2009

Bilal Hafeez Aisha Khattak Under the Supervision of Rawalpindi Chamber of Commerce and Industry 7/8/2009

CNG Stations [A survey of

Table of Contents

Compressed Natural Gas

Research is aimed at understanding two broader perspectives of CNG sector of Rawalpindi, The primary focus is on the close construction of CNG stations, the study shows that Rawalpindi has the second highest ratio of population to CNG stations .This resulted in close construction of CNG stations .The study reveals that the CNG stations are constructed at distance there sale will increase at least by 25% also in some case GP margin will increase by 5 to 10 percent. The second part of the research is to have looked at safety guide lines for CNG stations with a look at license issuance and Regulating Procedures. In the last we have discussed the investors perspective that what an investor should keep in mind before investing in the CNG sector.

Benefit of the Report

This report has following benefits First of all it clearly describes the prevailing environment of CNG international as well as Pakistanis perspective. It shows the growth in the sector over the years than the study looks at the sales and revenues of existing CNG station that what are sales levels in different areas of Rawalpindi Then report highlights the major planning steps for investor who wants to invest in CNG station. The report looks at different aspects from Silencing to Regulating and provides guide lines about different procedures and authorities The report also highlights the major expenses that have to be incurred in order to make a CNG station operational The report also contains a financial analysis of CNG sector. The calculations are made on data entered in the format and generates results such Income statements month wise /year wise, Internal Rate of Return and Net present Value

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Introduction
In the late 20th century the rapid growth in technology and advancement of knowledge and mankinds quest for getting fuel resources lead to use of crude oil as driving factor for a economy .The major activities of the world largest economies were oil centered .Adding to this drive was the production era where large organizations were focused on the concepts like economies of scale this also added to the demand of oil in the world. The Demand of oil was so great that it was called as the black gold ,in the early years production of oil was enough to cater the demand of oil and since this technological and industrial revolution spread along the globe so did the demand for oil increased and its prices hiked as well . Starting of the 21st century showed that demand for oil was on the high side. A brief look at oil prices show n January 1999 the price of a barrel of oil reached a low point of $16 when Iraq increased its oil production at the time of the Asian Financial Crisis when demand for oil fell. Prices then increased rapidly, reaching $35 in September 2000, and after a temporary fall reached $40-50 by September 2004. Crude oil prices surged to a record high above $60 in June 2005 and by early August 2005 hit $65 as consumer demand was maintained. In September 2007, the price of US crude oil broke the $80 barrier. In October 2007 a barrel of US light crude oil exceeded $90 for the first time, due to a combination of tensions in eastern Turkey and a fall in the value of the US dollar. The next psychological watershed of $100 was briefly breached in early 2008, but the price fell again until the end of February after which it remained and rose well above this new setting. Then a visible ramping effect became evident and so the price exceeded $110 on March 12, 2008; $125 on May 9, 2008; $130 on May 21, 2008, $140 on June 26, 2008 and $145 on July 3, 2008. The record was reached on July 3, 2008 at $147.271. This increase in oil prices led an enormous research and adoption of alternate fuels there were number of alternate fuel sources to fuel vehicles which included Electric Bio Fuels CNG LPG Nitrogen Hydrogen Multiple Fuel Sources Battery ,Solar Ethanol, Biogas ,Bio Diesel

Hybrid Vehicle ,Flexible Fuel

Different countries in the world are encouraging the use of alternate fuel which is to reduce oil cost as well as to encourage environment friendly atmosphere in the region.

1 Times Magazine, http://www.time.com/time/business/article/0,8599,1859380,00.html

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CNG as an alternate fuel In the above mentioned alternate CNG is the most widely used alternate of conventional fuel and its has the minimum CO2 emit ion among all the fossil Fuels Worldwide, there are more than 7 million Natural Gas Vehicles (NGVs) on the roads as of 2008. Existing gasoline-powered vehicles may be converted to allow the use of CNG. An increasing number of vehicles worldwide are being manufactured to run on CNG. Natural gas vehicles are popular in regions or countries where natural gas is abundant, where the government chooses to price CNG lower than gasoline. The main advantages 60-90% less smogproducing pollutants; 30-40% less greenhouse gas emissions and its availability across the globe makes it the most ideal alternate to conventional fuel. Following are statistics based on number of CNG filling stations and NGVs globally as of 20082, this data is from international Association for Natural Gas Vehicle. Number
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 Country Natural Gas Vehicles Refueling Stations

Pakistan Argentina Brazil Iran India Italy China Colombia Bangladesh Thailand Ukraine USA Russia Armenia Egypt Bolivia Germany Bulgaria

