India Chemicals Blog

It is a story with enough twists and turns to put a Bollywood film to shame. Haldia Petrochemicals' creditors have now filed a case in the Calcutta High Court protesting against an order passed by the Company Law Board (CLB) for transfer of the West Bengal government's stake to The Chatterjee Group.

Can a spiritual outlook help executives in the cut-throat world of modern business? Gail (India), which is struggling to shape its future, apparently thinks it is worth a try and top executives of the company have been given an inspirational talk by India's popular guru Sri Sri Ravi Shanker.

According to a company official, overcoming individuality and developing a holistic perspective towards organisational life for the enhancement of cosmic knowledge is the need of the hour.

After such enlightenment it must be quite easy to get down to the mundane world of gas and petrochemicals!

Is it too early to bury the Dow and Reliance joint-venture deal? Today's Economic Times reports that the two companies are still talking but a deal could be a few months away as many issues still need to be sorted out.

The report refers to valuation and management issues but reiterates that both sides are convinced about the strategic fit of the joint venture.

Today's report follows the one last week which stated that high valuation following the interest shown by private equity had caused Reliance to pull out. Both sides are of course mum and one can only speculate if Reliance will finally succeed in going global.

IOC's desire to build a refining and petrochemical base in Turkey makes interesting reading.

The plan is make a joint bid with Turkey's Calik Group for the government's stake in Petkim and also construct a 15m tonne/year refinery at Ceyhan for completion in 2012.

IOC had expressed interest in Turkey a year back and the Turkish government's plan to sell its stake in Petkim dates back to 1999. Sale efforts were relaunched last year and the government's target is complete the process by 15 June 2007.

I can understand IOC's desire to develop a global footprint. But would it not be better for the company to instead focus on its refinery and petrochemical projects in India, especially as some of the projects are facing significant delays.

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.

Today's Assam Tribune reports that the Indian prime minister will lay the foundation stone for Gail's Assam cracker project on 9 April. This is a project that has never made sense but it looks like politicians are determined to see it completed. For those who have forgotten, the project was first proposed in 1985.

The project is for a 220 000 tonne/year cracker and downstream polyethylene (PE) and polypropylene (PP). Gail has wrangled substantial subsidies from the local government to make the economics viable but it still does not make sense to build a sub worldscale cracker in a landlocked Northeast India.

And will Gail be successful in getting any contractor interested in this project?

If you can't beat them you had better join them.

After complaining for a long time on how chemical engineers are abandoning their professional training to the more lucrative IT, banking and retail sectors, chemical companies are learning that what works is money. If you want talent you have no choice but to pay for it, especially in today's competitive job market.

This report in the Indian Express talks of a chemical engineering graduate from Punjab University being offered a record annual salary of Rs11 lakhs ($25,000). The company making the offer was Shell.

Attracting talent is only a small part of the game. Any ideas on how to retain the new recruits?

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.

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.

News about the configuration of Reliance Industries' cracker at Jamnagar is finally trickling in. The plan is to use the offgases from the refineries as feedstock to produce 1.5m tonnes/year ethylene, reports ICIS news. This would make it the world's largest ethylene unit, which is not really a surprise given Reliance's fondness for all things worldscale. The derivatives slate has also been finalised with polyethylenes and MEG on the list.

Given the amount of ethylene that will be produced, the downstream capacities will be huge. Exports are likely to figure heavily in the marketing strategy as it will take a while for Indian markets to absorb the huge volumes.

And other petchems companies may want to start preparing for the onslaught - the complex is due to be ready in 2010-11. Going by Reliance's track record, I will be surprised if the project sees significant delays.

Chennai Petroleum announced last week plans for a refinery and petrochemical complex at Ennore, Tamil Nadu. ICIS news reports that the petrochemical part of the project includes a 1.2m tonne/year cracker and derivatives units. A pre-feasibility study is underway and expected to be completed next month. The company hopes to complete the cracker by 2014-15.

Chennai Petroleum's cracker joins a steadily growing project list, which at last count included eight crackers. The enthusiasm is easy to understand given the country's ongoing economic transformation. But I suspect many of the projects will remain on paper for a long time to come.

I don't dispute the demand growth calculations - India will certainly absorb greater volumes of all kinds of chemicals in the coming decade. But the projects environment is getting tricky. Feedstock cost and availability and infrastructure are the commonly touted hurdles. And then there are the growing protests against land acquisition.

It will require a great deal of commitment to see a project through and I suspect this will be in short supply.

