The recent pronouncement by the Federal Government through the Nigeria National Petroleum Corporation, NNPC that it would adopt modular refinery as the best option to the epileptic Port Harcout, Warri and Kaduna refineries in other to facilitate its policy to begin massive refining of petroleum products in the country has aroused this piece, based on research and experimentation, by By Prof. Godwin J. Igwe, an expert in the field
About May-June, 2015, the Department of Petroleum Resources (DPR) went countrywide on a sensitivity road-show campaign, advising and wooing investors in the oil and gas sector to consider building modular refineries as solution to Nigeria’s continued importation of petroleum products and the perennial fuel shortage.
In one of those meetings in Port Harcourt, the writer amplified and suggested to DPR that the government should channel funds used in subsidizing price of imported petroleum products to establishing modular refineries.
On another occasion, the Federal Government said it invested $4.5 billion in modular refineries, lined up US$14 billion in private sector investments into integrated petrochemical and refining plants in Nigeria, stating that for the first time ever, Nigeria has a clear target date to stop importation of refined petroleum products [(i.e. 2018) Guardian Newspaper, Feb. 4, 2015, p.50].
No notable progress has been announced from the 25 private refinery licenses granted to companies either in the License to Establish (LTE), Approval to Construct (ATC), and License to operate (LTO) categories. Why? Lack of resources, funding, investments, and capabilities?.
None of the above scenarios materialized. The most probable event is the recent announcement this month that the Federal Government has approved to legalize modular refineries for the Niger Delta regions.
Implementation platform for Modular refineries programs are required right now as a strategic platform value interest of Nigeria.
The “Owner of Modular Refinery” will utilize two principal readily available crude oil (38 billion proven oil reserves) and natural gas (260 tcf), leading to more job creation as a means of poverty alleviation, with savings in foreign exchange in line with the Federal Government’s Vision 20:2020.
To visually demonstrate creative, thoughtful insights, and commitment, the Federal should prioritize and show a deliberate, well thought out, coherent, sustainable strategy to fund completely the first few modular refineries as a persuasive public service to support and serve the best interest of the country. To be successful, all administrative and bureaucratic barriers must be eliminated.
One innovative business model to consider is franchising. Franchising is the practice of the right to use a firm’s business model and brand for a prescribed period of time. There are basically two primary forms of franchising: Product or Trade name franchising.
It involves one business owner licensing product or trademark and methods, proprietary knowledge or processes to an independent entrepreneur, or chains. In return the entrepreneur pays an investment franchise fee, get corporate training, professional product branding, signage and equipment. An investor will need to be assured of stability and predictability in the country.
Three important payments are made to a franchisor: (a) royalty for the trademark, (b) reimbursement for the training and advisory services given to the franchisee, and (c) a percentage of the individual business unit’s sales. These three fees may be combined in a single ‘management’ fee. A fee for “disclosure” is separate and is always a “front-end fee”.
A franchise usually lasts for a fixed time period (broken down into shorter periods, which each require renewal), and serves a specific territory or geographical area surrounding its location. One franchisee may manage several such locations.
Agreements typically last from five to thirty years, with premature cancellations or terminations of most contracts bearing serious consequences for franchisees. A franchise is merely a temporary business investment involving renting or leasing an opportunity, not the purchase of a business for the purpose of ownership. It is classified as a wasting asset due to the finite term of the license.
A franchise can be exclusive, non-exclusive or “sole and exclusive”.
According to the International Franchise Association approximately 44 per cent of all businesses in the United States are franchisee-worked.
Because of the vulnerability and poverty level in the Niger Delta States, franchising appears to be a real option for cooperatives to partner with the Government and private sector for developmental venture underpinnings. We bring the conclusion part tomorrow. Igwe (Ph.D., PE (Texas), FNSChE, FAIChE) is a Professor of Chemical Engineering at University of Port Harcourt
