Feasibility study ON THE establishment OF fuel station

PROMOTER:Mr.Frew Abo Getaneh

Phone No:-0911149969
May, 2023
Debrebirhan
Ethiopia
 Table of content
1. PROJECT OVER VIEW...............................................................................................................2
2.INTRODUCTION.............................................................................................................................3.
3. overview of petrolium....................................................................................................................5
4. BACK GROUND OF THE COMPANY...............................................................................5
4.1. OWNERSHIP..................................................................................................................5
4.2. VISION, MISSION AND OBJECTIVE OF THE COMPANY..................................6
4.2.1. VISION.....................................................................................................................6
4.2.2. MISSION..................................................................................................................6
4.2.3. OBJECTIVE............................................................................................................6
4.2.4. CORPORATE SOCIAL RESPONSIBILITY OF THE......................................7
4.2.5. BENEFIT OF THE PROJECT..............................................................................7
4.2.6. RISK MANAGEMENT AND SWOT ANALYSIS..............................................7
5. MARKET STUDY........................................................................................................................9
5.1. PAST SUPPLY AND PRESENT DEMAND...................................................................9
5.2. PRESENT DEMAND.....................................................................................................11
6. DESCRIPTION OF THE PRODUCT/SERVICES.....................................................................14
6.1. Services -.........................................................................................................................14
6.2. Number of fuel feeling tanks..........................................................................................14
6.4. Modern car washing.......................................................................................................15
6.5. TARGETED MARKET AREA....................................................................................17
7. PRICING AND DISTRIBUTION...............................................................................................17
8. PROMOTION..............................................................................................................................17
9. UTILITIES..................................................................................................................................18
10. LOCATION AND SITE............................................................................................................18
11. LAND, BUILDING AND CIVIL WORKS............................................................................19
12. HUMAN RESOURCE AND TRAINING REQUIREMENTS..............................................21
12.1. HUMAN RESOURCE REQUIREMENT.......................................................................21
12.2. TRAINING REQUIREMENT........................................................................................21
13. TOTAL INITIAL INVESTMENT COST...............................................................................22
14. ENVIRONMENTAL IMPACT............................................................................................23

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 1. PROJECT EXCUTIVE
No Title Descriptions

1 Project Feasibility Study Of Fuel Station

2 Promoter Mr.Frew Abo Getaneh

3 Types of business Private

4 Project location ARS North Shewa zone at Debrebirhan city

5 Proposed land size 30,000 m2

6 Employment opportunity 145permanent and temporary employment

7 Total investment capital 140,000,000 Birr

8 Source of capital 30% by the Owner and 70% bank loan

9 Benefits of the project for the Provide better service, revenue generation,
regional/country Employment Opportunity, benefits local
economy and stimulate local economy.

Fuel (Diesel, Gasoline and Kerosene), bar

and restaurant, cafeteria, bank, car wash, car
10
Service Composition parking, super market and bank.

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 2. INTRODUCTION
With the development of roads and urban cities it enhanced the exposure to
motor able areas. People use to utilize any kind of vehicle for their ease of life.
So that people all over the world need fuel for their cars, trucks, and other
vehicles, fuel stations can be good investments. And because the world is
looking for more environmentally-friendly functions the successfully opening
and running a filling station requires smart planning and a significant
investment.
With the development of roads system and town in DebreBirhan, access of
large number of vehicles to the town. Furthermore, there will be large project
on implementation of housing schemes and office complexes in DebreBirhan.
It leads to create big demand in uses of vehicles as well as demand for filling
station in easy access area. DebreBirhan intended to initiate a fuel filling
station to cater this booming demand in near future. They have enough lands to
execute this project in their own authority. The project will be planned to be
executed in two parts. At the outset there will be implementation of Vehicle
service Centre with supplementary services complex and the second part will
be executed as this filling service station.

Since Mr.Frew Abo Getaneh will be creates for 145 man power for the
established entity there will be solving of additional employment opportunity
for the town and only lack of land is the main constraint of this project. Since
DebreBirhan district is developing in higher rate of frequency there will be
high demand in investments from private sector; So that, the project will be
definitely easy to find investor especially from private sector.

