India Chemicals Blog

FTAs are an inescapable reality and the Indian chemical industry is doing its best to minimise damages.

India's proposed FTA with the Gulf Cooperation Council (GCC) countries is a matter of concern given the region's access to cheap feedstocks. But it appears the government is in a mood to allay these concerns.

Representatives from India and GCC are due to meet next month to take forward the proposed FTA. And according to a news report, India is likely to seek safeguards for its chemical and petrochemicals industry at the meeting to protect domestic players.

Duty protection will also be needed if the government is serious about implementing its plan for mega refining and petrochemical centres. Foreign investors are being wooed to set up shop at these centres, called PCPIRs. But if the Indian market is to be opened to the GCC countries, investors might as well look at investing in that region rather than in India.

This had to happen. Buddhadeb Bhattarcharjee, the chief minister of West Bengal on the eastern coast of India, has decided to cancel plans for a chemical zone at Nandigram. He claimed full responsibility for the violence on March 14, when police firing left 14 protestors dead.

Bhattarcharjee has promised to build the chemicals zone at another location in the state but popular politics is going to make this a difficult proposition. Land acquisition, especially from farmers, will be a major challenge

The Nandigram debacle has already forced other states to rethink their plans for large special economic zones (SEZs). It also raises questions on the government's plans for developing mega refining and petrochemical hubs just when it had finally framed a petrochemical policy.

And what about foreign investors are showing interest in setting up plants in the country. My advice - start looking at other options.

India and Pakistan are steadily opening up their markets and this is good news for Indian chemical manufacturers. Pakistan does not have as big a chemical industry as that of India, but its demand for various end-products is rapidly expanding.

Today's newspapers report that Indian Oil Corp (IOC) is looking to export PTA and lube oils to Pakistan. The Indian oil minister is said to have discussed IOC's proposal with the Pakistani prime minister.

IOC produces these products at Panipat, Haryana, in northern India that is well positioned to serve the Pakistani market. Pakistan currently imports PTA through Karachi port. Imports from Panipat by land/rail would result in savings in freight cost especially if material is moved to consumption centres such as Lahore that located inland.

Panipat is also the location for IOC's first cracker project that is due to be completed by 2010. With India projected to have a surplus of polymers such as PP, opening up the road link with Pakistan will provide IOC a ready market for the polymers that it will produce at Panipat.

The Indian government is looking at setting up a research and development (R&D) fund of Rs5bn ($121m) specifically for petrochemicals. Priority would be given for research projects aimed at developing technologies that address the country's feedstock shortage. This includes the use of bio-diesel as a feedstock instead of gas and naphtha.

The government's interest in petrochemicals is encouraging but I wish it would develop a wider vision. The amount earmarked is miniscule when compared with what some of the top chemical companies in the West are spending to stay ahead on the technology curve. The R&D spend of the top five chemical companies exceeds $1bn and all of them are looking at aggressively studying alternative feedstocks. India is already late in the game and catching up with the leaders will be impossible unless the government gets more aggressive.

I have yet to read the report prepared by the Indian government's working group on the chemical industry for the 11th Five Year Plan and I must confess that I am not eagerly waiting for it. Previous reports have usually been filled with rosy projections that have fallen by the wayside as the Indian industry has struggled to overcome international competition while being tied down by feedstock, infrastructure and other bottlenecks.

However, I was quite surprised to read this article which states that the 11th Plan document has emphasised the number of constraints facing the Indian chemicals industry. The problems include small plants, high cost of inputs, poor infrastructure, stringent labour laws and of course the threat of FTAs.

Hopefully, this good dose of reality has resulted in more moderate demand growth projections.

India's efforts to copy China's model of special economic zones (SEZs) has run into rough weather. All credit to the government for finally coming up with a policy that would drive industrial growth. But it once again failed in planning and anticipating the problems that large scale land acquisition would cause.

The violence at Nandigram (the site for a proposed chemicals SEZ) has forced the government and companies to redraw their plans.

This report brings out the essential issues surrounding the developement of SEZs and the work that the government needs to do in making the concept acceptable at the grassroots level.

Indian Oil Corp (IOC) and Chennai Petroleum Corp Ltd (CPCL) are said to be looking for a strategic investor to partner their 15m tonnes/year refinery and petrochemicals project at Ennore, Tamil Nadu.

No time frame appears to have been set but Engineers India Ltd is working on a prefeasibility report which is due to be completed in June.

Meanwhile CPCL has asked the Tamil Nadu government for 3000 acres land at Ennore for refinery and petchems project. Interested companies might want to keep this in mind before sending in their applications.

For those who have come in late, land acquisition has become a major problem in India. Read my other entries on this issue.

Looks like Dow Chemical is set to boost its presence in India. Gujarat Alkalies and Chemicals Ltd (GACL) announced yesterday that it has signed a MoU with Dow for business cooperation in chlorinated organics.

It is not yet clear if the cooperation involves manufacturing products in India and the scale of Dow’s investment.

What is interesting though is that the announcement comes days after Kamal Nath, India’s commerce minister, said in the US that as Dow did not have a direct link to the Bhopal gas tragedy its investments in India would not be affected.

However, NGOs claim that Dow is liable following its acquisition of Union Carbide and the minister's statement was an indication that of the government selling out to Dow.

They specifically want Dow to clean up waste at the abandoned factory in Bhopal and claim that Dow’s liability flows from the ‘polluter pays’ principle.

The Bhopal issue has constrained Dow in India and it could well continue if NGOs have their way.

Gas dominates Indian headlines these days be it new finds or the price at which it will be made available to end-users. If you are short of time and would like to get to the heart of the matter fast, here is the Indian gas situation for dummies.

The finds, by private companies such as Reliance Industries, have been mainly of lean gas and it appears that it will be sold for not less than $4/mmbtu.

But chemical companies hunting for feedstocks could look at naphtha as India is likely to have a huge surplus by 2010 once fertiliser companies switch to gas.

Ennore in Tamilnadu is likely to emerge as the next refining and petrochemicals destination in India, reports ICIS news.

Indian Oil Corp (IOC) has identified Ennore for a new range of projects including an export-oriented refinery and/or petrochemicals complex and a liquiefied natural gas (LNG) terminal.

IOC’s subsidiary Chennai Petroleum Corp Ltd (CPCL) has already put forward a proposal for a refinery and a cracker at the site and Engineers India has completed a pre-feasibility study.

But there are plenty of questions related to this project and Ennore. Does India need yet another export-oriented refinery? Will CPCL's petrochemicals project be cost competitive? Does India need yet another state-owned company entering the petrochemicals field?

The Tata Group’s titanium dioxide project in Tamil Nadu is already facing public resistance. Will IOC/CPCL have better luck and get land for their mega project?

Answers will be very welcome.

Will ONGC abide by the findings of a pre-feasibility study which questions the commercial viability of its refinery project at Kakinada in Andhra Pradesh?

The project comprises a 15m tonnes/year refinery and a 400,000 tonnes/year polypropylene (PP) facility.

The study shows that the project faces poor profitability unless it receives heavy fiscal benefits. This is not the first time that ONGC has faced this hurdle. An earlier study had raised similar questions on a refinery in Barmer, Rajasthan.

India has too many refinery projects on hand and most of these are targeting the export market.

Deutsche Bank estimates that India is likely to boost its refining capacity by 45% (63.5m tonnes/year) from 146m tonnes/year over the next five years.

Besides the Kakinada project, Andhra Pradesh has one more refinery lined up – this one by HPCL.

With the Kakinanda refinery in doubt, the petroleum, chemicals and petrochemicals investment region (PCPIR) planned at the site may have to be scrapped. At this rate, will India ever have a PCPIR?

Is India being too hasty in introducing mandatory ethanol blending? The government is on the verge of announcing a policy of 10% blending with petrol from October 2008.

Those in favour point out that introducing ethanol to the fuel mix will cut India’s dependence on imported oil and contribute to energy security.

The move will keep the agricultural lobby happy as sugarcane farmers and sugar companies are suffering as a result of oversupply this year.

However, the experiences of other countries suggest that India needs to do some careful thinking. A big concern is whether there will be enough local ethanol supply. There are doubts on whether ethanol will turn out to be environmentally friendly as growing sugar cane, to produce ethanol, involves cultivation of vast tracts of land plus water, labour and fuel.

Some economists also question if India should look at importing ethanol rather than producing it locally.

For more on the world of ethanol and biofuels turn to Simon Robinson's The Big Biofeuls Blog.

India these days is not too slow to catch up with the rest of the world. The toy recall by US-based Mattel has prompted a Mumbai-based Consumer Welfare Association to file a public interest litigation asking for the ban on the manufacture, import and sale of all kinds of toxic toys.
The petitioner has also asked for a study to assess the levels of harmful chemicals in all toys sold in the market – those imported from China and those made locally. China accounts for 50% of the country demand.

While the petitioner should be commended on acting fast to protect consumer interests, I wonder if India has the required infrastructure to monitor contamination. And does it have the laws and the will to track and punish offenders?

China's problems with quality and chemical contamination are not new but rising global awareness could prompt companies to look at alternative sources of supply. India appears to be well placed to fill the gap. But doubts persist.

I asked a plastics converter last week if China’s quality problems represent an opportunity for Indian manufacturers to expand their presence in the global market. He was honest enough to admit that barring a few exceptions, Indian quality standards in the plastics sector are probably lower than that of China!

India, I thought, had done a lot to curb industrial production and clean up its environment. I was also quite sure that the country was miles ahead of China in this area. So I was quite surprised to find that the Blacksmith Institute’s latest report on the world’s most polluted places includes two Indian cities – Vapi and Sukinda.

The list also has two cities from China and two from Russia.

I was, of course, not surprised that Vapi has been selected among the various Indian cities. The city is on Gujarat's "Golden Corridor", a 400 km belt of industrial estates, which according to the Institute has over 50 industrial estates and more than 1000 individual industries. Many of these manufacture chemicals, petrochemicals, pharmaceuticals, pesticides, dyes, fertilisers and paints.

The Institute identifies heavy metals, cyanides, pesticides complex aromatic compounds as some of the toxins contained in the waste products discharged by industries in this region.

Mercury in Vapi’s groundwater is reported to be 96 times higher than WHO
health standards. And the Institute states that effluents drain directly into the Damanganga and Kolak Rivers and there is air pollution due to the improper handling of chemicals by industries.

Vapi’s problems date back to the 1990s when the Supreme Court had stepped in to demand a clean up. It is sad to see that so little has changed after so many years.

And it is problems at places such as Vapi that tarnish the image of the chemical industry in the eyes of the common man.

The Indian government has done well to introduce western style laws related to environmental protection. But what’s the use of these laws if the government fails in implementation.

The West Bengal government’s determination to construct a chemical hub is commendable. The government had initially set its heart on Nandigram but after widespread resistance and violence over land acquisition (see my blog entry in March), many had believed that plans for a hub in the state had been shelved.

However, much to my surprise, the state government cabinet recently approved an alternative site –Nayachar island, near Haldia which is already home to a refinery and petrochemicals complex.

Nayachar appears to be an excellent choice as it carries no political risk. The 11,000 acre island belongs to the government and the only residents likely to be displaced are about 2500 poor fishermen who are in any case illegal residents. Government files classify the island as uninhabited.

The fishermen have welcomed the government’s plan. This report quotes one.

“We know we are living on government land. We have to move out whenever they tell us. But we hope the government will provide jobs to our sons in the factories that come up.”

