Summer holiday

I am taking a short break from a very hot summer in Mumbai. I will be back in a couple of weeks with more on world of chemicals

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2 Responses to Summer holiday

  1. Kirti Mehta 24 April, 2009 at 9:10 am #

    Hello Ms. Hariharan,

    I would like to participate in the process of popularising chemicals made in India. We do sourcing for foreign companies. Shall be pleased to hear from you on your return.

  2. Dr MP Sukumaran Nair 15 May, 2009 at 2:24 pm #

    PCPIRs: will it take off?
    Dr MP Sukumaran Nair FIE

    The central Government has identified Special Economic Zones (SEZ) as catalysts to foster economic growth. A comprehensive SEZ policy framework with a package of incentives to leverage local strengths operating in a hassle free environment is the intention of the Government. “Government is of the view that Special Economic Zones (SEZs) are growth engines that can boost manufacturing, exports and employment.” Says Mr. C. Chidambaram, Union Finance Minister.

    Government of India has taken note of the growing demand of petrochemicals in the country in the wake of the national economy registering an annual growth rate of 9 percent of GDP. The Government has identified that large scale investments need to come in this sector which a great potential for growth and economic viability on account of increasing domestic consumption and rising overseas demand. It is with this intention that the Government has proposed creation of mega chemical complexes at most advantageous locations through the recent prescriptions of the Petroleum, Chemicals and Petroleum Investment Region (PCPIR) Policy. Even though we do not have any apparent feedstock advantage like the Middle East, the presence of a sizable and at the same time growing domestic market and availability of goods quality trained manpower to build and operate such facilities are indeed a major strength.

    Truly the petrochemical demand in the country which remains very low is likely to go up in the coming years on account of the overall growth in the living standard of the masses and therefore this sector will see tremendous growth opportunities.

    Consumption of major petchem products 2006 (per capia Kg)

    Item India World avg

    Polyester 1.6 4
    Polymers 5 24
    Soaps & detergents 3 14

    The predicted growth in demand for petchem products by 2011 is also encouraging. Polymers and elastomers are likely to witness a 15% growth in demand whereas demand for synthetic fibers, surfactants and other derivatives will go up by 6-8%. Consequently volume demand for key petchem products will increase from the current 60 lakh Mt to 185 lakh MT by 2011.

    The concept of PCPIR has been proved in several countries including China, Singapore, Thailand in Asian region, as also in the developed countries of Western Europe and North America, where integrated chemical parks continue to attract investors. Each of these units is centered on petroleum refinery with the adjacent petrochemical complexes providing feedstock for downstream polymer and chemicals. Tight integration between two entities enhances the competitiveness.
    China leads the new generation industrial development adopting integrated options and attracting massive international investments. China exports $ 18 billion of processed plastics compared to India’s $ 1 billion. Indeed, in recent years both China and Thailand have increased their presence in the Indian chemical market. Thus China has effectively leveraged this industry to generate millions of new jobs and reap the consequential economic benefits. China’s Shenzhen Special Economic Zone was started in 1981, has achieved more than 50 percent GDP growth taking advantages of local inputs and resources. The highest recorded compounded annual growth rate (CAGR) was achieved mainly due to liberal economic framework and due to the strength of the integrated infrastructure available at very competitive prices. Other successful petchem ventures include Singapore’s Jurong Islands, Map-the-Phut industrial area of Thailand and the Al Jubail and Yanbu industrial conglomerates in Saudi Arabia.
    The Government of India considers the SEZs, as engines for export led economic growth in India, which is to be built in a “specifically delineated duty-free enclave and shall be deemed to be foreign territory for the purposes of trade operations and duties and tariffs”. To promote investment in this sector and make the country an important hub for both domestic and international markets, the government has decided to attract major investment, both domestic and foreign, by providing a transparent and investment friendly policy and facility regime under which integrated Petroleum, Chemicals & Petrochemical Investment Regions (PCPIRs) may be set up.
    The PCPIRs would reap the benefits of co-siting, networking and greater efficiency through the use of common infrastructure and support services. They would have high-class infrastructure, and provide a competitive environment conducive for setting up businesses. They would thus result in a boost to manufacturing, augmentation of exports and generation of employment. The PCPIRs would have high-class infrastructure, and provide a competitive environment conducive for setting up businesses. They would thus result in a boost to manufacturing, augmentation of exports and generation of employment.

