LPG Marketing Feasibility Full new

1

LPG BOTTLING PLANT

AND

AUTO GAS STATION MARKETING

FEASIBILITY

Mohammad Saeed Awan Mobile # 0323-5252814

2

INTRODUCTION

LPG is an abbreviation for "liquefied petroleum gas" and encompasses several products in the hydrocarbon family; compounds composed of carbon and hydrogen of varying molecular structures. Propane and butane are the two best known hydrocarbons that are used as fuel in homes, businesses and industries. In the international markets, LPG predominantly refers to a propane-butane mixture. These mixes may vary in composition from ones that are predominantly butane to ones which propane is the principal constituent. LPG, whether butane or propane, is unique in that it can be transported and stored as a liquid but when released it will vaporize and burn as a gas. Also, LPG can easily be changed from either liquid state or gas state.

No other commercial fuel has these characteristics. Natural gas, for example, cannot be transported in a tank in any meaningful quantities unless it is either compressed to extremely high pressures or chilled to 259°F (-126°C), at which point it liquefies.

Even when compressed, it contains only a fraction of the useful energy of the identical volume of liquid state LPG.

When liquefied, LP gases are always at their boiling point at normal temperatures. The slightest drop in pressure or the least addition of heat will cause them to boil and give off vapor or gas.

This characteristic becomes critical when considering the transfer of liquefied gases from one tank to another.

Being a liquefied gas, LPG must be stored in an enclosed container under pressure. The fluid in a tank is in state of equilibrium with the gas vapors on top of the liquid providing the tank pressure to keep the liquid from boiling.The specific gravities of the liquids are just over half that of water.This means a gallon of propane or butane weighs only half the weight of a gallon of water. Also, propane and butane have viscosity of about 0.1 centipoise, which make them approximately 10 times thinner than water.This property makes LPG a difficult fluid to pump since a low viscosity fluid is harder to seal and prevent pump slippage.The single significant difference between propane and butane is their boiling points, the temperature at which each will vaporize. Butane boils at approximately +32°F (0°C), propane at -44°F (-42°C) at atmospheric pressure.Therefore, at 0°F (-18°C), butane will not vaporize at atmospheric pressure while propane will. Consequently, at any given temperature, the pressure for a propane vessel will be higher than a butane vessel. "Vapor Pressure of Liquefied Gases." LPG is inherently a safe fuel. Two prime factors contribute to LPG safety;one is its narrow limits of flammability, the other is the fact that the container in which it is stored is extremely strong and airtight. If the confined gas cannot escape it can't burn. LPG has narrower limits of flammability than most fuels. For propane, the respective limits are 2.4% and 9.6%. This means that when the concentration of LPG in air is less than about 2.4% or more than 9.6%, the mixture will not support combustion.LPG is cleaner than petrol and diesel because it is composed of predominantly simple hydrocarbon compounds. Compared with emissions from vehicles on petrol and diesel, emissions from LPG-driven vehicles contain lower levels of hydrocarbon compounds, nitrogen oxides, sulphur oxides, air toxics, and particulates.

There is no conclusive evidence to show LPG is more dangerous or less dangerous than petrol or diesel. Human factor plays an important role in affecting the safety in using LPG.

While capital cost is incurred in switching to LPG, LPG-driven vehicles have a slightly lower maintenance cost than petrol-driven or diesel-driven vehicles. The running cost of LPG-driven vehicles is lower than petrol-driven and diesel-driven vehicles in many territories mainly due to lower fuel tax rate on LPG.

The introduction of LPG in most overseas countries was non-mandatory except in the US where federal and state fleets have to comply with the National Energy Policy Act 1992 to have certain percentage of their new vehicles to


3run on alternative fuels. Overseas governments have used various measures, fiscal and non-fiscal, to create an environment that encourages the use of automotive LPG.

Overseas governments also try to enhance safety in using LPG by introducing regulations or codes of practice to regulate the use of LPG vehicles, the design and construction of LPG fuel tanks and to restrict handling of LPG to trained personnel.

International Automotive LPG Markets

Automotive LPG, the alternative motor fuel

Automotive LPG is the most widely used alternative motor fuel, powering more than 8 million vehicles worldwide in over 38 countries. Its environmental benefits, practical advantages and overall effectiveness have already been widely demonstrated and acknowledged.Automotive LPG is a clean non toxic by-product extracted from natural gas processing and oil refining – it therefore brings benefits by strengthening Europe's diverse energy mix and independence in terms of security of energy supply.

LPG fuelled vehicles have low tailpipe emissions of both regulated and non -regulated pollutants : the main advantage of LPG remains in its C02 benefit over petrol and its NOx and particulate benefits over diesel -but, the exhaust gases of LPG vehicles show also less smog forming potential and contain less carcinogenic components like Benzene and aldehydes. Using automotive LPG in road transport can therefore help reduce total emissions and improve air quality.

Status of the Automotive LPG market in Europe

In Europe, automotive LPG is used by more than 2.6 million LPG vehicles. The main driver for this success has been the goal of improved air quality performance which has been consistently proven through a variety of independent formal studies.


4

Overview of LPG light vehicles running in Europe as 31st December 2001(source : AEGPL & WLPGA statistics)

Given the EU's drive to promote alternative fuels, which bring environmental advantages, and the increased concerns about the need to guarantee security of energy supply in Europe, automotive LPG is expected to reach 5% share of the European vehicle market by the year 2010.However, the vast amount of LPG currently used as chemical feedstock in petrochemical processes (which can easily change to naphta), would allow the operation of 18 to 20 million vehicles in Europe.

This expansion will occur without introducing significant changes in customer usage patterns.One key reason for the leadership of autogas in Europe, is the density of its distribution network. There are approximately 13.500 autogas refuelling sites out of a total of 95.000 public retail sites. The number of autogas refuelling sites can also be increased with relative ease.

This means that autogas is not a theoretical alternative fuel but a highly practical one due to its ease of handling and wide availability.A wide choice of LPG vehicles is already available either from OEMs (more than 10 models already available on the European market) or from importers & certified retrofitters. OEMs vehicles comply with very stringent emission targets, as well as safety rules, and are subjected to European type-approval.

