Project Proposal to Establish Fuel Station

1. Introduction

Economic Development in any case needs both attentions of the private as well as the
public sector. There are investments, which could not be employed by both privet and
public sector due to the passed command economy system (passed regime policies).
Investment constraints have been over a decade since Ethiopia adopted the free market
economic policy and promote the privet sectors in different ways. In this new economic
order, investment of privet sector happens to be determinant factor of economic
development. Both privet sector and government bodies in many ways have commonly
agreed an investment is usually considered qas the engine of an economy. There are
investments that still not will be undertaken by private sector due to the above-mentioned
passed regime policy and its difficult nature, such as long gestation period and high
initial capital.

An increase a needs of fuel consumption, such as transport vehicles and trucks,

Construction activities and construction machinery are to attract the establishment of
modern fuel stations at every where especially at important places. This investment
activity in Ethiopia is up to now not developed to carry out the demand for it. So that, the
modern fuel station investment in future has positive impact on the over all national
economy development.

Now a day, any one confidently said that the future development of fuel station in
Ethiopia is not constrained on the demand side but there is not enough supply. Due to
this reason, the project under consideration envisages. To exploit this business potential
for the benefit of the promoter and the country.

The investment under consideration is also prepared with the aim of establishing a
modern fuel station with modern commercial complex services at Bishoftu town.

As the area not very far from the center of Capital City of the country, Finfinne, it has
well share development social and economical infrastructure. Such as, electric power,
water, telephone and other infrastructures. To generalize the project is ideally located for
 Project Proposal to Establish Fuel Station

purpose of fuel station. Like most business venture the project aims to maximize return
on invested capital. In addition to this, in a process of attaining this basic new idea it also
benefit able the community by employment creation, revenue generation through the
taxation and soon. It is clear that Ethiopia follows the free market system and this in turn
needs the individual inject its potential in to the economy, so that the problems above
mentioned gradually eliminated and the national economy also gradually become
develop. With this understanding this project to be planned by promoter,
_____________ and this paper indicated that to briefly show the project’s importance,
area advantages, planned activities, estimated project capital and other important aspects.

2. Background

Being any investment before starting investment processes, rendering institution primary
requirement the existence of target customers and necessary infrastructure facilities in the
project site. Its establishment at proper place for its users will have a direct effect on
sales of its supplies as well. So that, during it’s planning stage, the surround availability
of target for the users must take a first stage. Such a, road net work, electrical power and
water supply are the main one. With out such infrastructure establishing of any project
has no tood result for the both promoter and customers.

To come in to the actual, the area which ideally proposed by the promoter ___________
has widely assessed all the above mentioned parameters and other related aspects before
coming up with her final decision of its establishment at Bishoftu town.

Bishoftu town currently has its own decision make power for any investment that
established around its administration boarder. Due to this reason, in the town recently
would allocated different investment for industry, agro-industry, services and soon that
would accommodate large number of workers the dwellers and farmers residents around.
 Project Proposal to Establish Fuel Station

In other hand, there are high traffic movement through and in /to and for/the town and
there is high quality asphalt road via through greatly enable high truck and vehicle traffic
movement. From this in the future the project has not the restraint of demand.

East part of the country pass through project area, Bishoftu include East Show, Arsi,
Bale, Borena, Guji, West and East Harar Zones Oromia and far to South people’s,
Somalia, Harare, Dire Dawa, Afar regional states and abroad, Kenya , Djibouti, Somalia
countries. This part of the country is known by high cash crop, and cereals production as
from wholwe parts of the country both for domestic and foreign export markets. Again,
there are also high supply of agricultural inputs and industrial products to the areas and
import and export transaction also high in the areas. In addition to this, in the area there
are different tourist attraction sites, which created with nature.

All such conditions have necessitated continuous traffic movement and from such areas,
that increasing the demand for fuel supply at out skirt of Addis Ababa.

To generalize, the promoter’s __________ has rich experience to lead the under
consideration investment and to cover the finance of expected.

3. Basic Features of the Project Area

3.1. Project Location and site Area

As it has been mentioned earlier, the envisaged Modern Fuel station with commercial
complex project of __________, is planned to be established at the Bishoftu which
located in Bishoftu local government.
Administration, Oromia region along the main road which is via from Addis Ababa to
east of the country said.