That should surely be music to ears of the West Bengal chief minister. However, I suspect the going will not be easy. Nayachar is a coastal island and environmentalists are protesting. The opposition party has already named the project a ‘killing hub’ and warned of severe environmental pollution.

India takes great pride in its large pool of scientists – said to be the largest in the world. But did you know that domestic R&D spending has never exceeded 1% of GDP. And 75-80% of the country’s R&D spend comes from the public sector.

A thought provoking report from the World Bank highlights the state of innovation in the country.

The report states that only 10-25% of general college graduates are suitable for employment and only 17% of people in their mid-20s and older have a secondary education.

Local companies lag behind in R&D spend. Of the top 50 applicants for patents in India between 1995 and 2005, 44 were from foreign companies. Only six were from Indian companies while the rest were by public institutions.

The authors of the report suggest that competition spurs innovation. Private sector R&D spend increased rapidly since the opening of the Indian economy in the early 1990s. In 2004, private sector R&D spend was more than seven times higher than in 1991.

R&D spend in the chemical sector has also been gradually rising but Indian companies still have a long way to go before they can catch up with the western counterparts.

I am back from the first Asian Chemical and Petrochemical Conference with lots of information on the Indian chemicals industry that I plan to share in the coming days.

The conference, jointly organised by ICIS and the Indian Chemical Council (ICC) at Mumbai, saw over a 100 delegates from India and overseas. For the first time, central and state government representatives from India were present to promote the mega refining and chemical hubs that have been planned.

India’s economic growth has created sufficient excitement among chemical companies with most looking at putting money on the ground to add capacity. They are especially keen to participate in the chemical hubs at Andhra Pradesh, Gujarat, Orissa and Karnataka.

A final clearance for these hubs or petroleum, chemicals and petrochemical investment region (PCPIRs) is expected by January 2008.

The government has committed to spend money to build worldclass infrastructure at the PCPIRs and also offer the facility of shared utilities.

The proposed PCPIRs are brownfield sites and will incorporate plants and projects already underway at these locations. For instance, the PCPIR at Dahej, Gujarat, includes ONGC’s 1.1m tonnes/year cracker and derivatives complex and the one at Paradip, Orissa, is centred on Indian Oil Corp’s (IOC) proposed refinery and cracker.

But there were plenty of questions in the minds of prospective investors. Many wondered if there were sufficient investment opportunities at the PCPIRs as the anchor tenants such as ONGC and IOC have already configured their projects to captively utilise all available feedstocks. Both IOC and ONGC plan to produce PE and PP downstream of their respective crackers.

The other big concern was that anchor tenants have focused only on commodity polymers. Does it not make sense to look at products such as phenol and acrylonitrile rather than just polypropylene?

Foreign investors were worried about bureaucracy especially as the PCPIRs involve both the state and central governments.

I agree that there are many issues that need to be sorted out. But the PCPIRs are at least a step in the right direction.

Despite India’s stellar economic performance there are signs that the country’s polyolefin surplus will not disappear very soon.

In a presentation at last week’s Asian Chemical and Petrochemical Conference, Raj Datta of Haldia Petrochemicals Ltd drew out three scenarios.

In the first case, India would have a surplus of 2m tonnes of polyethylene (PE) and 1.27m tonnes of polypropylene (PP) in 2011 if demand grows at 8%/year. The surplus would ease to 1.7m tonnes of PE if demand grows at 12%/year. And the surplus would disappear only if demand grows at 19%/year.

India will be adding about 5m tonnes of PO capacity over the next 5 years. There are capacity expansions by Reliance Industries, HPL and Gail. And the new entrants will be Indian Oil Corp with its new plants at Panipat and Oil and Natural Gas Corp (ONGC) with its cracker and derivatives complex at Dahej.

I am bullish on India but find it difficult to imagine sustained annual demand growth in excess of 15%/year.

A large chunk of the emerging surplus, especially for PP, will be with Reliance which is best placed to take on global competition. But what about the smaller Indian players and more importantly the many new projects that are in the pipeline. Will the financials of these projects work if a significant percentage of the output has to be exported?

This is one more reason why the various state governments planning the many petroleum and chemicals and petrochemical investment region (PCPIRs) need to look beyond commodity petrochemicals.

As for Asian and Middle Eastern companies looking to export to India, maybe it is time to rework those calculations.

A few months back I had referred to an article in the Indian press which raised doubts on the economic viability of ONGC’s refinery and petrochemicals project at Kakinada, Andhra Pradesh.

A few readers have posted comments arguing that the project is good for the local economy and should go ahead. I have no doubts that the project will go a long way in development of the region but I am still not convinced whether India needs yet another export-oriented project and also if such projects will be viable in the long run.

But it appears that the state government is quite focused and Andhra Pradesh appears set to be first state to get a PCPIR.

Their plan is to develop the entire coastal belt stretching from Visakhapatnam to Kakinada (see map)

This places the proposed zone close to the recently discovered and soon to be commercialised Krishna Godavari gas fields. It is also well located to serve the Indian solvents, paints, pharmaceuticals, plastics and agrochemical industries.

According to the Andhra Pradesh Industrial Infrastructure Corp, 77% of land for the proposed 150 000 acre zone has already been acquired. Land to the extent of 8800 acres is already available for allotment.

The plan is to have five special economic zones within this area including two for pharmaceuticals and one for textiles.

The anchor investors would be Hindustan Petroleum which has plans to expand its existing refinery at Visakhapatnam and join hands with Gail, Total and Mittal for a new refinery and petrochemicals complex. The $6bn complex would have the capacity to process 15m tonnes/year of crude and produce 1m tonnes/year of olefins and aromatics.

The second major investor would be ONGC with a 15.5m tonnes/year refinery and an associated 450,000 tonnes/year polypropylene (PP) unit. ONGC also has plans to invest $5bn to develop the KG basin gas field and produce 25mmscmd of gas by 2025.

These projects have the power to transform Andhra Pradesh and revitalise the eastern coastal belt of India. What is needed is speed and this will go a long way in attracting more investors.

It is more than twenty years since the Bhopal gas tragedy but the after effects continue to linger. Dow Chemical, which inherited the Bhopal legacy when it acquired Union Carbide, is reportedly facing opposition yet again and this time from students at Indian engineering colleges.

This report by an Indian television channel says that students, professors and technical staff at seven Indian Institute of Technology (IITs) are protesting against Dow’s attempts to recruit engineers and pre-placement talks at the institutes have been cancelled.

The story has a wider implication for the entire chemical industry. With job opportunities multiplying, students are in a position to be choosy and avoid companies that they believe are not doing enough for the society or those that do not have a good environmental track record.

There is fresh competition for Indian engineers. After IT, it is the turn of the legal outsourcing sector with engineers being recruited to work in the area of patents and intellectually property rights, says this report.

Engineers are being hired to carry out research in biotechnology, pharmaceuticals industrial chemicals, electronics and telecommunications, evaluate existing IP portfolios and determine their worth.

The average annual salary for fresh engineering graduates at legal process outsourcing firms ranges from Rs400,000 to Rs700,000 (US$10,000-17,500).

It is good to note that the Indian government is looking to boost R&D spend in the chemicals industry.

According to this report, agro chemical companies would be given an income tax exemption to the extent of 1.5 times their annual R&D expenditure. The benefit will be available to all locally done research by multinational companies. This scheme is currently available only to the pharmaceutical industry.

Indian chemical companies need to get serious on R&D and innovation to effectively compete globally.

There has been some debate on how much companies should expect from innovation. Mckinsey has undertaken research on whether R&D investments have translated into returns that would meet investors’ expectations.

The model used included R&D and capital expenditure costs, a molecule’s life cycle from launch to maturity, associated peak profitability and eventual erosion. On this basis, to achieve break-even return a business unit would need to see 5-9% of its sales derived from products introduced in the past five years for every 1% of its sales invested in product-related R&D. In process-related R&D, every 1% of sales invested should achieve a 2-5% reduction in total production costs.

The consultancy applied these criteria to 27 chemical businesses from Europe, North America and Asia. The research showed a rather disappointing return-on-investment performance: 60% of the chemical companies failed to generate positive returns from their R&D investments, while another 20% earned only a marginally positive return. Only 20% companies succeeded in generating a substantial return.

I have always been a little sceptical about the Indian government’s plans to build mega chemical hubs across the country. And recent reports have only reinforced some of my doubts. Not only will the scale of these projects be challenging but getting land and convincing the local people on the long-term economic benefits of these projects will become increasingly difficult.

Fresh evidence of this is available in this report on Daijiworld (a portal linking the west coast of India to the rest of the world) which states that the proposed Special Economic Zone (SEZ) and Petroleum, Chemicals and Petrochemical Investment Region (PCPIR) at Mangalore are facing opposition from local farmers. The report states that the farmers “would not be handing over their fertile lands for the projects at any cost”. There also appears to be confusion on how much agricultural land would be needed to develop the SEZ and PCPIR.

The major projects in Mangalore are a refinery expansion and a new aromatics facility by Mangalore Refinery & Petrochemicals Limited (MRPL).

The comments posted at the end of the Dajjiworld report are even more interesting and they clearly show how divided the local community is on these mega projects. Lack of information is also evident with one commentator fearing that toxic emissions from the refinery would not leave any healthy children in the region. Another comment states that it is not only farmers that are opposing the project and other people have questions on the concessions that will have to be granted to make the projects viable.

Poor communication is at the heart of this problem. And I am quite clear that the chemical industry and local governments will have to join hands if they are serious about building hubs.

A new year brings in new resolutions and this time around ONGC appears to have recommitted itself a refinery project in Kakinada, Andhra Pradesh, despite doubts about its viability. And over in West Bengal, the state government is determined to move ahead with a chemical hub at Nayachar.

ONGC’s resolution, however, appears to be a forced one - a result of political pressure from the Andhra Pradesh government. The government fears that ONGC’s absence from Kakinada will derail its plans for a mega chemical hub in the state.

ONGC had decided in 2006 that the proposed 7.5m tonnes/year refinery was unviable. But it has now been forced to undertake yet another study, this time for a 15m tonnes/year refinery. It is now bargaining for incentives such as 950 hectares of free land and sales tax exemption on petroleum and petrochemical products, free power and water supply during the construction phase and road and rail connectivity.

I would rather ONGC takes a firm stand against the project if it fails to provide adequate returns and instead focus its resources on more profitable opportunities. But that’s probably wishful thinking. The chemical industry certainly needs government support but not interfering politicians.

I have already had quite a few people posting comments on why the Kakinada project is needed, especially for the local economy. I don't dispute this. But my argument is that the project should be judged on its own merit especially if we are keen on making public sector units globally competitive. And surely offering free land is not in the interests of the local people.

In West Bengal, chief minister Buddhadeb Bhattacharjee started 2008 by forming a steering committee to oversee the chemical hub project at Nayachar. The hub will be developed over the next 15 years by Indonesia’s Salim Group.

Will it now be the turn of Buddhadeb to drag a reluctant public sector company to invest in Nayachar?

India’s success in the global custom research and manufacturing services space (CRAMS) is well documented. And the untapped potential is huge especially as western pharmaceutical companies remain under pressure to cut costs.

According to one estimate, the global manufacturing outsourcing opportunity is likely to grow from US$20bn in 2006 to US$31bn in 2010. The global contract research opportunity is expected to expand from US$14bn to US$24bn during the same period.