    A PCPIR would be a combination of production units, public utilities, logistics, environmental protection mechanisms, residential areas and administrative services. Major utilities like water and power, transport, storages, social infrastructure and environmental management facilities can be shared to reduce overall cost. Tight integration between refining, petrochemical, fertilizer and power plant enhances the cost competitiveness besides reducing the environmental burden.
    Area of around 250 square kilometers (62500 acres) planned for the establishment of manufacturing facilities for domestic and export led production in petroleum, chemicals & petrochemicals, along with the associated services and infrastructure. The minimum processing area for the PCPIR will be about 40 percent of the total designated area, i.e., around 100 sq km. The processing area may or may not be contiguous.

    According to the policy, a High Powered Committee under the Government of India (GOI) shall consider applications for establishment of PCPIRs and approve them expeditiously if such proposals as are found feasible.
    The role of the Government of India is to create the necessary physical infrastructure linkages to the PCPIR including rail, road (national highways), ports, airports, and telecom, in a time bound manner through Public Private Partnerships. The Central Government will also provide the necessary viability gap funding through existing schemes and requisite budgetary provisions for creation of these linkages through the public sector will also be made.
    The State Government would identify suitable site, develop the proposal and seek approval. It will notify the PCPIR area under the relevant Act, and acquire/ assist in acquiring the land necessary for setting up of the infrastructure, processing and non-processing areas. The acquisition of land if any must be in accordance with law and must provide for rehabilitation as per the laid down norms. As far as possible acquisition of agricultural land may be avoided.
    The State Government will ensure that after notifying the area, all physical infrastructure and utilities linkages under its jurisdiction are provided within a stipulated time frame. The State Government will notify a nodal Department, which will coordinate these linkages. This Department along with relevant authorities will facilitate all clearances required from the State Government. The State Government will also be responsible for providing/facilitating reliable and good quality power, water; Road connectivity, Sewerage and effluent treatment linkages and an appropriate infrastructure to address the health, safety and environmental concerns.
    Each PCPIR would have a refinery and petrochemical feedstock company as an anchor tenant. The internal infrastructure of the PCPIR will be built and managed by a developer, or a group of co-developers. The external linkages will be provided by Government of India and the concerned state government. The users of external as well as internal infrastructure will pay for its use, except to the extent that the Government supports the service through budgetary resources.
    Each of the PCPIR will be promoted by an anchor investor along with the state, who will make the investment for the processing facility and the state will support the project with the requested infrastructure.

    Proposals
    Following the announcement of the above policy, several state Governments either directly or through public private partnership (PPP) have so far indicated interest in setting up PCPIRs at coastal locations. Prominent among them are:

    In West Bengal, the West Bengal Industrial Development Corporation has proposed at Haldia, a chemical complex to locate IOC’s hydro cracker unit at its existing refinery as well as a new 15 Million Tons Per Annum (MPTA) refinery.

    The Orissa Government through the Orissa Industrial Infrastructure Development Corporation has proposed the Paradeep site with IOC as an anchor investor operating a 15 MPTA refinery and petrochemical complex.

    The Andhra Pradesh Industrial Infrastructure Corporation Limited (APIIC) has proposed the Kakkinada Vizag belt with the ONGC and Hindustan Petroleum Corporation Ltd (HPCL) as anchor investors. HPCL operates 8.3 MPTA refinery at Vizag. And is to expand it to 9 MTPA. In addition APIIC has signed a MOU with Mittal Energy, GAIL India, Oil India and Total France for a new 15 MPTA refinery and 1 MPTA petrochemical complex. ONGC has proposed a 15 MPTA refinery at Kakkinada integrted to petrochemicals.

    In Karnataka, Karnataka Industrial Development Corporation proposed that the Mangalore Refinery and Petrochemicals Limiter refinery is to be expanded to 15 MTPA and integrated to aromatics. A second refinery with similar capacity has also been proposed. In addition ONGC is to set up a C2 & C3 extraction facility adjacent to the LNG Terminal to feed petrochemicals.