This, Which for a long time had been serving as tourism Bishoftu site is located at about
50 kms, east of Addis Ababa and is currently allocated for industrial establishments of
private entrepreneurs by the regional government as well as the local Government
 Project Proposal to Establish Fuel Station

administration. This investment project is expected to supply the basic input (fuel) to
those industries, surrounding residents and to passing trucks and vehicles. Therefore,
initiated as a result of the Government's overall commitment towards the integrated
private sector development in all spheres.

The project under consideration requires a site area of about 8000m2 in order to
accommodate all the necessary fuel supply structures, buildings and other necessary
facilities, properly. Depending on the projects unique nature expected (during land
allocation) that the site should be along side the main road.

3.2. Infra structural Development

3.2.1. Accessibility

The main asphalt road which has been serving to connect Addis Ababa with earlier
mention zones, regions and abroad and other Easter areas passes through this site and
alternatively, based on Government's Road improvement plan, higher-quality access road
is being on the use which will directly pass through the proposed site under
consideration.

3.2.2. Power and water supply

While preparing the industrial zone, main electric power and water lines have been
extended to the site with adequate supply capacity. More over, there is ample under
ground water potential as observed in surrounding.

3.2.3. Other Socio-economic services

These include education and health services, transport facilities, financial institutions,
government offices etc. Regarding the fulfillment of these ones, since the area is
allocated for the above-mentioned purposes; so far, these have been developed there.
 Project Proposal to Establish Fuel Station

However, since it is at a distance of only 50 kms. From Addis, one can easily be served
from Finfinne. and surrounding towns like mojo and Dukam at any required service level.
 Project Proposal to Establish Fuel Station

4. Important Aspects of the Project

4.1. Project component and services

As its name implies the proposed project will accommodate both the fuel supply
service with commercial activities at the planned project site.
The project’s fuel station will mainly provide the following major services:-
 Fuel supply of petrol, diesel, naphtha and kerosene with al types of oils and
lubricants,
 Car wash with lubrication service:- To provide this service the project has planned
to prepare four car washing structures and facilities that tow of them for heavy
trucks and two for light vehicles and
 Tire-repair service.
 Again the building to be built for commercial activities will consist of a well-
equipped cafeteria service, a super market and a project office, as well. In
planning to perform these activities the promoter has approached the new NOC-
Ethiopia Company and got positive response and acceptance, waiting only for the
land securing process to be finalized soon.

4.2. Objective and benefits

Obviously, the primary objective of the project is to effectively implement to generate

adequate profit for the promoters that will enable him develop his investment career.
Similarly, this will play a significant positive role in the over all development prospect of
the government.

To mention some of the expected major benefits of it, the project intends to:-
 Supply fuel and lubricants in a required amount and provide full car wash and tire
repair services
 Project Proposal to Establish Fuel Station

 Create job opportunities for a number of employees during construction and its
full operation
 Generate reasonable retune on planned investment
 Increase government revenue through taxation and
 Contribute to the over ala socio economic development of the region and the
country as well.

4.3. Management and manpower

Generally, the envisaged project under consideration is expected to be equipped with

all necessary facilities and modern Organizational setups, based on the company’s
standards and requirements. These will all be fulfilled in order to attain at maximum
customers satisfaction level in all aspects.

In this respect there fore the projects is planned to be organized in such a way that it
will employ a well experienced manager at the top who will be responsible to manage
the over all day-to day operation of the project. The project is planned to provide all
the services 24 hours each day, by the 3- shifts manpower allocation with proper
work evaluation and control measures to be implemented.

For the planned full-time or 3-shifts working condition, it will recruit about 53
workers on permanent basis, who are all expected to have adequate work experience
with respect to all requirements of each work position (title)for which he/she is
assigned.
 Project Proposal to Establish Fuel Station

Table:- ____Project Manpower and corresponding salary bill (in

birr)
Position(title) No Monthly Annual salary
Salary/head Expense
1. Project Manager 1 1,600 19,200
2. Sales and personnel chief 1 800 9,600
3. Inputs supply worker 1 800 9,600
4. Fuel sales Workers 12 2,400 28,800
5. Oil & lubr.Sales Workers 6 1,200 14,400
6. Tyre repair workers 5 1,000 12,000
7. Car washers 10 2,000 24,000
8. cafeteria workers
9. cashier 1 300 3,600
10. cafeteria service men (waiters) 5 750 9,000
11. Cleaners
12. Guards 2 300 3,600
13. Shop keeper 4 800 9,600
14. Store man 4 1,000 12,000
1 600 7,200

Total 53 13,550 162,600

4.4. Market Prospects

In order to determine the project’s future market prospect of its service provisions,
different conditions should be considered. This is due to fact that its sustainability could
be influenced by a not of factors like the availability of potential service-seekers, the
existence and few in number of similar service providers around, the quality of its service
provision and management quality, etc.