2,000,000 1,745,677 1,588,331 1,000,000 650,000 580,000 400,000 280,340 150,253 127,735 120,000 110,000 103,000 101,352 101,078 99,657 64,454 60,255

2,600 1,801 1,688 500 463 700 1,000 401 337 303 224 1,100 226 214 118 123 800 70

2 http://www.iangv.org/tools-resources/statistics.html

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20

Peru

54,829

56

Advantages of CNG There are many advantages of CNG some of them are listed below ITS CHEAP Compressed natural gas currently cost about 50 to 60 percent less than that gasoline. Natural gas prices have also proven to be very stable and not as vulnerable to market fluctuations or to world crisis. Additionally, it needs no refining and creates no harmful by-products that require expensive handling. ITS ENGINE-FRIENDLY Natural Gas has an octane ration of 130, compared to only 92 with premium unleaded gas online. Because of the combustion efficiency of national gas, NGVs can go 10,000 to 15,000 miles between oil changes, 40,000 miles between tune-ups and spark plugs can last up to 75,000 miles! Plus cold start problems are nonexistent a benefit for cold-weather operations. ITS CLEAN Overall, natural gas is the cleanest burning alternative fuel available today. NOVs can reduce Nox emissions and reactive hydrocarbons, which form ground-level ozone; by as much as 95 percent NOVs also reduce emissions of carbon dioxide by as much as 30 percent, carbon monoxide by 85 percent and car and carcinogenic particulate emissions by 99 percent. In addition, used engine oil from NGVs contains much less hazardous/toxic components and can therefore be recycled at a reduced cost. ITS SAFE Thirty years of experience and millions for problem-free miles driven by NGVs shows that natural gas is an extremely safe furl for vehicles. With upwards of 750,000 NOVs worldwide, there have been no fatalities attributable to their use. THERES LOTS OF IT Experts agree that there is enough natural gas to last well beyond the 21st century. In fact, estimate show that if there were 8 to 10 millions NGVs on the road, the Pakistan natural gas consumption would increase by only six percent. ITS MADE IN PAKISTAN Because natural gas is produced in the Pakistan, its increased use could help reduce the national trade deficit significantly cut our dependency on foreign oil. So every time you fill CNG, you not only save 50% to 60% for your pocket but also keep Pakistan reduce its foreign debts. | Compressed Natural Gas 5

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ITS EASY TO TAP Natural gas for vehicles can be provided at virtually any point along with pipeline network. LIFE WITH NATURAL GAS A wide variety of NGVs are available today. Whether purchased directly from an original equipment manufacturer (OEM) or the result of a conversion, they are the most economical, high performance alternative fuel vehicles currently available. They More Efficient GVS use compressed natural gas to fuel their engines. (Because its not a liquid fuel, natural gas is compressed at 3,000 or 3,600 pounds per square inch (PSI) so that it can be stored in relatively small steel, aluminum, or even all composite cylinders.) Like gas online and diesel vehicles, NGVs burn a gaseous mixture fuel and air in an engine; however natural gas has the distinct advantage of already begin a gas, which help the engine run more efficiently.

They Have Safety Advantages Compared to gasoline and diesel vehicles NGVs are among the safest vehicles traveling on the roads in Pakistan today. To start with, the cylinders that hold the compressed natural gas are significantly stronger than gas online tanks, have with stood bullets and bonfire testing and meet or exceed Department at Petroleum and energy Resources Director General Gas Govt. of Pakistan .Furthermore, natural gas is not toxic to breathe or touch, and it is much more difficult to ignite than gasoline. The ignition temperature of natural gas is 1,200 degree Fahrenheit compared to about 600 degree for gasoline. Specific gravity and narrow explosion range reduce the potential for detonation.

They Exceed Future Emission Standards NGVs simply the cleanest of any vehicle in production today. In fact, NGVs produce only 5 to 10 percent of allowable emission of todays most stringent standards. Production line models are available today that meet Ultra Low Emission (ULEV) standards.

Theyre Convenient to Refuel Natural gas is well suited for fleet vehicles that return to a central facility for refueling. A rapidly developing network of natural gas refueling station is helping to make this clean burning more readily accessible to the motoring public. A new home compressor unit on the market allows consumers and business to conveniently refuel vehicles at home or at the office, eliminating fuel use and trip generation solely for the purpose of refueling. | Compressed Natural Gas 7

The above Statistics show Pakistan as the one of the leading consumers of CNG globally. CNG in Pakistan CNG development in Pakistan started in mid eighties when HDIP set up two CNG refueling stations in Karachi and Islamabad. Due to excellent production and distribution of Natural Gas in Pakistan; today there are more than 2600 CNG refueling stations operational either on existing Petrol pumps or on a separate piece of land. CNG being an alternative fuel and well proven with passage of time has increased its consumers in Pakistan; almost 900,000 vehicles in last 3 years have converted to CNG. These days near around 150,000 vehicles are converting to CNG in a year that makes Pakistan to be the largest user of CNG vehicles in the World followed by Argentina and Brazil. CNG refueling stations of Pakistan are equipped with state of the art automatic controls and systems. High Pressure Compressors installed are of various design types like L-type, W-type, V-type, and D-type. These Compressors are usually imported from America, India, New Zealand and China. Government is taking major steps to promote CNG by exempting all taxes and duties for the machinery and equipment used for CNG refueling and conversion. This is evident from the statistics given below3.