India has a minor share of the global market and is well positioned for growth if companies can successfully overcome the challenges coming their way.

A recent report by KPMG on the pharmaceutical and CRAMs segment highlights training and infrastructure as one area.

“Education pertaining to contract research, including discovery services and clinical trials, needs to be given high priority. An adequate physical infrastructure coupled with specialised training and an industry wide accreditation system will help balance the demand-supply equation in this rapidly growing industry,” says KPMG.

The other issue that needs attention is compliance of intellectual property rights. “Issues related to data exclusivity and confidentiality are still areas of concern for most clinical trials sponsors. Stronger IPR compliances will instil greater confidence in multinational pharma companies will further boost the CRAMS segment,” says KPMG.

I have found the answer to my question in last week’s posting on the proposed chemical hub at Nayachar, West Bengal.

I had wondered which public sector company would be targeted by the West Bengal government for investment at Nayachar. According to The Telegraph, Indian Oil Corp (IOC) has been invited to set up shop.

Preliminary talks have been held and West Bengal’s industries secretary has said that the company is ready to start a preliminary study as soon as it obtains a formal letter identifying Nayachar as the site for the chemical hub.

IOC already has a refinery and petrochemicals project underway at Paradip, Orissa, not to far away from Haldia. Would it not make more sense for the company to focus its resources on this site – perhaps expand refinery capacity further and develop it as a mega site along the lines of Jamnagar on the west coast of India?

But IOC is looking at connecting Nayachar with its operations at Haldia where it has a refinery and also much delayed plans for refinery expansion and downstream petrochemicals. These include raising refining capacity from 6m tonnes/year to 7.5m tonnes/year and a new paraxylene (PX) plant.

In case you have forgotten, IOC had also picked up a stake in Haldia Petrochemicals a few years back in the hope that it would acquire management control and integrate it with its refinery operations. But a tussle between the West Bengal government and The Chatterjee Group, the two key promoters of HPL, had forced IOC to put these plans on hold.

IOC’s confidence in the West Bengal government is surprising. Or is it a case of yet another state-owned company bowing to the demands of political expediency?

This leads me to another question. Why have private companies or multinationals not announced investments in any of the proposed chemicals hubs and PCPIRs? Are these zones fundamentally flawed? Or has the government not effectively marketed them?

An interesting comment has been posted on the proposed SEZ and PCPIR in Mangalore.

Ramesh argues against any chemical investment in Mangalore as it is an ecologically sensitive area. He also refers to a recent article in The Hindu which refers to an alleged oil leak from an MRPL facility in Mangalore that has contaminated three irrigation wells.

This comment reinforces my belief that the not in my backyard (NIMBY) syndrome is spreading in India. Large projects will increasingly face public resistance.

Chemicals are a vital component of almost every product that we consume daily. But will we have enough if every part of the country lobbies against their production?

It’s high time Indian chemical companies joined hands to develop an effective campaign. I am all for safe production of chemicals but I can’t imagine life without them. Can you?

State-owned IOC and Gail appear to have been drawn into yet another futile petrochemical project by politicians. This time it is in Barauni, Bihar.

IOC operates a 6m tonnes/year refinery at Barauni but this is unlikely to yield sufficient feedstock for the project. The ministry for chemicals and fertilisers has therefore asked Gail to develop a gas pipeline.

The justification, as always, is the development of a downstream industry and creation of employment opportunities.

India’s draft natural gas utilisation policy is expected to prioritise the requirements of the fertiliser sector over petrochemicals.

The enormous volumes of gas generated from the fields of the east coast and west coast India would be first given to the fertiliser sector as some units are running below capacity because of shortage of feedstock.

The good news is that after fertilisers, petrochemicals will be favoured as the government believes that the industry has the capacity to absorb higher gas prices. This view is questionable. After all any Indian company would have to compete with players from the Middle East where gas prices are mostly below $3/mmbtu.

LPG fractionators would be given the same priority as petrochemicals. And these would be followed by city gas projects and new gas-based power projects.

The gas consumption numbers for 2004-05 show that 69% of gas produced locally (30,447 mmscmd) was consumed by the power sector. The fertiliser and petrochemical sector accounted for 26.5% and 4% respectively.

The numbers are likely to change in the coming years as gas availability will substantially improve. Here is an estimate on the growth in gas supply.

West Bengal’s proposed chemical hub at Nayachar has attracted the Hindujas with the group indicating an interest to set up operations in the state.

Plans are still at an early stage but Subir Raha, executive vice-chairman of the Hinduja Group, has indicated big plans in India’s oil and gas sector. West Bengal is likely to feature in these plans.

Indian Oil Corp is the other likely participant in Nayachar.

It looks like Dow Chemical will not be able to easily forget the Bhopal gas tragedy or rather India will not allow the company to move ahead. The latest is news of protests against Dow’s planned R&D centre at Chakan, near Pune.

Led by NGOs, locals blocked access to the site of Dow’s proposed global research centre on 16 January and brought work to a halt.

Their opposition was based on fears that chemicals produced at the R&D facility would impact the local environment. And NGOs have for long been demanding that Dow should accept all liabilities of the tragic accident at the former Union Carbide facility in Bhopal in 1984. Dow acquired Union Carbide in 2001.

Ramesh Ramachandran, president and ceo of Dow India has said that it was unfortunate that the R&D project should run into this problem. The company has also indicated its willingness to provide a written assurance to the villagers of Chakan that the new facility would be only for research and that operations would not, in any way, harm them, their cattle or their land.

Some relief appears to be in sight. According to this report, district officials have held talks withlocals to clear their doubts and villagers have agreed that work can resume at the site after a certification from the National Chemical Laboratory.

There is no denying that the people of India have a right to ensure that chemical plants do not pollute the environment. But why just target Dow? Perhaps it is time to take a closer look at many of the small and mid sized facilities in places such as Vapi in Gujarat which is ranked as one of the most polluted cities in the world.

The EU has included many chemicals, petrochemicals and plastics in the negative list that is part of the FTA discussions. Products on the list would not get any duty concessions.

The move is a major obstacle for Indian companies eyeing the European market for future growth.

But it is early days yet as discussions on the FTA are in the initial stages. The industry still has the chance to lobby against the inclusion of chemicals on the negative list.

I have often talked about the resistance that new chemical projects are likely to face in certain parts of the country. Cuddalore in Tamil Nadu is also on the list.

I recently came across the SIPCOT Area Environmental Monitors website that lists out environmental problems in Cuddalore which allegedly are the result of chemical manufacturing operating in that area.

A citizens’ movement has also been formed to deal with problems arising from air and water pollution.

The website goes beyond Cuddalore to cover other chemical zones in Tamil Nadu. The most recent news update on the site is about fishes dying in the river Kaveri at Mettur, the site of Chemplast Sanmar’s PVC facility.

Chemplast is also building a new PVC facility in Cuddalore . At least that project appears to be on track for completion in the second half of this year

Business is booming in India’s custom research and manufacturing services (CRAMS) industry thanks to the country's strong process chemistry skills, low operational costs and the availability of a skilled workforce.

Frost & Sullivan values the Indian CRAMS market at $890m, and expects it to expand by 40% in 2008. It estimates the market for outsourcing in the pharmaceutical and biotechnology industries at $100bn in 2006, which is likely to reach $168bn by 2009. Manufacturing of active pharmaceutical ingredients (APIs) was the largest contributor, followed by clinical research and drug discovery.

But the rapid growth has created many challenges that are testing the management skills of the 25 or so Indian companies in the CRAMS space.

Wages are rising by 15-20%/year and are likely to continue at that pace for the next two to three years.

Despite India's large pool of skilled labour, getting the right people is a big problem. An even bigger problem is retaining them. This is a major issue in the contract research area, as it can impact sponsors, says Shivani Shukla of Frost & Sullivan. Knowledge management has become critical.

In addition, global acquisitions in the last few years have resulted in the need for a new breed of managers - those with a global vision and the ability to understand different cultures.

With job-hopping becoming common, companies are being forced to hike salaries to retain employees rather than reward them for performance, says Jai Hiremath, vice chairman and managing director of Hikal, which recently signed a deal with the US's Pfizer for manufacturing APIs.

The government needs to invest more in education while industry, too, must make chemistry an attractive choice for university students. A recent research study showed that only 15% of school students chose to pursue science in 2006 - down from 32% in 1950.

The other issues confronting Indian companies include the appreciation of the rupee, rising costs, and managing the supply chain, particularly from China. Many India companies rely on China for supplies of intermediates and the supply chain was badly hit last year after the Chinese government introduced a number of new policies.

There is also a fear that Indian companies may be getting overconfident.

If one company slips up on quality, resulting in product recalls, it could create a backlash similar to the one China experienced last year. There are people waiting to say that India supplies cheap products by cutting corners, says a second source.

Despite global success and around 80 US Food and Drug Administration-approved plants in India, there is a still a perception that Indian quality is not good and that operations in the country are too bureaucratic. Companies have to fight it out, advises Shukla.

Industry players are clear that they can no longer rely on cost arbitrage for growth.
"To some extent, the US and European companies understand the cost structure of the service providers - quality and project management are critical," points out Bharat Shah, president of Calyx International, a manufacturer of APIs and intermediates that entered the CRAMS space in 2001.

Comparisons with China are inevitable as China is picking up faster than expected and Indian companies better watch out.

China's strength in contract manufacturing of APIs is likely to continue. But Chinese companies are also extending their reach by building capabilities in biologics, bioinformatics and molecular biology. As Chinese companies do not face regulatory issues on the use of higher animals for tests, Shukla expects China to play a big role in supply of biology-based services.

However, one industry source points out that China has its own share of problems.
"The country has good process chemistry available and companies are strong in running their plants. But there is a lack of financial clarity. What will happen if the government subsidies go away?"

He believes contract manufacturing for products with low value addition will go to China, while companies seeking value addition will make their way to India.

Despite these challenges, the overall mood is one of optimism.

Shukla foresees expansion in new areas, including contract manufacturing of injectables, which is currently a minor segment because of the need for sterile facilities and specialized technical knowledge.

And biology-based services are gaining momentum as is evident in the rapid rise of companies such as UK gel documentation firm Syngene, integrated systems biology platform company Avesthagen and biotech firm Reliance Life Sciences, both of India.

The next three years will be good for the industry, says Shah of Calyx.

"There is significant room left [for growth]. The R&D [research and development] budgets have not been fully exploited by India and China," he says. "There will be competition and Indian companies will have to figure out a way to differentiate."

Some strategic shifts are already evident, with Indian majors moving up the value chain and entering into partnerships involve early-stage licensing and risk sharing.
Nicholas Piramal India Ltd (NPIL) signed an agreement with US pharmaceuticals giant Merck last November to carry out an integrated drug discovery program that would give the pharma giant an option to advance the most promising drug candidates into late stage clinical trials and commercialization.

NPIL will be eligible for payments on completion of certain milestones and royalties on sales of any products resulting from the collaboration.

I am quite surprised at the West Bengal government’s commitment to the chemical hub at Nayachar. The latest news is that PCR Chemicals, a joint venture between the West Bengal Industrial Development Corp and New Kolkata International Development, will be developing the infrastructure at the hub.

New Kolkata has been promoted by Indonesia’s Salim Group, Unitech Ltd and Universal Success.

Land has also been transferred to the state government’s industries department for development.

Where is the green lobby? I have not yet heard of any major protests.