Chennai Petroleum announced last week plans for a refinery and petrochemical complex at Ennore, Tamil Nadu. ICIS news reports that the petrochemical part of the project includes a 1.2m tonne/year cracker and derivatives units. A pre-feasibility study is underway and expected to be completed next month. The company hopes to complete the cracker by 2014-15.

Chennai Petroleum's cracker joins a steadily growing project list, which at last count included eight crackers. The enthusiasm is easy to understand given the country's ongoing economic transformation. But I suspect many of the projects will remain on paper for a long time to come.

I don't dispute the demand growth calculations - India will certainly absorb greater volumes of all kinds of chemicals in the coming decade. But the projects environment is getting tricky. Feedstock cost and availability and infrastructure are the commonly touted hurdles. And then there are the growing protests against land acquisition.

It will require a great deal of commitment to see a project through, which I suspect will be in short supply.

Looking for a high-paying job? How about investing in a PhD degree first?

The Indian R&D sector is booming and so are salaries even as companies struggle to find scientists. The boom is being led by the pharmaceuticals sector with both Indian companies and multinationals expanding their R&D units to take advantage of India's scientific talent.

This report in the Business Standard says salaries in the range of Rs10-40m ($240,000-$975,000) are being paid to leading scientists in pharmaceutical companies. Salaries are steadily heading to international levels.

At this rate, how long will India enjoy the cost advantage? Not many years, I suspect. India cannot, in the future, rely only on cheap talent to draw R&D business from the West or even China.

Hindustan Petroleum Corp Ltd (HPCL) says it is teaming up with Total and Kuwait Petroleum for a $3bn refinery at Vishakhapatnam which will also be linked to a petrochemicals complex. An aromatics unit may be built ahead of the refinery.

The three companies have been discussing the venture for over six months and a deal was due to be finalised in April.

It appears that the project is finally moving ahead with HPCL's chairman stating that the refinery will be completed in 2011. But is he being to ambitious?

It looks like GACL’s ethylene dichloride (EDC) project at Dahej is still alive. The latest news is that GACL is in talks with ONGC to partner the project. ONGC is building a cracker at Dahej and will be in a position to provide ethylene. This makes sense as the only other alternative for GACL would be to import ethylene. GACL had in the past also looked at going further down the chain to produce PVC. But it is not clear if this still interests the comapny

The report also talks of GACL looking at picking up a stake in ONGC’s cracker and joins a long list of other interested investors which includes Sabic, Mitsui Chemicals and Mitsubishi Chemical.

It is encouraging to read that Samsung Electronics is setting up a major export hub in India. A new plant, its second in India, is being built to produce 1.5m colour TV sets, 200 000 LCD Tvs and 300 000 LCD monitors with output targeted at Europe, the US and the Middle East. Currently, China is Samsung’s largest export hub where it has six manufacturing plants.

India’s consumption of most major chemicals is at least 4-5 times behind China and this is partly to do with China’s dominance in global trade. A rapid consumption growth is possible only if manufacturing in electronics and other industries migrates to India.

Will more companies follow Samsung? I think the process started a few years back though momentum has yet to build up. The process is likely to be slow and India faces stiff competition from Vietnam and other low cost destinations around the world.

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.

Any talk of oil and gas inevitably leads to Reliance Industries and its lucky strikes in the Krisha-Godavari and Cauvery basins in India.

The finds are the foundation for Reliance’s upstream business but a lot of work still needs to be done.

It is estimated that the company is spending $80,000/day in its search for oil and gas. While the investment is paying off, as is evident from the recent discoveries, the company would have to put in at least $2.2bn to commercialise the finds.

Meanwhile, a highly active global E&P environment has pushed up drilling costs. Reliance also faces certain risks – it has reportedly not found either oil or gas in as many as 20 blocks where it has been working for the last six years.

These two factors point to Reliance’s need for international majors as partners. The other reason is technology as 76% of India’s gas reserves are in deep waters and the success ratio is only 16-20%.

Reliance has indicated that it is looking to form either a joint venture or some kind of strategic alliance to develop exploration capabilities in ultra deep water of over 2000 metres. And Chevron, which has a stake in Reliance's new refinery at Jamnagar, is reportedly interested.

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.

First it was farmers and now it is flamingos. Yet another Tata project has run into rough weather, this time in Africa.

Tata Chemicals’ soda ash project at Kenya is ruffling quite a few feathers. Conservation groups claim that it threatens the survival of the entire East African population of lesser flamingos. The project involves mining 500,000 tonnes/year soda ash at Lake Natron in the Great Rift Valley in Kenya.

Conservationists say that the lake is the only East African site where the lesser flamingo has bred in the past 45 years.

A draft environmental impact assessment of the project has reportedly said the project would pose a significant environmental risk to the 500,000 lesser flamingos that breed there each year.