3 http://www.iangv.org/tools-resources/statistics.html

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Growth in the Sector The has been tremendous Growth in the CNG sector of the past few the cumulative growth in the number Natural Gas Vehicle from 2001 to 2008 is 38%.The yearly growth is Shown in the following Graph

Current Situation As of 2008 there are more than 2600 CNG operational all over Pakistan .The breakup of some major districts is given below City Lahore Karachi Rawalpindi Gujranwala Number of CNG Stations 300 266 248 123 Population 6.4 Million( 2006) 11 Million ( 2006) 3.03 Million (2006) 1.41 Million ( 2007)

Total

937

The above data shows that the number of CNG station with respect to population has the highest ratio in Gujranwala and the second highest ratio is in Rawalpindi. A part from 2600 operational CNG stations, the total provisional licenses that have been issued by Government are about 6200.This rapid growth in CNG sector has also increased the demand for natural gas which is evident from the following table and graph

The table show that consumption has almost doubled over the last decade
Increase from Previous Year 109,517 139,689 99,574 127,264 95,121 131,904 175,923 206,430 230,593 148,849

Year 1997-98 1998 -99 1999 -00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08

Numbers 1,637,803 1,747,320 1,887,009 1,986,583 2,113,847 2,208,968 2,340,872 2,516,795 2,723,225 2,953,818 3,102,667

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Scope of Study There are two main components of this study ,primarily we will take into account the impact of close construction of CNG station in Rawalpindi secondly we will look at investment perspective of CNG stations whether or not investment in CNG stations is viable or not .We will also look at revenue and major expenses of CNG stations . Initial Analysis The initial survey revealed following information. A large number of CNG filling stations already exist in residential areas of Rawalpindi and more are ready to go into operation in a few months - a worrying prospect for people living around. Residents say the mushroom growth of such facilities in the midst of densely populated localities has created numerous difficulties. Approximately 110 CNG stations are currently operating in residential areas of the city, including Satellite Town, Asghar Mall, Bakra Mandi, Khayaban-e-Sir Syed, Ratta Amral, Chungi 22, Tench Bhata, Muslim Town, Sadiqabad and Saidpur Road. According to the Oil and Gas Regulatory Authority (OGRA) rules and regulations, a licensee will construct and operate gas pipeline and all works connected with CNG refueling station, strictly complying with the provisions of the Petroleum Rules 1937 and the Gas Cylinder Rules, 1940, so as to avoid any danger to the public health and safety. Any person authorized by OGRA may inspect and examine any place where there is any work for compressing natural gas with the purpose of storing, measuring or distribution of CNG. Given the increasing petroleum prices, the trend of using CNG-fitted vehicles is continuously gaining popularity among the public. It is expected that number of CNG vehicles will increase manifold in future, as gas is more economical than petrol and diesel. There are two CNG associations in Pakistan All Pakistan CNG association(APA) CNG stations owner association of Pakistan(CSOAP)

These associations are the main representative of CNG sector. On the government side the main Authority is Ministry of Petroleum (MOP) Oil and Gas Regulatory Authority(OGRA) Hydrocarbon Development Institute Of Pakistan(HDIP)

For primary study we selected the following areas in Rawalpindi 1. SaidPur Road ( Asghar Mall Chowk to Pindora chungi ) 2. Muree Road(Saddar to Fiazabad) | Compressed Natural Gas 10

3. Chira Road (Sadiqabad Chowk To Kahana Pull ) 4. Satellite Town

Primary Study Impact of Distance on Sales Volume

We visited this area and indentified the CNG stations which are situated in this area we had the following findings. We also considered the total distance of the specific road as well as the average distance of CNG stations on that specific Road. When Considering Satellite town we have considered the from 6th road to Chandni Chowk from there towards Kali Tanki to Siddiqui Chowk .The following results come forth from this Analysis. Road /Area Said Pur Road Murree Road Chira Road Satellite Town Number of CNG Station 9 16 13 16 Total /Area 2400m 8500m 3500m 1 km2 Road length Average Distance 270m 531m 269m 230m

Total

54

327m

The above table shows that in the areas in which this research was conducted there is approximately a CNG filling station at every 330 m which is very large number of CNG station. The total number of CNG station in District Rawalpindi is in 248 out of which 30 CNG stations are in the radius of three kilometer. Which is approximately ten percent of the total number of CNG stations and about 1 percent of total area of District Rawalpindi?