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From the view of Mr.Frew Abo Getaneh who governs this project should
focus on following mentioned economic and environmental aspects:

1) Provisioning of income generating opportunities by adjoined services

parallel to this Filling Station.
2) More concern on environmental aspects especially on releasing refused
liquid, water, and others to the environment.
3) Provision of good supplementary services in the location.
4) Expanding various projects on public services in the municipal area through
the income of this special project.
5) Ultimately the quality of the living status of people in the area to be
enhanced.

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2.1. Overview of petroleum market in Ethiopia
Ethiopian imports its entire petroleum fuel requirement and the demand for
petroleum fuel is rising rapidly due to growing economy and expand and
expanding infrastructure. The annual consumption of petroleum fuels amounts
more than 1.2 million tones which is equivalent to 5.4 of total final energy
consumption. Imported petroleum product account about 40% of total imports
and absorbs 60% of export earnings.

Most people living in Ethiopia have, until now, been unable to satisfy their
household energy requirements with modern energy sources (kerosene n
/electricity, gas). In rural areas they use only biomass (wood, dung or
agricultural waste) for cooking, baking and heating. The biomass energy
consumption is estimated about 94% of the total. The law agricultural
production is a consequence of deforestation, erosion of desertification. The
area exposed to desertification in Ethiopia estimated to about 70% of total
land area the major cases of this the increase in population, which has resulted
in an increase in biomass fuel consumption for household energy, land
clearance for agricultural activities and biomass stock is under threat leaving
the oil open to erosion and the people even more challenged to feed
themselves. Hence the average rate of evasion has been estimated 400 tones
fan /annum. In addition this destruction of vegetation means the loss of
genetic recourse of both plants and animal’s .an addition to that women and
children faced long distance travelling for fuel wood collection and indoor
pollution.

4.1. VISION, MISSION AND OBJECTIVE OF THE COMPANY

4.1.1. VISION

This fuel station company has defined vision; that is to builds and operates
complete and affordable service to all customers. This will be achieved through

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becoming a leading company committed to providing maximum customer
satisfaction

4.1.2. MISSION

The mission of this fuel station is to be profitable in the process of impacting

and accelerating Ethiopia’s booming economy and provide maximum customer
satisfaction at fuel station history.

4.1.3. OBJECTIVE

The major objectives of the project embrace the following;

 Providing High quality petrol station at minimized cost

 Contribute to the development of the country’s economy,
 Play a major role on fuel supply and reduction of poverty,
 Provide employment opportunity to large size of the people,
 Maximize profit to the investor,
 Generate income to the government in the form of tax,
 Expected output of the project/ service etc.
4.1.4. CORPORATE SOCIAL RESPONSIBILITY OF THE
PROJECT/SERVICE

The company recognizes the fact that the broader community in which we
operate affords our 'license to trade'. We intend to establish relationships based
on trust and mutual advantage through engaging in a wide range of active
social responsibility programs. Our efforts on community service will show
that the company has its own community at heart, contributing towards the
establishment of a good and reputable image. We intend to be a responsible
corporate citizen fully contributing positively towards the environment in
which we shall operate. Furthermore, we work hand in hand with other
organizations to support the goals of empowering women and supporting our

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younger generation; through donations, fundraising and active education
programmers.

4.1.5. BENEFIT OF THE PROJECT

The project will create employment opportunity to 145 employees. It will earn
substantial profit to the owners and raise tax revenue for the government.

4.1.6. RISK MANAGEMENT AND SWOT ANALYSIS

A critical component of every project feasibility study is the SWOT (strength,

weakness, opportunities and threats) analysis. The analysis representing a
synthesis of desk top study findings and other results is the core of this project
risk assessment.

The following factual information concerning the state of the Ethiopian

economy and political stability served as a frame work for conducting this risk
analysis.

1. Solid macroeconomic performance is providing a sustained base for

Ethiopian’s growth with GDP 8 % for last consecutive three years

2. Government structural growth and transformation plan(GTP) has the

potential of diversifying Ethiopia’s economic base and translating in to
higher and sustainable growth

3. Ethiopia’s infrastructure is now to be developed, and is showing

continuous improvement. These efforts offer investors significant
opportunities as the government continue to move forward on economic
policies supportive of investment.

