1 INTRODUCTION TO SMEDA.................................................................................

2
2 Purpose of the document............................................................................................ 2
3 Crucial Factors & Steps in decision making for investment........................................ 3
3.1 Key Success Factors........................................................................................... 3
3.2 Opportunities ..................................................................................................... 3
3.3 Threats............................................................................................................... 3
4 Project Profile............................................................................................................ 3
4.1 Opportunity Rationale ........................................................................................ 3
4.2 Project Brief....................................................................................................... 3
4.3 Introduction to CNG .......................................................................................... 4
4.4 Proposed Business Legal Status ......................................................................... 4
4.5 Project Cost........................................................................................................ 4
4.6 Viable Economic Size ........................................................................................ 5
4.7 Proposed Capacity.............................................................................................. 5
4.8 Proposed Location.............................................................................................. 5
4.9 CNG Policy........................................................................................................ 5
4.10 CNG Consultancy Services ................................................................................ 6
5 Market Analysis......................................................................................................... 6
5.1 Target Customers ............................................................................................... 6
5.2 Market Demand ................................................................................................. 6
5.3 Market Supply ................................................................................................... 6
5.4 Industry Growth................................................................................................. 6
6 REGULATIONS, Licenses and incentives................................................................. 7
6.1 License............................................................................................................... 7
6.2 Certificate (by HDIP) ......................................................................................... 7
6.3 NOCs................................................................................................................. 7
6.4 Incentives........................................................................................................... 8
6.4.1 Sales Tax.................................................................................................... 8
6.4.2 Custom Duty .............................................................................................. 8
6.5 Regulatory Requirements ................................................................................... 8
6.5.1 Quality Certificate ...................................................................................... 8
6.5.2 List of Equipment....................................................................................... 8
6.5.3 Income Tax on the Import of CNG Equipment ........................................... 8
6.6 Income Tax ........................................................................................................ 8
7 The Project CONCEPT.............................................................................................. 9
7.1 Project Cost........................................................................................................ 9
7.2 Project Financing ............................................................................................... 9
7.3 Project Details.................................................................................................... 9
7.3.1 Location ..................................................................................................... 9
7.3.2 Land........................................................................................................... 9
7.3.3 Building ................................................................................................... 10
7.3.4 Material Inputs ......................................................................................... 11
7.3.5 CNG Equipment....................................................................................... 11
7.3.6 Suppliers .................................................................................................. 12
7.3.7 Stores & Spares ........................................................................................ 13
7.3.8 Furniture and Fixtures .............................................................................. 13
1
 7.3.9 Office Equipment ..................................................................................... 13
7.4 Manpower Requirement ................................................................................... 13
8 Basis for Financial Projections................................................................................. 14
8.1 Inflation Rate ................................................................................................... 14
8.2 Revenue Assumptions ...................................................................................... 14
8.2.1 No. of Cars............................................................................................... 14
8.2.2 Gas per Vehicle ........................................................................................ 14
8.3 Depreciation on Assets..................................................................................... 15
8.3.1 Accounting Profit ..................................................................................... 15
8.3.2 Taxable Profit........................................................................................... 15
8.4 First Year Allowance ....................................................................................... 15
8.5 Multiple Shift Allowance ................................................................................. 15
8.6 Amortization of Preliminary Expenses ............................................................. 16
8.7 Working Capital............................................................................................... 16
8.7.1 Accounts Receivables............................................................................... 16
8.7.2 Advances to Employees............................................................................ 16
8.7.3 Accrued Utilities and Power Expenses .................................................. 16
8.7.4 Accounts Payable ..................................................................................... 16
8.7.5 Sales Tax Payable..................................................................................... 16
8.8 Sales Tax ......................................................................................................... 16
8.9 Ratio/Financial Analysis .................................................................................. 16
8.10 Alternative Investment Opportunity ................................................................. 17
9 Financial Analysis ................................................................................................... 18
9.1 Project Costs.................................................................................................... 18
9.2 Projected Income Statement ............................................................................. 19
9.3 Projected Balance Sheet ................................................................................... 20
9.4 Projected Cash Flow Statement ........................................................................ 21
9.5 Revenues.......................................................................................................... 22
9.6 Cost of Sales .................................................................................................... 23
9.7 Working Capital............................................................................................... 24
9.8 Ratio Analysis.................................................................................................. 25
10 Requirement for the License ................................................................................ 26
1 FORMATION THE FEASIBILITY REPORT

The feasibility report is about the CNG filling station. The objective of the formation of report is to apply
techniques which we learned in the class of Financial Strategy and Policy at Iqra University.

2 PURPOSE OF THE DOCUMENT

The objective of the feasibility study is primarily to facilitate potential entrepreneurs to facilitate
investment and provide an overview about CNG Filling Station business. The project pre-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 sectorial information, brief on government policies
and international scenario, which have some bearing on the project itself.

This particular feasibility is regarding “CNG Filling Station” which comes under “Petroleum” sector.
3 CRUCIAL FACTORS & STEPS IN DECISION MAKING FOR INVESTMENT

3.1 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 CNG 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.

3.2 Opportunities
The proposed project would have a number of competitive advantages:
 The project will provide cheaper fuel to its customers compared to the petroleum products which
are already on the higher side.
 Government has exempted the imposition of sales tax and custom duties on the import of CNG kits
and CNG plant and equipment,
 HDIP, a non-profitable organization working under the umbrella of Ministry of Petroleum and
Natural Resources, provides consultancy services to the interested parties for setting up the CNG
filling stations.