Retrofitted vehicles have also to comply with increasingly stringent rules, in particular regarding the LPG equipment installations.Thus, current LPG vehicles offer drivability and comfort to the end-consumer, at least equal to that of conventional cars.Implementation of new technologies for LPG engines (such as E-OBD compliance) and for LPG components (e.g. polymorphic composite tanks) highlight the desire of the Autogas Industry to put on the market vehicles designed to the highest standards.


5

Automotive sector in Europe

Facts and figures on the Automotive sector

More than 250 million vehicles on the European roads The road transport sector will continue to grow forecast at 310 million by 2020

With 16 million new passenger car registrations in 2007, Europe accounts for 33% of the world market

ACEA members (European car manufacturer’s association)are one of the major employer in Europe (> 12 million jobs)

Auto gas in Europe today

Top 10 Autogas countries in EU 27 (+Turkey)

Autogas in Europe today

End 2007: More than 24,500 filling stations to support a population of more than 4.8 million Light duty vehicles in the EU-27

LPG is EU’s number one alternative fuel

Some information on the German market

Some figures:

2004: population of 30,000 LPG cars 600 Filling Stations2005: + 35,000 1,000 FS2006: + 60,000 2,100 FS2007: + 75,000 3,200 FS

DVFG target: 1,000,000 LPG-fuelled vehicles by 2015

Today, more and more car manufacturers/importers outlets market


6LPG vehicles: Chevrolet, Fiat, Opel, VW, Chrysler, Ford, Kia, Citroën, Subaru, Mazda, Mitsubishi, Cadillac….

LPG BUSINESS IN PAKISTAN

LPG Market in Pakistan

More than 40% of LPG is consumed by the Auto sector. Roughly 40% is consumed by the Domestic sector. Around 10-15% is consumed by the Commercial sector including Hotels. The remaining 5% is consumed by the Industrial sector.

There exists a latent demand of 4000 MT per day vs. current domestic production of 1650 MTMarketing Cos. have made windfall profits because of price caps, created artificial shortages and hindered flow of imports The only way to capture this demand is by equating local producer prices to Saudi Aramco as this would:

LPG BUSINESS OPPORTUNITY IN ALL OVER PAKISTAN

Currently out of 25 million households in Pakistan, 4.3 million are connected to natural gas network and the rest are relying on LPG and conventional fuels like coal, firewood, kerosene, dung cake etc, which indicate the strong demand for Liquefied Petroleum Gas (LPG) sector.

Liquefied Petroleum Gas (LPG) is used as fuel for cooking and heating in the northern Pakistan particularly in Punjab. It is also used as fuel in vehicles particularly taxi and rickshaws. More than 75,000 rickshaws and taxis in Karachi, Lahore and other parts of the country are run on LPG. The demand of LPG in Karachi is consistent throughout the year and increases during winters in Punjab and Northern Pakistan.

Although demand of LPG is persistent throughout the year, supply of LPG from producers (or extractors) to distributors and marketing companies has been limited due to maintenance and overhauling shutdowns, which often creates shortages. Besides that, LPG producers are also limited in numbers and LPG marketing companies need to have a quota of gas to be allocated by the producer. This factor makes LPG business vulnerable in the hands of LPG producers.

LPG (Liquefied Petroleum Gas) is the generic name for commercial propane and commercial butane. These are hydrocarbon products produced by the oil and gas industries. Commercial Propane predominantly consists of hydrocarbons containing three carbon atoms, mainly propane (C3H8). Commercial Butane predominantly consists of hydrocarbons containing four carbon atoms, mainly n- and iso – butanes (C4H10).

They have the special property of becoming liquid at atmospheric temperature if moderately compressed, and reverting to gases when the pressure is sufficiently reduced. Advantage is taken of this property to transport and store these products in the liquid state, in which they are roughly 250 times as dense as they are when gases.

PROJECT BRIEF

LPG production is a capital intensive business and requires huge investment depending upon the technology and methodology employed for the extraction and processing of LPG. However, LPG Marketing and distribution needs comparatively less investment and can be considered by the Small and


7Medium scale investors. The proposed project envisages setting up of LPG marketing and distributing company (related business in this regards, Auto Gas Station and mini Bottling plant) LPG is generally known as LPG bottling plant business. LPG marketing and distribution business will setup a bottling plant with storage tanks and filling dispensers. The business facility will hold a certain quantity of LPG quota, allocated by one of the LPG producer and this allocated LPG will be supplied to the marketing company through Bowzer (gas supplying trucks). The company will store this LPG in its storage facility from where, supply to the sub-distributors will be made. Sub-distributors will bring their cylinders and get them filled against payment.

OGRA also approved mini bottling plant and Auto gas station in all over Pakistan.

MARKET ENTRY TIMING

There is a right time for the entry in LPG marketing Business. (Mini Bottling plant and Auto Gas Stations)

PROPOSED BUSINESS LEGAL STATUS

The legal status of business tends to play an important role in any setup; the proposed LPG Marketing and Distribution business is assumed to operate on as a private limited company. It is mandatory for an oil or gas company to register as a private limited company.

PROPOSED LPG BOTTLING/DISTRIBUTION PLANT CAPACITY

The capacity of the proposed LPG storage and distribution facilities would be around 4 M.Tone to 100 M. Tons,

PROJECT COST

Total project cost of the LPG Marketing & Distribution business would be approximately 04 million to Rs. 45 million.

PROJECT INVESTMENT

A total of Rs. 45 million will be required to setup and operate the proposed LPG Marketing and Distribution business.

KEY SUCCESS FACTOR & PRACTICAL TIPS

Following are the key success factors in LPG business:

LPG quota allocation: Most of the existing plants with fully operational facilities are out of work because of delays in their quota allocation by the LPG producers.

dealing with the sub-distributors: Sub-distributors play important role in the successful operations of a LPG Marketing company because they distribute gas among agency holders who further sale it to the retailers.