The one core factor that eliminates the business risk for fuel station is that,
critical determinants will be marketing and advertising the biggest challenge
for any new market is introducing its product and services to the consumer and

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gaining their confidence. We believe the following points are the critical
success factors.

 Managerial experience, our material and machineries supplier is bringing

their best experience and knowledge to participate in the marketing.
 We will be introducing the best fuel station management solutions to the
market.

In general, competition that comes from companies of a similar nature and the
reliability of the existence of a good and long term market are points to be
notes as risk factors.

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5. MARKET STUDY
5.1. PAST SUPPLY AND PRESENT DEMAND
In Ethiopia, during the last five years the oil demand has increased on the
average by 10% per year. Diesel accounts for 85%-87% of oil consumption. In
the country, the fuel demand is more of driven by demand of the transport
sector. The importance of the sector in fulfilling most transportation needs,
providing power and serving as a foundation for petrochemical business
underpins the survival of other essential industries.

In Ethiopia, so far, there has been no discovery of oil in commercial quantities.

However, exploration for oil and natural gas is currently taking place in
different areas of the country, including the parts of the Ogaden Basin, in
Southern Rift Basin, the Gambela Basin, the Mekele Basin, Metema Basin, the
Abay Basin in North Western and main Ethiopia Rift Basin regions. The sector
is currently at a very early stage of development. However, it shows a good
potential for development in the future (The World Bank 2016).

Over the past 50 years, the fuel supply chain management of Ethiopia had been
regulated by government, including the price of fuel and the transport rate to be

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paid for Bulk Road Vehicle owners. At present, Ethiopia spends 2.5 billion
USD annually on imported petroleum products (The Reporter 2016), 20% of
the country’s imports of goods is purely spent on fuel (Euro money 2014). The
fuel demand would call for significant resources and put pressure on foreign
current reserves which is currently absorbing more than 4% of the GDP,
roughly equals the foreign currency and gold reserves and would increase to
around 7% of GDP in 2030 (Federal Democratic Republic of Ethiopia, 2011
CRGE report). The country consumes daily one million liters of benzene, 6.5
million liters of diesel and two million liters of jet fuel. The annual kerosene
consumption is 260,000 metric tons. The country’s annual fuel consumption
has been growing at a rate of ten percent per year. In 2017 the fuel
consumption is expected to surge to 3.4 million metric tons.

In general the distribution of gas station in Amhara Regional state was as

follow.

Table1. Gas station in Amhara region

No. Name of zones No. of gas station

1 North Gondar 31

2 East Gojam 28

3 West Gojam 24

4 Awe Nations 19

5 North Shewa 17

6 Gonder City 17

7 Bahir Dar city 14

8 North Wello 12

9 South Wello 11

10 Central Gondar 8

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 11 Dessie City 7

12 West Gonder 4

13 North Gonder 3

14 Waghmra Nations 3

15 Oromo Nations 3

Total 0

As shown in the above table, there is lack of fuel station in Amhara Regional
state especially at North Shewa zone.

Because of this there is shortage of fuel almost every month at

DebreBirhantown since it provides the fuel for the rest wereda around the
district. That is why this project will be very important for the district since
DebreBirhanis very developing town in the region.

5.2. PRESENT DEMAND

Demand of a fuel filling station is driven by personal income of people in the
area, companies and firms operating in the area, and tourists travel. The
profitability depends on site occupancy rate and effective marketing. The
sustainable filling station should materialize with several positive features
which facilitate the clients to increase site occupancy. These factors may attract
clients to the location and the continuity of arrivals of clients who comes again
to the location. These factors are briefed as follows,

 Site Design

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The site should be basically rectangular in shape and the available land is
fulfilling it and facing approximately 200m to the access road and it is
the length of the land and width consists with approximately 100m.
 Location
The location proposed to implement this fuel station and vehicle service
center should be nearest to the main road access, which facing two main
roads. The Center near businesses, buildings, or institutions are often
implicitly understood or explicitly labeled to be for the use of their
respective customers or visitors. Since the location provides easy
proximity to most popularized locations, and convenient to visit such
locations too.
 Ancillary services
Additional products and services include:
o Preferable electronic transfer systems

o Canopies, lights, signs, decals

Furthermore, the Marketing strategy proposed for this Fuel Station would
give strong emphasis to the development of competitive capabilities;
adaptability and flexibility in order to respond to technology changes and
updates, Solidifying and strengthening the facility’s market position
overtime. In terms of implementation, the strategy recommended would
encompass the following key elements:
1. A focus on enhancing customer value by fulfilling market-driven needs.

