Do you want to do business in the oil and gas industry? Are you interested in starting a kerosene supply and retail business? Then below is a sample kerosene retail / supply business plan template.
Because it is used in virtually every home in Nigeria, kerosene is one of the fastest selling petroleum products in the country. And the story is the same in most other developing countries with erratic power supply.
In many third-world countries, kerosene (DPK or Dual Purpose Kerosene) is used extensively in both rural and urban areas for domestic purposes such as cooking, lighting kerosene-powered lanterns, and burning refuse. This explains why it fetches huge profits for oil and gas entrepreneurs in Nigeria and beyond.
Kerosene supply is a very lucrative business that can make you a millionaire within a couple of months; provided you run the business in Nigeria or in another country with similarly huge demand for the commodity. In fact, some entrepreneurs in these countries revealed that they realized all of their capital after the first 2 to 3 sales! Yes, the business is that lucrative.
If you have some cash lying fallow in your account and begging to be used for something worthwhile, why not multiply it exponentially by investing it in the kerosene supply business? Doing that would certainly be one of the business moves you will ever make. Now are you still wondering what makes the kerosene supply business very lucrative?
Well, as stated earlier, there is huge demand for the product in countries such as Nigeria, where over 10 million liters of kerosene is used up daily. But there are certain reasons for this huge demand:
3 Reasons why you should start a Kerosene retail business
- Firstly, Nigeria (and other countries where kerosene is in huge demand) lacks stable electric power supply. And this explains why most people depend heavily on kerosene for cooking and other domestic purposes.
- Secondly, Nigeria has a large population, comprising majorly of low income earners who buy kerosene because they simply cannot afford costlier energy sources. So, the market for kerosene in Nigeria (and many other countries in Africa) is very large.
- Thirdly, the profit margin for kerosene is quite mouth-watering. You could buy the commodity at the rate of N50 ($0.3) per liter and sell at N100+ ($0.6) per liter. That’s 100% profit! Sometimes, you get more; sometimes, less.
Having discussed the profitability of the kerosene supply business, let me now explain how to start the business. If you are looking to start this business, take the following steps. Now there are two ways to go about this business:
- You can get a haulage truck (tankers), buy kerosene from the depots and distribute to retailers.
- You can also set up a mini depot and retail kerosene to end users.
Regardless of the one you choose, you will surely make money. However, this article will be strictly focused on the mini depot (kerosene retail) business.
How to Start a Kerosene Supply Business
P.S: If you are interested in starting a kerosene supply business, then you need a haulage truck of about 13,800 liter size minimum. If you want to become a large scale supplier, you can get a 30,000, 33,000 or 45,000 liter truck size (only Mobil and NNPC seem to have such trucks).
If you don’t have the required capital to purchase a truck or tanker outright, you can lease a truck. If you choose to go this route, I advice you get a lawyer to review the lease agreement properly. I also advice you partner with an oil and gas consultant or someone experienced in the business to help you crosscheck the truck details (picture, calibration meter, logo, transporter’s name, etc). This will be needed during the registration of the truck with DPR; so as to obtain the peddler’s license requirements.
It is also important that you register your driver with the PTD (Petroleum Tanker Drivers), which is a sub-branch of NUPENG (National Union of Petroleum and Gas Workers). To obtain the necessary licenses, you need a tax clearance, VAT certificate, a sponsor and your certificate of incorporation.
Once you have obtained the DPR Peddler’s permit, you can then proceed to register with the Kerosene Peddler’s Union. All these processes and licenses are important, so as to avoid your truck being impounded.
Once you are through with all the registrations, you can take your truck and money to any of the depots where they have products and start your business. You can choose to lift products from either the NNPC terminals, PPMC terminals or from independent marketers. In Lagos Nigeria, most of the independent marketers depot is located at Ibru Jetty Apapa, Tincan and Coconut.
When it comes to running a kerosene supply business, the profit is made based on volume; and this can be achieved via regularity of supplies. You should strive to lift at least three truckloads of kerosene per week or more. This is better than increasing your profit margin per liter.
Starting a Kerosene Retail & Supply Company – Sample Business Plan Template
To succeed in the kerosene retail business, you need to be strategically located. A good place to site your mini kerosene depot is within residential areas with high population density. Of course, it will be preferable if majority of the residents are middle or low income earners as they are the ones that purchase kerosene more. Research shows that high income earners prefer cooking gas to kerosene.
Since you will be selling kerosene using a surface tank, you will need space large enough to accommodate one. If you have some space right in front of your home, then that would be just fine; since you won’t spend extra costs on rent. But if you don’t, you will have to pay rental fees either monthly or annually.
2. Register with the appropriate body or agency
Before you can start kerosene retail business, you will need to register with the specific regulatory body for kerosene sellers in your state or country. This body will then issue you a license and let you know the rules and regulations that bind selling kerosene.
Examples of such bodies are NUPENG (National Union of Petroleum and Gas Workers), DPR (Department of Petroleum Resources), and the Kerosene Retailers Association. To obtain the necessary licenses, you need a tax clearance, VAT certificate, a sponsor and your certificate of incorporation.
In Nigeria, the regulatory body for kerosene requires that your surface tank must be placed at no less than 200 meters from that of another kerosene dealer. This is to avoid stiff competition. Also, the body requires that surface tanks be painted blue and taped with white lines in the middle. This is to indicate that the tanks are used for storing kerosene and not another commodity.
3. Construct a surface tank
To get surface tank, you can approach a welder to help you construct a very good surface tank. You may also decide to buy an already built tank, this can be either new or fairly used. The cost of a surface tank depends on the capacity. You can decide to start with either a 5,000 or 10,000-capacity tank.
You must ensure that the tank is well painted on both the exterior and interior to avoid rusting. And make sure the welding is properly done to prevent leakage. It is also important that your tank quality meets the minimum specification, as petroleum taskforce officials regularly conduct inspections and checks.
4. Arrange with suppliers
While most of the kerosene sales in Nigeria are controlled by independent marketers of petroleum products, the Nigeria National Petroleum Corporation (NNPC) also controls up to 40% of kerosene sales in the country. This means that as a Nigerian marketer, supplier or retailer have two options to source your kerosene from.
You can either buy from the NNPC mega-stations sprinkled all over Nigeria or from any of the independent marketers. If you are not based in Nigeria, you may need to find out how kerosene is supplied in your country.
5. Launch your business
You can design a signboard or placard and position it near your tank. This will make people aware that you are selling kerosene. To attract customers, you may need to offer attractive discounts or bonuses at first. However, I want to point out that most kerosene retailers in Nigeria don’t advertise. Why? The reason is because there is always a steady supply of customers.
4 Challenges of starting a kerosene retail business
- Both kerosene supply and retailing business are capital and management intensive.
- Another challenge you will face is the bureaucratic process and hurdles you will pass through, just to obtain operation permit especially in a country like Nigeria. Believe me, it is quite cumbersome and stressful that you might even lose the zeal to go ahead with the business.
- The third challenge you will face is getting regular supply. Due to the demand, you may be finding it difficult as a retailer to get a steady supply of kerosene from your supplier. Even suppliers also face challenges when loading at the various terminals or depots.
- You should also be prepared to deal with the issue of theft because in this business, everyone is seeking an opportunity to rip you off. That is why you must learn the rudiments of the business thoroughly to avoid being shortchanged by your suppliers and employees.