What would you like to see on your next Kenyan safari – a modern soda ash facility or thousands of pink birds?

Gail’s quest for petrochemicals has taken an interesting turn. It is now looking to tie up with Reliance Industries and Hindustan Petroleum Corp Ltd (HPCL) to set up two greenfield petrochemical plants.

HPCL has planned a cracker at Visakhapatnam and it is likely that Gail will take a stake in this project. As for the second project, Reliance and Gail are said to be looking overseas.

The two companies, competitors in the local petrochemicals market, are considering inking a memorandum of understanding (MoU) to explore opportunities in feedstock rich countries either in the Middle East or in central Asia.

The two make an unusual pair and it is difficult to make out the benefits of this partnership. State-owned Gail might be able to give Reliance some political mileage but then Reliance is big enough to manage on its own.

The love for petrochemicals certainly makes strange bedfellows.

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?

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.

In its quest for value addition, Saudi Arabia is aggressively marketing itself as an investment destination for the plastics industry. And processors from India are being wooed to set up shop in the Kingdom.

A delegation of Indian processors, just back from a visit, appeared impressed at what was on offer. The opportunities were discussed at a briefing organised by the Organisation of Plastic Processors of India (OPPI) earlier this week.

Plastics consumption in the Kingdom is currently about 1m tonnes/year as against production of around 7m tonnes/year. With polymer output set to spiral after the commissioning of new cracker complexes, raw material availability will not be an issue.

Will Venezuela turn out to be the next Iran in the world of petrochemicals?

Speaking on his weekly radio and TV show, Hugo Chavez, Venezuela’s president, announced the country’s intention to become a global petrochemicals superpower. The aim is for Venezuela to achieve petrochemical revenues of $100bn/year from the current $1.7bn. By 2013, the country would invest about $20bn in the industry and create 700,000 jobs – about 10 times the number of workers in its oil industry. And by then there would be 70 companies producing petrochemicals.

The plan is said to be divided into two phases – the first up to 2014 and the second till 2021 by when Venezuela would have nine complexes in operation. President Chavez also said that the states of Zulia, Falcon, Carabobo, Anzoategui, Tachira, Barinas and Apure will form seven petrochemical poles in the development of a national network of petrochemical socialist companies.

This report on Vheadline.com argues that the move is natural and logical given the natural gas available in the country.

“For years, the industry looked on agog, asking why Venezuela apparently couldn't see the blindingly obvious…decades went by while natural gas went virtually undeveloped -- or wastefully flared at well-head to boost oil output rates.”

I doubt if Iranian companies are going rush to the region anytime soon. After all they have to set their own houses in order and finish their numerous projects.

It is difficult to take either Venezuela or Bolivia seriously. Yes, they have the feedstock but the geopolitical risk far outweighs that advantage. Indian companies worried about competition can rest easy

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’s construction boom continues and pipe manufacturers are steadily expanding capacities.

Finolex Industries has plans to double its pipes capacity at Ratnagiri, Maharashtra, in phases to 200,000 tonnes/year over the next three years. The first phase will see an expansion by 30,000 tonnes by end-2007.

In an interview with ICIS news, a senior company official also said that the company was looking at building a new facility in northern India.

Besides construction, the agricultural sector is also driving expansions.

Jain Irrigation has announced plans to invest Rs400-500m in a new pipe and drip irrigation facility in Tamil Nadu and another in north India in the next six months.

These expansions will fuel PVC demand in the coming years, which is currently growing at about 15%/year. Pipes accounted for about 70% of India’s PVC consumption of about 1m tonnes in 2006-07.

Indian PVC capacity of around 1m tonnes/year falls short of demand. Finolex manufactures 260,000 tonnes/year PVC at Ratnagiri, but it also plans to import 75,000 tonnes in 2007 and 120,000 tonnes in 2008.

Reliance Industries, the country’s largest PVC manufacturer, also started importing PVC this year.

The deficit is likely to continue as the only new plant on the Indian horizon is Chemplast Sanmar’s 200,000 tonnes/year project at Cuddalore, Tamil Nadu, that is due to be completed in mid-2008.

The deficit has stimulated interest in new PVC projects but viability has been hard to justify due to feedstock constraints. One company that had looked at building a plant based on imported VCM or EDC decided to drop the project because of stiff competition from Chinese carbide-based PVC. Another company, fresh entrant to the PVC business, has the chlorine but is unsure if the project would be viable if based on imported ethylene.

Reliance is of course in the best position to add volumes. It has ethylene in its system. Company officials have said that a PVC and chlor-alkali project are being evaluated. But we are still waiting for a formal announcement.

