Slow progress for Indian chemical hubs

India's chemical hubs face delays

02 July 2008 16:54  [Source: ICB]

More than two years after conceiving a plan for mega refining and petrochemical hubs, India has yet to get one off the ground. So what is taking so long?

Discuss delays in India at ICIS connect

Malini Hariharan/Mumbai

LOCATIONS HAVE been identified, government policies are in place and state-owned companies have been lined up as potential investors. But progress has been woefully slow, raising doubts on whether India's refining and petrochemical hubs will materialize any time soon.

Six sites are listed for development as Petroleum, Chemicals and Petrochemical Investment Regions (PCPIRs).

These are Dahej in Gujarat state on the west coast, Mangalore in Karnataka state and Cuddalore in Tamil Nadu state, both in the south. And the sites along the east coast are Haldia in West Bengal, Paradip in Orissa and Visakhapatnam in Andhra Pradesh.

Proposals for all six PCPIRs are currently being evaluated by the central government and final approval for Visakhapatnam and Dahej are expected soon.

State-owned companies would be playing a major role in the PCPIRs.

The anchor tenant at Dahej is ONGC Petro-additions Ltd. (Opal), which is 26% owned by Oil & Natural Gas Corp. (ONGC), while Hindustan Petroleum will lead the development of the Visakhapatnam PCPIR.

MRPL, a subsidiary of ONGC, is working on the Mangalore PCPIR. Indian Oil Corp. (IOC), yet another state-owned company, is the key investor at Paradip and is likely to be roped in at Haldia, too.

Opal plans to build a 1.1m tonne/year cracker and also plants for 720,000 tonnes/year of high density polyethylene (HDPE)/linear low density polyethylene (LLDPE) and 340,000 tonnes/year of polypropylene (PP). The current target date for project completion is February 2012, a delay from the earlier target of mid-2010.

Opal plans to offer a 69% stake to a strategic investor and has been searching for one for over a year. There have been reports of Saudi Arabia's SABIC and Japan's Mitsubishi Chemical expressing interest.

"The process of selecting a partner is time consuming, but we hope to make a decision soon," says a source at ONGC. "Technical bids for the cracker are being evaluated and the tender should be awarded in July."

At Visakhapatnam, HPCL has signed an agreement with Mittal Energy, GAIL, Oil India and France's Total for building a refinery, aromatics complex and a naphtha cracker.

With details of the project still to be worked out and a feasibility study yet to be completed, the planned completion date of 2012 appears to be optimistic.

IOC's initial plans for Paradip included a new refinery, PP, paraxylene (PX) and styrene in the first phase and a cracker with derivatives in the second.

However, recent losses in the refining business and rising financing and construction costs have forced the company to evaluate deferring the PX, PP and styrene projects by a year.

"Our daily working capital requirement is so high that drawing more for projects is getting difficult. We are also not sure if we can get debt at a reasonable rate," says a source at IOC. "But the top management is keen that the company does not miss out on value addition."

IOC aims to have the refinery commissioned by March 31, 2012, when an income tax break extended by the government to new refinery projects expires. The second phase is likely to come up two to three years after the refinery.

The change in its finances raises questions about IOC's participation in the Haldia PCPIR. The local authorities reportedly want IOC as the anchor tenant, even if IOC does not join state government plans to build a hub around an existing refinery, cracker and a purified terephthalic acid (PTA) plant at Haldia.

The government seeks to emulate the success of other clusters, such as Jurong Island in Singapore and Mab Ta Phut in Thailand.

But where other countries have swiftly progressed, India is moving very slowly.

GOVERNMENT IS CONFIDENT

Government officials are confident that the hubs will be built over the next five years, and say there has been strong interest from Indian and international companies.

"The Dahej project is progressing well. Most of the land has already been allotted and we have identified 10 mother units," says an official from Gujarat Industrial Development Corp. (GIDC), the agency responsible for developing the zone.

The first completed project will be a gas processing unit, this December. It will feed the Opal cracker once that starts, in 2012.

Dahej is also being evaluated by Gujarat Alkalies and Chemicals, and US-based Dow Chemical for a chloromethane joint venture that could be operational in 2011.

Dahej may be the best candidate for a chemical hub. Gujarat state has the largest chemical production base in the country and Dahej is already home to Reliance Industries' cracker and a number of other chemical plants.

The state has also made good progress in acquiring land for the PCPIR, something that is becoming difficult in India.

PROTESTS, BUREAUCRACY AND FEEDSTOCKS

Last year, the West Bengal government had to scrap plans for a chemical hub at Nandigram after violent protests by farmers. It has now settled on Haldia and Nayachar island nearby.

Mangalore, too, is facing a tough time with some locals against the development of a large chemical industry. And nongovernmental organizations, which are actively protesting against existing chemical units at Cuddalore, are unlikely to allow new ones to easily come up.

Meanwhile, investors from other countries fear India's excessive bureaucracy, as various state and central governmental departments would be involved in developing the PCPIRs.

The state governments would provide land, water, electricity and a disposal system for effluents, while the central government would build the infrastructure. The concerns are compounded by the overwhelming presence of state-owned companies as key investors.

"Why are all the anchor tenants state-owned companies? The government needs to give private companies an opportunity to participate," says a senior official at an Indian chemical company.

Indian players also question whether enough feedstock will be available for downstream industries. Most of the cracker projects planned at the PCPIRs are fully integrated to polyethyelene (PE) and PP, which would leave little available for other olefin derivatives.

"There is too much focus on PE and PP," says another source. "India does not produce many other derivatives, and these need to be explored," says another company source.

In response to this concern, Opal decided earlier this year to drop a stand-alone HDPE project at Dahej, and instead offered 300,000 tonnes/year of ethylene to companies interested in producing other derivatives.

Many large Indian chemical companies have decided to give PCPIRs a pass, preferring to expand at other locations.

JAMNAGAR GIANT

Take the case of Reliance, which is on track to complete a second refinery and 900,000 tonne/year PP facility later this year at Jamnagar in Gujarat. The site already houses the company's first refinery, PP, PX and benzene plants.

Reliance will be further developing the Jamnagar site, as its has plans for a cracker that will produce 1.8m tonnes/year of ethylene and 200,000-300,000 tonnes/year of propylene, and plants for PE, PP, monoethylene glycol (MEG), PX and propylene derivatives.

This cracker is expected to be completed in the second half of 2011. Reliance is also evaluating the use of petroleum coke from the two refineries to produce methanol, acetic acid and other petrochemicals.

Jamnagar is emerging as India's largest refining and petrochemical hub. Besides Reliance, Essar Oil has started commercial production at a 10.5m tonne/year refinery which will be further expanded in two phases.

Essar is also building a fluid catalytic cracker at the refinery that would be integrated to a PP project, which is due in 2011-2012. The firm's board has yet to give approval for the PP.

THE RACE HEATS UP

The race for investment dollars is heating up across Asia and Middle East as countries seek to build a wider chemical base. Abu Dhabi recently revealed plans for a $20bn chemical city with 7m tonnes of capacity for olefins, aromatics and ammonia derivatives. The ambition is to make this the largest grassroots integrated chemical complex in the world.

Even established hubs are expanding. Singapore is reclaiming land at Jurong for 20 more projects. And Thailand, with two new cracker projects and assorted downstream units, is adding to its export capability.

So where does this leave India? Lack of feedstocks, poor infrastructure, excessive bureaucracy and upcoming free-trade agreements with Association of Southeast Asian Nations and the Gulf Cooperation Council might deter some investors.

But the country has a huge advantage in its rapidly growing home market.

Read Malini Hariharan's India Chemicals Blog





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