2. Purposeful differentiation, emphasizing the development of functional

operation strategies.
3. To be up date with new technologies in Automation and providing

services through those newly invented technologies.

For realizing above mentioned objectives, the Fuel Station will be
equipped with several additional infrastructure and supporting service
facilities in terms of internal and external as mentioned below,

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  Internal facilities
• Well planned and systematic building and service area arrangement.
• Well established drainage system to avoid retaining refused water, oil and
other emission to the environment.
• Well organized body to manage and operations of the center.
• Well arrange buildings for ancillary services.
• Electronic Card payments availability.

 External facilities
• Communication facilities
• Banks and other financial services

6. DESCRIPTION OF THE PRODUCT/SERVICES

The basic products and services of the proposed project are as follows.
5.3. Services -
 Fuel (Diesel, Gasoline and Kerosene) filling service.

 Air filling and Air pressure checking facility.

 Communication, financial and banking facilities (Credit Card / Debit

cards) playability.
 A/C Repairing, Tire repairing and replacing, Vehicle Electronic system

services, etc.
 Modern cafeteria and supermarket with modern toilet.

 Modern office for sells officers

 Modern car washing etc.

S.N Description Measurement Daily monthly annual

service service service
capacity capacity capacity

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1 Fuel station
1.1 kerosene liter 7,500 225,000 2,700,000
1.2 Motor gas regular liter 8,000 240,000 2,880,000
1.3 Automotive diesel oil liter 21,000 630,000 7,560,000
1.4 Lubricant and oil liter 1,000 30,000 360,000

5.4. Number of fuel feeling tanks.

The envisaged project will contain 3 types of fuel and each

fuel will have its Owen filling tanks i.e. Diesel, Gasoline and
Kerosene filling tanks. The number of filling tanks of each fuel
will be as follow:

 Diesel will have 3 filling tanks

 Gasoline will have 2 filling tanks and
 Kerosene will have 1 filling tank

5.5. Goods -All kinds of lubricants, Auto motive chemicals, oils.

5.6. Modern car washing

Actually, the term “car wash” is not wholly accurate. Our facility can
accommodate recreational vehicles, vans, boats, trailers, machinery,
household items or anything else portable and washable. Customers will be
drawn to our car wash because it affords them a clean, well-lighted, secure
and pleasant facility offering every service available in the project today,
with the capacity to add new systems as they are developed.

Car Wash is unique, in that it offers services not available in other area
washes, such as credit card acceptance on self-serve and automatic washes as
well as unique, clean styling of building and lot. A state-of-the-art facility
with superior services cannot succeed without quality equipment that will
enable us to service our clientele with quality chemicals, a minimum of
down-time, and reliable performance.

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Figure1. Modern car washing

Figure 2. Super market at gas station

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Figure 3. Modern cafeteria at gas station

5.7. TARGETED MARKET AREA.

The services will not be restricted to the community of DebreBirhan. It
focused towards whole community which including whole community
who visited DebreBirhanand passing DebreBirhan; So that, the targeted
market will be whole country.
Table2Targeted Consumer Group.

Service Market Target Consumer Group

Area

All Fuel Whole 1.People who used to get Fuel

Filling country 2. All the firms and companies in DebreBirhan
3. All the visitors who passing DebreBirhan
Services

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6. PRICING AND DISTRIBUTION

Price factor is not many effects to the sales since the price is not vary station
to station in the same area.

Tabele 3. Average prices of the services

Type of Service Unit Price in Birr
Food 80 meal / person
Beverage 50/bottle (excluding whisky)

Bed Rent 450/ night/ person

Multipurpose 4000 per day

Fuel gas 62/liter

Car wash 300/car
parking 350/day

6.1. Capacity
Services
The basic products and services of the proposed project are as follows.
 Main fuel Services -
 Bar and restaurant

 CafeteriaCatering (Food Preparation),

 Ground Tennis,

 Communication,

 Fuel filling satiation

 Car wash

 Car parking

 Banking and banking facilities (Credit Card / Debit Cards) playability.