Reliance Industries is known for optimising value. It is now reported to be looking at utilising the petroleum coke from its Jamnagar refineries for production of synthetic fuel such as diesel and naphtha.

A report in the Business Line talks of the company looking at setting up a plant with a daily processing capacity of 4000 tonnes of petroleum coke. The technology partner for this venture would be Lurgi.

The plan is said to have interested Rashtriya Chemicals and Fertilisers and Tata Chemicals with both companies looking to use the synthetic fuel as feedstock at their respective fertiliser plants.

A few months back in an interview with ICIS news, Nikhil Meswani, executive director of the company, had said Reliance’s two refineries will provide 6m tonnes/year of petroleum coke and that a study was underway to examine the feasibility of producing various petrochemicals, including acetic acid.

I know innovative solutions are needed to manage the talent squeeze in India. And trust Reliance Industries to find one.

According to this report, the company is now turning to its employees to fill the vacuum. Faced with a shortage of pilots to run its proposed cargo airline, Reliance has turned to its young employees and children of its older employees.

The offer is to train them and in return they would have to sign a bond to work for the company for five years. If the candidates do not join Reliance after the training or leave midway, they would have to repay the training cost which is an estimated $75,000.

The offer does not yet extend to fund education of chemical engineers. But maybe Reliance and other companies should start thinking in this direction.

An interesting article in today’s Mint on how high natural rubber prices are forcing Indian tyre manufacturers to turn to synthetic rubber.

Natural rubber prices have risen by 13% since May as Indian production has been affected by rains and an outbreak of Chickungunya virus which affected the health of workers at rubber plantation in Kerala.

Natural rubber output is now projected to reach 743,000 tonnes for the year ending March 2008, down from last year’s 853,000 tonnes. Government officials have played down the impact of lost production citing sufficient stocks and healthy imports.

However, it appears from today’s report that the tyre industry has taken measures to alleviate the margin squeeze. Natural rubber is said to account for about 50% of costs for a tyre producer. And prices of synthetic rubber are on an average Rs6/kg lower than natural rubber.

The report states that the average ratio of synthetic to natural rubber was 79:21 last year. This has now changed to 74:26.

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.

In its quest for advantaged feedstock, Gail (India) must have explored almost every country in this world. The latest is Qatar where the company is looking at setting up an integrated complex jointly with Qatar Petrochemical Co (Qapco).

This report talks of Qapco working out the broad contours of an ethane-based 1.9m tonnes/year complex. Interestingly, Gail has indicated that it is keen on partnering with a leading private petrochemical company and putting forward a proposal for Qapco’s consideration.

Could this private company be Reliance Industries? State-owned Gail and Reliance have been working together for the past few months exploring projects in various countries. The alliance might seem strange but it marries Reliance’s project evaluation and execution abilities with Gail’s access to the Indian government.

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.

Nirma’s transition from a small time detergents player to one of the largest soda ash producers in the world over the last 25 years is certainly impressive.

Its announcement yesterday of the acquisition of US-based natural soda ash producer Searles Valley Minerals makes it the seventh largest producer in the world with a total capacity of 3m tonnes/year. It is one more step in Nirma’s efforts to back integrate.

The acquisition would result in a 56% rise in Nirma’s net sales to Rs35bn, says this report. And product would be sold in the international market rather than being imported to India.

SVM, which has a combined production capacity of more than 1.9m tonne/year, is one of five natural soda ash manufacturers in the US. It is also the only producer of sodium borates, boric acid and sodium sulphate utilising the solution mining method.

This is Nirma’s second soda ash acquisition. It had acquired Saurashtra Chemicals’ facility in India about two years back.

An alliance between Reliance Industries and Gail has been formalised with the signing of an MoU for cooperation in petrochemical projects outside India.

The two companies will scout for opportunities and set up a working group to explore naphtha or gas-based investments in the Middle East, Russia and the former Soviet Union. A special purpose vehicle will be formed for investments.

Recently, Gail was said to be looking at an investment in Qatar with Qapco reportedly working out details of an ethane-based 1.9m tonnes/year complex.

Interestingly, the MoU also talks of the companies examining the possibility of mutual co-operation in the domestic market.

While Reliance (including IPCL) has a number of products in its portfolio Gail is active only in hdPE and lldPE. The only other Indian producer of these polymers is Haldia Petrochemicals.

Indian polymer processors have for long complained about the lack of competition in local polymer supplies. If Gail and Reliance join hands the options would be further reduced until new projects by Indian Oil Corp and others are completed.