A new technology that converts plastic waste to fuel has impressed sections of the Indian government but extensive support will be needed for it to be commercialised.

The technology, developed by Unique Plastic Waste Management & Research, allows fuel to be generated from plastic waste by rapid de-polymerisation of carbon chain using proprietary catalysts. More details are available here.

It is now being implemented on a small scale and I suspect more research will be needed before tonnes of plastic waste can be converted into fuel to drive our cars.

But given the amount of plastic waste being generated in India it is certainly a technology worth pursuing.

India is seeing a rapid growth in the outsourced R&D business but the country still trails behind China and much of the developed world in this sector.

This was evident in the numbers presented by the science and technology minister to the parliament yesterday. India has 150,000 researchers compared with China’s 800,000-1m.

The number of researcher per million of population is only 156 for India, way behind 7,000 in Scandinavian countries and 4,700 in the US.

India’s R&D spend as a percentage of GDP is only 0.8% compared with 3% for developed countries.

And despite growth in business, the private sector trails behind the public sector which accounts for 80% of R&D spend in India. This is vastly different from US and even China where the public sector share is only 30%.

The government also appears to have recognised the need to improve the education system to produce more researchers. Funds allocated to scientific departments during the 11th Plan period (2007-2012) have been raised three fold to Rs753bn (US$19bn).

For more on Indian R&D, I recommend this report. It reviews major developments and identifies future prospects for this sector.

The Tatas are set to launch India’s first $8bn coal-to-liquid (CTL) project. The project, a joint venture with Sasol, is said to have received government clearance.

The Tatas have sought access to 30m tonnes/year of coal to produce 3m bbls of oil. The project would be based on Fischer Tropsch technology that will convert syngas into oil which can be refined to produce naphtha and other products.

Interest in CTL projects is rising. Reliance Industries is also said to be talking to Coal India for a joint venture 80,000 bbl/day project.

I was under the impression that there are no major hurdles to Indian Oil Corp’s (IOC) refinery and petrochemical project at Paradip. But I came across this news yesterday that the viability of the project is in question following the government’s decision to withdraw a tax holiday from 1 April 2009.

The project has been in planning since 2001. But given the progress that IOC has made since then it looked like it would be completed in the next five years. But the latest hurdle could once again result in a delay and also derail the plan for a petrochemical hub at the site.

But IOC’s chairman is talking to the government to restore the fiscal incentive and maybe common sense will prevail.

Meanwhile, IOC is firming up its plan for a paraxylene (PX) plant at Haldia, reports ICIS news. Environmental clearance has yet to be secured for the plant which would have a capacity of 610,000 tonnes/year. A start-up date has also not been set.

I am back from my holiday and have discovered no earthshaking developments in the last few weeks. But the following news articles caught my eye.

First, Dow Chemical’s European arm and GACL have agreed on a 50:50 joint venture to produce 200,000 tonnes/year of chloromethanes at Dahej, on the west coast of India. The plant is likely to start in 2011. State-owned GACL would supply chlorine, power and lease land to the joint venture while Dow would license its technology and also bring its marketing and sales experience.

The project indicates Dow’s growing interest in India and the government’s desire to attract foreign investors. But both sides may find the going difficult as the Bhopal issue has yet to be fully resolved and continues to attract NGO attention. It was only a couple of months back that Dow faced strong opposition to its planned R&D centre at Pune.

This article from today’s Business Standard indicates that while some government officials are keen to close the Bhopal chapter, others would like it to end only if Dow cleans up the site. It also quotes the chemicals, fertilisers and steel minister as saying that he is against doing any business with Dow until the liability issue is resolved.

Meanwhile, yet another SEZ is facing public ire. This time it is the Visakhapatnam-Kakinada corridor on the east coast of India where the state government plans to develop a mega refining and petrochemical hub.

Locals are reported to have demonstrated in front of the district collector’s office at Visakhapatnam as they believe the industrial activity on the coast would ruin the livelihood of fishermen, destroy mangroves and cause ecological damage.

At Paradip, also on the east coast of India, environmentalists have voiced concerns over the dredging operations being carried by Indian Oil Corp (IOC) for its refinery and petrochemicals project.

And in Tamil Nadu, the Tatas have reportedly shelved their titanium dioxide project because of problems related to land acquisition.

But there has been some progress in Mangalore where the first phase of a proposed SEZ has received environmental approval. The SEZ includes an aromatics and olefins complex as well as a refinery expansion by MRPL. This SEZ had faced strong public opposition which I had highlighted in my previous entries.

China’s move to clean up Beijing ahead of the Olympics is likely to have far reaching repercussions for the Indian chemicals industry.

ICIS news reported today that the Chinese government was regulating the production and sale of more than 257 chemicals around Beijing - a move that could result in the closure of a number of plants.

The list includes basic petrochemicals such as propylene, ethylene and diethylene glycol as well as derivatives such as unsaturated polyester resin and other dyes.

It is quite obvious that this move will impact the market and create problems for Indian companies relying on Chinese intermediates.

But more interestingly, Chinese chemicals companies are scouting for alternative manufacturing locations and Gujarat is one of the favoured destinations, says the Business Standard. Recently, Ahmedabad-based Kiri Dyestuff tied up with Zhejijang Lonsen Co for a 180,000 tonnes/year intermediates plant in Gujarat. Other Chinese companies have also visited the state to evaluate investments, the report adds.

There is an opportunity for mid-sized Indian companies to expand through joint ventures with Chinese companies. But for non worldscale and uncompetitive small players, the Chinese threat would be moving closer.

It is two steps forward and one back for Indian coal-to-liquid (CTL) projects. Just a few months back an interministerial group had cleared an $8bn project proposed by the Tatas and Sasol. And Reliance Industries was also in talks with Coal India for a project.

But the coal ministry is now having second thoughts about CTL and is reportedly not keen on allocating coal blocks to private companies.

“We should not attach too much priority to these projects since we first need to extract enough coal to meet national demands. Only after than can we consider projects like CTL,” Santosh Bagrodia, the minister of state for coal, is reported to have stated.

The Tatas had sought access to 30m tonnes/year of coal for their CTL project.

One view in government circles is that India’s coal resources should be reserved for the power sector rather than used for new technologies such as CTL. Additionally, all the coal that is currently produced is already allocated.

It is time for CTL project proponenets to brush up their lobbying skills.

Indian papers and news channels are once again buzzing with reports about Dow Chemical and Bhopal. This time it is about the law ministry's view on whether the company should clean up the Bhopal site.

The law ministry's comments on a note to the Prime Minister's office were obtained by activists who have for long been asking the government to hold Dow responsible for the site after its acquisition of Union Carbide.

According to one report, the law ministry has stated that irrespective of the manner in which Union Carbide has merged or has been acquired by Dow, if there is any legal liability it would have to be borne by Dow.

A second report adds that the law ministry can decide on the extent of Dow's liability only after checking on the details of the Dow-Carbide deal to see if the transaction had specifically excluded liabilities arising out the 1984 Bhopal gas tragedy.

A copy of the note is available on the Bhopal.net website.

Some 50 victims of the Bhopal gas tragedy are currently in Delhi attempting to draw government attention to their problems.

The Bhopal issue has continuously hampered Dow's expansion plans for India (see previous posts). And it obviously raises questions on the company's investment plans for the country, estimated by one newspaper at $1bn.

Yet another project appears to be fallen through. This time it is Chennai Petroleum Corp's (CPCL) refining and petrochemicals venture at Ennore in Tamil Nadu.

Indian Oil Corp's (IOC) chairman Sarthuk Behuria said in a press conference yesterday that the project may never come up as the country already had surplus refining capacity. CPCL is a subsidiary of IOC.

The Ennore project has been in the pipeline for nearly three years and efforts were underway to acquire land. Engineers India Ltd (EIL) had carried out a pre-feasibility study on the project which included a 1.2m tonnes/year cracker and an aromatics complex both of which were slated for completion in 2014-15.

While Behuria's statement raises questions on the project's future it should also be remembered that IOC has been forced to budget for higher losses in the petroleum business this year and this might well have coloured his view of the future.

But I am quite sure that putting this project together will be a formidable task given rising costs and also likely public resistance.

But it will be interesting to see if IOC's board will give final approval to the refinery and petrochemical project at Paradip in Orissa. Final cost estimates for the project are being worked out and it is due to be placed before the board for final approval this month.

Another project that is due to come up to the IOC board is for a paraxylene (PX) plant adjacent to the Vadodara refinery. A detailed feasibility is being carried out for a 360,000 tonnes/year unit with completion targeted for end-2011.

Will politics help Indian petrochemical companies gain access to cheap Saudi feedstock? Well, the government appears to be making an effort in this direction.

During his visit to Saudi Arabia last week, India's external affair minister emphasised the need for greater participation by Indian companies in Saudi oil and gas exploration as well as the petrochemicals industry. There is plenty of action in the Kingdom as there are plans to spend around $117bn in this sector over the next two years.

There will be tough competition especially from western multinationals well entrenched in this region. But Indian companies could gain an edge by offering access to the fast growing home market.

Relations between India and Saudi Arabia are being strengthened. Both sides have agreed to set up a Saudi-India investment fund for investment in major projects.

Indian chemical companies relying on China for phosphorus are a worried lot. Supplies from China have been erratic for over a year but the Chinese government's decision to raise export tax for phosphorus from 20% to 120% promises to compound the problem. The revised tax is applicable for exports 20 May 2008 to 31 December 2008.

Price increases can be expected and global majors appear to have taken the lead. LANXESS announced last week that it will "increases its prices significantly for all its phosphorus compounds". The move was a result of a considerable rise in the cost of phosphorus, it said.

"This sixfold increase directly affects phosphorus prices globally and forces us to adapt our prices in line with the amount of phosphorus used in the respective application," said the company's marketing manager for phosphorus chemicals. LANXESS offers a broad range of products based on phosphorus, such as synthesis chemicals, corrosion inhibitors, extraction agents, flame retardants, antifoams and solvents for a wide range of applications.

China is estimated to have 80% of the world's phosphorus reserves and is a major exporter. Although the 120% export tax is applicable only until the end of the year Indian companies need to start thinking of alternatives given the Chinese government's commitment to curb the growth of energy intensive and environmentally sensitive industries.

Are Indian chemical companies ready for Reach? Apparently not, says this report in today's Mint.

The problem appears to be not only lack of awareness about the EU programme for registration, evaluation and authorisation of chemicals (Reach) but also a shortage of labs certified for good laboratory practices (GLP), a standard developed by the OECD.

Under Reach, during a six-month period from 1 June through 30 November, foreign firms exporting to the EU must pre-register any of some 30,000 substances that are shipped to Europe as chemicals or as components in intermediate or end-user products.

The formal process of testing and full registration of all 30,000 substances will begin next year and run through a series of stages and deadlines to June 2018.

The Indian Chemical Council estimates that about 1000 Indian companies exported 700,000 tonnes of chemicals to the EU in fiscal 2007. But India has only about a dozen GLP-approved labs, half of which belong to pharmaceutical majors. The few independent labs face a daunting workload which is likely to leave Indian companies struggling to meet the EU deadline.

After years of planning and crossing many hurdles IOC has now decided to defer the petrochemical portion of its Paradip project. The decision comes at a time when the company is struggling to cope with huge losses on account of record high crude oil prices and the government's reluctance to raise retail fuel prices.

IOC posted a net loss of Rs4.14bn for the quarter ended March 31, 2008 against a net profit of Rs15.03bn in the same period last year.