Etc.

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From the market study, it is observed that there is a great demand gap between
the demand and supply of international standard Motel service. Therefore,
taking in to account the market study and economic scale of service provision
the envisaged international tourist standard Motel will have capacities as
shown below:

Table 4. Service Capacity Of The Envisaged International Standard fuel

Sr. Feasible Service
Type of Service
No. Capacity

1 Bar and Restaurant

 Bar 80 Persons at a
time.
 Restaurant (Modern 200 at a time each
and traditional
 cafteria 30- 45 seats at a time
2 Multi purpose Assembly hall 550 seats
3 Meeting room 50x3 seats
4 Fuel filling station 20,865liter per day
5 Car parking 42 car per day
6 Car wash 60 car per day

1.1. Service Program

At the initial stage of the service provision period, the fuel would require some
years to penetrate into the market and capture a significant market share.
Therefore, in the first and second year of service the capacity utilization rate
will be 75% and 90%, respectively. Full service provision shall be attained in
the third year and then after. The proposed service provision program is shown
in Table 7.

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Table 5. Service Provision Programe
Sr. Service Service Year
No. 1 2 3- 10
1 Service provision rate
75 90 100
(%)

2. Materials And Consumables And Inputs

2.1. Materials And Consumables
The annual cost and list of raw materials are indicated in Table 8.
Table 6. Annual Material And Consumable Requirement At Full Service
Capacity
Sr. Description Unit of Qty. Total Cost
No. Measure (000) Birr
I Laundry Center
1.1 Cleaning Agent (Assorted) Lump sum 80
1.2 Swing thread (Assorted) Lump sum 20
Sub-Total 100
II Multipurpose Assembly Hall
2.1 Instrumental Audio CD (Assorted) Lump sum 5
2.3 CD-cleaner 15
Sub-Total 20
III Modern & Traditional Restaurant, Bar
and coffee shop
3.1 Food ( 35% of revenue) 1420
3.2 Beverage ( 35% of revenue) 1230
Sub-Total 2650
IV Swimming Pool
4.1 Toilet soap Pcs 400
4.2 Cleaning agent (Assorted) Lump sum 700
Sub-Total 1100
IIV Fuel galon 200,000
V Other miscellaneous items 500
Sub-Total
Grand Total 20,437,000

7. PROMOTION

Since the fuel is essential commodity in vehicle transportation the

promotional activities not much required to market the product. But
awareness of people should be inculcated and at the outset there should

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be a promotional campaign to aware the people in the area and with the
time it becomes prominent. So it is advisable to pay more attention on
Internal or in-store promotions. Because it leads to increase sales
volumes once customers are in place. Once the customer enters the
station the following common internal promotions or initiatives could be
utilized in order to encourage a longer stay resulting in increased sales,
most notably:
 Effectively designed service station layout
 Attractive window displays; Eye-catching internal displays;
 Clear signage; Promotional signs; Location signs;
 Providing rest room and exciting atmosphere.

8. UTILITIES
Electricity and water are utilities required for the envisaged project. It is
estimated that 25,000 kWh of electrical energy at the rate of Birr 2.58 per kWh
(flat rate) and 4,000 m3 of water at the rate of Birr 20.00 per m 3 will be needed
for the project. The total annual utility requirement will then be Birr
246,410 (see Table 3) Table 3. Annual Utilities Requirement

Sr. Annual Unit Cost Total Cost

No. Description Consumption Unit ( Birr) In Birr
1 Electricity 25,000 kWh 2.58 166,410
2 Water 4000 m³ 20 80,000
Total Annual Cost 246,410

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9. LOCATION AND SITE
The project will start its function in Amhara regional state atDebreBirhanwhich
is 130km far from Addis Ababa. The location plays an important role, as the
facility should easily be accessible to the target customers.

Thus, the availability of target customers and other infrastructures of the

envisioned project will get from Amhara national regional state; specifically at
North Shoa zone and from their district wereda.

10. LAND, BUILDING AND CIVIL WORKS

Land requirement by the envisaged motel is estimated at 30,000 m 2.
The motel main building is estimated to cover 7,700 m 2, the fuel
filing area will cover 6,300 m2, the car wash building covers 2400 m2,
the car parking covers 1800 m2, and the remaining 11,800 m2 is left
for construction of, generator house, guard house, green area, road
and recreation centers, and walk ways.