In this regard, as it has been discussed above topic the planned project is on a main road
via to the eastern part of country from Addis Ababa.

Finfinne this shows that the station will be the fourth along the line with convenient
service supply condition especially for heavy trucks unlike the fuel stations in urban areas
working under very congested working conditions creating great inconvenience to
vehicles. Moreover, eastern Ethiopia known for its high cash crop and cereals
production, on one hand, and is also among the highest consumers of agricultural inputs
 Project Proposal to Establish Fuel Station

and industrial products. This has created high product transport traffic that passes
through the site under consideration.

The expected high number of industrial and agro-industrial establishments in the eastern
part of the country is also the other dependable market prospect for the project.

In general, the shortage of similar service provider around, the expected highly growing
number of services-seekers with the intended good service and management quality are
some of the indicators which will guarantee the existence of reliable market prospect for
all project service provisions. The annual overall capacity utilization of each project
service item is estimated and described under the forthcoming topics of this paper.

4.5. Capacity determination

Even though the exact value of the demand situation of the project’s services at the
specific area under consideration is not easy to estimate the expected capacity, the
conditions of the recently built similar fuel stations around have been considered, as well.
On these bases, the following assumptions and estimates have been made:

 Fuel and oil supply:-

- Estimated total fuel supply 80,000 lit/day
- Percentage share of diesel (Naphtha), petrol (Benzene) and Kerosene are
75%, 20% and 5%, respectively
- Estimated average supply of oil and Lubrication is 100 Kg/day
 Car wash service:-
- Estimated daily Truck wash (av.)….. = 10
- Estimated daily small vehicles wash(av.)…= 15
 Cafeteria service:-
- Here it is assumed that daily total sales birr 800 and, estimated sales profit
is about 40%.
 Project Proposal to Establish Fuel Station

These being at full (100%) capacity utilization, the actual attainable capacity of each is
assumed to be 80%, 90% and 100% for the project’s 1 st, 2nd and 3rd for the remaining
years of operation.

5. Financial Analysis

5.1. Fixed Investment cost Estimates (birr)

No Cost item Amt. Unit cost Total cost
1 Construction and civil works
1.1 Land prep. with tanker pits Lamps 180,000
1.2 Hangar Shade construction 2 250,000 500,000
1.3 Café, office and shop bldg. Lamps - 250,000
1.4 General service store 1 45,000
1.5 Car wash pits with open rooms 4 14,000 56,000
1.6 Tyre repair room 1 19,000 19,000
1.7 Compound concrete and asphalt coating - - 800,000
1.8 Water installation 2% - - 37,000
1.9 Electric power installation 25 - - 37,000
1.10 Side and Back side fencing 1% - - 18,6000
- Sub total - - 1942500
- Contingency (10%) - - 213675
- Total - - 2156175
2 Equipments and materials*
2.1 50,000lit. Capacity tankers 4 50,000 200,000
2.2 Tyre repair equipments & materials - - 40,000
2.3 Cafeteria equipments & materials - - 60,000
2.4 Office equipments & materials - - 10,000
2.5 Vehicle mounting hydraulic structures 3 20,000 45,000
-Sub total - - 370,000
- Contingency (100%) - - 37,000
- Total - - 407,000
- GRAND TOTAL (1+2) - - 2563175
 Other fuel station machineries will expect to be supplied by the company.

5.2. Annual Operating Cost Estimates (Birr)

As we know any investment needs operating cost to start its work. The operating cost
different from project to project. That means some of them not need high operating cost.
The project investigated estimate annual operating cost mention as follows.
 Project Proposal to Establish Fuel Station

5.2.1. Repair and maintenance

Is assumed to cost about 5% of the fixed cost = birr 12787.50

5.2.2. Property Insurance

This premium is estimated to be about 3% o the fixed cost = birr 76312.50

5.2.3. Utilities expense

These include electric, water, postal and telecommunication service charges and other
office utilities, too. These are also estimated to cost about birr 5000 per month =
60000/year.

5.2.4. Worker’s uniform purchase

Is estimated to cost about 10% of the salary expense = birr 16260/year.

5.2.5. Other miscellaneous expenses

These may include expenses such as land rent fee, license payments, and other
unanticipated costs that are estimated to be about birr 14000/year.