3.3 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 increase in the prices of the natural gas by the government

4 PROJECT PROFILE

4.1 Opportunity Rationale

Due to the environment friendly nature and low cost of natural gas, Hydrocarbon Development Institute
of Pakistan (HDIP) has recognized the need and necessity to promote the use of CNG as a fuel in
automobiles. HDIP has pioneered the use of environment friendly CNG in road transport as an
economically viable fuel, which can substitute the imported petroleum products.

4.2 Project Brief

The business of CNG filling station has marked its place in the country through growth during the last few
years. This growth has opened up new opportunities and more CNG filling stations are being setup all
over Pakistan. The prime reason for this is the low cost of the fuel. Along with that, CNG fuel is less
hazardous to the environment as compared to the traditional petroleum fuel.
4.3 Introduction to CNG
Natural Gas is one of the most valuable natural resources abundantly available in our country. The people
of Pakistan have been using the petroleum products as a fuel in their automobiles, thus spending a huge
amount of foreign exchange on import of petroleum products. Moreover, the Government of Pakistan has
taken certain concrete steps in order to promote the use of natural gas as a fuel substitute in the
automobiles. Due to the efforts made by the Government and comparatively low prices of gas, more than
600,000 vehicles have already been converted to operate on Compressed Natural Gas (CNG) fueling
system all over Pakistan.
Due to high cost of petroleum products, lots of vehicles are switching over to CNG.
At present, there are more than 670CNG stations operating in the Country and this number is
insufficient to meet the rising demand of CNG in the coming years.
The total project cost for setting up the CNG filling stations has been estimated at Rs.31.13 million. It
includes land, building, CNG equipment and machinery, spares, along with the preliminary expenses and
working capital.
Compressed Natural Gas (CNG) is produced when the natural gas is compressed into cylinders to be used
as a fuel in the automobiles. The compressed natural gas has been used as an automobile fuel since 1940,
and over the years, the technology has been modified and refined. In the recent years, the usage of CNG
as an automobile fuel has significantly increased because of its low cost and environment friendly nature.

4.4 Proposed Business Legal Status

The proposed legal structure of the business entity is either sole proprietorship or partnership although
selection totally depends upon the choice of the entrepreneur but this financial feasibility is based on a
Sole Proprietorship.

4.5 Project Cost

The cost of project has been estimated as Rs.31.13 million including land, civil works, CNG equipment
and office equipment. Preliminary expenses and gas security charges are estimated at Rs.0.82 million and
Rs.1.8 million respectively. The CNG equipment comprises of gas compressor, dual hose dispenser,
electric control panel, and storage cascades/cylinders.

Table 4-1 Project Investment

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

The proposed pre-feasibility is based on the assumption of 50% debt and 50% equity. However this
composition of debt and equity can be changed as per the requirement of the investor.
The project seems to be viable with the following returns on investment.
 Table 4-2 Project Returns
Internal rate of return (project) 23.1%
Internal rate of return (equity) 45.1%
Net Present Value @ 20% Rs. 3,401,246
Payback period – based on cash inflows 4 years
4.6 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 being converted into CNG fueling system, initially the project
would be able to attract and serve at-least 202 vehicles per day.

4.7 Proposed Capacity

The equipment for CNG filling station that has been considered for preparing this pre-feasibility study is
of British 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 a lower price. 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.

4.8 Proposed Location

The proposed locations for the CNG Filling stations in Lahore are as follows x Multan Road, Lahore
X Wapda Town, Lahore
X Model Town, Link Road, Lahore
X Johar Town, PIA Colony
The said project may also be established in commercial area of any other city.

4.9 CNG Policy

The Government of Pakistan has offered number of incentives for encouraging the use of CNG in the
country. Some of these are summarized below:

 Strong Government commitment to promote usage of CNG i Liberal policy of providing license for
CNG retailing i Deregulated market price of CNG (for the consumers)
 Priority of providing natural gas connection to CNG stations

 Exemption of import duty and sales tax till June 2005 on import of machinery and equipment, CNG
kits and cylinders
This has provided a boost to the industry, and so far, more than 600,000 vehicles have been converted to
CNG and 670 CNG stations are operational. According to International Association for Natural Gas Vehicles
(IANGV) statistics, Pakistan is ranked third in the CNG-using countries after Argentina and Brazil.

4.10 CNG Consultancy Services

HDIP is also offering consultancy services to the investors, which include the whole range of activities
like formation of company, selection of site, legal formalities, design of station, specifications of the
equipment, selection of equipment, selecting and appointing the contractor, training of manpower,
commissioning and supervision, etc.

5 MARKET ANALYSIS
The commercial application of CNG technology now forms an important element of Government’s
petroleum policy, which is reflected in the efforts made by the government for installing 670 CNG
stations in the country and converting 600,000 vehicles on CNG fueling system till February 2005.

5.1 Target Customers

The target customers for the proposed project would be the vehicles running on CNG fuel.