Project costs have also ballooned and the company estimates that the refinery/petrochemical venture at Paradip would cost Rs420-450bn ($10.20-10.98bn), up from its earlier estimate of Rs260bn (US$6.34bn).

The company's chairman said yesterday that IOC would implement the project in phases with a 15m tonne refinery targeted for commissioning by 2012.

The paraxylene (PX), styrene and polypropylene (PP) units that were earlier planned for completion with the refinery would now be completed at a later date.

The company's earlier plans included a second phase for petrochemicals (cracker and derivatives) to be completed a couple of years after the refinery. The fate of this phase is now unclear.

The postponement of the PX, styrene and PP units raises questions on the future of IOC's petrochemicals business. The company has often stressed that it is keen to expand in this area. The Panipat cracker which is likely to be up and running by 2010 was the first major move and Paradip would have helped the company consolidate its position.

Given the outlook for crude oil prices (inching towards $200/bbl), I will also not be surprised if more Indian refiners, especially the state-owned ones, have second thoughts about entering the petrochemicals business.

Why is it that state-owned companies refuse to think big? After GAIL (India)'s small cracker it is Assam Petrochemical that has floated a plan for a 165,000 tonnes/year methanol plant in Northeast India.

A company source has confirmed that negotiations have started with Oil India Ltd (OIL) and Oil & Natural Gas Corp (ONGC) for gas supplies and that a start-up date would be set once talks are completed. The company expects to take 30-36 months to complete the project.

The company is also ramping up capacity of its existing plant from 100 tonnes/year to 130 tonnes/day.

India's methanol demand this year is expected to hit 1.1m tonnes and the country faces a deficit of around 500,000 tonnes. A worldscale methanol project is well over a 1m tonnes/year. With Indian demand growing at about 8%/year, there is certainly room for a big plant in India. But the problem is lack of gas at the right price.

Assam Petrochemical would have planned a bigger plant if it could have secured enough gas. Supplies for even this small a plant are likely to be difficult given GAIL's plan for a 280,000 tonnes/year cracker in Assam. GAIL was forced to settle for a dual feed cracker as there was not enough gas available in this part of the country. The current plan is to utilise about 160,000 tonnes/year of naphtha from Numaligarh Refinery with the balance gas supplied by ONGC and OIL.

But this could change as Assam Petrochemical is vying for some of that gas for its methanol project. Gail would then have to secure more naphtha.

Both projects are being driven by political forces. The small markets in Northeast India with limited growth prospects can easily be serviced by plants elsewhere in the country. But the government is keen to build a petrochemical industry as a platform for ecoomic developement of the region. It is offering plenty of incentives to make the projects viable. This probably explains why state-owned companies are being forced to think small.

I love mangoes but news reports such as this one make me want to give up this king of fruits. Traders looking to make a quick buck are using calcium carbide to ripen mangoes

It appears that the practice of using calcium carbide has been going on for quite a while and is quite widespread in the country. There are plenty of health hazards which the consumer rarely knows.

Calcium carbide reduces the ripening period from 7 days to 3-4 days. What's worrying is that the artificially ripened fruit often looks better than the one that has gone through the natural process.

This is yet another instance of a chemical being misused. Government efforts to cub the use of calcium carbide have failed. Is the green brigade on its way or should I turn to organic mangoes?

A new report confirms what you probably know - only a small fraction of the country's fresh engineering graduates are employable.

India churns out about 230,000 engineers every year but the standard of education is poor in many of the small colleges which suffer from weak infrastructure and inadequate faculty. Graduates from top colleges often prefer to pursue a degree in management or seek a job outside the country. Local companies often have to invest in expensive training programmes to impart skills that they should have acquired in college.

A copy of the report with recommendations is available here.

The big news today is Daiichi Sankyo's acquisition of a controlling stake in Ranbaxy, India's largest pharmaceutical company, for $4.6bn.

Analysts have been quick to predict many more such deals which will see international pharma majors entering the generic space.

Indian generic players have been steadily expanding their presence in markets in the developed world, which had for long been the preserve of international pharma majors. Falling prices have put pressure on these giants to looks for low cost manufacturing opportunities and also expand their footprint in developing markets.

At the same time, Indian companies have realised that they need to develop as research-based organisation to grow bigger and this requires huge investments. The earlier strategy of copying drugs does not work in the new product patent regime and many Indian companies are currently struggling with legal battles.

Indian companies are also facing a cost push as prices of chemical intermediates have hit record highs. Margins for the small players are said to have fallen from 25-30% to 10%. Prices of drugs are fixed by the central government making it difficult for Indian companies to pass cost increases.

Consolidation makes sense especially if it marries the strengths of two companies.

I had written about a delay in Indian Oil Corp's (IOC) paraxylene (PX), polypropylene (PP) and styrene projects at Paradip because of rising costs and financial constraints.

But a company source tells me that a final decision on the timing of these projects and the refinery will be decided by the end of this month.

One idea is to commission the refinery by March 2012 and complete the PX, PP and styrene projects in 2013. IOC would also look at having just a basic refinery by March 2012 before the expiry of a tax break offered by the government. The more complicated units such as coker and fluid catalytic cracker (FCC) would be completed after a year.

The configuration and cost of the second phase of the project, which includes a cracker and derivative plants, has yet to be firmed up. This phase is likely to come up 2-3 years after the refinery.

It is time for the Indian chemical industry to wake up to the threat of increased flow of downstream chemicals from the Middle East.

Countries such as Saudi Arabia are aggressively pushing for the development of a petrochemicals industry that goes beyond olefins and polyolefins. State-owned and private companies are busy planning a host of derivatives.

Tasnee Sahara Olefins Co and Rohm and Haas have signed a 75:35 joint venture agreement for the production of 200,000 tonnes/year acrylic acid in the Kingdom. The Saudi Arcylic Monomer Co is likely to be operational by 2011. Rohm and Hass would take the majority of the output while Tasnee has the right to sell some of the production in the GCC.

This project raises questions on the future of two planned acrylic acid projects in India. The first is by Essar Chemicals with Arkema and the second by Reliance Industries with Rohm and Haas.

And Tasnee is looking well beyond acrylic acid. One of the products being considered is acetic acid. India is again an importer of this product.

PetroRabigh, the joint venture between Sumitomo Chemical and Saudi Aramco, are studying a host of derivatives (styrene butadiene rubber (SBR), MMA, PMMA and EPDM to name a few) for their second phase. The first phase, which includes a cracker and polyolefin and MEG plants, is set for commissioning at the end of this year.

Saudi Aramco's mega joint venture with Dow Chemical includes propylene oxide, polyurethane, epoxy resins, polycarbonate, amines and glycol ether.

And Abu Dhabi's multi billion dollar Chemicals Industrial City is likely to house plants for phenol, cumene and other derivatives.

I was at a petrochemicals conference in Bahrain earlier this week and the desire as well as the government pressure to move beyond upstream petrochemicals to speciality chemicals was clearly evident.

Putting together these projects is not easy. The Middle East does not have a large enough home market and so the burden of logistics costs will be high. Getting skilled manpower is a problem that shows no signs of easing. Technology for many of the derivatives is closely held and getting western companies to part with them is another challenge. Some of the foreign companies present at the conference were also not impressed with the economics of these projects in the Gulf. Their current focus remains China but they admitted that they would be keeping a close watch on opportunities in the Middle East.

So what does this mean for India? With an FTA being planned with the GCC the threat of cheap exports of a wide variety of chemicals is very real. The growing Indian market will be an obvious destination for many of the projects.

Yes, the GCC countries face many hurdles in going downstream but there is a strong government commitment. And importantly these countries have the money to ensure that the strategy works.

Oil and Natural Gas Corp's (ONGC) Kakinada project continues to attract investors despite questions about its viability.

The GMR group is the latest and is reported to have formally expressed interest in taking a stake in the refinery and petrochemical project. The board of Kakinada Refinery and Petrochemicals (KRPL) is due to meet today to decide on the stake sale.

ONGC has raised the capacity of the proposed refinery from 7.5m tonnes/year to 15m tonnes/year to improve its economics. A feasibility study is still on but the company has already asked the Andhra Pradesh government for fiscal incentives (exemption of sales tax, free power and water supply during construction and road/rail connectivity) to make the project financially viable.

ONGC has decided to exit from the Kakinada refinery and petrochemicals project. But the project is alive as the GMR group remains interested.

I think ONGC made the right decision. It will be interesting to see if GMR will be able to improve the project's economics.

It is difficult to imagine this happening in any other country except India. After lobbying hard with the central government to secure the right to develop a Petroleum, Chemicals and Petrochemicals Investment Region (PCPIR) at Mangalore, the Karnataka government is likely to withdraw its application. A final decision is likely to be taken at the next cabinet meeting.

Politics is behind this recent development. The newly elected BJP government in Karnataka would like to distance itself from the PCPIR proposal developed by the earlier Congress led government. Politicians also appear to be paying close attention to protests by the local population who fear large scale land acquisition.

And the BJP also wants to consolidate its vote base around Dakshina Kannada district where the PCPIR has been proposed. The BPJ won only four out of eight seats in the last election.

Cracks in the Chinese textile and clothing export machine have started showing with shipments to the US in the first quarter of this year declining by nearly 10% from the same period in 2007.

A new report from Textiles Intelligence states that the country is losing its competitive edge in this industry on the back of rising input costs, lowering of export tax rebates, new labour laws and other regulations and tighter credit availability.

At least seven Asian countries can now offer lower costs than China which are as high as $1.08/hour in the coastal provinces. In comparison, wage costs in Vietnam, Pakistan, Cambodia and Bangladesh average $0.38/hour, $0.37/hour, $0.33/hour and $0.22/hour respectively.

Additionally, the Chinese government is keen to move to a new economic model. This one will be focused on domestic consumption and exports of high value products. China clearly does not want to be a factory for the world for low end products.

A drift in textiles has in the past signalled the start of a wider change in global manufacturing. I have been increasingly coming across reports of companies looking at alternative locations for products ranging from plastic toys to leather goods. And a question that is also being asked is if the US can bring back jobs from China

China's diminishing competitiveness and is good news for Indian exporters if they can overcome the many hurdles standing in their way. Indian companies too face rising input and wage costs but probably not on the same scale as China. And the industry needs to find a skilled and productive workforce of the kind that made China an export powerhouse. And even more important, a supportive government policy would go a long way in helping the Indian industry expand its global market share.

India is known to move slowly. So it is perhaps not surprising to read that most local companies have yet to formulate strategies to face the challenge of climate change.

KPMG recently released a report on a study carried out earlier this year to understand if Indian business leaders are aware of the climate change issue, its implications for the economy and their businesses and their readiness to respond to the impending changes.

Only 41% of respondents thought they had a good understanding of the issue and have a clear strategy in place.

While a number of Indian businesses claim to be aware of the need to reduce their carbon impact and believe that they are taking steps towards it, most companies have not taken the first step of measuring their carbon footprint, says KPMG. Only 21% of respondents indicated that they fully measure their carbon impact while 16% of respondents don't see the need for such an analysis.

The full report is available here.

The Indian government's war on inflation appears to be making its way to the world of chemicals as a proposal to ban exports of soda ash and trim excise duties on major petrochemical inputs is being considered.

Soda ash prices have spiralled this year on the back of rising energy costs with product costing more than Rs14,000/tonne, up from around Rs10,000/tonne last year.