Said Pur Road The saidpur road is situated parallel to Murree Road, this area has number of entries and exists .Any person who wants to go from 6th road towards Perwadhi onwards uses this road, converse anybody coming from I-Sector Islamabad also at peak time anyone who wants to reach 6 road prefers IJP road which leads to said pur road .The other important aspects of this road are, there are numerous clinics on this road, as well as hardware/Paints, Sentry/Plumbing etc. The entire Said Pur road is commercial apart from that there are many Suzukis which are used for transportation from Raja Bazaar to Pandora Chungi. All these variables contribute to high sales revenue on the Road .The CNG Stations on this Road and there distance are given as follows

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Lane 1 Anique Total

Distance 0m 400m

Lane 2

Fast Gas 600m Gasco 200m Amina 300m National 500m Malang 400m CNG Makkah Gunj Buksh

Further conclusions from the above data are, total CNG stations in lane one are 7 so there average distance becomes 360m and on the other lane there are only 2 CNG stations so the average becomes 1200m. Different pumps on Said pur Road have different sales volume the highest sales are from 140,000 to as low as 45,000 ,these variations are mainly caused by Discount offered by the CNG station and location of that specific CNG station. This sales data has been collected from Fast Gas ,National ,Malang ,Total ,Makkah CNG stations. To make analysis easy we find total sales on Said Pur Road by product of averages Sales with Number of CNG Stations. Daily Average Sale Number of Stations Total Daily Sale on Said Pur 92,500 Rs. 9 832,500 Rs.

Total Distance 2400m .Since there is a lot of Traffic on this road we propose a total of 6 CNG stations three on each side of Road .Therefore the average distance will be 400m The impact of this on the sales of remaining pumps will be Total Daily Sale Number of Stations Average Daily Sale of the pump 832,500 Rs. 6 138,750 Rs.

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According to the above mentioned criteria each pump will have 50% increases in their sales. The Net profit Margin is about 20 percent after giving discount. If there is no discount the margin will rise to 30 % Murree Road The total distance of Murree road is 8500m .It is completely two lane roads a total of 16 stations are existing on this road. This road is the main trunk road which connects almost all the densely populated areas .The most amount of traffic flow is on this road and the highest congestion rate is also in part and parcel of this Traffic Flow .The distribution of CNG stations is more on one side of the road the detailed breakup is given as below Lane 1 Filling point Kandan 1 5m Kandan 2 500m PSO 50m Shell 3000m PSO 80m Caltex 750m Total 700m Olyampia 1000m ACP 30m Khan Cng 300m Zam Zam 30 m Shell 600m Shell 120m Cantt 5m Shell Distance Lane 2 10m

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The more details that can be concluded from the above distribution is, the number of stations in Lane 1 are 7 the average distance comes to about 1170m.Almost 3 stations of Lane 1 are distance of Less than 40m if these pumps are excluded the average jumps to 2100m approximately .In lane 2 there are a total of 9 pumps the average distance is about 950m The sale on murree road is also very volatile it varies from 200,000 to 50,000 .This variation is due to close construction of Stations ,Discount .High sales are due to the uneven distribution of CNG stations as there are no other filling stations available on that part of the road. The data regarding sales was collected from Filling Point ,Kandan 1,Shell,Zam Zam and PSO. The impact of distance can be considered as Average Daily Sales Number of Stations Total Daily Sales 130,000 Rs. 16 2,080,000 Rs.

There is a lot of Traffic on Murree road we propose an average distance of 1500m .This will result in a total of 6 CNG station on each Side of Road and a total of 12 CNG stations on Murree road. The new sales and revenue will be Total Daily Sales Number of Stations Average Daily Sales 2,080,000 Rs. 12 174,000 Rs.