5.2 Market Demand

At present there are more than 600,000 vehicles, which have been converted to CNG fuel, and a large
number of vehicles are further being converted.
Due to the increasing prices of petroleum products, the trend of converting cars to CNG fueling system has
been on a rise. However, there exist a large number of people who were reluctant to convert their vehicles
from petrol to gas due to safety concerns. Recently, many car manufacturers have started manufacturing
the cars with built-in CNG fueling system. This change has led to enhancing the confidence in the minds of
the general public regarding the safety concerns, and now, more people are inclined towards purchasing
these factory-fitted CNG fueling system cars.

5.3 Market Supply

Total number of CNG stations in Pakistan is only 670, which is quite low for meeting the growing
demand of CNG. Apart from these 670 CNG stations, many new CNG stations are being setup across the
country.

5.4 Industry Growth

There has been a tremendous growth in the CNG sector over the years. The total number of vehicles on
CNG was 100,000 and CNG filling stations was 150 at the end of year 2000. The number of CNG
vehicles and CNG filling stations has increased to 210,000 vehicles and 220 stations respectively and by
the year 2005 they have tremendously grown up to 670 CNG Stations and 600,000 CNG fitted vehicles.
The growth in terms of percentage is given in the following table:

Table 5-1 Growth Percentage of Vehicles

Year 2004 2005 Percentage Increase
No. Of Vehicles on CNG 450,000 600,000 33%
CNG Filling Stations 550 670 22%

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

6 REGULATIONS, LICENSES AND INCENTIVES

6.1 License
Obtaining a license from Ministry of Petroleum and Natural Resources is a pre-requisite for setting-up the
CNG station. The cost associated with this license is Rs.25,000.

6.2 Certificate (by HDIP)

After the installation of the required equipment for CNG filling station, HDIP 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 Rs. 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.
6.4 Incentives

6.4.1 Sales Tax

The import of CNG equipment is exempted from sales tax vides SRO No.38 (1)/98 dated 21st January
1998 till June, 2005.
6.4.2 Custom Duty
The CNG equipment is also exempted from the custom duties as per the above-referred SRO.

6.5 Regulatory Requirements

6.5.1 Quality Certificate

SRO.38 (1)/98 dated 21 January 1998 has been amended on April 11, 2002 and the “Quality Certificate”
from original manufacturer has been made mandatory. This certificate should state that the equipment
meets the safety standard as laid down in Pakistan CNG Rules 1992. The designated third party
inspector witnesses this Quality Certificate. The cost of third party inspection is $500.

6.5.2 List of Equipment

The list of equipment and their various manufacturers has also been mentioned in the same amended
SRO whose import is exempted from custom duty and sales tax.

6.5.3 Income Tax on the Import of CNG Equipment

Income Tax, at the rate of 6%, is payable by the importer on the import of CNG equipment.

6.6 Income Tax

The income of the CNG 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 rate of 45%.
7 THE PROJECT CONCEPT

7.1 Project Cost

The details of the cost of project are as follows:

Table 7-1 Project Costs

Item Rupees
Land (9,000 Sq. ft) 17,000,000
Building – Civil Works 1,700,000
CNG Equipment 8,732,100
Stores & Spares 513,040
Office Equipment 100,000
Furniture & Fixtures 85,000
Gas Security 1,800,000
Preliminary Expenses 820,000
Working Capital 377,390
Total 31,127,530

7.2 Project Financing

The total cost of the project is Rs.31.13 million including the working capital of Rs.0.377 million. The
sponsors of the project will contribute Rs.15.56 million and the bank will finance the remaining amount
of Rs.15.56 million.

7.3 Project Details

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

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 CNG filling station. An amount of Rs.17 million has been allocated for the acquisition of nine
thousand square feet of commercial land in Lahore in in the areas of Model Town Link Road or Multan
Road. A comparison of costs of commercial land in various other areas of Lahore 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
Gulberg, M. M. Alam Road. Rs.16,000,000–18,000,000
Main Boulevard Rs. 30,000,000—32,000,000
Main Ferozpur Raod Rs.10,000,000–12,000,000
Model Town Link Road Rs.7,000,000–9,000,000
Multan Road Rs.2,000,000–10,000,000
Johar Town, PIA Colony Rs.18,000,000–35,000,000
In this report, prices of commercial land for Lahore city has been considered, however, prices may
considerably vary in the other cities like Quetta, Karachi, Hyderabad, Multan, Faisalabad, Islamabad,
Peshawar etc.
 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 tuff tiles. Civil work
includes the following:

 Office
 Control Room
 Compressor and Cascade/Cylinder Storage Room i Shed for Dispenser
 Toilet/washroom
 Underground Gas Piping and Power Cables
 Flooring

The total cost of construction is estimated at Rs.1.7 million. Details for the said cost are as follows:

Table 7-3 Construction Cost (Amount in Rupees)

Description Cost per Sq. ft. Cost
Office, control room, compressor and cylinder 500 1,125,000
room, shed and toilet/washroom (2,250 sq.ft)
Underground gas piping - 200,000
Flooring (6,750sq.ft) 45 303,750
Contingencies - 71,250
Total Cost - 1,700,000

Explosives department has laid down certain specifications for the compressor and cascade/cylinders
storage room, which are as follows:
1. Minimum one meter distance is required between walls and compressor.
2. Minimum distance of one meter should be kept between compressor and cascade/cylinders.
 3. Fire rated walls must be used in the compressor and cylinder storage room.
4. Roof of the compressor and storage room should not be of permanent nature.