User industries are hoping that an export ban will force producers to lower prices and divert material to the domestic market. A final decision on the proposal has yet to be taken with the government waiting for feedback from the Alkali Manufacturers Association of India.

But there are no prizes for guessing what the association will have to say about this proposal.

There are more signs of an economic slowdown in India. Industrial growth in the first quarter of fiscal 2008-09 dipped to 5.2%, down from 10.3% in the previous year and a result of high interest rates and input costs plus the weaknesses in the global economy.

A new government report has forecast GDP growth for the year at 7.7%. This is down from earlier forecasts of around 8% and the average 8.8% growth recorder over the past four years.

And the panel responsible for this report said: "The downside risk to our growth expectations in 2008/09 is primarily from a further deterioration in global conditions with its attendant impact on India -- be it in the sphere of oil prices or capital markets."

India is clearly not immune to developments in the US and global economies. Now is the time to bury the much debated decoupling theory.

India's Foreign Investment Promotion Board (FIPB) has deferred making a decision on a proposed chloromethanes joint venture between a subsidiary of Dow Chemical and Gujarat Alkalies and Chemicals Ltd (GACL) as the government would like more time 'to examine the proposal', reports ICIS news.

The joint venture plans to build a 200,000 tonne/year chloromethanes plant at Dahej, Gujarat state. The project is scheduled for financial closure by late 2008 and commissioning in 2011.

The Dow subsidiary that would participate in the joint venture, Dow Europe, is owned by Dow Europe Holding of the Netherlands. Dow Europe Holding is, in turn, owned by Dow Chemical, which is struggling to get past the Bhopal legacy in India.

Wonder if that has influenced the government's decision on the chloromethanes joint venture?

India and Asean are all set to implement an FTA (free trade agreement) from 1 January 2008. Both sides completed six years of negotiations yesterday and a final agreement is due to be signed in December this year.

Over 400 products are on the sensitive/negative list and some chemicals have been included. But I understand that polyethylene (PE) and polypropylene (PP) do not figure on the list. Tariffs on PE and PP imports from Asean would be phased out over the next two years, thus opening the door for product from Singapore and Thailand just when new export-oriented plants get commissioned.

With tariffs on the two products currently at 5%, Indian producers say they will not be too badly affected but they do expect increased competition in the local market.

But a bigger threat is looming as India will soon resume talks for an FTA with the GCC (Gulf Cooperation Council).

Indian petrochemical producers are once again lobbying to ensure their products figure on the negative/sensitive list. Meetings have been held with government officials but I understand the outcome has not been positive.

I have yet to meet anyone who has not expressed disappointment at the drama unfolding outside Tata Motor's Nano plant site in Singur at West Bengal. They also concur that the episode will have serious implications for large investments in India.

Violent protests have forced Tata Motors to halt construction and withdraw its employees. It is now putting together a detailed plan for relocation of the plant and evaluating options of building the Nano, the world's cheapest car, at its other plants.

It is ironic that the protests are taking place in West Bengal which is led by a communist government that sees the Nano car project as being for the greater good of the community and one that will stimulate employment and attract investments to a state that suffers from a long history of militant trade unionism.

One could blame the Singur crisis on India's murky politics where an opposition party is required, almost by compulsion, to take a stand against any major industrial project proposed by a ruling party leaving companies caught in the political crossfire.

The protests at Singur are hardly an exception - an isolated incident that is unlikely to come in the way of the central government's grand vision for India's economic transformation through mega industrial projects and the creation of special economic zones (SEZ) .

While the scale of the protests at Singur is unprecedented many such scenes are being played out in different corners of the country.

Although other Indian state governments have quickly issued invitations to Tata Motors to relocate the Nano project, there is no guarantee that the company will not face similar protests at a new location.

The Singur crisis does not bode well for India's plans to develop mega integrated refining and petrochemical sites, also referred to as petroleum, chemicals and petrochemical investment regions (PCPIRs)

Each PCPIR needs about 250 sq km (61,776 acres) of land. Given the uproar in Singur for purchase of a little less than 1000 acres one can easily imagine the turmoil that a larger scale acquisition would create.

Some state government are already reconsidering their plans for PCPIRs. The Karnataka government is revaluating one at Mangalore while the Andhra Pradesh government is reported to have slowed down land acquisition for a PCPIR along the Visakhapatnam-Kakinada-Rajahmundry corridor.

An added problem for chemical investments is the environmental issue. One of the reasons behind Karnataka's decision to revaluate a PCPIR at Mangalore is because of public concern about the impact that chemical plants would have on the local environment.

Companies mounting huge investments in India will have to tread carefully, balancing the demands of politicians and the local community with their business goals. The hurdles are not insurmountable but investors will need patience, money and skill to navigate the very bumpy road to projects in India.

The Indian cabinet has approved a national biofuel policy that is likely set a higher blending target.

Details of the policy have not been announced but it has been reported that the government will mandate 20% ethanol or biodiesel blended petrol by 2017. Currently, the country has 5% ethanol blending which would rise to 10% from next month.

Experts have already started questioning the wisdom of the new policy. Will enough land be available for biofuel crops such as jatropha? And what implications would this policy have on India's food production?

Higher use of biofuels will intensify the debate on the use of farmland for fuel in India, and encourage farmers to reduce grain cultivation for food, says TK Bhaumik, an economist with Assocham, a leading business chamber.

"Land is not elastic. If there is more pressure to grow oilseeds or corn to derive biofuels and farmers get a good price for them, they will obviously neglect grain production," he adds.

It is finally here. After years of waiting and rumours of delays Reliance Industries has finally started pumping oil from its massive KG-D6 block of the Krishna Godavari basin.

Initially about 5,000 bbls/day of crude is being pumped out although the plan is to reach 550,000 bbls/day over the next six to eight quarters.

While the timing fits well with the company's planned commissioning of its second refinery over the next few months, Reliance has indicated that it is would be selling the oil to Indian public sector refiners such as Hindustan Petroleum which operates a refinery at Visakhapatnam.

Gas production is expected to start only in the first quarter of 2009. But how quickly Reliance will be able to sell depends on when an ongoing legal battle with Anil Ambani led Reliance Natural Resources Ltd is settled.

The dispute relates to supply and pricing of natural gas.

As for the price of gas, although the government has recommended $4.20/mmbtu Reliance appears to be looking for more.

"In the long term, we must have a road map towards market price," Mukesh Ambani, chairman of Reliance, said yesterday.

In yet another blow to Dow Chemical's plans for India the company has had to halt work on its new R&D centre at Chakan, near Pune, following instructions from the Maharashtra chief minister.

The government's directive was aimed at appeasing the local population which has been strongly protesting against Dow and had even forcibly entered the site and set the centre on fire in July.

The chief concern of the locals is that the centre would pollute the area which is sacred to them. This is despite reassurances from Dow and local authorities that the company would not be carrying out any manufacturing at the site.

Dow's plan is to employ 500 Indian scientists at the centre to work on projects like purifying water for consumption, energy efficiency and the effective use of green technology.

Surely, there is no reason to protest against this type of investment.

The deplorable terror attacks at Mumbai threaten to further shake business confidence in India at a time when companies across industrial sectors are struggling to cope with severe erosion in demand and profitability and the economy is straining to overcome the pressure of the global economic crisis.

The planning, scale and execution of the attacks, which have left over a hundred dead, are mind boggling. By targeting two major hotels and taking hostages, the terrorists have sent a clear signal that they have moved beyond serial bombings.

While Indian corporate leaders are putting up a brave front, I suspect there are many are questioning the government's ability to contain such attacks.

The attacks in Mumbai comes after a series of bombings at other cities across India in the last few months. Many have criticised the government for not having stricter anti terrorism laws. And this is likely to emerge as a major issue in the general elections that are due next year.

There are expectations of a further depreciation of the rupee which has lost 13% of its value against the US dollar in the last three months. And the stock market could also fall when it opens for trading tomorrow, say many analysts.

Foreign investors could turn cautious and delay investments till they have greater confidence in the economy. This would be at a time when the country is looking to boost capital flows.

Let's hope that the government has learnt a valuable lesson and acts swiftly to contain the damage of this dreadful attack.

I should not be surprised that Maharashtra's new chief minister is having second thoughts about Dow Chemical's plans for a research centre at Chakan, near Pune. Unfortunately, I am.

I fail to see how a research centre will increase pollution. Dow had signed an MoU with the government last August and construction had started when villagers, supported by NGOs, started agitating and forced the company to halt work.

Politicians have been quick to jump in and the new chief minister probably sees this as an opportunity to make his mark in state politics.

A steep drop in petrochemicals demand had dragged down naphtha prices in the last two months. But low prices have stinulated demand, not only from crackers but also from fertiliser and power plants.

With naphtha below $300/tonne, some Indian fertiliser and power plants are moving away from liquefied natural gas (LNG), says this report. Imports of spot LNG in the country have fallen and two cargoes were returned last month as there was no space to unload the tankers.

Spot LNG prices are currently at around $10/mmbtu, well above the naphtha equivalent price of around $7/mmbtu.

Consultancy Purvin & Gertz expects India's average monthly naphtha surplus to decline next year to 245,000 tonnes from 448,000 tonnes during September-November 2008.

And another media report estimates that India's naphtha consumption rose by 2.3% (0.79 m tonnes) in November as against the same month last year. The cumulative growth for April-November was 0.7% (5.8m tonnes). In comparison, LNG sales in November declined by almost 15% to 0.6m tonnes.

In 2007-08, local naphtha sales had fallen by around 15% 8.8m tonnes, largely on account of replacement by LNG the consumption of which grew by 28.9%.

But is this is the start of a long term trend? I doubt it. LNG prices are likely to keep falling match that of crude oil. And higher naphtha demand will only push up prices making in once again uncompetitive in the power and fertiliser sector. In the longer run, crude oil prices are expected to rise once the global economy recovers. This would further support higher naphtha prices.

Protecting local companies during these difficult times is back on the Indian government's agenda. Antidumping investigations are on the rise with companies working hard to prove that low priced imports are hurting their businesses.

The government recently decided to extend by six months the effective date for definitive anti-dumping duty (ADD) on flexible slabstock polyol imports from China, Taiwan, South Korea and Brazil.

ADD on imports from these countries was imposed in January 2005 and was scheduled to expire at end-January 2009.

Earlier this month, the government decided to extend ADD on melamine imports from China until 1 October 2009. India had imposed a definitive ADD in November 2004 for five years, with retroactive effect from April 2004, which was when the provisional ADD was imposed.
And also in January, the government decided to impose ADD on nitrile rubber (NBR) from South Korea. The tariff protection will benefit the country's sole NBR producer, Eliokem India Private Limited (EIPL), a subsidiary of France's Eliokem.

In December, ADD was introduced on caustic soda and rubber chemical imports from South Korea and China.

Producers of various other chemical intermediates are also keeping a close watch on imports and international prices to assess if product is being dumped in India.

An interesting report on antidumpingpublishing.com identifies India as the top user of antidumping measures during 1995-2008 with 520 cases lodged.

Turkey topped the list with 13 investigations during the first six months of 2008 followed by the US and India with 11 investigations. The main target of investigations during this period was China which also faced maximum investigations during 1995-2008.

Interestingly, the chemicals sector accounted for 20% of investigations during H1 2008, behind metals (25%), textiles and footwear (24%). But the chemicals sector was at the top of list for 1995-2008 with a 33% share of total investigations.