Cheap Irani LPG is available in the market: In such circumstances when cheap Iranian gas is available, a LPG marketing and distribution company may face a situation where it would be forced to lift its quota as per agreement from the producer at a higher cost and sell it at lower price.


8

INVESTMENT OPPORTUNITY IN THIS SECTOR

The Government has focused on this sector and has approved “LPG production and distribution policy 2006”This policy aims at increasing LPG supplies, streamlining its distribution at affordable prices, especially to LPG starved areas of the country and promoting healthy competition or growth of LPG market while ensuring minimum safety standards across the Liquefied Petroleum Gas supply chain. To achieve this goal, issues regarding LPG production, LPG licensing, safety standards, pricing, distribution in under developed areas and import of LPG have been addressed in this policy.Prior to the announcement of the above policy, there has been a shortage of LPG particularly during winter when most of the oil refineries shutdown their LPG production operations for annual maintenance. Most of the refineries had a practice to close LPG production at the same time which resulted in severe shortage leading to a consequential increase in price. In order to avoid such situations, now it is mandatory for the oil refineries to announce a schedule of maintenance ensuring a certain level of LPG supply to the market.

Besides the oil refineries who produce LPG as a by product, some of the specialized projects i.e. JJVL (Jamshoro Joint Venture Limited) are focusing on producing only LPG which would help in consistent supply of LPG to the marketing and distribution companies. It is expected that second facility of JJVL will commence its operations shortly.

M ARKET I NFORMATION

CURRENTMARKET

Currently there are 76 LPG marketing and distribution companies operating in Pakistan. Based on the information provided by the existing players, about 50 of them are operating and rests are waiting for the allocation of LPG quota. LPG’s use as fuel for cooking and household requirements is most common in the rural areas of Punjab and NWFP (with a daily demand of about 500 to 800 ton). In the southern region of the country, Karachi is the biggest consumer of LPG with an approximate daily demand of about 250 to 300 ton. These indicative figures are expressed by the LPG marketing company representatives and could vary based on specific market circumstances.

MARKET POTENTIAL

Attraction for LPG among the commercial vehicle operators (particularly taxi and auto rickshaw) in Karachi, Lahore and other large cities & its demand in the rural areas of Punjab which account for about 80% of the total demand makes the LPG sector an attractive business. Following comparison of different fuels and their respective benefit analysis gives a clear picture of the LPG attractiveness among the automotive users.

With a view to ensure adequate supplies of LPG in remote, rural and hilly areas of the country, and to halt deforestation, OGRA has ruled out a policy that all LPG marketing companies receiving LPG from sources in Punjab and NWFP will be obligated to supply at least 7% of their local LPG in Northern Areas, 7% in AJK and 6% in FATA.


9AUTO VEHICAL FUEL PRICING COMPARISION

PRICE COMPARISION OF PETROL, CNG, AND LPG

Petrol drive costs Rs. 4.84 per kilometer as against Rs. 1.78 for L.P.G and Rs. 3.8 for CNG. On an average mileage of 40 kilometers, an average driver using LPG makes a saving of Rs. 123 per 40 km, and for a CNG operated vehicle, the saving is Rs 42 40 km,This clearly suggests a cost benefit of LPG and CNG over petrol hence has a greater attraction for vehicle operators.

Compare Chart average price of Petrol for the current year 2009; Rs. 58 per liter.

Fuel Cost per liter Mileage per liter Mileage per Rs. 100

LPG 25 14km 60 kmPetrol 58 12km 29 km

Fuel Cost per kilo Mileage per kilo Mileage per Rs. 100LPG 35 28 km 83 kmCNG 50 13 km 26 km

LOCAL PRODUCTION OF LPG:

At present, the following eight producers are producing around 1600 M. Tons of LPG per day in the country.

S. No Name of Producers Location/Phone No.

1Pakistan Refinery Limited 7-B, Korangi Industrial Zone, Korangi, Karachi.

Ph: 021-5062005.2 National Refinery Ltd. Karachi Ph. No.021-5064981-863 Attock Refinery Limited Morgah, Rawalpindi. Ph.No.051-5487041.

4Pak-Arab Refinery Ltd(PARCO)

Korangi Creek Road, Karachi Ph. 021-5090100-13

5Pakistan Petroleum Limited PIDC House, Dr.Ziauddin Ahmed Road, Ph.

021-5682562

6Oil & Gas DevelopmentCompany Ltd.

OGDCL, Building, Jinnah Avenue, IslamabadPh.No.051-9209701

7 Pakistan Oilfields Ltd Morgah, Rawalpindi. Ph.No.051-5487589

8Orient Petroleum Inc Hayat Hall, Block No.2, Diplomatic Enclave

No.1, G-5, Islamabad Ph. No. 051-2274261

9Jamshoro Joint VentureLimited

Associated House, House No. 8, Street No.37,F/7-1, Islamabad, Ph. No. 051/2652727-29


10

LPG PRODUCED

Following table provides LPG producers with their production sites and quantity of produce during 2006-07:

Producer Name of Field LPG Produced (M.Tons)OGDCL Dhakni 572

Dhodak 5,750Kunnar 1,104Bobi 2,500Sub Total 9,926

POL Dhulian 287Meyal 622Pariwali 1,854Pindori 2,379Turkwal 3Sub Total 5,145

OPI Ratana Mayal 62Naimat Basal 1,404Siraj South 0Umar 0Sub Total 1,466

PPL Adhi 2,133PRL 1,192PARCO 11,332NRL 1,481ARL 851JJVL. 13,438Grand Total 46,964Average/day 1,514

LPG UPLIFTED BY MARKETING COMPANIES.