7.3.4 Material Inputs

There are two main inputs required for the CNG filling station, one is the natural gas and the other is
electricity. The sponsor of the project is required to obtain both the connections from the relevant
authorities i.e. WAPDA and Sui Northern Gas Pipelines Limited (SNGPL) or Sui Southern Gas Pipelines
Limited (SSGPL). The cost associated with obtaining the gas connection is Rs.75, 000/-. In addition to
this, a minimum security deposit of Rs.1.8million is also required to be deposited with the concerned
authority. Bank guarantee is also acceptable in case of gas security. An amount of Rs.0.35 million is
required for obtaining electricity connection. There is no security deposit required for the electricity
connection.

7.3.5 CNG Equipment

The following equipment is required for a CNG filling station:

Gas Compressor
The purpose of compressor is to compress the gas enabling it to discharge the gas for refueling. This
compressor requires an input pressure of 8 or 15 PSIGfrom 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. This panel will be mounted in the control
room.

Storage Cascade
Storage cascades/cylinders are used to store the natural gas.

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.

CNG 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.

There are various foreign manufacturers providing the CNG filling station equipment. In this pre-
feasibility report, a British 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.
Different gas pressures are available in different areas of Pakistan from the main gas supply line. The
pressure of 15 PSIG is not easily available at every location. Where the gas pressure of 15 PSIG is not
available, in that situation, the model with inlet pressure of 8 PSIG is used, which has been manufactured
to operate at a lower gas pressure. However, the consumption of electricity increases.

The total capacity of the selected equipment is 400M/Hr. with a total power load of 93 KW.

All the CNG 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. The details of this equipment and accessories are available
in Annexure # 1.1.1.

7.3.6 Suppliers
The Central Board of Revenue (CBR) has specified the list of compressors, storage cylinders, CNG
vehicle cylinders, CNG machinery & equipment and conversion kits in SRO 38(1)/98. For the
convenience of investor, a list of some of the available equipment and machinery is given below:

Table 7-4 Supplier’s Name

Supplier’s Name Available Models
Rix Services, New Zealand 2JJS3G-178, FX-150, 3KX3G-40,
6W5G-150
Compare UK Ltd, UK Gazpack 36, Gazpack37
Norwalk Company Inc. USA C-75-3, C150-4, NQSV3
Sulzer Burckhardt Engg. Works Switzerland C40111S, C50214S
Hamworthy, Bellis & Morcom UK H430H-WL, H280H-WL, V130H-WL
Safe s.r.l Italy SW75SE-F1-EM, SW110SE-F1-EM,
SW110-F1-EM, SW132-F1-EM,
SW90F0, 35-EM
Hurricane, Grimmer Industries, USA CNG90, CNG 125, CNG250
Chengdu Jinxing Chemical Machinery and ZW-3.45/250JX, ZW-5.0/1-23, ZW-
Equiment Factory, China 5.52/0.5-250JX
Chonqing Air Gas Compressor Factory, China L-3.8/1-250, L-3/1-250, L-5/0.56-250,
L-2.9/0.56-250, L-4.65/0.56-250,
W3.8/0.56-250, W-3.8/1-250
Intermech Ltd. NewZealand RHINO PAR-75VE 4-8
RHINO PAR-1-DE 4-82
RHINO-PAR 150DE4-10
Unigas NewZealand Apollo VR-550
Compare Mahle GmbH, Germany 5409.2NG.EU
Sicom SRL , Italy 650.250.20-IFDE-23SE
7.3.7 Stores & Spares
The whole equipment required for setting up a CNG filling station is imported. Therefore, it is required to
build an inventory of necessary spare parts to meet the unforeseen circumstances such as breakdown or any
other fault in any part or equipment. For this purpose, a stock of necessary spare parts worth $8,000 will be
imported along with other equipment to maintain a minimum level of spare parts.

7.3.8 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 Rs.85,000 would be purchased.

7.3.9 Office Equipment

Some office equipment is also required for the proposed project. A provision of Rs.100,000 ha been made
for acquiring the required office equipment. The details of office equipment are annexed in Annexure #
1.1.

7.4 Manpower Requirement

Manpower requirement for the CNG 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 7-5 Human Resource Requirement

Designation No. of Salary per Total salary
Employees for month per month
two shifts (Rupees)
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 4 3,500 168,000
Operator 2 5,500 132,000
Watchmen 2 3,500 84,000
Sweeper 1 2,500 30,000
Total 954,000
8 BASIS FOR FINANCIAL PROJECTIONS

8.1 Inflation Rate

10% inflation rate has been considered while making the projections for cost of sales, operational
expenses and salaries. The prices for gas, electricity, operational expenses and staff salaries are increased
by 10% every year as a result of inflation.
The selling price of gas has been increased by 5% every year.

8.2 Revenue Assumptions

8.2.1 No. of Cars

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

Table 8-1 Detailed Projected Increase in Cars

Years No. Of Cars
1 202
2 303
3 363
4 435
5 522
6 600
7 690
8 793
9 911
10 1,047

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 month12.. 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.