So the government has finally approved three Petroleum, Chemical and Petrochemical Investment Regions (PCPIRs). Now comes the difficult part. Who is going to undertake mega investments at a time at a time when the global economic outlook is uncertain, demand for key chemicals has crumbled and not many are willing to stick their neck out to make an optimistic forecast.

The three favoured locations for PCPIRs are Dahej in Gujarat, Nayachar in West Bengal and Visakhapatnam in Andhra Pradesh. Of the three, I think only Dahej is going to come up in the near future. And that is because the hub include ONGC's planned cracker and derivatives complex which has been in the pipeline for a few years now.

Hindustan Petroleum Corp (HPCL) is to be the anchor tenant at the Visakhapatnam hub with a refinery and petrochemical complex. But the outlook for this project is uncertain as one of the partner, Mittal Investment, appears to have backed out. The other partners in the project are Gail and Total.

The Nayachar hub has been described as the West Bengal chief minister's "showpiece project". But after the Tata debacle in Singur, it is doubtful if companies will queue up to invest in the state.

The approval for the PCPIRs comes barely a week after China's announcement of a huge stimulus plan for the country's refining and petrochemical sectors.

The Chinese government has promised construction of large-scale projects such as refineries and crackers. Details are still sketchy and it is not clear at this stage how many of the projects will be new and related to core petrochemicals.

However, I am confident in the Chinese government's ability to push through investments through Sinopec and PetroChina. Somehow, I can't see that happening in India.

If China's plan includes a lot of petrochemical capacities the country's dependence on imports will decline rapidly. At the same time, India's need for imports will grow going by current projections.

I was at the Plastindia trade show earlier this month and I was pleasantly surprised to see everyone quite confident about the long term prospects of the Indian plastics industry despite a disastrous Q4 2008.

I suspect the optimism was party due to the sharp recovery in prices in December and January.

Agriculture and infrastructure are expected to be tomorrow's growth drivers. Farmers have been making good money and are expected to spend more while the government is allocating more funding for agriculture including investing in irrigation projects that would support demand for pipes.

The old argument of India's low per capita consumption as an indicator of the country's potential was still doing the rounds. And so were projections of the country emerging as the third largest polymer consumer in the world by 2012. I really doubt this will happen as Indian demand is currently only around 5.5m tonnes. To reach the No 3 slot, demand would have to more than double to 12m tonnes over the next four years.

The Indian government is reportedly planning a stimulus package for chemicals. But I don't think this can be called a stimulus package as the proposals seem to be mainly about tariff reduction.

The department of chemicals and petrochemicals is once again seeking a reduction on the 5% duty on naphtha that was introduced in last year's budget. It has also asked for duty reduction on captive power plants and spares from 7.5% to 5%.

Tariff reduction on inputs will surely be welcome. But the industry also needs government support to boost local demand. This is something that China is working on.

I think the Chinese government's subsidy programme for purchase of home appliances in rural areas is a smart idea. The program offers a subsidy equal to 13% of the price of home appliances ranging from colour TV sets to washing machines.

And China needs to urgently stimulate rural demand as export demand is fading. Figures for 2008 show that appliance production growth slowed to 13.9% in 2008, compared with 26.1% in 2007. Export rose by only 13.7%, down from the 25% growth registered in 2007.

India is aggressively moving to protect domestic companies with more news trickling in on safeguard and antidumping duties. The government is planning to initiate safeguard duty investigations on Chinese imports of 12-13 products from the chemicals and base metals sector, says this report in the Business Standard.

This comes after the government decided on 30 January to impose a safeguard duty of 31% on soda ash imports from China. A consortium of companies, which included Tata Chemicals, claim that Chinese imports which had averaged 4,041 tonnes during April-October 2008 had sharply increased to 10,000 tonnes in November 2009 and 15,000 tonnes in December 2009.

The government also introduced a 25% safeguard duty on phthalic anhydride (PA) imports which will last until 26 August 2009.

And the government is considering levying provisional antidumping duty of $0.84-$0.92/kg on imports of all grades of nylon tyre cord fabric from Belarus. The country's antidumping authority is also separately recommending the levy of definitive ADD on NTCF imports from China.

An antidumping probe has also been launched on polypropylene (PP) imports from Saudi Arabia, Singapore and Oman.

So how do you reconcile this news with the recent statement by the G20 finance ministers that the countries would make efforts to end trade protectionism?

Is Lakshmi Mittal having second thoughts about participating in the Bhatinda refinery project? This report suggests that Mittal might walk out of the project if the state government does not extend fiscal incentives that had been promised a few years back. The incentives include waiver of sales tax on fuel which is said to be vital to the viability of this land-locked refinery.

The reports also suggest that a change in the global economic environment that has severely affected the profitability of Mittal's steel empire may be behind his latest move. A few months back, Mittal pulled out of the Vishakhapatnam refinery and petrochemical project mooted by Hindustan Petroleum Corp Ltd (HPCL).

HPCL and Mittal hold 49 per cent stake each in HPCL-Mittal Energy Ltd, the firm implementing the Bathinda refinery project.

It's the turn of the Confederation of Indian Industry (CII) to highlight the threat of cheap Chinese imports. "The threat of dumping of cheap Chinese products in India is real and serious," says Venu Srinivasan, the new president of the CII.

This is something that's been worrying many Indian companies for a while now.

If demand from China's traditional markets continues to fall the country's exporters will have no choice but to turn to new markets and this includes India. Given the massive global scale capacities that China has built up over the last decade, exports from the country have the potential to wipe out Indian producers across a number of sectors.

The Wall Street Journal (WSJ) carried a good report last week on the rising trade tensions between the two countries.

"We've always said the world is large enough for India and China, but we have a problem with a surge in exports that hurts Indian industry. It's a cause for worry," said the Indian commerce secretary, Gopal K. Pillai, in an interview with the WSJ.

Pillai said Beijing subsidised exporters, obstructed Indian farm imports and supported Chinese companies who preyed upon vulnerable Indian industries.

India is said to have about a dozen antidumping cases against China outstanding at the WTO, including investigations into export surges of truck tyres and industrial chemicals.

Chemplast Sanmar's new PVC plant is ready but commissioning remains uncertain as the company faces two petitions in the Supreme Court against the company's marine terminal facility that would be used to import vinyl chloride monomer feedstock, says this report on ICIS news.

Another report says that local politicians have voiced apprehensions over the berthing of a Japanese ship carrying VCM for the new plant. The cargo was believed to have not obtained permission from the Tamil Nadu Pollution Control Board.

The company has to file a reply by 9th April.

Chemplast's 200,000 tonnes/year plant at Cuddalore, Tamil Nadu, has seen a number of delays from the initial startup date of July 2008.

Environmentalists at Cuddalore have been actively monitoring pollution in the area as can be seen on this website. And the spotlight is on Chemplast as it is one of the biggest chemical companies operating in Cuddalore

I had earlier talked about the growing resistance to chemical projects in Tamil Nadu. I believed at that time that the Chemplast project was safe as construction had started. But a vigilant green lobby has succeeded in stalling this one too.

It is good to be back to some good news. The election is finally over and the UPA has been voted back to power with promises of stability and more reforms. But the chemicals industry will have to deal with a new minister as Ram Vilas Paswan was not be voted back to parliament.

This report suggests that the chemicals and fertilizers portfolio is likely to be given to MK Azahgiri of Tamil Nadu's DMK, one of the parties supporting the Congress in the UPA coalition. It also warns that the ministry's functioning could move from Delhi to Madurai in southern India where Azahgiri has been elected from.

The long trek aside I wonder whether the new minister's position will be on chemical investments in Tamil Nadu. A very active environment lobby has been attempting to block investments in the Cuddalore chemical zone and making life difficult for companies that already have manufacturing facilities in this area.

And it is not just Tamil Nadu. The new minister needs to look at investments in other parts and decide how to kickstart the much talked about PCPIRs and attract foreign investment.

Dr Sukumar recently posted a detailed analysis of the government's PCPIR plan which clearly outlines the challenges that the government faces.

ONGC has taken a difficult but sensible decision. It has finally shelved plans for a new 15m tonnes/year refinery and petrochemical complex at Mangalore. The project had been facing considerable resistance from the local population. In addition, questions were being raised on the viability of the project.

The sharp change in the global business environment since last year probably forced ONGC to reconsider the project. But the decision also suggests that the company may no longer be keen to extend its focus beyond oil exploration and production. Mangalore is the second refinery project that ONGC has shelved. In June 2008, the company had said that it would not participate in a refinery project at Kakinada on the east coast of India.

ONGC has taken a difficult but sensible decision. It has finally shelved plans for a new 15m tonnes/year refinery and petrochemical complex at Mangalore. The project had been facing considerable resistance from the local population. In addition, questions were being raised on the viability of the project.

The sharp change in the global business environment since last year probably forced ONGC to reconsider the project. But the decision also suggests that the company may no longer be keen to extend its focus beyond oil exploration and production. Mangalore is the second refinery project that ONGC has shelved. In June 2008, the company had said that it would not participate in a refinery project at Kakinada on the east coast of India.

India's synthetic fibre and fibre intermediate produces will be happy to know that the textile industry is likely to soon receive a number of incentives from the government. A stimulus package, due to be announced next month, would include subsidies on interest and additional funds for technology upgradation, says this report.

This is needed as other incentives announced by the government earlier this year have failed to revive the industry, says the Confederation of Indian Textile Industry

Textile exports have been declining since September 2008 and industry players have complained that the Indian government has not matched efforts put in by governments in China, Pakistan and Bangladesh to support local producers.

India's textile exports in fiscal 2009 were estimated to be around $22bn, a long way from the government target of $110bn in fiscal 2012.

The new textile minister appreciates the huge task facing the industry. He said recently that the industry needed an annual investment of Rs300bn to maintain growth momentum. He has promised a helping hand from the government - something that the industry has been seeking for a very long time.

I have been hearing that the Indian government will soon announce preliminary antidumping duty (ADD) on polypropylene (PP) imports from Saudi Arabia, Singapore and Oman. A few lucky producers/exporters have escaped but there are many who face a stiff duty of as much as a few hundred dollars, say my friends from the industry.

Polymer processors and producers from the affected countries had strongly protested against the investigation, which was launched in early March. But it looks like the government has been sympathetic to the producers' case.

The ADD on PP, when announced, will be added to a long list of chemicals that has attracted protection in the form of ADD or safeguard duty in the last few months. I have been told that while the government is unwilling to listen to requests for upward revision of import duty, it willing to act fast if producers can produce evidence that cheap imports have hurt their business. And that's keeping many producers busy these days. So don't be surprised if you hear investigations being launched on many more chemicals.

It appears cheap imports are hurting Indian industry across all sectors. A recent survey by the Federation of Indian Chambers of Commerce and Industry (FICCI) shows that small and medium sized companies are most worried about Chinese imports which are 10-70% cheaper.

"Trade and industry have reported that with western markets losing their appetite for imports, Chinese manufacturers are increasingly looking at alternative markets to offload their wares. India is an obvious first choice in such a scenario given its geographical proximity and the fact that it is still growing at an appreciable 6.5-7.0%," says FICCI.

Indian companies have expressed concerns on quality and safety of Chinese imports. "Immediate imposition of severe testing requirements on imports from China is a must as these include basic items of consumption and even vaccines," adds FICCI.