The increase in sales in percentage will be 35 % ,this will also impact there Net Income on the same Ratio Chira Road This Road starts from Sadiqabad Chowk and ends at Kahana Pul this road .This road is passes from the almost the centre and one of the oldest populated areas of Rawalpindi .This road cannot be categorized as double road its a dual carriage way so any filling station on the either side of the road can be used for filling .The main source of sales on this road are public transport (Suzuki who have specific filling Stations) and a very large number of loyal private cars. The total number of CNG stations on this road are 13 and the length of the Road is 3500m the average distance is about 270m between CNG station on this road five CNG stations are in the range of less than 220m.The detailed break up is given as follows Lane 1 Anique CNG Distance Lane 2 100m Shell 10m Gas point 450m Gas Complex | Compressed Natural Gas 14

1050m Potohar CNG 100m Al-Malik CNG 1000m Satti CNG 10m Under Construction 300m Speed 200m Energy Comfort Al - Razziq Quality , Shan CNG

The highest seller on this road has a sale of 150,000 and a minimum sales volume is about 30,000 so the average sale on CNG stations is about 90,000. Average Daily Sales Number of CNG Total Daily Sales 90,000 Rs. 13 1,170,000 Rs.

The road has high population of the cars so there should be a CNG station every 500m which can be on either side of the road the complete road will only require seven CNG stations Total Sales Number of CNG Average Daily Sales 1,170,000 Rs. 7 168,000 Rs.

The over sales revenue will increase by 86 % there is also discount offered on these filling Stations which will also finish to increase net profit margin from 20% to 30%.The data was collected from Quality ,Shan pothar and Satti CNG stations Satellite town This is a location in on murree road between 6 th road and Chandni Chowk on the left side of road when facing towards Islamabad .This area has the largest number of school and colleges also a very large commercial area so the traffic flow here is also on the high side the peak hours are school timings and evenings (due to shopping ) .The total area considered is almost 1 square kilometer there are 16 CNG Stations in the area. Detailed break up is given as follows | Compressed Natural Gas 15

Moon CNG 300m Rawal CNG 200m Shell 123 Madina 100m Kandan 20m Anique 130m Kandan 566m National 170m Gondal 220m 500m Satellite

The sales in this area vary from 170,000 to 45,000 the average sale is 92,500 Average Daily sale Number of CNG Total Daily Sales 92,500 Rs. 16 1,480,000 Rs.

There should be half as many pumps in the area which can fully satisfy the needs of the consumers .If there were 8 pumps the sales would be as Total daily sale Number of CNG AverageDaily Sales 1,480,000 Rs. 8 185,000 Rs.

The average sale would increase by 100% also there would no longer be any discount so profit margin will also increase from 20% to 30 % approximately .The sales data was collected from Total ,Shell ,Madina and Kandan

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Regulating Authority
Government of Pakistan in 1992 took a policy decision to introduce CNG in Pakistan in order to promote CNG as an alternate /cheaper auto fuel the government offered certain policy incentives inter-allia included granted price differential between motor gasoline and CNG ,duty free import of CNG kits ,cylinders, market competition through deregulated pricing mechanism ,establishment of an independent regulator (OGRA) etc.CNG (production and marketing ) Rules ,1992 covering inter-allia safety code of practice are in place for construction and operation of CNG refueling stations. The regulation of CNG sector was transferred to OGRA on March 15 2003. OGRA has facilitated the process for grant of license through simplification of silencing procedures and provisions of one window facility for guidance to investors. Salient regulatory functions of OGRA pertaining to CNG sector are as under Grant of License for construction of CNG facilities Grant of Silence for operation after certification of conformity of the CNG works through laid down technical standards by third party inspector appointed by OGRA Regular periodic third party safety inspection of the CNG stations Readressal of consumer complaints in accordance with complaint resolution procedures regulation ,2003 Impose penalties for the contravention of the provisions of the OGRA ordinance 2002,rules and regulation made there under and terms and condition of a license Certification of CNG equipment after conformation that equipment meets the requirement of CNG rules 1992 , Standard code of practice and any requirement set out as policy guide line set by federal government

Licensing Procedure
No person can, without first obtaining a license from OGRA, undertake any activity for the purpose of storing, filling or distributing CNG in automotives. OGRA grants the CNG license in two phases. The details are briefly given below License for establishment/Construction of CNG station OGRA has simplified the procedure for obtaining the license for establishment/construction of CNG. The procedure requires complete application with all the requisite documents which is available at OGRA website and offices provided free of cost .The applicants are also guided and briefed at the one window operation at OGRAs office | Compressed Natural Gas 17