8.2.2 Gas per Vehicle

Currently, the CNG cylinders with two different capacities are installed in the CNG fitted cars. One type
of cylinder has a capacity of 40 kg and the other has a capacity of 50 kg. Gas of 6.6 and 11.12 cubic meter
can be filled in the cylinders of 40kg and 50kg respectively. A weighted average of 9.31 cubic meters of
gas per vehicle has been taken for the revenue calculations.
Table 8-2 Average Volume
Cylinder Type Volume Percentage Use
(cubic meters)
40 kg 6.6 40%
50 kg 11.12 60%
Weighted Average Volume 9.31 cubic meters

8.3 Depreciation on Assets

8.3.1 Accounting Profit

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

Table 8-3 Depreciation Rates

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

8.3.2 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 8-4 Tax Adjustments

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

8.4 First Year Allowance

Other than the normal depreciation allowances, first year allowance is also provided on the newly installed
CNG 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 CNG plant and equipment.

8.5 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, CNG
plant will run on two-shift basis during the whole year. So multiple shift allowance is calculated and
added to the depreciation of CNG plant and
equipment for all the ten years. Multiple shift allowance has been taken as 66.6% of the normal
depreciation allowance.

8.6 Amortization of Preliminary Expenses

Preliminary expenses amounting to Rs.820, 000/- will be amortized at the rate of 20% per annum.

8.7 Working Capital

Working capital is calculated on the basis of following assumptions:

8.7.1 Accounts Receivables

Mostly, the sale of CNG is on cash basis. However, some CNG 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.

8.7.2 Advances to Employees

Advances to employees are calculated on the basis of 30 days of both payroll and staff benefits.
8.7.3 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.

8.7.4 Accounts Payable

Cost of gas and electricity for 20 days has been considered in calculating accounts payable.

8.7.5 Sales Tax Payable

Every company is required to deposit the amount of sales tax collected from the consumers, within 14 days.
The same has been taken as the basis for calculating the amount of sales tax payable.

8.8 Sales Tax

The sales tax levied by Government of Pakistan is charged to the customers at the rate of 15% on the sale of
gas. These funds are deposited after every 14 days in favor of Government of Pakistan.

8.9 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.
8.10 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 CNG
station without acquiring the land.
The investor can make investments only in the purchase of CNG plant and equipment and install this
equipment with any existing petrol pump. In this case, the investment for installing the CNG equipment
will be made by the investor and the space will be provided by the dealer/owner of the existing petrol
pump. The investor will pay 15% commission on the total revenue to the dealer/owner of the petrol pump.
Moreover, the investor can also avail lease facility from any leasing company on the purchase of CNG
plant and equipment.
9 FINANCIAL ANALYSIS

9.1 Project Costs

P ro je c t C o s t
Rs. Rs.
Assets
Land 17,000,000
B u ild in g - C ivil W o rk s 1,700,000
C N G E q u ip m e n t $ 133,900 8,732,100
S to re & S p a re s $ 8,000 513,040
O ffic e E q u ip m e n t 100,000
F u rn itu re & F ix tu re 85,000 28,130,140
A d v a n c e s & S e c u r itie s
G a s S e c u rity (D e p e n d s o n th e S N G P L a ss e s sm e n t) 1,800,000
P re lim in a r y E x p e n s e s
G a s C o n n e c tio n s & In sta lla tio n C h a rg e s (S N G P L ) 75,000
E le c tric ity C o n n e c tio n s C h a rg e s 350,000
LocalExpenses 100,000
L ic e n s e fro m M O P 25,000
R e g is tra tio n o f C o m p a n y (A u th o rize d C a p ita l 1 0 m illio n ) 85,000
In sp e c tio n F e e (H D IP ) 35,000
O th e r A p p ro va ls (N O C s ) 100,000
T ra ve llin g & C o n ve ya n c e 20,000
O th e r E x p e n s e s 30,000 820,000

W o r k in g C a p ita l 377,390
T o ta l A s s e ts R s . 3 1 ,1 2 7 ,5 3 0
T o ta l C a p ita l E m p lo y e d B y :
BankLoan 50% 15,563,765
E q u ity 50% 15,563,765
T o ta l C a p ita l Rs. 31,127,530

1US$= Rs. 60.50

P ro je c t R e tu rn s
IR R % 23.1%
NPV @ 20% Rs. 3,401,246
P a y B a c k P e rio d Y rs . 4
9.2 Projected Income Statement
Statement Summaries
Income Statement
Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10

202 Cars 303 Cars 363 Cars 435 Cars 522 Cars 600 Cars 690 Cars 793 Cars 911 Cars 1047 Cars

Gross Sales 13,139,090 20,375,524 25,673,161 32,303,626 40,702,568 49,123,789 59,316,976 71,580,116 86,342,950 104,194,426
Less: Sales Tax 1,714,651 2,659,006 3,350,347 4,215,623 5,311,685 6,410,655 7,740,865 9,341,205 11,267,755 13,597,373
Net Sales 11,424,439 17,716,518 22,322,813 28,088,003 35,390,883 42,713,135 51,576,110 62,238,911 75,075,195 90,597,054

Cost of Sales 5,516,754 8,937,181 11,766,663 15,474,153 20,382,143 25,720,252 32,478,303 40,992,720 51,725,438 65,304,354
Gross Profit 5,907,685 8,779,338 10,556,150 12,613,850 15,008,740 16,992,883 19,097,807 21,246,191 23,349,757 25,292,699