The type of buildings and its corresponding civil construction cost is given on
Table 9.

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 Table 9 TYPE OF CONSTRUCTION

LIST OF BUILDING AND CIVIL WORKS

Total

Sr. No. Building Area

(m2)

1 Main building 7,700

2 park and recreation center, 1,200

walk ways etc

3 Car parking area 1,800

4 Fuel filling station building 6,300

5 Modern car wash building 2,400

6 Green area 10,600

Sub -Total 30,000

Grand 30,000
Total

According to the Federal Legislation on the Lease Holding of Urban Land

(Proclamation No 721/2004) in principle, urban land permit by lease is on
auction or negotiation basis, however, the time and condition of applying the
proclamation shall be determined by the concerned regional or city government
depending on the level of development.

The legislation has also set the maximum on lease period and the payment of
lease prices. The lease period ranges from 99 years for education, cultural
research health, sport, NGO , religious and residential area to 80 years for

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industry and 70 years for trade while the lease payment period ranges from 10
years to 60 years based on the towns grade and type of investment.

Moreover, advance payment of lease based on the type of investment ranges

from 5% to 10%.The lease price is payable after the grace period annually. For
those that pay the entire amount of the lease will receive 0.5% discount from
the total lease value and those that pay in installments will be charged interest
based on the prevailing interest rate of banks. Moreover, based on the type of
investment, two to seven years grace period shall also be provided.

However, the Federal Legislation on the Lease Holding of Urban Land apart
from setting the maximum has conferred on regional and city governments the
power to issue regulations on the exact terms based on the development level
of each region.

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 11. HUMAN RESOURCE AND TRAINING
REQUIREMENTS
11.1. HUMAN RESOURCE REQUIREMENT
The proposed project requires both operational and administration workers.
The total human resource requirement is 145 persons. The table below
indicates the human resource requirement with monthly and annual salaries.

Table 4. Human Resource Requirement and Cost

Job Position No. Monthly Salary Annual Expenditure

(Birr) (Birr)
General manager 1 12,000 144,000
Secretary 1 3,200 38,400
Accountant 2 10,000 120,000
Shop keeper 2 6,400 76,800
Steward at cafe 2 3,000 36,000
General services 2 10,400 124,800
Operator 106 39,600 468,000
Driver 14 34,000 408,000
Security Guard 4 10,000 120,000
Temporary worker 11 16,500 198,000
Total 145 145100 1734000

11.2. TRAINING REQUIREMENT

Training is required for General Manager and machinery operators. It is
recommended that the training be given for two weeks during erection and
commissioning at the project site. Agreement shall be entered with machinery
supplier to provide the training. A total of Birr 250,000 shall be earmarked to
execute the training program.

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 3. Financial Analysis
The financial analysis of the international standard motel project is
based on the data presented in the previous chapters and the
following assumptions:-
Construction period 2 year
Source of finance 30 % equity
70 % loan

Bank interest 8.5%

Discount cash flow 8.5%
Accounts receivable 30 days
Raw material (perishable) 3 days
Raw Material (nonperishable) 30 days
Cash in hand 5 days
Accounts payable 30 days
Repair and maintenance 5% of
equipment cost

13.TOTAL INITIAL INVESTMENT COST

The total investment cost of the project including working capital is estimated
at Birr 140 million (see Table 5)

Table 5.Initial Investment Cost (in Birr)

Sr. Local Cost Foreign Total Cost

No Cost Items Cost
1 Fixed investment
1.1 Land Lease 1,500,000 1,500,000
1.2 Building and civil work 26,994,000 26,994,000

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1.3 Machinery and equipment 1,518,000 6,388,000 7,906,000
1.4 Vehicles 13,000,000 13,000,000
1.5 Office furniture and 1,450,000 1,450,000
equipment
Sub total 31,462,000 19,388,000 50,850,000
2 Pre operating cost *
2.1 Pre operating cost 1,150,000 1,150,000
Sub total 32,612,000 52,000,000
Working capital 88,000,000 88,000,000
Grand Total 120,612,000 19,388,000 140,000,000

* N.BPre operating cost include project implementation cost such as

installation, startup, commissioning, project engineering, project
management etc and capitalized interest during construction.