The license is normally granted within fortnight if all the legal formalities ire fulfilled. Investors are further assisted by a one window facility where prompt guidance and information is provided to die applicants. Almost 6,000 visitors, during the year 2007-08. Were entertained and provided with CNG with CNG information from one window facility License for operation/Marketing of CNG Station The licensee, after acquisition of requisite NOC from the concerned Federal/Provincial/local authorities, including license from Chief Inspector of Explosives, and construction of CNG Station and installation of approved CNG equipment then requests the Authority for appointment of third party inspector for verification of the conformity of its CN G works to Standard Code of Practice of CNG safety Rule. 1992. The Authority appoints third party inspector for carrying out inspection of CNG works/ Installations/ Stations under rule-10 of CNG Rules 1992. The license for operation/marketing is issued for a period of 15 years after satisfactory report of the third party inspector. In order to bring quality and competition in the third-party inspections, the authority has appointed internationally recognized inspectors to inspect the CNG facilities. To ensure safe, reliable rod cost effective services to the consumer, OGRA has given focused attention on conducting effective third party inspections, standardization of CNG equipment to help investors to adhere to the requirements of safety code of Practice and effectively regulating the sector in the light of the latest technological developments. NOCs for installations of CNG stations on existing petrol pumps: The federal government has recently introduced the following policy regarding issuance of NOCs for installation of CNG stations. For installation of a CNG stations at existing petrol pumps, there is no need of any additional NOC except from the department of explosives and third party certification from HDIP including a reputable private sector company of high standards. Details of Required Documentation 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. 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. NOCs: No Objection Certificate will be required from the following departments prior to the Commencement of the business:

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Concerned development authority of the city (Rawalpindi Development Authority in case of Rawalpindi) 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

Incentives: Sales Tax: The import of CNG equipment is exempted from sales tax vide SRO No.38 (1)/98 dated Custom Duty: The CNG equipment is also exempted from the custom duties as per the above-referred SRO. Regulatory Requirements: Quality Certificate: SRO.38 (1)/98 dated 21st 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. 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. 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. | Compressed Natural Gas 19

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.

Regulatory Enforcement
The system of annual safety inspection of the CNG stations, through third party inspectors streamlined the monitoring process for rectification of safety related deficiencies. The following regulatory activities have been taken in 2007 -2008 Annual safety audit/inspection on regular basis through the designated third party inspectors Surprise inspection to check measurement accuracy and safety violations on specific complaints under the compliant resolution procedure regulation, 2003. Regulatory monitoring of conformance of standards for new brands of CNG cylinders and conversions kits as per applicable rules. Fines/penalties imposed under the CNG rules 1992, on the licenses involved in respected safety violations, leading to disconnection of gas supplier. Public awareness campaign launched through print media to create public awareness on safety issues including the use of approved brands of CNG conversion kits and cylinders in vehicles to ensure public safety

Safety standards :
Guideline for Natural Gas Safety at CNG Stations:

1. Natural Gas is a high methane content gas mixture used as a heating fuel, motor fuel or as process feedback. a. It is lighter than air and will dissipate into atmosphere. b. It is a colorless gas to which a foul smelling agent is added to detect leaks. c. Its flammable limit in air (% by volume) is from 5 15 %. Natural gas without sufficient air or with too much air will not burn or explode. d. It is easily ignitable by spark or flame. Its flash point is -1880C and auto ignition temperature is 5380C. | Compressed Natural Gas 20

2. Legislative requirement is that all due precautions shall be taken and necessary techniques like gas detectors, soap test etc to be employed to determine any Natural Gas leakage and to prevent escape of Natural Gas into atmosphere. 3. In case of Natural gas leakage at CNG Station: a. Eliminate all sources of ignition. b. Call SNGPL area office to report gas leakage if it is at SNGPL metering station. If the leakage is at downstream of metering station then get it rectified by skilled/authorized personnel. c. Provide maximum ventilation. 4. If any pressure relief valve is activated, it is advised to carry out emergency shutdown of the compressors and evacuate the area. 5. Area where Natural gas is being used / handled should be very well ventilated, preferably with explosion proof mechanical ventilation. 6. It is a legislative requirement that all due precautions shall be taken at all times to prevent accidents by fire and explosion. 7. No smoking and no naked light/flame shall be allowed at CNG stations. 8. In case of fire: a. Stop gas flow whenever possible. b. Use dry chemical powder and CO2 type fire extinguishers. c. Use water fog for cooling the fire exposed containers, as a protective screen and to spread vapors. 9. In case of exposure / inhalation of natural gas: a. Move the victim to fresh air. b. Shift the victim to Hospital for medical examination / treatment. 10. Before filling of CNG in the Vehicle, it is advised to ensure that: a. The vehicle hand break is firmly applied. b. There is no naked light or flame like cigarette, lighter or match stick. 11. Natural Gas is a high methane content gas mixture used as a heating fuel, motor fuel or as process feedback. a. It is lighter than air and will dissipate into atmosphere. | Compressed Natural Gas 21