    The Gujarat Government through Gujarat Industrial Development Corporation has proposed Dahej as its PCPIR location. ONGC, which is implementing a C2 & C3 separation facility at Dahej is the anchor tenant and is to set up a multi-feed cracker through a subsidiary.
    Thus most of the Indian states with coastline and have an easy access to feedstock have proposed major development projects in the petrochemical sector.

    Hurdles
    This projection of land requirement is indeed inflated and very high and therefore acquisition of land is a major hurdle. Displacement of local people and problems arising out of this issue is a matter of great concern in India especially because of our democratic set up and constitutional guarantee of right to land. Most often the requirement of land for projects is projected manifolds higher than that is actually needed, presumably with an eye on future real estate booms.
    Consider the case of the Antwerp integrated model. The Antwerp chemical cluster in Belgium is the world’s second largest and most diverse petrochemical centre in Europe with over 300 different chemicals manufactured at the location. The port has 3647 ha (9075 acres) of industrial land and houses five refineries and four steam crackers owned by world oil majors and twenty chemical producers of which ten are global majors in the petrochemical sector. 25 percent of the port land area is devoted to chemical industry and is considered as a successful petrochemical venture implemented in the past 40 years involving chemical producers, logistics providers and service companies. Today petrochemical industry in Europe continue its growth strategy along with investment in container terminals, waste treatment, dry chemical logistics and tank storage under the ‘Antwerp integrated model’
    Thus the operationalisation of the projects under the policy of creating mega chemical complex heavily depends on a realistic reassessment of the exact quantum of land needed for the project, and in effecting a smooth transfer land from the local people. According to the policy, prime fertile and productive agricultural land should not be acquired for SEZ. The barren land unfit for cultivation may be earmarked for this purpose. Already extent of agricultural land is shrinking all over the country due to a series on non-agricultural developments. It will eventually put a heavy pressure on food grain production and loss to agricultural labour.
    The land acquisition of policy for SEZ shall take care of the interests of the displaced farmers. They may be allowed to continue the economic activity in which they are in, may be at a nearby place. The new employment opportunities arising out of industrial development shall also be made available to the families of those displaced. Eligible members of such families may be trained and absorbed in the Industry. The social institutions of the community are also to be protected along with sound repatriation policy for all those who are displaced. This was the underlying principle of the MKK Nair model of the late 1960s during the acquisition of land for FACT at Ambalamedu and the N Vittal model during the GNFC land acquisition.
    Considering the magnitude of investment required and the long gestation periods of each of these projects, it is most likely that the developers demand a host of concessions from the central and state Governments. Apart from revenue loss to the exchequer, it may raise such claims from other projects and thus impair development elsewhere in the same state. The new WTO regime also put restrictions on domestic support of various kinds to industries.
    The identified anchor investors are oil and gas industry majors operating very comfortably under Government supports. They have little experience in operating manufacturing facilities in the competitive global environment where very often price volatility is a matter of concern.
    Impact of industry cycles experienced in the capital intensive heavy industries is another major hurdle. It is true that the increasing domestic demand will help to nullify the above impact to a certain extent.
    The implementation period is critical to the economic viability of these projects. This aspect becomes more relevant considering the fact that many of these proposals are grass root developments. There shall be a mechanism working at the operating floor level to ward off any implementation hassles and resolve them as and when they crop up.
    Another criticism would be that these are projects around the coastal regions and do not concern the interior. No proposals have come up from the up country states and they are fully kept outside the spectrum of these massive developments. We may have to consider moving some of the downstream projects to the interior for equitable development of regions and lay pipelines to ensure easy access to port locations.
    The success of implementation of these projects depends on envisioning a master plan for each of these mega chemical facilities and taking care to implement them in stages. It would be prudent to procure the state of art technology in respect of each of the processing units and share the cost amongst all developers rather than going for a choice of technology on various other considerations as it happened in the case of the DHDS projects implemented by the refineries.

    To sum up, even though much of the above proposals looked very fine, it is not easy that they will be implemented very soon. These hurdles include land allocation, identifying technology know-how and implementing project within the definite time schedule. Besides they are also constrained by the cyclic nature of the industry and the challenges of the environmental front. But projects can be implemented in stages so that further downstream investment can take place along with the project itself and thus pave way for economic development and employment generation.

    * Managing Director, Travancore Cochin Chemicals Ltd, Cochin, India

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