Asphalt Plant Project Financing and Long-term Investment Model. A case Study of Africa.
African continents, despite being a country with the second largest deposit of bitumen in the world, according to Foraminifera, a marketing and research firm, they spends an approximate of US$500 MILLION yearly on importation of asphalt, a derivative of bitumen.
The occurrence of bitumen deposits in Africa, precisely Nigeria is twice the amount of existing reserves of crude petroleum. When fully developed, the industry will no doubt meet local requirements for road construction and also become a foreign exchange earner for the country.
Minister of Mines and Steel Development, Dr. Kayode Fayemi, had lamented that about 80 per cent of asphaltic materials used for road construction within African continents are still being imported despite the vast bitumen deposit, assuring that the government would focus on ensuring that serious investors with proven work and financial plans are given licences.
“Priority will be given to investors with the capacity to build processing plants to boost local production, help meet local demand and create jobs for our youths,” He reiterated the commitment of the ministry to ensure that the solid minerals sector contributes an average of 0.3 to 10 per cent to the Gross Domestic Product (GDP) in the near future.
Havelet Finance Limited is ready to provide you with a long-term loan on favorable terms. We also offer the services of a professional engineering team developing technical documentation for new exportation of Bitumen and financing of Asphalt Plant and other equipment.
Market characteristics
Perhaps the first factor that should be looked into is the market size. Not only should one determine the total amount of asphalt being used, but potential customers who could drive the demand up should also be considered.
Check into the availability of aggregate and ensure that the source will be able to fulfill needed supplies through peak paving months. Because large asphalt producers often consume the bulk of aggregate supplies, a new asphalt producer may need to look for a nearby aggregate source.
Location
When it is decided that the market can support another asphalt producer, the next step will be to explore property locations. Know that rules and regulations vary greatly from one area to the next, with permitting rules and fees varying from state to state. Finally, keep in mind that acquiring a permit can take six to 12 months, so there is need to plan ahead and start the process early.
Environmental issues may come into play when applying for a permit. On a positive note, the Environmental Protection Agency (EPA) announced in 2002 that asphalt plants were no longer on its list of industries considered to be major sources of hazardous air pollution. Look into any transport restrictions that may apply to the area. A new producer will need to establish trucking provisions to transport material from the plant to the jobsite if it hasn’t already been set up.
One final factor that will impact the location of the plant is the type of plant that will eventually be purchased. Plants are either portable or stationary. A stationary plant may be the best choice in some situations, but a portable plant will offer flexibility in terms of location and permitting requirements.
In areas where jobs are considerable distances apart, a portable plant would be the best choice. Some markets experience minimal growth and have a small population density, while others may see workloads shift from one area to another due to seasonal factors.
Initial cost and Financial implication of investment
With prices ranging from $500,000 to $4 million, an asphalt plant is a serious investment for any company, small or large. While it is necessary to compare plant prices, don’t forget to also look at operating costs and production capacities.
A plant may cost less initially, but if it isn’t fuel-efficient or doesn’t produce enough tonnes per hour for efficient operation, it will cost more over the course of its lifetime.
Also, look at how much will need to be invested from the start, such as the cost of the mix components. This will help one calculate how much to charge per tonne to turn a profit, while still keeping the price fair.
Finally, a first-time buyer will often make the mistake of letting the price of the plant dictate the decision. Once a company has control of its own asphalt supply, it will be able to sell hot mix and lay down considerably more materials. Purchasing a plant that is too small will not be able to effectively support the demand and therefore would not be efficient.
On the other end of the spectrum, purchasing a bigger plant won’t necessarily be the right decision. A plant with a capacity that greatly exceeds demand would be wasteful and unprofitable. While price is certainly a large factor in choosing a plant, don’t let it influence the decision too heavily. Stay focused on what type of plant makes the most sense for the present situation.
Analysing the ROI
Return on Investment (ROI)scenarios vary from one plant to another, but the majority of new asphalt plants will realise a return in three to 10 years. A paving company moving into asphalt production will gain greater efficiency upon controlling its own asphalt supply. Add in the fact that the company is now producing a product to sell, and the ROI typically will occur quickly.
A number of money-saving factors contribute to bring about a relatively fast ROI. For instance, the excessive downtime truck drivers and paving crews experience while waiting for the hot mix is costly.
Trucks will no longer have to wait in long lines and the paving crews won’t be held up waiting for the truck to return. Contractors will be able to lay more asphalt and faster, allowing them to complete more projects faster.
Less transport time will also contribute to increased efficiency in some cases. Rather than having to commute to a competitor’s plant, a contractor with a portable plant can place it where it’s most convenient for him.Also, a paving contractor who produces his own asphalt will no longer be forced to comply with competitors’ asphalt prices or have to accommodate their schedules.
The benefits are measurable and clearly show how much productivity can increase and costs can decrease by owning and operating an asphalt plant.
To upscale or not?
For a contractor already in the asphalt production business who may be considering a newer, larger capacity plant, costs and potential savings should be examined.
A more efficient, larger capacity plant will allow a company to take on more projects and bigger projects. And a newer plant will reduce maintenance costs and emissions, while offering a better mix consistency.
For a plant owner looking to upgrade components, newer, high quality parts offered by some manufacturers may be worthwhile. Improved components such as baghouses will help reduce emissions, and recycle systems allow cost-efficient recycled asphalt pavement (RAP) to be utilised in the hot mix. Better quality storage tanks in modern plants offer a more economical way to store and monitor pricey liquid asphalt cement. And newer storage silos provide a way to keep freshly mixed asphalt at an ideal, constant temperature until it is ready to be discharged.
All of these factors should be considered when weighing the costs and benefits of upgrading a plant.
Quality checks
When it comes to selecting an asphalt plant, it is important to know the characteristics that can help guarantee a better ROI.
For instance, a plant with a dual-drum configuration will maximise fuel efficiency while minimising hydrocarbon pollution. A clean-burning plant also will extend the life of the baghouse, and the efficiency of a dual-drum configuration results in increased production. Plants with a separate mixing drum will allow more mix flexibility, a benefit that will pay off in the long run. By using a separate drum, additives and RAP can be introduced into the drum while remaining isolated from the drying and combustion zones.
A plant that is easy to calibrate is an important feature, both when purchasing a plant for the first time or expanding to a larger plant. This will lower the risk of drifting out of specification, which in turn gives producers confidence in the product they’re producing while helping to guarantee customer satisfaction. This feature will be especially important when producing mix for superpave jobs.
All the steps involved with researching, buying or expanding a plant will take time, but are well worth it in the end. Putting forth the effort to conduct thorough research will ensure that the plant purchased will be high quality and will provide sufficient capacity.
If it’s decided that asphalt production is the right thing to do, the company can look forward to controlling its own destiny — no more relying on others, no more lost productivity, and no more waiting. Best of all, it can expect to see a steady growth in profits.
Havelet Finance Limited offers a full range of services related to the construction and Financing of Bitumen and Asphalts Plant , including the following:
Project financing.
Conducting a pre-investment assessment.
Purchase of equipment from the world’s leading manufacturers.
Modernization and expansion
Contact Havelet Finance Limited to learn more about our services.