b. It is a colorless gas to which a foul smelling agent is added to detect leaks. c. Its flammable limit in air (% by volume) is from 5 15 %. Natural gas without sufficient air or with too much air will not burn or explode. d. It is easily ignitable by spark or flame. Its flash point is -1880C and auto ignition temperature is 5380C. 12. Legislative requirement is that all due precautions shall be taken and necessary techniques like gas detectors, soap test etc to be employed to determine any Natural Gas leakage and to prevent escape of Natural Gas into atmosphere. 13. In case of Natural gas leakage at CNG Station: a. Eliminate all sources of ignition. b. Call SNGPL area office to report gas leakage if it is at SNGPL metering station. If the leakage is at downstream of metering station then get it rectified by skilled/authorized personnel. c. Provide maximum ventilation. 14. If any pressure relief valve is activated, it is advised to carry out emergency shutdown of the compressors and evacuate the area. 15. Area where Natural gas is being used / handled should be very well ventilated, preferably with explosion proof mechanical ventilation.

Investment in CNG sector

Owing to increase liquid fuel prices, enhanced trend to go for CNG as fuel, has attracted the attention of potential investors, CNG sector has shown tremendous growth in FY 2007-2008.The investor friendly policies of the government and level playing field provided by the regulator through effective and efficient use regulations has made Pakistan largest CNG user in world with 2600 operational CNG stations and more than 2 million CNG vehicles. Total Investment in the Sector During year 2007 -2008, 764 New CNG stations have commenced operation showing growth 70 percent .An investment of about 12 billion has been made in the CNG sector during 2007 -2008 where as total investment in the sector stood at about 66 billion. Total Employment in the Sector The activity in CNG sector during FY 2007 -2008 has generated more than 20,000 direct/indirect jobs while the total direct /indirect employment opportunities in the CNG sector ,till date stands at more than 100,000 .

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There are on average ten employees on every CNG station with large CNG stations having more employees the approximate number comes to about 12 people per CNG station and a total direct employment of 31,200 people apart from that there are many supporting activities of CNG station as Manufacturing of CNG Equipment /Installation in Vehicles Repair and Maintenance of CNG Equipment Importer/Consultants of CNG Equipment

These main areas are responsible for almost 70,000 indirect employments in CNG Sector.

Main Expenses of CNG Stations The second part of the study is aimed to understand the profitability of CNG sector in the same area, since there are so many CNG stations operating is a CNG station able to meet its expenses and also compensate for marginal cost for sake of simplicity we will take bank interest rate as opportunity cost. To have a financial perspective of a CNG station we must understand Capital Budgeting tools require cash flow to measure a projects profitability ,the first thing in this analysis is to estimate initial cash out flows of the project The main sources of Initial cash out flows are Cost of Land Cost of Building Cost of Equipment of CNG station Security Given to SNGPL License from Ministry of Petroleum Gas and Electricity connection NOCs and & Inspection Charges Some of these expenses have same rate for all the CNG stations e.g. licenses ,Gas ,Electricity connection ,NOCs expenses while other are on yearly basis as well like Inspection etc. Utility Connections There are two main utility connection which are required by a CNG Station one is Gas connection and the other is Electricity Connection

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Gas Connection The following are guide line for obtaining a gas connection from SNGPL .There is also a large security amount that SNGPL takes against issuance of connection CNG stations PROCESS

Step 1 Step 2 Step 3 Step 4 -

Obtain an application form & fill in all the details (Annex A) Be careful to differentiate between a Single Proprietor/ Partnership Ensure to attach all the relevant documents mentioned on the back side of the application form. Please ensure to fill in the attached form (Annex B) regarding the Gas Load/Plant/Machinery/Boilers. After completing all the above documents, submit it to our INDUSTRIAL CUSTOMERS SERVICE CELL.

Step 5 -

CNG CONNECTIONS (ON EXISTING SYSTEM) Processing of applications for CNG stations shall be subject to issue of CNG Marketing license by OGRA. Gas connection to CNG stations shall be provided on 12 month basis. In case the consumer premises are situated on our existing system, the consumer shall pay 1.5 times of the actual material cost as Service Line charges. In case, System Augmentation is required to cater for the load of CNG Station, such augmentation shall be done on receipt of the cost from the applicant. The applicant shall be responsible to acquire all License / NOC / Fitness Certificates from OGRA, HDIP & Explosive Department before gas supply is commissioned.

CNG CONNECTIONS (NOT ON EXISTING SYSTEM) Gas connections to CNG stations shall be provided on 12 month basis. In case the consumer premises are not situated on our existing system, the consumer shall pay 100 % cost of line pipe required to be extended. In case, System Augmentation is required to cater for the load of CNG Station, such augmentation shall be done on receipt of the cost from the applicant. | Compressed Natural Gas 24

The applicant shall be responsible to acquire all License / NOC / Fitness Certificates from OGRA, HDIP & Explosive Department etc. before gas supply is commissioned.