Data on LPG uplifted by the LPG marketing companies during past one year has been provided in the following table:

Name of the Company LPG Uplifted (M. Tons)SHV Energy 4,972Fon Gas 3,350Wak Limited 3,219Shell Gas 2,786Pakistan State Oil 1,719Caltex 1,984Eirad Company Limited 2,112Lub Gas 4,466Pakistan Oil Fields Limited 6,079Mehran LPG 2,483Baluchistan Gas 836Cap Gas 625Sun Gas 607Petrosin Gas 385


11Muhammadi Gas 2,048Ravi Gas 1,216Aftab Traders 1,180Agha Gas 144Bolan Gas 184Pro Gas 1,122Gas Man 118Power Gas 283Links International 448Synergy Gas 717Baluchistan Minerals 148Cress LPG 686Noor LPG 454Petroleum Gas 424Tez Gas 656Soneri Gas 0Sam Gas 538Super Star 261AB Gas 222Golden Gas 500Wyne Gas 124TOTAL. 47,096

LPG DISTRIBUTION PROCESS (SUPPLY CHAIN)

Typical distribution process and supply chain of LPG has been illustrated in the following diagram:

LPG ProductionCompany

LPG Marketing& DistributionCompany

LPG Distributor /Sub-Distributor

LPG Retail Agent

PRODUCTION PROCESS OF LPG

There are three methods for the production of LPG: 1) Extracted from natural gas: 2) By product of Oil refining process: 3) Produced during Oil refining process.However, it should be noted that from natural gas, LPG can only be extracted from the points where propane and butane is mixed with the natural gas in certain quantity. In the following lines production/extraction process of LPG from natural gas has been elaborated.

The patented AET Process LPG Recovery Unit technology utilizes non-cryogenic absorption to recover C2+ or C3+ natural gas liquids (LPG’s) from natural gas streams. The absorbed LPG’s in the


LPG Retail Sales Shop

12rich solvent from the bottom of the LPG absorber column are fractionated in the solvent regenerator column which separates LPG’s overhead and lean solvent produced at the bottom. After heat recuperation, the lean solvent is pre-saturated with absorber overhead gases. The chilled solvent flows in the top of the absorber column. The separated gas from the presaturator separator formsthe pipeline sales gas.

Depending upon the economics of ethane recovery, the operation of the AET LPG plant can be switched on-line from ethane plus recovery to propane plus recovery without affecting the propane recovery levels. The AET LPG plant uses lighter lean oils. For most applications, there are no solvent make-up requirements. AET can design retrofits for heavy lean oil facilities.

Production Process Flow Diagram

TECHNOLOGY OPTIONS


13For a LPG storage and distribution plant, technology options are important while selecting filling equipment, storage tanks and filling pumps. For the proposed project following technology options have been assumed:

Gas filling dispensers = (available in local and foreign market)Pumps = (available in local and foreign market)Storage Tanks = (available in Local Market)

PLANT ANDMACHINERY REQUIREMENT

Machinery required for the LPG distribution plant would include the following:

PLANT AND MACHINERY

S. NoMachine

RequiredNo. ofUnits

1 Storage Tank- 100 tonne 1

2 Storage Tank - 10 tonne 1

3 Storage Tank - 10 tonne 1

3 Filling Dispenser 4

4 Pumps 2

5 Cylinders(11.8 KG) 5006 Cylinders (45.4 KG) 200

7Support Structure - Piping & Valves as per area

8 Fire Fighting Equipment 1

There are few local suppliers/ manufacturer of storage Tanks and other related machinery for LPG distribution setup.

PLANT AND MACHINERY MAINTENANCE

All machines require routine cleaning and maintenance after every three months and an annual service which costs around 1% to 5% of the total cost depending upon the use of the machine and operator's skill. We have assumed an average of 3% of the initial plant and machinery cost as the annual maintenance cost.

LAND AND BUILDING REQUIREMENT

SITE DEVELOPMENT

LPG Plant is sophisticated and requires fool proof system, because Liquefied Petroleum Gas is flammable and during site development, prescribed instructions for fire extinguishment systems must be complied with. Qualified Consultant Engineers shall be engaged for preparing structural drawings for LPG site.

LAND REQUIREMENT FOR PLANT

In order to comply with structural standards prescribed by the explosive department and provisioning for the future expansion in the storage capacity, a minimum of 2 Acre area would be required for the proposed LPG setup.(mini Bottling plant 10,000 to 20,000 Sft and Auto Gas Station 10,000 Sft) Land required.


14

PROJECT COST

FINANCIAL ANALYSIS FOR BOTTLING PLANT, MINI BOTTLING PLANT, AUTO GAS STATION WITH LAND COST.

1- 100 M.Tone Capacity Plant Cost, 45 Million (Land required 2 acre)

2- 10 M.Tone Capacity Plant Cost, 04 Million (Land required 20,000 Sft) (with out civil work)

3- 04 M.Tone Capacity Plant Cost, 02 Million (Land required 10,000 Sft)(with out civil work)

4- Auto Gas Station 5 M.Tone Cost, 10 Million (Land required 10,000 Sft)

LPG PRODUCTION AND DISTRIBUTION POLICY 2006

INTRODUCTION:

Liquefied Petroleum Gas (LPG) is a colourless, odourless and environment friendly mixture of hydrocarbons (mainly propane and butane) which is gaseous at normal temperature and pressure, and liquefiable under reduced temperature or moderate pressure.

A chemical ethyl mercaptan is added to impart a pungent odour for leak detection. Currently about 1600 tons/day LPG is being produced domestically contributing 0.4 % to the total energy supply mix. Because of its characteristics LPG is fast becoming a fuel of choice in the areas, where natural gas distribution network is not available. Currently out of 25 million households in Pakistan, 4.3 million are connected to natural gas network and the rest are relying on LPG and conventional fuels like coal, firewood, kerosene, dung cake etc.

In June 2000, the Federal Government decided to deregulate the LPG industry with a view to making it investor friendly, foster healthy competition, improve safety standards, and ensure better consumer services. Accordingly, in supersession of LPG (Production & Distribution) Rules 1971, LPG (Production & Distribution) Rules 2001 were formulated under which LPG allocations made by the Ministry of Petroleum & Natural Resources (MPNR) prior to deregulation were given protection to the extent of terms of existing agreements between the marketing companies and producers. These Rules also empower the producers and marketing companies to fix a reasonable producer price for their product and a retail price respectively. After promulgation of Oil & Gas Regulatory Authority (OGRA) Ordinance, 2002 all LPG regulatory functions as envisaged in LPG (P&D) Rules, 2001 were transferred to OGRA in March 2003.