Indian Oil Corp (IOC) is the latest entrant to Egypt. The country’s oil minister has said that talks are on for a $9bn refinery and petrochemical complex. A feasibility study is likely to be ready by mid-2010 after which IOC would take a final decision on the investment.

Egypt has drawn up a mega plan for the refinery and petrochemicals business and is aggressively wooing investors. Earlier this year it had said that Reliance Industries was also looking at investing $10bn in this sector.

Egypt is hoping that good feedstock availability and its proximity to the African and European markets will attract investors. However, although announcements have been made very little money has been put on the ground. I suspect bureaucracy and politics are the chief reasons for slow progress.

As for IOC, the company probably has too many projects on hand. The two big ones in India are the Panipat cracker and the refinery and petrochemicals complex at Paradip. And overseas it is working with Calik Holdings and other partners on a 15m tonne/year refinery and petrochemicals project in Turkey.

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?

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?

There is one more paraxylene (PX) plant being planned in India and it is Indian Oil Corp (IOC) again.

IOC is said to be studying a plant next to its refinery in Vadodara, Gujarat and has received preliminary approval from its board. There are no details yet on capacity and timing of the project.

IOC operates one plant at Panipat and has planned a second one at Paradip (1.2m tonnes/year in 2011-12) and a third one at Haldia. Reliance Industries too has a mega project in the pipeline (2.6m tonnes/year in two phases) downstream of its second refinery at Jamnagar.

While the Reliance project will be integrated with a purified terephthalic acid (PTA) plant and IOC could supply PX from Haldia to Mitsubishi’s new PTA plant at the same location, the projects at Paradip and Vadodara appear to be geared for the export market.

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.

After cracking the world of oil, gas, refining and petrochemicals Reliance Industries is setting its sights on the engineering, procurement and services (EPC) sector says this report in today’s Economic Times.

A blueprint for a global EPC business is said to be ready and the plan with Reliance looking at a turnover of Rs50bn in the first year of operations. EPC services are expected to be offered for projects ranging from highways, airports, bridges and dams to refineries and chemical plants. The focus initially will be in India and later extend to the Middle East and the US.

If Reliance goes ahead with this strategy it would be following Chinese majors such as Sinopec and PetroChina which have large engineering arms that are now going global after achieving considerable success in the Chinese market.

Reliance has strong credentials to take the EPC venture forward. At a time when project delays are increasingly common, Reliance is on the verge of completing its mammoth refinery project at Jamnagar ahead of schedule.

And the EPC business could prove to be a good selling point in Reliance’s efforts to expand its refining and petrochemicals business globally and especially in the Middle East. A partner that can bring in engineering and project expertise will be extremely valuable in today’s tight construction market.

The report also highlights the considerable engineering talent that Reliance plans to build up over the next couple of years. The target is to recruit 4000-5000 engineers.

But Reliance’s biggest problem is likely to be recruiting and retaining good engineers, already a scarce resource in India and many other parts of the world.

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.

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

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.

It looks like the flamingos are winning.

Tata Chemicals is exploring alternative locations to its proposed soda ash project at Lake Natron in Tanzania as it has not yet received environmental clearance, a senior company executive said in an interview with ICIS news. The other option is to expand its Magadi plant in Kenya.

Conservationists are protesting against the planned 500,000 tonnes/year soda ash plant at Lake Natron as it would disturb the habitat of flamingos. The pinkish red lake is the only East African site where the lesser flamingo has bred in the past 45 years.

Lake Natron, in the Great Rift Valley is also known as a soda lake because of its high concentration of sodium bicarbonate.

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.

This is probably an indication of how difficult it is for Indian public sector companies to put together a petrochemical project. ONGC has announced yet another delay to its cracker complex at Dahej, Gujarat, from mid-2010 to February 2012.

The project, which has been in the pipeline for many years, appeared to have gathered speed in 2007 when ONGC set up a joint venture to carry it forward. ONGC had also announced plans to recruit a strategic partner.

And although there has reported been considerable interest from local (Gail, GNFC, Reliance) and international (Sabic, Qatar Petroleum, Basell) players, ONGC has still not been able to tie up a partner. This in turn has affected overall progress.

Also construction companies bidding for the project had asked for extra time. Bids are now expected to be submitted next month.

ONGC also announced yesterday that it would drop a dedicated hdPE unit and an SBR unit from the Dahej project. This would bring down the total project cost by 26% to Rs.124.4bn. The project would have an internal rate of return on 15.4%.

The decision to drop the hdPE and SBR units seems a sensible one given India’s emerging demand and supply balances.

Indian managers looking for job opportunities in the Middle East will find this report interesting.