Anti-dumping duty (ADD) on polypropylene (PP) imports from Singapore, Saudi Arabia and Oman has finally been announced. And the high level of duties, which are company specific and range from $44.40/tonne to $1,033.65/tonne, has upset many processors and importers.

I have been told that one of the reasons for imposing a stiff penalty is because different invoices that were raised for imports from 1 April to 31 December 2008, the period under investigation. PP prices had fallen heavily during most of this period and sellers had offered price protection to push material out of their warehouses. It appears that in many cases a cargo was booked at one price, loaded at another price and delivered at a third price.

I also hear that the highest duty was imposed on producers who did not cooperate in the investigations.

It will take six more months for the investigation to be concluded but I don't think there are many who expect the ADD to be scaled back.

And we could be seeing more action in this space. I hear that imports from three more countries are being closely scrutinised. As I said on Monday, the government is receptive to complaints about dumping and producers are likely to take full benefit of this.

The 100-day fever is fast spreading and the Ministry of Chemicals & Fertilisers is the latest casualty. A very bland press release outlining what the ministry plans to achieve over the next three months has come my way.

I started reading the release with a great deal of scepticism and was convinced at the end that my doubts were not misplaced.

So what does the ministry want to achieve? On the fertilisers front, it plans to upgrade the fertiliser monitoring system to ensure timely availability of fertilisers and quick disbursal of subsidy, develop options to revive closed urea units, introduce an attractive investment policy and create a road map for restructuring of sick public sector units through financial restructuring and/or changing feedstock from naphtha to gas.

The PCPIR (Petroleum Chemicals and Petrochemicals Investment Region Policy) dream is still alive. The aim now is to sign a memorandum of agreement with Andhra Pradesh, Gujarat and West Bengal before 30 August.

Other targets for the department of chemicals include speedy implementation of Gail's cracker project at Assam and to start a plastic waste management centre at Guwahati, Assam and a plastics technology institute at Jaipur

There is nothing really new in what the ministry has planned. Many of these targets should have been achieved in 2008 or even earlier. The prime minister's 100 day reforms mantra is laudable but I think the industry needs something more than just honouring old promises.

With the budget offering little to the chemicals industry it is time to pile on to the rural rickshaw and hope for a trickle down efect from the enhanced spending that the government has planned in this part of India.

Photo by BriceFR

This is entirely possible. More money in the hands of the rural population through various schemes including one that offers guaranteed employment should boost demand for a wide variety of products. We have already experienced the power of the rural market. During last year's crisis, demand from the rural population had saved many companies.

Another plus should be the increased allocation of funds for the Jawaharlal Nehru National Urban Renewal Mission (JNNURM). This programme will among other things, invest in new water and sanitation pipes in 65 cities around the country. It is estimated that investment in each city would result in 4000-5000 tonnes of additional polymer demand for pipes.

But I was surprised at the government's decision to double excise duty on manmade fibres (polyester, acrylic and nylon) and yarn to 8% especially as the industry has been pushing hard for a level playing field with cotton. They had been asking for removal of excise and customs duty on these fibres.

The increase comes at a time when the textile industry has been battling hard to overcome reduced demand from the export market. The move, big negative for companies such as Reliance Industriesand Indorama Synthetics, has drawn strong criticism from the industry. But is the government listening?

The government also appears to be paying scant attention to yet another demand - removal of 5% import duty on naphtha used for polymer production.

We may finally be seeing some balance in the debate on plastic bags and pollution. Rather than being swayed by NGOs to introduce a blanket ban on plastic bags, Jairam Ramesh, the new environment minister, is pushing for greater recycling, better waste management and the use of biodegradable plastics.

Scenes such as the one below certainly don't help the cause of the plastics industry.

Photo by Dwanjabi

A closer look at the picture shows that most of the bags are below 20 microns. The industry is all for banning these bags which litter the streets and clog the drains, but in the words of one industry insider - there is a lot of politics involved in banning these type of bags. So you either have local governments, such as the one in Delhi, introducing a blanket ban or others that prefer to turn a blind eye to this problem.

The difficulty in implementing a ban that restricts use of all plastic bags does not appear to worry the Delhi government. Its stand was recently upheld by the Delhi High Court which dismissed a petition by the All India Plastics Manufacturers Association on this issue. Delhi has banned the use of plastic bags in shopping malls, five star hotels, restaurants, dairies and fruit and vegetable outlets.

Replacing plastics with jute or paper is not the answer as these alternatives have their limitations and can be environmentally unfriendly in their own way. Recycling is probably the best way forward.

And Conserve India is showing how this can be done fashionably. This non-profit organisation recycles polyethylene bags (hand picked from the streets of Delhi) into evening bags, totes and other fashion accessories.

It was in 2002 that Anita Ahuja of Conserve India got the idea of recycling bags. It took a year to develop the technology and simple end-products. Today, the organisation, which has created income generation opportunities for many of Delhi's rag pickers, deals not only with thin gauge plastic bags but also with other types of plastics and exports most of its production.

Ahuja explains that she is not for or against a ban on plastics in Delhi. "It is a global problem," she emphasises. She makes another valid point. Today, even the poorest of poor use common plastic bags in their homes. In some case, these bags, stitched together, double up as temporary roofs. The government should not be taking away what a poor man finds useful. There is plenty of other plastic packaging waste generated by rich households which the government is welcome to ban.

The good things in life are rarely free and that applies to solar power too. An analysis on this sector in ICIS chemical business highlights how high investment costs associated with photovoltaic (PV) cells has prevented the technology from being cost competitive on a standalone basis.

Photo by juicyrai

But a step-change in the economic competitiveness of PV cells is imminent, say Alexander Keller and Thorsten Ploss of Roland Berger Strategy Consultants. Grid parity or the point at which solar electricity becomes equal or cheaper than electricity from conventional sources could be realised by 2015, five years ahead than earlier estimates.

The consultancy says that chemical suppliers to the PV industry face two structural challenges - the shift to China and the move from conventional to thin-film technology.

Asia's (excluding Japan) share in the global PV market is projected to grow to more than 40% in 2030 from just 2.8% in 2007. Both India and China will be driving this growth. China plans to spend Euro3.2bn over the next five years while India is expected to unveil in September a target of generating 20GW of solar electricity by 2020.

The shift to thin-film is expected to provide major opportunities to the chemical industry but companies will need to adapt.

While the long term prospects are good, Indian companies are facing short term challenges. This is evident at Moser Baer Photo Voltaic which has deferred plans for the construction of a plant in Chennai due to liquidity constraints and production mismatch. The company has also temporarily closed a plant at Noida due to high stocks.

A little bit of support will be useful.

It is more than a month since the commerce ministry announced stiff antidumping duties (ADD) on polypropylene (PP) imports from Saudi Arabia, Singapore and Oman. But a customs notification has yet to be released and this is puzzling many industry players. The customs notification, seen as a formality, is usually out within a week after an announcement by the commerce ministry.

It was initially believed that the delay was because government officials were busy preparing for the Indian budget that was put forward on 6 July. But it is three weeks since the budget and everyone is still waiting for the notification. Nobody seems to know the reason for the delay.

But I have been hearing that affected Saudi producers, which includes Sabic and Advanced Polypropylene Co (APC), have taken up the issue at the 'highest level' and that meetings have been held with Indian government officials. I wonder if this has resulted in second thoughts. And I also wonder if the strong opposition will influence producers' plans for ADD on polyethylene (PE) imports from the Middle East.

Meanwhile Indian chemical producers are continuing their ADD spree. Latest additions to the long list of products under investigation include polyol, titanium dioxide and caustic soda.

It seems to be the season for family disputes and India is not the only country seeing this. Reliance Industries has company in South Korea's Kumho Petrochemicals where two brothers are struggling to take control of the Kumho Asiana Group.

Park Chan-koo, the younger brother was yesterday dismissed as chairman of the group's petrochemical division in a hastily-arranged board meeting. He has accused his elder brother of, not surprisingly, keeping him in the dark about the top item on the agenda for the board meeting - his dismissal.

Kumho Petrochemicals with a turnover of $2.61bn is involved in synthetic rubbers, synthetic resins and speciality chemicals while the group has interests in the automotive, leisure, logistics and airline sectors.

Pic by sir_watkyn

The Kumho story has many interesting twists and turns but cannot yet be compared with the epic battle between the Ambani brothers of Reliance which entered a new phase. The latest round involving allocation of gas from the KG basin has seen so many claims and counter claims that it has become difficult to track who has the right to the gas.

Although the matter will be settled by the Supreme Court, the case is being intensely argued out in the media. The issue even rocked the parliament yesterday with calls for resignation of the petroleum minister.

The rapidly escalating battle certainly shown government officials to be inept at managing allocation of gas - a resource that the country desperately short of.

And such feuds only tarnish the reputation of the affected companies.

Green chemistry is gaining ground in India with alert companies following the global trend to make products from renewable feedstocks, reduce waste and energy consumption.

Pradip Kadakia, Abhishek Nigam and Ashwin Rao of Tata Strategic Management Group (TSMG) say that Indian chemical companies are making good progress in lowering the industry's environmental footprint by adopting green chemistry strategies.

They point out that growing environmental consciousness has resulted in increasing demand for green products and processes such as green buildings. These buildings cost 3-8% more than conventional buildings but payback in less than three years through operational savings. More than 300 green buildings have already been constructed in India and 700 more are due to be built by 2010. These buildings materials will spur demand for products such as high performance glass, low VOC paints and fly ash blocks.

India with its huge arable land area has a good potential for bioresources. And despite concerns about using land for non food applications, national laboratories, academic institutions and companies are actively pursuing biodiesel, bioethanol, bio-surfactants, biopolymers and biopharmaceuticals. They cite the example of Godavari Biorefineries that has started manufacturing products from renewable resources forming an entire value chain from sugarcane to sugar to other products such as ethanol, chemicals and biofertilisers.

But though green chemistry has taken off more support will be needed from the government. And companies too need to plan out their strategy carefully rather than simply following a global trend. TSMG suggests building clear sustainability goals that can be translated to market facing goals. And companies also need to assess life cycles of existing products and look for opportunities to introduce green products.

And opportunities can come up in unexpected areas. A recent report in ICIS Chemical Business highlights the move by sporting good manufacturers to incorporate chemicals based on renewable resources.

For example, Merquinsa, a Spanish thermoplastic polyurethane (TPU) producer, is collaborating with Brooks Sports, a Washington, US-based sports equipment company, to develop sustainable performance running footwear. The bio-TPUs are renewable-sourced, with 20-90% bio-content, says Merquinsa.

With the threat of drought looming large over most of India its time to ask another decoupling question. Can the Indian economy escape from the effects of a drought?

I found some answers in Niranjan Rajadhyaksha's analysis in today's Mint. Most economists estimate that the drought will shave off economic growth by one percentage point - a figure that India can live with especially if the ongoing recovery in the manufacturing sector takes root. This would also be in sharp contrast to the droughts experienced in the 1965 and 1972 when economic growth had plunged by 10%. But droughts in 1987 and 2002 led to only a two percentage point reduction in GDP growth.

Rajadhyaksha suggests three possible reasons to explain the decoupling: the contribution of agriculture to the overall economy has dropped significantly, the rural economy has diversified sufficiently that households have alternative sources of income when agriculture fails and the growth experienced in the last few years had few links to the rural poor.

The last is a little difficult to understand especially as rural incomes are supposed to have become important demand drivers for a wide variety of products. This was also one of the reasons cited for the very healthy polymer demand that India experienced last year despite the global economic crisis.