OBJECTIVES:

This policy aims at increasing LPG supplies, streamlining its distribution at affordable prices, especially to LPG starved areas of the country and promoting healthy competition for growth of LPG market while ensuring minimum safety standards across the LPG supply chain. To achieve this goal, issues regarding LPG production, LPG licensing, safety standards, pricing, distribution in under developed areas and import of LPG have been addressed in this document.


15

POLICY GUIDELINES

DISPOSAL OF LPG BY PUBLIC SECTOR (E&P) COMPANIES

Public sector E & P companies will out source all LPG production to technically and financially sound private sector parties holding valid license from OGRA for the purpose through a transparent and competitive process with a view to making LPG supplies available on commercial and market driven considerations. The outsourcing process must ensure that no cartels and monopolies are created.The above process should be completed within six months of the announcement of the policy.

LPG LICENSING,

OGRA will issue provisional licenses to technically and financially sound applicants/ parties for construction of works commensurate with their work programmed, for a period of one year.

OGRA will induct additional reputable third party inspectors to check/monitor compliance with the terms and conditions of licenses.The licenses shall be cancelled in case of non-compliance with licensing terms and conditions.

LPG SAFETY STANDARDS

To ensure safety throughout the LPG supply chain, LPG storage tanks, cylinders bowzers, and distribution outlets of the licensees will meet the minimum safety standards as laid down in applicable Rules.

Decanting of LPG from cylinder to cylinder is prohibited and OGRA shall cancel licenses of the LPG marketing companies involved in this activity directly or indirectly.

OGRA will prescribe codes and standards for conversion of vehicles to LPG and the establishment of LPG re-fuelling stations for the auto sector by LPG marketing companies.

OGRA will develop safety standards, rules and procedures in line with the international best practices for regulating the LPG auto sector, and an effective compliance monitoring mechanism will be put in place by the regulator.

OGRA will publish a list of authorized manufacturers for all LPG equipment including LPG refilling stations, conversion kits, fuel tanks, cylinders, storage tanks, and bowzers.

LPG fitted vehicles will be obligated to obtain insurance cover to ensure compliance of prescribed standards for cylinders and conversion kits.

LPG PRICING

The Federal Government will prescribe a formula for LPG producer (base-stock) price within three months of approval of the policy.The Federal Government will continue to follow its deregulation policy.However, to ensure that cartels are not formed for charging a high consumer price of LPG, OGRA will determine the reasonableness of price keeping in view the import parity price of LPG, producer price and audited accounts of LPG marketing companies for the last two years.


16OGRA will regularly monitor LPG prices and intervene in exceptional circumstances if the consumer prices are considered not reasonable.

DISTRIBUTION OF LPG IN UNDER DEVELOPED AREAS

With a view to ensure adequate supplies of LPG in remote, rural and hilly areas of the country, and to halt deforestation, all LPG marketing companies receiving LPG from sources in Punjab and NWFP will be obligated to supply at least 7% of their local LPG in Northern Areas, 7% in AJK and 6% in FATA. All LPG marketing companies receiving LPG from sources in Sind and Balochistan will be obligated to supply at least 10% of their local LPG in Balochistan province.

OGRA will develop an appropriate mechanism to monitor actual supplies to the above specified areas.

OGRA will initiate action against defaulting LPG marketing companies under the applicable rules and license conditions which, interalia, may include revocation/cancellation of marketing licenses.

IMPORT AND EXPORT OF LPG

Any party can import LPG after paying applicable government dues. However, for the handling of LPG a license will be obtained from OGRA.

No party shall export LPG without the prior approval of MPNR.

GENERAL

i) For effective policy formulation all LPG licensees shall furnish requisite information/data to MPNR as may be required.ii) OGRA will also apprise the MPNR about the implementation status of this policy on a quarterly basis.iii) The Federal Government may issue instructions to OGRA from time to time for implementation of this policy and/or in respect of matters related thereto, as may be considered necessary.

LPG LICENSING

Any company willing to distribute and market Oil and Gas needs to obtain a license from OGRA. Additionally, license from Explosive department is also required for the proposed LPG marketing and distribution business. OGRA (Oil & Gas Regulatory Authority) issues provisional licenses to technically and financially sound applicants/ parties for construction of works commensurate with their work program, for a period of one year. OGRA inducts reputable third party inspectors to check/monitor compliance with the terms and conditions of licenses.

The licenses can be cancelled in case of non-compliance with licensing terms and conditions.

PRE-QUALIFICATION FOR LPG STORAGE & FILLING LICENCE

Following requirements are required to be fulfilled for obtaining a license:

Application on the prescribed proforma in triplicate Pay Order / Bank Draft of Rs.100,000/- in favour of Oil & Gas Regulatory Authority, as License

fee (Payable at Islamabad). Proof of registration of the Company (Company incorporation certificate). Memorandum and Articles of Association. Attested copies of ID cards of all Directors. Location of the tentative / proposed site. Financial Competence Certificate issued by a Bank (original and stamped). Last three years’ Audited Reports (not applicable for new companies).

Minimum Work Program:


17

Number of storage tanks and capacity of storage tanks. Bottling facility capacity. Quantity of LPG to be distributed per day or per month. Identification of areas where distribution / marketing of LPG is planned

PRE-QUALIFICATION FOR LPG AUTO REFUELING STATION

Application on the prescribed Performa. Layout plan clearly highlighting the exact location of refueling station anddetail of all equipment

and inter distances (vetted by OGRA’s 3rd Party Inspector, M/s ENAR Petrotech Services (Pvt.) Limited). NOC of Environmental Protection Agency. NOC from Local/ District Authority. Pay Order / Bank Draft of Rs.100,000/- in favour of Oil & Gas Regulatory

Authority, as Licence fee (Payable at Islamabad). Attested copy of insurance cover obtained for the proposed refueling station.

