm, Automatic fuses will be also provided and emergence exit are provided.
The extinguishers should be regularly inspected and maintained; the personnel of the
building must be trained on their use.

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