Operating Expenses:
Operating Expenses 2,032,005 2,147,885 2,284,084 2,441,762 2,622,282 2,896,712 3,120,922 3,374,100 3,658,487 3,976,614
Depreciation 986,710 890,289 803,698 725,883 810,345 731,953 661,391 597,852 540,615 489,037
Amortization of Preliminary Exp 164,000 164,000 164,000 164,000 164,000 - - - - -
3,182,715 3,202,174 3,251,782 3,331,646 3,596,627 3,628,665 3,782,313 3,971,951 4,199,101 4,465,652
Operating Profit 2,724,970 5,577,164 7,304,369 9,282,204 11,412,113 13,364,218 15,315,494 17,274,240 19,150,656 20,827,048

Interest on Loan 1,089,464 1,852,088 1,416,303 980,517 544,732 108,946 - - - -

Interest on Lease - - - - - - - - - -
1,089,464 1,852,088 1,416,303 980,517 544,732 108,946 - - - -
Profit before Tax 1,635,507 3,725,076 5,888,066 8,301,687 10,867,382 13,255,272 15,315,494 17,274,240 19,150,656 20,827,048
Taxation (See working) 57,122 487,101 2,126,398 2,976,423 3,841,159 4,687,398 5,415,542 6,105,492 6,764,544 7,351,985
Profit after Tax 1,578,384 3,237,975 3,761,668 5,325,264 7,026,222 8,567,874 9,899,952 11,168,748 12,386,112 13,475,063
Balance B/F - 1,578,384 4,816,359 8,578,027 13,903,291 20,929,514 29,497,388 39,397,339 50,566,087 62,952,199
Retained Earnings 1,578,384 4,816,359 8,578,027 13,903,291 20,929,514 29,497,388 39,397,339 50,566,087 62,952,199 76,427,262
- - - - - - - - - -
Balance C/F 1,578,384 4,816,359 8,578,027 13,903,291 20,929,514 29,497,388 39,397,339 50,566,087 62,952,199 76,427,262
9.3 Projected Balance Sheet
Statement Summaries
Balance Sheet
YEAR Start up 1 2 3 4 5 6 7 8 9 10

FIXED ASSETS 27,617,100 26,630,390 25,740,101 24,936,403 24,210,520 24,944,476 24,212,523 23,551,132 22,953,280 22,412,665 21,923,628
27,617,100 26,630,390 25,740,101 24,936,403 24,210,520 24,944,476 24,212,523 23,551,132 22,953,280 22,412,665 21,923,628

Preliminary Expenses 820,000 656,000 492,000 328,000 164,000 - - - - - -

28,437,100 27,286,390 26,232,101 25,264,403 24,374,520 24,944,476 24,212,523 23,551,132 22,953,280 22,412,665 21,923,628
OTHER ASSETS
Security 1,800,000 1,800,000 1,800,000 1,800,000 1,800,000 1,800,000 1,800,000 1,800,000 1,800,000 1,800,000 1,800,000
- - - - - - - - - - -
1,800,000 1,800,000 1,800,000 1,800,000 1,800,000 1,800,000 1,800,000 1,800,000 1,800,000 1,800,000 1,800,000
CURRENT ASSETS
Accounts Receivables - 793,364 1,230,314 1,550,195 1,950,556 2,457,700 2,966,190 3,581,674 4,322,147 5,213,555 6,291,462
Advances to Employees - 87,450 96,195 105,815 116,396 128,036 140,839 154,923 170,415 187,457 206,203
Stores & Spares 513,040 513,040 513,040 513,040 513,040 513,040 513,040 513,040 513,040 513,040 513,040
Cash & Bank Balances 377,390 1,042,927 1,999,944 3,469,418 6,398,351 9,535,653 17,094,942 27,451,315 38,994,185 51,680,102 65,388,343
890,430 2,436,781 3,839,493 5,638,468 8,978,343 12,634,428 20,715,011 31,700,953 43,999,787 57,594,154 72,399,047
TOTAL ASSETS 31,127,530 31,523,171 31,871,594 32,702,872 35,152,863 39,378,904 46,727,534 57,052,084 68,753,067 81,806,819 96,122,675
- - - - - - - - - - -
CAPITAL EMPLOYED REPRESENTED BY:

SHARE CAPITAL
1,556,377 Shares @ Rs.10/- each 15,563,765 15,563,765 15,563,765 15,563,765 15,563,765 15,563,765 15,563,765 15,563,765 15,563,765 15,563,765 15,563,765
UNAPP. PROFIT/(LOSS) - 1,578,384 4,816,359 8,578,027 13,903,291 20,929,514 29,497,388 39,397,339 50,566,087 62,952,199 76,427,262
15,563,765 17,142,149 20,380,124 24,141,792 29,467,056 36,493,279 45,061,153 54,961,104 66,129,852 78,515,964 91,991,027
LONG TERM LIABILITIES
Finance Lease - - - - - - - - - - -
Long Term Loan 15,563,765 14,007,389 10,894,636 7,781,883 4,669,130 1,556,377 - - - - -
15,563,765 14,007,389 10,894,636 7,781,883 4,669,130 1,556,377 - - - - -
CURRENT LIABILITIES
Creditors - 296,952 482,429 636,806 839,426 1,108,042 1,400,973 1,772,231 2,240,459 2,831,228 3,579,282
Utility Bills Payable - 10,000 11,000 12,100 13,310 14,641 16,105 17,716 19,487 21,436 23,579
Sales Tax Payable - 66,681 103,406 130,291 163,941 206,566 249,303 301,034 363,269 438,190 528,787
- 373,633 596,834 779,197 1,016,677 1,329,249 1,666,381 2,090,980 2,623,215 3,290,855 4,131,648
TOTAL 31,127,530 31,523,171 31,871,594 32,702,872 35,152,863 39,378,904 46,727,534 57,052,084 68,753,067 81,806,819 96,122,675
9.4 Projected Cash Flow Statement
Statement Summaries
Cash Flow Statement
YEAR 1 2 3 4 5 6 7 8 9 10
SOURCES
FROM OPERATIO
Profit Before Tax 1,635,507 3,725,076 5,888,066 8,301,687 10,867,382 13,255,272 15,315,494 17,274,240 19,150,656 20,827,048
Add: Depreciation 986,710 890,289 803,698 725,883 810,345 731,953 661,391 597,852 540,615 489,037
Amortization 164,000 164,000 164,000 164,000 164,000 - - - - -

1,150,710 1,054,289 967,698 889,883 974,345 731,953 661,391 597,852 540,615 489,037
2,786,217 4,779,365 6,855,764 9,191,570 11,841,727 13,987,225 15,976,885 17,872,091 19,691,271 21,316,085
OTHER SOURCES
- - - - - - - - - -
2,786,217 4,779,365 6,855,764 9,191,570 11,841,727 13,987,225 15,976,885 17,872,091 19,691,271 21,316,085

APPLICATION
Repayments of Loan 1,556,377 3,112,753 3,112,753 3,112,753 3,112,753 1,556,377 - - - -
Tax Payment 57,122 487,101 2,126,398 2,976,423 3,841,159 4,687,398 5,415,542 6,105,492 6,764,544 7,351,985
Dividend Paid
- Cash - - - - - - - - - -
1,613,499 3,599,854 5,239,151 6,089,176 8,498,213 6,243,774 5,415,542 6,105,492 6,764,544 7,351,985
SURPLUS / (DEFICIT 1,172,718 1,179,511 1,616,612 3,102,395 3,343,514 7,743,450 10,561,343 11,766,599 12,926,727 13,964,100

INCREASE/(DECREASE) IN WORKING CAP 507,181 222,493 147,138 173,462 206,212 184,161 204,970 223,729 240,811 255,859
NET INCREASE/(DECREA 665,537 957,017 1,469,474 2,928,933 3,137,302 7,559,290 10,356,373 11,542,870 12,685,916 13,708,241
OPENING BANK BALANC 377,390 1,042,927 1,999,944 3,469,418 6,398,351 9,535,653 17,094,942 27,451,315 38,994,185 51,680,102

CLOSING CASH BALAN 1,042,927 1,999,944 3,469,418 6,398,351 9,535,653 17,094,942 27,451,315 38,994,185 51,680,102 65,388,343

WORKING CAPITAL 507,181 729,674 876,813 1,050,275 1,256,487 1,440,648 1,645,617 1,869,346 2,110,157 2,366,017

Increase 507,181 222,493 147,138 173,462 206,212 184,161 204,970 223,729 240,811 255,859
9.5 Revenues
Revenues

Quantity of Gas Sale per Vehicle 9.31 Cubic Meter

Annual Increase in the Sale Price of Gas 5%

Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10

255
No. of Cars / day 202 Cars 303 Cars 363 Cars 435 Cars 522 Cars 600 Cars 690 Cars 793 Cars 911 Cars 1047 Cars

Sale of Gas / day (in M 3) 1878 2816 3380 4050 4860 5586 6424 7383 8481 9748

Sale of Gas / month (in M 3) 57206 84488 101386 121496 145795 167580 192717 221485 254442 292427

Sale of Gas / anum (in M 3) 686473 1013859 1216631 1457946 1749535 2010960 2312604 2657819 3053308 3509125

Selling Price of Gas / M 3 Rs. 19.14 Rs. 20.10 Rs. 21.10 Rs. 22.16 Rs. 23.26 Rs. 24.43 Rs. 25.65 Rs. 26.93 Rs. 28.28 Rs. 29.69
Total Revenue 13,139,090 20,375,524 25,673,161 32,303,626 40,702,568 49,123,789 59,316,976 71,580,116 86,342,950 104,194,426

Sales Tax @ 15% Rs. 2.50 Rs. 2.62 Rs. 2.75 Rs. 2.89 Rs. 3.04 Rs. 3.19 Rs. 3.35 Rs. 3.51 Rs. 3.69 Rs. 3.87

Sales Tax Amount Rs. 1,714,651 Rs. 2,659,006 Rs. 3,350,347 Rs. 4,215,623 Rs. 5,311,685 Rs. 6,410,655 Rs. 7,740,865 Rs. 9,341,205 Rs. 11,267,755 Rs. 13,597,373
9.6 Cost of Sales