A Middle East salary survey carried out by bayt.com (a Middle East-based jobs website) shows that while salaries rose by 12-17% last year, the cost of living climbed by 27-28%.

The rise in cost of living was the fastest in Qatar at 38%, followed by the UAE, Oman and then Saudi Arabia at 37%, 31% and 30% respectively.

Not surprisingly, a large number of people across the countries surveyed were unhappy with their pay hikes.

Inflation is a serious problem in the region and governments are struggling to bring it under control. So far they had little success. High oil prices and the resulting economic boom in the Gulf, the pegging of local currencies to the US dollar and the devaluation of the dollar are just a few of the factors responsible for double-digit inflation.

Given the level of refining and petrochemical activity in the region there are plenty of job opportunities, especially for engineers. And salaries are close to top of the scale as can be seen in the chart below.

But the savings potential is falling even as salaries are increasing. Don't hesitate to negotiate for more with prospective employers.

Coal has started attracting the attention of Indian majors.

Reliance Industries is said to be talking to Coal India for a joint venture 80,000 bbl/day coal-to-liquid project. The project would require an investment of $5bn

This report in the Times of India says that Reliance has already asked the government for mines that can supply of 30m tonnes of coal annually. It has reportedly sought mines with a total reserve of 1,500m tonnes under the operational area of Mahanadi Coalfields.

There was no official confirmation from both the companies.

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 demand for caustic soda has been steadily expanding thanks to the alumina sector but investments in new chlor-alkali facilities are being held back by limited demand growth for chlorine.

As is usually the case, India’s low per capita consumption suggests immense opportunity for growth. India’s per capita chlorine consumption is only around 1.85 kg as against China’s 13 kg. This figure can grow only if the industry invests heavily in vinyls – the key end use market for chlorine.

Globally, around 39% of chlorine finds it way to the vinyls chain. The other big end-uses are isocynates and propylene oxide.

India imports around 400,000 tonnes of PVC annually but except for Chemplast Sanmar’s new plant due this year, no new investments have been announced. A big headache for prospective investors is securing ethylene at the right price.

The local market for many of the other end-uses is still too small to support worldscale investments. And unfortunately India has not been able to build a chlor-alkali hub which would link all chlrine users along the lines of what has been developed in Geismar, US, or Botlek in the Netherlands.

I think one Indian site that has the potential to develop as a chlorine hub is Dahej where Gujarat Alkali and Chemicals Ltd (GACL) plans to link its chlor-alkali facility with an investment in chloromethane in joint venture with Dow Chemical. Reliance Industries already has a cracker at the site and ONGC is planning one which should have ethylene to spare for a vinyls unit. All that is needed is to bring in a few more investors to complete the chlorine chain. Other chlor-alkali facilities at the site include one operated by Reliance Industries and a second being built by Meghmani Organics.

At last week’s one-day seminar on chlorine derivatives organised by the Alkali Manufacturers’ Association of India (AMAI), there were plenty of fancy charts and optimistic growth projections. But it was hard to detect any serious commitment towards new investments.

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.

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.

A new titanium dioxide (TiO2) project appears to have taken off at Ganjam in Orrisa.

Titanium Products Pvt Ltd (TTPL), a joint venture between Saraf Agencies and a Russian company, plans to produce 40,000 tonnes/year of TiO2, 10,000 tonnes/year of titanium sponge and 108,000 tonnes/year of titanium slag. Completion of the first phase of the project is targeted for 2012-13 and the second phase would be five years thereafter.

TTPL has yet to complete land acquisition. About 250 acres is needed for the first phase and the company has yet to fully acquire this. And 300 acres would be needed second phase and work on acquiring this has started. The company says the project, which is still waiting for environmental clearance, has the support of the local people.

TTPL is lucky. Recently, the Tatas shelved plans for a TiO2 project in Tamil Nadu after public protests against land acquisition.

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.

Reliance Industries is reported be looking at sourcing technology from India's National Aersospace Laboratories (NAL) to build a 4000 tonnes/year carbon fibre plant at Vadodara.

NAL had set up a 20 tonnes/year plant in Bangalore in 2006 with the material used for light combat aircraft, missile and space programmes.

Carbon fibre is certainly a good business to be in. The product is said to be short globally on increased consumption by the passenger aircraft sector, especially by Boeing and Airbus. Frost and Sullivan expect demand for carbon fibre composites from the aerospace industry to hit 35,800 tonnes by 2010, up from 7,260 tonnes in 2007.

Most of the big manufacturers of carbon fibre have lined up expansion plans. Toho Tenax, a wholly-owned subsidiary Teijin, plans to raise capacity by 1,700 tonnes/year at an existing plant in Germany by 2009.