OGRA, LAYOUT PLANS FOR INSTALLATION OF LPG AUTOGAS STATIONS

BACKGROUND & INTRODUCTION:

The Federal government in a meeting held on 21st September, 2005 considered the Ministry of Petroleum and Natural Resources summary and approved in principle the use of LPG in motor vehicles, subject to Oil and Gas Regulatory Authority (OGRA) providing a regulatory frame work ensuring comprehensive safety standards. In this regard, the OGRA has devised a regulatory framework to ensure effective regulation, efficient monitoring and public/consumer safety.The Regulatory Framework for the use of LPG in the Auto sector has become a part of LPG (Production and Distribution) Rules 2001 as an Appendix V by an amendment through S.R.O. 256 (I)/ 2007 Islamabad, the 10th March, 2007.The Regulatory Framework provides general criteria for installation of LPG Auto gas Stations. Now OGRA has prepared a Brochure containing guidelines / layout plans in accordance with the approved Regulatory Framework, showing details, including the minimum required inter distances for the equipment, storage tanks/built- up areas etc.under NFPA-58. In view of the foregoing, the layout plans were developed, taking into account the following categories:

Stand alone LPG Autogas stationLPG Autogas station co- located with CNG, Gasoline & Diesel.

DISCUSSION ON REGULATORY FRAMEWORK & DEVELOPED LAYOUTS:

Regulatory Framework

The Regulatory Framework contains the following criteria to setup LPG Autogas Stations:

The LPG Auto refueling/dispensing station shall only be located on roads/highways having minimum 60 feet width.The LPG Auto refueling/dispensing station shall not be located in congested or residential areas nor should any of the adjacent buildings is used for accommodation or public gathering of any sort.The installation of LPG refueling station shall conform to the technical standards prescribed in LPG (Production & distribution) Rules, 2001 & NFPA 58.


18For ensuring safety, the storage capacity at an LPG auto refueling/dispensing station shall be limited to 10 metric tons (max.).In addition to the requirements of NFPA-58, the minimum area for the installation of LPG auto Refueling / dispensing station shall be in no case is less than 10,000 sq. Feet with a minimum 80 feet frontage and depth.

Only brand new equipment shall be installed at the refueling / dispensing station i.e. use of second Hand equipment shall not be allowed.Conversion kit and cylinder shall only be installed at licensee approved centers and installed vehicle shall have the respective licensee’s seal of compliance to NFPA- 58, otherwise it will be considered illegal.

Layout Criteria

As part of development of layouts for LPG Autogas stations following criteria has been developed based on NFPA-58 (Liquefied Petroleum Gas Code).

The minimum distance between LPG vessels and property lines shall be atleast 50ft as per table 6.3.1.The minimum distance between LPG vessels and any combustible material/dry grass shall be at least 50ft as per table 6.3.1.The minimum distance between LPG vessels and property lines shall be atleast 10ft as per section 6.24 (Alternate Provisions for Installation of ASME containers), which requires use of fail- safe product control measures and low emission transfer concepts.The minimum distance between LPG vessels and buildings with fire resistant walls shall be at least 10ft as per section 6.24.The minimum distance between LPG vessels and any combustible material/dry grass shall be at least 10ft as per section 6.4.5.2 and 6.4.5.4.The minimum distance of LPG vessels vent and any source of ignition/open flame shall be at least 10ft and per table 6.3.9.The minimum distance between LPG vessels and any above ground petrol/diesel storage shall be atleast 20ft as per section 6.4.5.5.The minimum distance between LPG vessels and auto dispenser shall be atleast 10ft as per table 6.5.3 Part (J).The minimum distance between LPG vessels and point of transfer/decanting area shall be atleast 10ft as per table section 7.2.3.3.The minimum distance between buildings with fire resistant walls and point of transfer/decanting area shall be at least 10ft as per table 6.5.3 part (A) and part (F).The minimum distance between source of ignition/open flame and point of transfer/decanting area shall be at least 25ft as per section 7.2.3.2(B).The minimum distance between source of ignition/open flame and auto dispenser shall be atleast 25ft as per section 7.2.3.2(B).The minimum distance between buildings with non fire resistant walls and point of transfer/decanting area shall be at least 25ft as per table 6.5.3 part (B).The minimum distance between buildings with non fire resistant walls and auto dispenser shall be at least 25ft as per table 6.5.3 part (B).The minimum distance between auto dispenser and property line shall be at least 25ft as per table 6.5.3 part (D).The minimum distance between point of transfer/decanting area and property line shall be at least 25ft as per table 6.5.3 part (D).Metal cutting/welding shall be done atleast 35ft away from point of transfer / decanting and auto dispenser as per section 7.2.3.2 (C).Public way shall be atleast 10ft away from point of transfer/decanting and auto dispenser as per table 6.5.3 part (F).The minimum distances between points of transfer/decanting and auto dispenser shall be 10ft as per table 6.5.3 part (F).


19

PETROLEUM PRODUCTION DATA

PRODUCTION

The following table presents production data for the last two years for LPG, Petroleum and Diesel.

Item Quantity August July - August2006 2005 2006-07 2005-06

LPG ‘000 Liters 41,124 40,895 82,999 85,450Petroleum ‘000 Liters 2,097 1,998 4,518 4,209Diesel ‘000 Liters 276,888 324,691 596,176 709,773

It is evident from the table that LPG production which was around 40,895,000 liters during the month of August 2005, increased to 41,124,000 liters during August 2006 which suggests a substantial increase in production. According to last year during July and August LPG production was 85,450,000 liters, which decreased in during the same period in 2006-07 around 82,999,000 liters. It is expected that after commencement of operations of JJVL-II, the production will further increase which would help in maintaining demand and supply gap in future.

PRODUCT PRICING

This is to advise that, in pursuance of the decision of Economic CoordinationCommittee (ECC) of Cabinet dated December 06, 2006, OGRA has determined the maximum base-stock Price of LPG, effective March 03, 2007 as Rs. 31,949.45 / .Ton, .