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environment.

3.1. Operation Cost

The annual production cost at full operation capacity is estimated at Birr
52,903,681 (see Table 16). The major components of the production cost
depreciation, financial cost and material and input which account for 26.82%,
22.63% and 18.72%, respectively. The remaining 31.82% is the share of direct
labour, utility, repair and maintenance, labour overhead and other
administration cost.

Table 12 Annual Production Cost At Full Capacity (Birr)

Items Cost

Material and Inputs 20,437,000

Utilities 246,410

Maintenance and repair 15,000,000

Labour direct 15246410

Labour overheads 3,580,700

Administration Costs 5,730,920

Land Lease Cost 1,500,000

Total Operating 48,229,030

Costs

Depreciation 1,699,651.4
2

Cost of Finance 2,975,000

Total Production
Cost 52,903,681

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 4. Financial Evaluation
1. Profitability

Based on the projected profit and loss statement, the project will generate a
profit throughout its operation life. Annual net profit after tax will grow from
Birr 7.58 million to Birr 8.04 million during the life of the project. Moreover,
at the end of the project life the accumulated cash flow amounts to Birr 84.33
million.

2. Ratios
In financial analysis financial ratios and efficiency ratios are used as an index
or yardstick for evaluating the financial position of a firm. It is also an
indicator for the strength and weakness of the firm or a project. Using the
year-end balance sheet figures and other relevant data, the most important
ratios such as return on sales which is computed by dividing net income by
revenue, return on assets (operating income divided by assets), return on equity
(net profit divided by equity) and return on total investment (net profit plus
interest divided by total investment) has been carried out over the period of the
project life and all the results are found to be satisfactory.

3. Break-even Analysis
The break-even analysis establishes a relationship between operation costs and
revenues. It indicates the level at which costs and revenue are in equilibrium.
To this end, the break-even point of the project including cost of finance when
it starts to operate at full capacity (year 3) is estimated by using income
statement projection.

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 BE = Fixed Cost = 23 %

Sales – Variable Cost

4. Payback Period
The pay back period, also called pay – off period is defined as the
period required recovering the original investment outlay through the
accumulated net cash flows earned by the project. Accordingly,
based on the projected cash flow it is estimated that the project’s
initial investment will be fully recovered within 5 years.

5. Internal Rate of Return

The internal rate of return (IRR) is the annualized effective compounded return
rate that can be earned on the invested capital, i.e., the yield on the investment.
Put another way, the internal rate of return for an investment is the discount
rate that makes the net present value of the investment's income stream total to
zero. It is an indicator of the efficiency or quality of an investment. A project is
a good investment proposition if its IRR is greater than the rate of return that
could be earned by alternate investments or putting the money in a bank
account. Accordingly, the IRR of this project is computed to be 20.77 %
indicating the viability of the project.

6. Net Present Value

Net present value (NPV) is defined as the total present (discounted) value of a
time series of cash flows. NPV aggregates cash flows that occur during
different periods of time during the life of a project in to a common measuring
unit i.e. present value. It is a standard method for using the time value of

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money to appraise long-term projects. NPV is an indicator of how much value
an investment or project adds to the capital invested. In principal a project is
accepted if the NPV is non-negative.

Accordingly, the net present value of the project at 8.5% discount rate is found
to be Birr 36.73 million which is acceptable.

7. ECONOMIC BENEFITS

The project can create employment for 145 persons. The project will
generate Birr 19 million in terms of tax revenue. The project could
be one of the sources for foreign exchange earnings by giving
services to international tourists.
8. ENVIRONMENTAL IMPACT
The fuel station does not have as such adverse impact on the environment.
As we know currently the issue of environment and involvement get due
emphasis and thus every citizen collect and exert their maximum effort for
fighting against any negative impacts on the environment so as to result in a
win-win solution on common agenda that is creating environmentally friendly
business environment. The Project has also planned to grow different types of
indigenous plants around the fuel station green area and around fence to make
the fuel station good working environment as well as to suck air pollutants
because the large surface area of their leaves absorbs pollutants through
numerous stomata operations. Plants thus help us give specific details on
morphological, physiological and biochemical studies, and enable us to devise
injury control measures.

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