The company had started up a new 2,700 tonnes/year line in Japan earlier this year. This line raised the company's total capacity to 11,800 tonnes/year. Toho Tenax has projected a 15% global demand growth in the coming years with consumption expected to exceed 40,000 tonnes in 2010.

Japan's Toray plans to invest $149m in the business to meet rising demand from aviation and industrial application. A new calcination and precursor line producing 1,000 tonnes/year of polyacrylonitrile (PAN)-based carbon fibre are due to come onstream in July 2009. This would boost Toray's global capacity to 18,900 tonnes/year.

Toray is increasing its PAN-based carbon fibre capacity at its plants in Alabama, US, and Abidos, France, both of which are scheduled to come online in December 2008. And the company would like to take its total capacity to 25,000 tonnes/year by end-2010.

Toray has also projected a 15% annual increase in global demand but its figure for 2010 is higher at 53,000 tonnes.

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.

JK Synthetics is once again scouting for a buyer for its 18,000 tonnes/year acrylic fibre plant in Jhalawar, Rajasthan, according to this report in the Economic Times. I doubt if the company is going to be successful.

JK was declared "sick" in 1998 and efforts have been underway since then to sell its various plants. It had sold an acrylic fibre plant at Kota to Arfat Petrochem a few years back but I have heard that this unit has been shut down due to labour problems.

The Indian acrylic fibre business has rarely been a very profitable one. JK was forced to shut down its plant in the late 1990s due to a shortage of working capital, labour trouble and also stiff competition. Consolidated Fibres shut its unit in 2006 due to depressed market conditions.

And last year Reliance Industries shut two acrylic fibre plants in Vadodara that it inherited after the acquisition of Indian Petrochemicals Corp Ltd (IPCL).

Finding a buyer for the Jhalawar unit in the current market environment will be challenging especially with acrylonitrile prices at a record $2150/tonne cfr Asia.

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.

Indian Oil Corp (IOC) recent financial woes do not appear to have dampened its interest in petrochemicals. After pushing back plans for a paraxylene (PX), polypropylene (PP) and styrene plants downstream of a proposed refinery at Paradip, it is interesting to read that the company intends to soon start a detailed feasibility study on a 120,000 tonnes/year joint-venture styrene butadiene rubber (SBR) plant at Panipat.

IOC is considering two partners for the project - one to bring in technology and the second to offtake product for exports. As project cost will be shared by the three partners IOC's financial commitment is not likely to be big.

A final investment decision has yet to be taken but the company is optimistic of completing the plant by end-2011 or early 2012. Feedstock butadiene would come from a planned 138,000 tonnes/year butadiene plant downstream of the Panipat cracker that is due for commissioning at end-2009.

A SBR plant in India makes sense as the country imports its entire requirement and demand is growing on the back of a strong auto industry. Other companies such as Reliance Industries, Haldia Petrochemicals and ONGC had evaluated projects but abandoned the idea for reasons ranging from feedstock availability to availability of technology.

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.

Just as India's Olympic gold medal win yesterday poses no threat to China so does the news that India has become the second largest PTA importer in Asia.

Indian imports of this fibre intermediate have steadily grown to about 5,000 - 6,000 tonnes/month, up from the usual 2,000 tonnes/month, as a result of expansions in polyester capacities. New PTA capacity is being added with Mitsubishi Chemical's new 800,000 tonnes/year facility slated for start up next year. But demand growth is projected to be faster with PTA imports forecast to climb further.

However, India is nowhere close to displacing China as the largest PTA importer in the world. China imported about 6m tonnes last year and India is going to need many more years to catch up.

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?

Essar's petrochemical plans are slowly taking shape with the company having identified technologies for its cracker and polyolefin units at Jamnagar, Gujarat.

ICIS news reported last week that the cracker would be set up in technical collaboration with Lummus And earlier this month, the company was reported to have selected technology from Ineos for its 400,000 tonnes/year hdPE and 400,000 tonnes/year swing lldPE/hdPE plants.

The company would also be using Ineos technology for a 900,000 tonnes/year PP plant downstream of an FCC unit at its Jamnagar refinery.

While the company is looking at completing the cracker and derivative units by 2012, progress will to a large extent depend on how fast Essar can complete expansion of its refinery from 10.5m tonnes/year to 34m tonnes/year. Financial closure of the expansion project is pending but the company is still holding to a 2010 completion date.

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.

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.

There is no way that Indian chemical companies can escape from the global financial crisis. Tough times lie ahead as companies will be hit on all fronts - high cost of credit, falling demand as the global economy slows down and increased supply once new capacities in Asia and the Middle East get commissioned.