Cost of Sales

Rate of Gas Rs. 6.50 /Cubic Meter

Consumption of Electricity 0.186 KW /Cubic Meter
Rate of Electricity Rs. 6.92 /KWHr
Maintenance Rs. 0.25 /Cubic Meter
Annual Increase 10%
Year 1 Year 2 Year 3 Year 4 Year 5 Year6 Year 7 Year 8 Year 9 Year 10
No. of Cars / day 202 Cars 303 Cars 363 Cars 435 Cars 522 Cars 600 Cars 690 Cars 793 Cars 911 Cars 1047 Cars
Annual Gas Sold (in M3) 686,473 1,013,859 1,216,631 1,457,946 1,749,535 2,010,960 2,312,604 2,657,819 3,053,308 3,509,125
Electricity Consumed in KWH 127,684 188,578 226,293 271,178 325,414 374,039 430,144 494,354 567,915 652,697
Rate of Gas Rs. 6.50 Rs. 7.15 Rs. 7.87 Rs. 8.65 Rs. 9.52 Rs. 10.47 Rs. 11.52 Rs. 12.67 Rs. 13.93 Rs. 15.33
Rate of Electricity Rs. 6.92 Rs. 7.61 Rs. 8.37 Rs. 9.21 Rs. 10.13 Rs. 11.14 Rs. 12.25 Rs. 13.48 Rs. 14.83 Rs. 16.31
Cost of Sales
Cost of Gas Sold 4,462,074 7,249,092 9,568,801 12,613,420 16,649,714 21,051,363 26,629,974 33,665,690 42,542,734 53,783,169
Cost of Electricity 883,062 1,434,624 1,893,704 2,496,246 3,295,045 4,166,149 5,270,178 6,662,575 8,419,377 10,643,904
Maintenance 171,618 253,465 304,158 364,487 437,384 502,740 578,151 664,455 763,327 877,281

Cost of Sales 5,516,754 8,937,181 11,766,663 15,474,153 20,382,143 25,720,252 32,478,303 40,992,720 51,725,438 65,304,354

9.7 Working Capital

Working Capital
1 2 3 4 5 6 7 8 9 10
Total No. of Days 360 Days
Current Assets Basis
Receivables Sales 25 793,364 1,230,314 1,550,195 1,950,556 2,457,700 2,966,190 3,581,674 4,322,147 5,213,555 6,291,462

Advances to Employees Payroll+Benefits 30 87,450 96,195 105,815 116,396 128,036 140,839 154,923 170,415 187,457 206,203
Stores & Spares Stock - - - - - - - - - - -
TOTAL CURRENT ASSETS 880,814 1,326,509 1,656,010 2,066,952 2,585,736 3,107,029 3,736,597 4,492,562 5,401,012 6,497,665
Current Liabilities
Accrued Utilities & Power
Expenses Utilities Expenses 20 10,000 11,000 12,100 13,310 14,641 16,105 17,716 19,487 21,436 23,579
Accounts Payable Cost of Gas & Electricity 20 296,952 482,429 636,806 839,426 1,108,042 1,400,973 1,772,231 2,240,459 2,831,228 3,579,282
Sales Tax Payable Sales Tax 14 66,681 103,406 130,291 163,941 206,566 249,303 301,034 363,269 438,190 528,787

TOTAL CURRENT LIABILITIES 373,633 596,834 779,197 1,016,677 1,329,249 1,666,381 2,090,980 2,623,215 3,290,855 4,131,648

NET WORKING CAPITAL 507,181 729,674 876,813 1,050,275 1,256,487 1,440,648 1,645,617 1,869,346 2,110,157 2,366,017
9.8 Ratio Analysis
Ratio Analysis

Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10
Profitability Ratios
Gross Profit 51.71% 49.55% 47.29% 44.91% 42.41% 39.78% 37.03% 34.14% 31.10% 27.92%
Operating Profit 23.85% 31.48% 32.72% 33.05% 32.25% 31.29% 29.69% 27.75% 25.51% 22.99%
Net Profit before tax 14.32% 21.03% 26.38% 29.56% 30.71% 31.03% 29.69% 27.75% 25.51% 22.99%
Profit after Tax 13.82% 18.28% 16.85% 18.96% 19.85% 20.06% 19.19% 17.94% 16.50% 14.87%
Return on Investment (ROI) 5.01% 10.16% 11.50% 15.15% 17.84% 18.34% 17.35% 16.24% 15.14% 14.02%
Return on Equity (ROE) 9.21% 15.89% 15.58% 18.07% 19.25% 19.01% 18.01% 16.89% 15.78% 14.65%
Earning per Share (EPS) Rs. 1.05 Rs. 2.39 Rs. 3.78 Rs. 5.33 Rs. 6.98 Rs. 8.52 Rs. 9.84 Rs. 11.10 Rs. 12.30 Rs. 13.38
Dividend per Share Rs. - Rs. - Rs. - Rs. - Rs. - Rs. - Rs. - Rs. - Rs. - Rs. -
Liquidity Ratios
Current Ratio 6.52 6.43 7.24 8.83 9.50 12.43 15.16 16.77 17.50 17.52
Debt Ratios
Debt Ratio (of total assets) 44.44% 34.18% 23.80% 13.28% 3.95% 0.00% 0.00% 0.00% 0.00% 0.00%
Debt Equity 81.7% 53.5% 32.2% 15.8% 4.3% 0.0% 0.0% 0.0% 0.0% 0.0%
Interest Coverage Ratio 2.50 3.01 5.16 9.47 20.95 122.67 0.00 0.00 0.00 0.00