OIL AND GAS REGULATORY AUTHORITY Maximum Base-Stock Price of LPG Effective March 3, 2007

FOB Saudi ARAMCO Contract Price Propane Butane (US $/ M. ton) (US $/ M. ton)

February, 2007 A 526.00 526.00

Ratio B 40 60

LPG price calculation = A x B 21,040.00 31,560.00Wt. Avg. price US $ /M. TON 526.00Avg. US $ exchange rate for Feb. 07 Rs per US$ * 60.74

Maximum Base-Stock price of LPG Rs. /M. TONEffective March 03, 2007 31,949.45

* Monthly average of the mean of the daily Bid andOffer of Weighted Average Exchange Rate quoted bythe State Bank of Pakistan for February 2007, has beenprovisionally adopted pending clarification from theFederal Government, which has already been sought.


20

DEMAND

About 90% of auto rickshaw and taxi are fueled by LPG, whereas, majority of the rural population of Pakistan use LPG as cooking and house warming fuel at home. LPG prices move in a similar manner to petrol prices as its demand grows.

THREATS TO THIS INDUSTRY

LPG Distributors Association Pakistan said on November 11, 2006, that the sale of Liquefied Petroleum Gas (LPG) had dropped 30 percent due to unprecedented increase in its prices by producer and marketing companies for the past 7 months4. The association said that the LPG domestic consumers had abandoned its use and turned to firewood while rickshaw owners and other transporters preferred petrol and diesel as LPG firms had been fleecing them by constantly raising LPG rates without any justification.

The LPG association chairman said that the price of a gas cylinder for domestic use in neighboring India was Rs 236 while it was Rs 650 to 700 in our country (during November and December 2006), which is reported to be self-sufficient.

ENVIRONMENTAL AND PROTECTIONS ASPECTS

LPG is much cleaner than diesel. The dirty black smoke that we see coming from diesel vehicles is particulates – a known cause of sickness and deaths. By replacing a diesel engine with an LPG powered equivalent, over 90 percent of this particulate matter can be eliminated.

LPG powered vehicles emit significantly fewer greenhouse gases and other pollutants than petrol-powered equivalents. LPG typically has around 20 per cent less ozone forming potential (a measure of the tendency to generate photochemical smog),between 10 and 15 per cent lower greenhouse gas emissions and only one fifth air toxics emissions.

LPG delivers clear environmental benefits over diesel and petrol. Recent independent automotive tests submitted to the Department for Transport have shown that LPG emits:

120 times less particulate matter compared to diesel; less than half the NOs of petrol and less than one twentieth the NOs of diesel; and 17 per cent less CO2 compared to petrol and 2 per cent less CO2 compared to diesel, on a

well to wheel basis

LPG’s impact on the environment in the unlikely event of a spillage is minimal as propane is lighter than water. It therefore readily disperses without combustion and with no contamination of water courses or surrounding land – unlike petrol or diesel where spillage is a major environmental concern.

PRODUCT/PROJECT STANDARDS AND COMPLIANCE ISSUES

Rules and regulations which govern any explosive material also apply on LPG. Its transportation, storage, construction of storage facility, filling of cylinders and their transportation, etc. all need to be carried out according to the standards and specifications provided by the explosive department, government of Pakistan. For LPG business, a license will be required from explosive department of the concerned province. Details have been provided in the following lines.

REQUIREMENTS FOR GRANT OF PERMANENT LICENSE UNDER EXPLOSIVES


21I) Formal application with attested photocopy of National Identity Card briefly stating the

purpose of obtaining License and justification.II) Application in the prescribed Form C, dully filled in and signed by the applicant.III) Distance Form D, dully filled in against all columns there of as per schedule VI of the

Explosives Rules 1940 and signed by the applicant.IV) Original treasury receipt for the amount payable as per column 5 of schedule IV of the

Explosives Rules, 1940 showing the amount paid under the following Head of Account in any branch of the National Bank or Government Treasury.

1200000-Receipts from Civil Administration & other Functions

1260000-Economic Services Receipts

1264000-Industrial and Mineral Resources

1264100-Industiral and Mineral Resources Industrial Safety Explosives Department

V) No objection certificate along with the signed plan from the District Authority concerned to the effect that the Authority has No objection to the grant of license to the application for possession/sale of Explosives. No objection certificate if not submitted by the applicant will be obtained by the Department from the District Authority after receipt of other complete particulars from the applicant.

VI) Six copies of plan duly signed by the applicant and drawn to scale on durable paper showing full constructional details of the proposed LPG storage site, and site with full surroundings and important land marks to facilitate its location. The distances maintained around the proposed LPG storage site shall be marked clearly.

VII) Documents showing the extent of possession/ownership of land for maintaining required safety distances from the explosives storage magazine.

VIII) Present consumption of explosives in the area and nature of work requiring use of explosives.

IX) Expected market potential in 5 years from now with full justification.X) Complete details of the present consumers of explosives in the area giving their names,

complete postal addresses, nearest Police station(s), approximate daily consumption of explosives by each consumer stating their nature of work requiring explosives.

XI) Details of other explosives magazine(s) 6 existing if any within a radius of 50 KM from the site of proposed magazine.

XII) Any proof/certificate showing competence and experience of the applicant or his authorized worker/agent/employee/supervisor in the handling of explosives.

XIII) Details of vehicle to be used for transport of explosives from source of supply to the storage magazine and the approximate distance in between.

XIV) Undertaking by the applicant to the effect he will observe strictly all the requirements of Explosives Rules 1940 and submit Fortnightly Reports on the three prescribed Forms

B-I, B-II, and B-III regarding purchase, use etc. of Explosives.

