FOCUS: India’s chemical hubs face hurdles

18 May 2007 08:01  [Source: ICIS news]

By Divya Chowdhury

 

MUMBAI (ICIS news)--Ongoing protests against land acquisition for special economic zones (SEZs) could jeopardize the India's plans to create mega-chemical hubs, analysts and industry sources said on Friday.

 

The doubts follow a recent move by the West Bengal state government to scrap a petrochemicals park at Nandigram after farmers protested against the compulsory acquisition of agricultural land.

 

Despite tough opposition, the central government pledged not to reverse its SEZ policy and instead, has rolled out a new scheme to create even larger zones -- petroleum, chemicals and petrochemical investment regions (PCPIRs).

 

Five zones have been earmarked, each in a specifically delineated area of about 25,000 hectares (ha) housing a refinery and downstream petrochemical plants. Each PCPIR is projected to attract an investment of Indian rupees (Rs) 700bn ($17.1bn/ €12.7bn).

 

The state governments would provide land, water, electricity and a disposal system for effluents, while the central government would build the infrastructure.

 

Oil and Natural Gas Corporation (ONGC) and Hindustan Petroleum Corporation Limited (HPCL) are reported to be Andhra Pradesh’s two big anchor clients, making the state a frontrunner for the project.

 

Orissa and West Bengal have identified Indian Oil Corporation (IOC) as their anchor investor, while Gujarat has ONGC and Karnataka has Mangalore Refinery and Petrochemicals Ltd (MRPL).

 

“There is not much hope and I am quite pessimistic as the area required to develop the PCPIRs is extremely large. So much land acquisition, despite some of the land being under the control of state industrial development boards, could become a problem,” a senior industry source said.

 

“Individual companies cannot take the initiative in such mammoth projects. The onus lies on the state governments,” he added.

 

A source close to IOC said: “It’s a vicious cycle. If the government cannot acquire land, it would be difficult to get investors. And if the investors don’t pump in the money, the land cannot be acquired. So the feasibility of PCPIRs comes into question.

 

“The response from foreign investors has been good, but they would be willing to come only if there is land, infrastructure and other facilities,” he added.

 

There are other potential problems as well.

 

An industry source said the government has yet to do an analysis on potential developers, who would invest around $3bn-$4bn on such a project. Only West Bengal has identified Indonesia’s Salim group as the developer for its hub.

 

Marketing skills are also required to sell the PCPIRs, particularly as India has no clear advantage over the Middle-East on feedstocks, sources said.

 

“India’s feedstock situation is similar to Singapore, but the government is not as proactive. Also, approval procedures in India would take no less than a year, at the least. The only clear advantage in India is its huge market,” the industry source said.

 

However, all the industry sources stressed that for the plan to move forward the land acquisition issue needs to be resolved in order to avoid social unrest.

 

The Communist Party of India said it would oppose the creation of PCPIRs.

 

“There is no clarity on PCPIRs and we want a clear view on how the displaced people would be rehabilitated,” D Raja, national secretary of the party told ICIS news.

 

The central government appears to be committed to the PCPIRs and it is quite possible that these will eventually materialize especially as these have the strong support of Prime Minister Manmohan Singh.

 

And land acquisition may not be an issue for some PCPIRs - the Andhra Pradesh government already holds close to 30,000 acres of land on its coastline.

 

India’s Land Acquisition Act also allows state governments to acquire any land for companies by invoking the ‘public purpose’ clause.

 

 “The government just needs to build good infrastructure. The five cities that have been identified would be developed in their entirety as parks,” said SN Singh, executive director, Jubilant Organosys.

 

And to attract investors, multi-tier tax benefits have also been offered.

 

($1=Rs 40.88/€1=Rs 55.12)

By: Divya Chowdhury
+65 6780 4359

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