5.2.6. Input Expenses

Based on assumptions and estimates made under topic number 4,5 earlier with current
supply prices of each in put calculated as the below table. The in puts sales in the project
under consideration are fuel, oil and lubricate and cafeteria in puts majors.

The following annual expense is estimated,

Input Item Supply Amount Yr(3- Unit Annual Expense (in’000br.)
(in ‘000) 10) Cost
(br.)
Yr-1 Yr-2 Yr-1 Yr-2 Yr(3-10)
- Naphtha 1t. 10,95 12,31 13,68 4.28 46,866 52725.32 58584.64
0 9 8
- Benzene 1t. 2920 3285 3650 5.47 159272.4 17968.95 19965.5
- Kerosene 1t. 730 821 913 2.95 2153.5 2421.25 2693.35
- Oil & Lubr. Kg. 29.2 32.85 36.5 16 467.2 525.6 584
- Café Inputs br. - - - * 70.08 78.84 87.6
Total - - - - 65529.18 73720.66 81915.09
 Project Proposal to Establish Fuel Station

5.3. Annual Operating cost estimate and working capital requirement (Birr)

No Description Annual operating costs Working capital requirement

Yr-1 Yr-2 Yr(3-10) Req. Period Yr-1 Yr-2 Yr-3
1 Input expenses 65529.180 73720.660 81915.090 1 weel 1260176.5 1417705 1575290.20
2 Workers Salary 162600 162600 162000 3 months 9380.77 9380.77 9380.77
3 Repair & Maintenance 127187.50 127187.50 127187.50 6 months 63593.75 6393.75 63593.75
4 Property insurance 76312.50 76312.50 76312.50 1 year 76312.50 76312.50 76312.50
5 Utilities expenses 60000 60000 60000 1 months 5000 5000 5000
6 Workers uniform 16260 16260 16260 6 months 8130 8130 8130
7 Other Miscellaneous 14000 14000 14000 3 months 3500 3500 3500
exp.
TOTALCOSTS 65985540 74177020 82371450 - 1362499.8 1520028.30 1677613.50
INCREASE IN WORKING CAPITAL - 157528.47 157585.17
 Project Proposal to Establish Fuel Station

5.4. Total Initial Project cost components (birr)

Being under consideration investment is covered means of finance. All expected sources
of finance for modern fuel station with commercial activities investment could be overd
by promoter own capital and bank loan. Finance requirement is composed of fixed
investment cost and annual operating cost estimated to birr 3906249.80 out of this total
capital fixed cost accounts about birr 3499249.80 and annual operating cost estimated.
Fixed investment items including constriction/civil work/cost, machinery cost, and
different equipment, while annual operating cost estimated including the cost expending
per annum for the operation of the project to be cover-running cost of the principal
income generating unit.

The existing total project costs requirement of this unit is calculated as follows.
R.N Description Total cost Cost Component
Local Foreign
1 Fixed Investment cost 2543750 3499249.80 40700
1.1 Construction & civil Works 2136750 2136750 ----
1.2 Equipments & Material 407000 ------- 40700
2 Initial Working Capital 1362499.80 1362499.80
INITIAL PROJECT CAPITAL 3906249.80 3499249.80 40700

5.5. Financial Sources plan

 Promoter’s equity share (40%) = birr 1562499.90

 Expected bank loan (60%) = birr 2343749.90
Total = birr 3906249.80
 Bank Loan repayment period is 7 years.
5.6. Bank Loan amortization Schedule (in ‘000br.)
Years Principal Bank Interest Total Outstanding
(7%50%) repayment balance
0 - - - 2344
1 335 176 511 2009
2 335 151 486 1674
3 335 126 461 1339
4 335 100 435 1004
5 335 75 410 669
6 335 50 385 334
7 335 25 360 0
Project Proposal to Establish Fuel Station
 Project Proposal to Establish Fuel Station

5.7 Annual Depreciation of fixed assets (in ‘ooo Birr)

R.N Fixed assets Initial value Annual depreciation
Rate Value
1 Construction & civil 2137 5% 107
Works
2 Equipments & Materials 407 10% 41
Total 2544 - 148

6. Annual Revenue Projection

It has been made clear that the project under consideration gets its revenue from sales of
its supplies and from the services like car wash and cafeteria. The government sets the
selling price of different types of fuel and the current profit margin of birr 0.03 is
considered here. The corresponding prices of the remaining items are estimated on the
basis of current prices and from experiences of other similar establishments.

