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Thursday, October 26, 2017

Sample Business Plan on Set up of a Petrol Station in Nigeria

Petrol Stations in Nigeria are very critical to the national economy. They are the main energy sources for powering automobiles, generating sets and other locomotive engines in the country. Due to their strategic role in ensuring that transportation services run smoothly, they also aid commerce and facilitate communication services. Without them, the Nigerian economy would collapse. Think back to the fuel scarcity period when economic activities are suddenly grounded because of long queues of vehicles around fueling stations everywhere.
In this sample business plan, I am assuming the filling station will only dispense petrol and sell other packaged products such as engine oil, grease etc and will also generate revenue from rent charged to tenants (tyre service centers, mechanic workshops etc). You can also start a petrol station without your own tanker, but that means you will have to rent one to supply your station. It is however better to own your tank because you can also make money from it by renting it out to other stations that may need it.

The petrol station business is relatively stable and sustainable long term business when located in the right place where adequate sales can be guaranteed. It is not suitable for people looking for quick returns on their investments within 5 years but for people looking at 10 or more years. It is capital intensive and
Market Overview of Petrol Stations in Nigeria
Petrol/Filling stations (or fueling stations) are part of the downstream subsector of the Nigerian Petroleum Industry providing; petrol, diesel, kerosene, engine oil, lubricants to name a few. But the main product sold is petrol for which local daily demand is over 40 million liters. Diesel is also sold but mainly in wholesale with distributors supplying homes, factories, churches, other private corporate establishments, shopping malls, schools, government offices and large transporters.
·        Diesel consumption in Nigeria as at 2016 was worth over 1 trillion naira but usually by commercial customers
·        Petrol which has the highest sale attracted over 3 trillion naira in sales
·        There are over 30,000 petrol stations in Nigeria
·        The largest regional markets for petroleum retailing are Lagos, Rivers, Kano and FCT
In addition to this, many petrol stations also retail cooking gas, household consumables and groceries. There are different categories of petrol stations in Nigeria depending on what they are retailing such as;

  • Standalone fuel dispenser pump (usually found in semi-urban towns
  • Mini fuel station (less than 6 dispenser fuel pumps) found in many towns
  • Standard fuel station (6 to 20 pumps)
  • Mega filling station (more than 20 pumps)

They are usually sited along busy roads, busy streets, close to very popular landmarks and in commercial settlements with high vehicular traffic.
The Nigerian petroleum downstream sector grew by 10.8% in 2016 despite the challenges in the industry among which are unstable products supply, uncertainty over price due removal of subsidy on nearly 90% average of imported products consumed locally.
Opportunities for Filling Station Business in Nigeria
From over 20 opportunities identified, these are just a few;

  • Petrol, kerosene and diesel remain the most affordable, available and viable energy sources for a larger number of individuals, families and businesses in Nigeria
  • Technology to develop alternative sources of energy is either too expensive or primitive at best
  • Nigeria’s population is growing fast with ever rising need for people to move, work and do business putting pressure on petroleum suppliers
  • Higher opportunity costs in the face of petrol scarcity implies that petroleum products are extremely important to the national economy hence there is a guaranteed market
  • Urbanization is increasingly broadening the daily demand for various petrol products

Some Challenges of Running a Filling Station in Nigeria
Among 25 identified challenges owners of filling stations in Nigeria would likely face, the following is just a shortlist;

  • Unstable Foreign exchange rates
  • Low production levels from existing refineries
  • Corruption among petroleum downstream regulators
  • Inconsistent government policies
  • Huge capital investments required for set up
  • Difficulty in accessing finance for expansion
  • Low profit margins
  • High cost of maintenance
  • Removal of fuel subsidy
  • Industrial actions from trade unions

Many of these challenges have negative impact on sales, profit and growth opportunities for operators.
The Future of Petrol Stations in Nigeria

With the effect of fossil fuel consumption on global warming, pollution and the need to conserve resources, many organisations are working out plans to reduce or eradicate altogether fossil fuel based vehicles in favour or more efficient and environmentally friendly sources. Already there are cars that run on hydrogen fuel gotten from water, ethanol, solar powered cars and Volvo has already made plans to start mass producing cars that don’t use petrol or diesel from 2019. Globally, demand for environmentally friendly cars such as Tesla have been seeing steady growth year on year.
Add the fact that fossil fuels are finite and will one day dry up, the future of this market is uncertain beyond 50 years from 2017 which means that we may not have profitable filling stations by 2067 or they would have been replaced by more environmentally viable service stations. Then there is the rapid global population growth which will only lead to higher energy needs, again reducing the available crude oil reserves further.
There is also shale oil which has been touted as possible replacement for crude oil and it is in even more abundant supply, but the problem is the technology for exploiting it is too much for now.
What are the Startup Requirements for a Standard Petrol Station in Nigeria?

  • Petroleum Stock – 4,800,000
  • 6 Fuel Dispenser Pumps (plus cost of installation) - 6,600,000
  • 1 Generating Set – 12,000,000
  • 1 NO of 33,000 liter Fuel Tanker – 35,000,000
  • Other stock (Lubricants, engine oil etc) – 300,000
  • Building Construction Cost – 80,000,000
  • Others – 6,700,000
  • Total – 130,400,000

Basic Financial Summary and Projections
Based on average daily sales of 21,000 liters of petrol @ 145 naira per liter for 360 days in a year and sale of other products plus rent income from tenants and (other indices not indicated), first year sales projection for a standard filling station could look like this;

  • Total Fuel Sales – N1,096,000,000
  • Other revenue – N38,641,000
  • Total Revenue – N1,134,841,000
  • Cost of sales – N1,089,447,360
  • Gross Profit – 45,393,640
  • Operating Expenses – 34,045,230
  • Net Profit before Tax - 11,348,410
  • Taxation – 3,404,523
  • Net Profit after Tax – 7,943,887 
Are looking to setup a Petrol or Filling Station in Nigeria and require a professionally written Business Plan? Give me a call: 0803 206 4106 or email me: paulonwueme@gmail.com to have one prepared for you