Many feasibility studies fail to secure funding because they are treated as academic exercises rather than operational realities. In real LPG investment work, especially in Tanzania and similar markets, lenders and investors focus on what will actually happen on the ground. When a study is too theoretical, it becomes weak for decision making and financing approval. Avoid these critical pitfalls:
1.Overestimating Penetration Rates.
One major mistake is overestimating penetration rates. Many studies assume that charcoal users will instantly switch to LPG because it is cleaner and more efficient. This assumption looks good on paper but it is not realistic in real market conditions. In Tanzania, most households make fuel choices based on daily affordability and cash flow, not only long term benefits.
Feasibility studies often fail to consider the high upfront cost of cylinders and stoves for rural and peri urban Tanzanian households.
- Ignoring Logistics and Infrastructure Reality.
Another common mistake is ignoring logistics and infrastructure reality. LPG business is highly dependent on transportation, storage, and safety compliance. Some feasibility studies underestimate the operational costs of trucking gas across Tanzania’s wide geography.
Read also:What Makes an LPG Project “Bankable” in the Eyes of Lenders
Fuel distribution is not simple. It involves long distances, road conditions, fuel costs, and coordination with multiple depots. At the same time, many studies ignore strict safety distances required for setting up LPG storage depots near residential areas.
These regulations affect land availability and increase setup costs. When logistics and infrastructure are not fully considered, the project cost structure becomes unrealistic and difficult to implement.
- Inadequate Sensitivity Analysis.
Inadequate sensitivity analysis is another serious weakness. Many feasibility studies present only a best case scenario where everything goes as planned.
This approach is risky for investors and lenders.
A strong feasibility study must test different scenarios. For example, what happens if international LPG landing costs increase by 20 percent. Or what happens if the Tanzanian Shilling depreciates against the US Dollar, considering LPG is imported and paid in USD but sold locally in TZS. These changes can significantly affect profit margins.
Without proper sensitivity analysis, the project appears fragile and not ready for real market risks.
4.Omitting Cylinder CAPEX Lifecycle.
Another critical mistake is omitting cylinder capital expenditure lifecycle. In LPG distribution models, cylinders are not a one time cost. They are constantly moving between customers, filling stations, and depots.
Many cylinders are lost, damaged, or require maintenance over time. Also, rotation cycles are slow and require continuous investment to maintain supply. Some feasibility studies ignore this ongoing replacement cost and treat cylinders as fixed assets with no major future investment needs. This is a fatal financial mistake. It creates unrealistic cash flow projections and weakens long term sustainability of the project.
Conclusion.
In summary, most LPG feasibility studies fail because they do not reflect real operational challenges. Overestimating demand, ignoring logistics, weak sensitivity analysis, and forgetting cylinder lifecycle costs all reduce credibility.
A strong feasibility study must be realistic, detailed, and grounded in actual market behavior to attract serious investment and financing.