ADDED INCENTIVES In case, gas supply to your premises has been disconnected, SNGPL offers you the following unique incentives for getting a reconnection through: A 40 % payment of total outstanding amount / violation charges. Easy installment for the remaining 60 % due amount. Cash security based on 60 days consumption pattern. Signing of new / fresh GSA. A deposit of Rs 1000/- as reconnection Charges. Gas supply shall be reconnected within a fortnight, after completion of all the formalities.

Electricity The following procedure is to followed to get an electricity connection Step 1 Get five copies of Application and Agreement (A&A) form along with Abridged Conditions of Supply free of cost from the following places: Step 2. Fill up all five copies of A&A form A, B, C, D & E and deposit along with one copy of Abridged Conditions of Supply and following supporting documents: Prosperity or owner-ship proof (Registry) Consumer Electricity Bill of any premises adjacent to the applied for premises. Wiring Test Report for all Connections other than Domestic. An Affidavit that no connection exited previously at the premises on which you are applying for a new connection and that you would pay WAPDA/IESCO dues in respect of connection which already existed at the premises now applied for if noticed later. Owner's National Identity Card (photocopy). Photocopy of Witness's National Identity Card. | Compressed Natural Gas 25 Sub divisional Offices. Customer Service Centers.

"No Objection Certificate" from the landlord if the applicant is tenant along with landlord's proof of owner-ship and affidavit mentioned above.

For companies incorporated under companies ordinance 1984 Cost of Land The cost of Land Varies due to size and location price increases as potential of projected sales increases, where as construction cost also varies due to total covered area and other facilities on CNG station. This also varies with a filling station which houses gasoline as well. Some CNG stations also have tire shops, CNG fitting and maintenance shops, service Stations and Tuck shops. So there is no hard and fast rule for that how much area is required by a CNG station it varies widely from area to cities and location Equipment Most equipment of CNG is imported from abroad, now there are also some local manufacturers which are making compressors as well as dispensers. The cost of Equipment varies by capacity. Information regarding different types of CNG equipment can be found in the attached Annexure. Few leading Companies are Tesla (www.tesla-tech.com) Khattak Sons (www.khattaksons.com) Operating Expenses The major part of operating Expenses is cost of Sale mainly gas costs and electricity are attributed to cost of sales this also includes wastage cost .The cost of CNG is about 52%-56% of Sales including 15% sales Tax. Electricity bill is about 12%-14% of sales. Overall Gross Profit Margin is 65%-70%. Then other part of the expenses are salary of staff and Management .maintenance of equipment apart from that some annual inspection fees from HDIP ,Explosive Ministry etc. The detailed schedules of the Expenses are referred to at annexure I attached at the end of this document. It also includes the project Net present Value and payback period to under the overall profitability. The discount rate used in the Calculation is Risk Free rate. Suggestions /Recommendations Printed copy of memorandum and articles of association, along with attested certificate of incorporation. Resolution of the company authorizing a person signing (A&A) form.

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The first problem while entering this business is, Ban on issue of NOC from different Authorities .The ban is imposed for almost two years now. The NOC is only issued for a CNG in Baluchistan The second major concern for the investor should be, there are approximately 2600 CNG Stations operating in Pakistan and a provisional license is issued to approximately 6200 new concerns which will be more double the number of Existing CNG stations, our meeting with a founding member of All Pakistan CNG association, he revealed that in specific area in Rawalpindi over 50 provisional NOC have been issued on a total road length of 2000m The discount rate used in our model may not be the real picture since most of the CNG stations in our study are located at prime location a construction a Plaza may yield far higher returns than those of Risk free, so opportunity cost may also vary. The CNG is about 35% cheaper than other fuel if there ,the additional cost is sacrificing the trunk Space, additional 30-40 thousand expense on CNG kit fitting and the consumer has also to settle for less mobility as the refueling is required at most on every 200 km. On average the onetime expense that is CNG fitting is amortized if after 50,000 km if nothing else included, the depleting gas resources of Pakistan as well as agreement with Iran result in increased gas prices, this margin will be reduced and there is greater chance of people switching back to gasoline

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Bibliography
In completion of this project we have used the following Sources 1. Oil and Gas Regulatory Authority www.ogra.org.pk 2. Ministry of Petroleum www.mpnr.gov.pk 3. Hydrocarbon Development Institute of Pakistan www.hdip.com.pk 4. Sui Northern Gas Pipeline Limited www.sngpl.com.pk 5. Small and Medium Enterprise Development Authority www.smeda.org 6. All Pakistan CNG association www.apcnga.org Then there are many different CNG stations that we visited in the course of the project for the purpose of data collection which are situated across Rawalpindi

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