XV) Certificate to the effect that guard over the magazine7 will be provided 24 hours by the


22 License.

An LPG tank after ten years shall be examined for re-qualification. Re-qualification is a procedure by which a cylinder is inspected and retested to determine its acceptability for continuous service. This method determines if a tank is condemned (a cylinder that does not pass the required tests and can not be repaired), or, repairable. A tank shall be repaired for cuts, corrosion or dents five years after the time of re-qualification. Repair is defined as the removal and replacement of parts or attachments of LPG cylinders and other corrective measures.

A condemned cylinder, as the standard specifies, is a scrap and should be destroyed either by cutting diagonally, or crushing the cylinder or any part so that it can no longer be used.

Consumers are enjoined to make sure that the embossed markings of the brand name or name of the owner is printed on the cylinder.

To ensure safety throughout the LPG supply chain, LPG storage tanks, cylinders bowzers, and distribution outlets of the licensees should meet the minimum safety standards as laid down in applicable Rules.

Decanting of LPG from cylinder to cylinder is prohibited and OGRA can cancel licenses of the LPG marketing companies involved in this activity directly or indirectly.

SPECIFICATIONS FOR TEMPORARY STORAGE OF EXPLOSIVES

Following detailed guidelines have been provided by the explosive department of the government for the companies dealing in explosive materials. It is mandatory for the LPG businesses to comply with the following.

1. A temporary storage may be in above ground strong wooden or Bamboo Cabin or preferably a damp proof pit.

2. The height of a cabin or depth of a pit shall not be less than 6 feet.3. There shall be no uncovered iron or steel in the construction of cabins.4. For above ground cabin it is necessary to have an earthen mound or screen wall in between the

Explosives cabin and the cabin containing detonators.5. The floor of the temporary storage shall be covered with wooden planks.6. Main explosives and detonators shall be stored in separate cabins or pits at least 10 feet apart.7. The explosives shall be covered with tarpaulins awning so as to protect against sun and rain and

the margin of a pit shall be so raised as not to allow rainwater to drain inside it.8. Shelves, benches and fitting shall be of wood or bamboo free from iron nails and grit.9. The capacity of a pit or a cabin per 16 sq.ft. of the base area with 30% more area as working

space.10. At least 6 feet high barbed-wire fencing shall be provided all rounds at a distance of not less than

30 feet from the storage cabins/pits. Other safety distance shall be maintained as per Schedule VI of the Explosives Rules, 1940.

CONDITIONS FOR TRANSPORT OF COMMERCIAL EXPLOSIVES IN A VAN BY ROAD.

1. The vehicle shall be in perfect serviceable condition in all respects.2. The words DANGER and EXPLOSIVES shall be written conspicuously in Red color on three

sides of the vehicle so as to be clearly visible from a distance and electric lamp with siren shall preferably be fixed on the vehicle for use in emergency.

3. There shall be no naked iron or steel in the interior of vehicle and no footwear with exposed iron or steel shall be worn by attendants on the vehicle.

4. The interior of vehicle shall be kept thoroughly clean from grit, oil rag, waste and other combustible material at all times.

5. All electric cables must be heavily sheeted. No junction boxes, switches, fuses, lamp fittings or other electrical appliances or cable joints shall be allowed within the cargo compartment.


236. A quick action cut-off valve shall be fitted to the fuel pipe in an accessible position.7. The driver shall not be under the age of 21 years and the attendant shall not be under the age of

18 years. The driver shall hold heavy duty driving licence.8. Persons incharge of the vehicle must be experienced in the handling of explosives.9. All persons engaged in loading, unloading or conveying explosives shall observe all necessary

precautions for the prevention of accidents by fire or explosion and no unauthorized person shall be allowed to have an access to the vehicle.

10. No person shall smoke while driving, attending to or working on the vehicle and no matches or sources or fire of heat, smoking material shall be carried on the vehicle.

11. Every consignment of explosives for transportation shall be accompanied by a license in Form C and a pass issued by licenses in Form H and attested photo-copies of these documents shall be sent to the Chief Inspector of Explosives, Karachi and to the Inspector of Explosives and District Magistrate in whose jurisdiction the magazine9 in situated.

12. Loading and unloading shall NOT be done in the vehicle while its engine is running or its fuel tank is being filled.

13. Explosives in excess of the authorized limit shall NOT be carried on the vehicle.14. Damaged packages shall NOT be loaded in the vehicle.15. Explosives shall NOT be carried in the Driver s Cabin under any circumstances.16. Detonators or other explosives containing their own means of ignition and Fire works shall NOT

be loaded together or with any other explosives and must be transported separately.17. All packages must be well secured and effectively protected against weather and the risk of

pilferage or sabotage.18. All packages must be appropriately labeled as to the nature of Explosives.19. If loading, unloading takes place in wet weather, adequate stops shall be taken to keep the

packages of Explosives dry.20. The loading or unloading of explosives when once begun shall be proceeded with all due

vigilance until the same has been completed.21. No extra fuel shall be carried during conveyance other than in the fuel tank of the vehicle.22. Vehicle shall not be taken to any garage or repair station while carrying explosives and condition

of types, breaks and explosives shall be checked after short breaks during journey.23. Efficient locking arrangement shall be provided at all times.24. Efficient chemical fire-extinguisher of adequate capacity shall be carried on the vehicle.25. At least one person (attendant) shall accompany the driver and the vehicle containing explosives

shall not be left unattended except when absolutely necessary.26. Other vehicle with its engine running shall NOT as far as possible be allowed within fifty feet of

the vehicle containing explosives.27. The vehicle shall NOT be driven at the speed more than 30 miles (50 Kilometers) an hour on

smooth road.28. Populated areas shall be avoided as far as possible and vehicle SHALL NOT be parked in any

building during journey.29. The vehicle shall NOT be driven in any street or public place within the limits of a municipality

or cantonment except and in accordance with the conditions of a written permit granted by the District Authority.

30. Explosives shall be delivered to authorize consignee only.31. In case of any emergency, one person shall warn other traffic and one person shall inform police,

and the consignor or consignee, as may be convenient by the quickest possible means.32. One copy of the drawing approved by the Department of Explosives shall always be kept with the

driver of the vehicle for production on demand by an inspecting officer.