Taking the assumptions and estimates made earlier into consideration, the annual revenue
of the project is summarized as follows:-

Input Item Supply amount(in’000) Unit Annual revenue (in’000br.)

price
(br.)

Yr-1 Yr-2 Yr(3-10) 4.31 Yr-1 Yr-2 Yr (3-10)

Naphtha 1t. 1095 12319 13688 4.31 4719450 53094.8 58995.2

0 9 8
Benzene 1t. 2920 3285 3650 5.50 16060 18067.5 20075
0
Kerosene 1t. 730 821 913 3.00 2190 2463 2739
Oil & Lubr. Kg. 29.2 32.85 36.5 20.3 592.76 666.86 740.95
Truck wash no 2.92 3.285 3.65 140 408.8 459.9 511
Café Output br. 1.46 1.6425 1.825 45 65.7 73.91 82.13
-Total 116.8 134.4 146 - 116.8 131.4 146
- - - - 66628.5 74957.4 83289.3
6 6 6
 Project Proposal to Establish Fuel Station

7. Projected Financial Statements

7.1. Forecasted Income statement of the project (in ‘000br.)
Description Project Years
1 2 3 4 5 6 7 8
Gross Revenue 66628.56 74957.46 83289.36 83289.36 83289.36 83289.36 83289.36 83289.36
Less: Operating costs 65986 74177 82371 82371 82371 82371 82371 82371
Income from Operation 643 780 918 918 918 918 918 918
Less:Depreciation 148 148 148 148 148 148 148 148
: Interest 176 151 126 100 75 50 25 0
Profit before tax 319 481 644 670 695 720 745 770
Less: Profit tax(35%) 112 168 225 241 250 259 268 268

NETPROFIT 207 313 419 429 449 461 477 508

 Project Proposal to Establish Fuel Station

7.2. Cash flow Statement of The Project (in ‘000br)

Description Project Years
0 1 2 3 4 5 6 7 8 9 10
Cash Inflow
equity 1562 - - - - - - - - - -
Bank loan 2344 - - - - - - - - - -
Depreciation - 148 148 148 148 148 148 148 148 148 148
Net Profit - 207 313 419 429 449 461 461 508 508 508
Total Inflow 3906 355 461 567 577 597 609 609 656 656 656
Cash Out flow
Fixed Inv. 2544 - - - - - - - - - -
Initial W. Cap. 1362 - - - - - - - - - -
Increase in W.cap - - 158 158 - - - - - - -
Principal Rep. - 335 335 335 335 335 335 335 335 335 335
Total outflow 3906 335 493 493 335 335 335 335 - - -

Net Inflow - 20 32 32 242 262 374 274 656 656 656

Cumm.Balance - 20 12 12 304 566 840 840 1786 2442 3094
 Project Proposal to Establish Fuel Station

8. Summary of the Financial Analysis

The project operating 365 days per annum at two eight hour shifts will have a net annual
profit of birr 229 million as shown in the simple financial analysis below. Costs of
production are the fixed and variable costs which include depreciation of the fixed assets,
land rent payment, average loan interest payment, raw materials and utilities, wages and
salary and other unforeseen miscellaneous costs.
Total Cost of production (Birr)

Fixed costs In Birr

Depreciation of Building (5%) 107
Depreciation of machinery (10%) 41
____________
Total of depreciation 148
Interest payment (Average) 335
Total Fixed cost 483 Varia
ble Cost
Raw material and utilities 66
Wages and salary 163
Miscellaneous 179
Total Variable cost 407

Total annual prod. Cost (Birr) 890

 Project Proposal to Establish Fuel Station

The net Annual Profit

Annual Revenue (Birr)

Revenue 6639

Sales Tax/VAT(15%) 9994

Net Revenue 56634
Production cost 890
Gross Profit 55744
Income/Business Tax (35%) 19510

Net Profit (Birr) 36233

9. The payback Period

The project worthiness can easily be tested using the simple pay back period calculation.
Thus, the pay back period of the project is calculated as the ration of the total investment
cost to the sum of the net profit and total depreciation cost as shown below.

Total Investment cost

Pay back Period = ---------------------------------
Net Profit + Depreciation
3006
= ----------------------------------
36381 + 148

= 6.1 years
 Project Proposal to Establish Fuel Station

10. Conclusion
As shown in the above simple analysis, the project will pay back for itself in about sex
years. Create a job opportunity for not less than 53 nationals. Contribute to the
government significant revenue in the form of income tax and VAT. Therefore, the
project is beneficiary both to the owner and to the government and is recommended for
implementation.