Product prices have fallen sharply in the last month. Ethylene is close to a 3-year low and benzene has fallen to $900/tonne fob Korea, a level last seen in January 2007. With buyers holding back purchases inventories are rising across the chain.

Companies are being hit in other ways too. One executive complains of expensive credit with international banks quoting Libor plus 900 basis points, up from Libor plus 100-200 basis points six months back. Indian banks are said to be quoting 18-20%, up from 9-11%.

International business is getting more difficult and riskier to transact as companies have to also deal with volatility in foreign exchange rates.

ICIS news reports that Indian base oils buyers and sellers of base oils are worried about the high level of credit scrutiny which is making an already difficult business environment even tougher.

"LC limits are frozen and there is no credit available for the love of money", said a baseoils buyer.

Saudi Aramco is now being talked about as a prospective investor in the Hindustan Petroleum Corp (HPCL) led refinery and petrochemical complex at Visakhapatnam in Andhra Pradesh.

Talks are on to bring in Aramco, says HPCL's chairman in this report in today's Financial Express. Aramco's presence would help as it would ensure crude oil supplies to the project.

It is also possible that one of the other partners in the project may exit because of the current economic crisis, the report adds. The project has been mooted as a joint venture between HPCL, Gail, Total and Mittal Investment.

It's a double whammy for Reliance Industries. Not only have petrochemical margins dwindled but gross refining margins (GRM) have also fallen sharply in the last two months.

One report suggests that the company recorded negative refining margins in October and November and that the GRM for the quarter ending December 2008 would be considerably lower than the $15.40/bbl margin in the same period last year.

Reliance, though, is in a better position than its peers as it operates a complex refinery which provides it the flexibility to adjust its product mix to maximise returns.

But Reliance must be praying for an early improvement in GRMs as its new refinery at Jamnagar is in the process of being commissioned. The 580,000 bbls/day export oriented refinery is expected to be fully operational by March 2009 while trial runs are likely to start in the next two weeks.

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.

December closed with ominous signs for the industry.

Dow Chemical's proposed commodity petrochemicals joint venture with Petrochemical Industries Co (PIC) was scrapped after strong protests from Kuwaiti opposition leaders who believed that the deal was overpriced at a time when oil prices were falling.

This is a major setback for Dow and raises questions about its planned $13bn acquisition of Rohm and Haas. This report summarises some of the difficult choices that Dow faces.

LyondellBasell with $26bn in debt is struggling to escape from bankruptcy. The company has held discussions about entering Chapter 11 bankruptcy protection internally and with banks.

One Wall Street analyst pointed out that LyondellBasell's situation was an example of the challenges faced by leveraged chemical companies as they encounter a tough combination of soft end markets, inventory destocking and sharply higher cost of capital.

There was also news that Qatar has put on hold a planned joint venture between Qatar Petroleum and Honam Petrochemical for a cracker and derivatives complex because of "international market turbulenece".

But this turbulence has not deterred ONGC from taking forward its cracker project at Dahej. Linde and Samsung Engineering have secured a contract to build the 1.1m tonne/year cracker and benzene and butadiene units. Bids for polyethylene (PE) and polypropylene (PP) plants downstream of the cracker are due to be submitted next month.

ONGC, Gail and other government companies are set to hold close to 50% stake in the project with the balance likely to be offered to a strategic investor or to the public through an IPO once financial market conditions improve. ONGC had offered a 9% stake to Gail but the latter is interested in raising its holding to 19%.

So it appears that ONGC has, for now, abandoned plans for a foreign investor. It is also probably safe to say that prospective foreign investors are no longer keen on this project as they have many more pressing issues to worry about.

Yet another sector is suffering from of the global economic turmoil. The export-dependent dyestuff industry is projecting nil growth this year, down from 20% in 2008, says this report.

Export orders have fallen by 50% in the last four months for this industry which ships about two-thirds of its output to the US, Europe, Northeast and Southeast Asia.

There is not much hope from the domestic market too. The $52bn Indian textile industry, one of the largest end-use sectors for dyes, has also seen orders fall especially from the US and Europe. The industry is expected to record a 5% decline in total exports this fiscal year.

A bigger worry is India losing its competitive edge to other Asian countries which offer more competitive wages.

India's apparel exports to the US dropped 11% in rupee terms during October to December last year. But apparel exports to the United States from Vietnam jumped 35% in dollar terms while those from Indonesia were up 8.44%. Even exports from Bangladesh were up 6.6%.

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.

This post is for all my Indian friends who still have their jobs. ECA International expects India to see an average salary increase of around 10.8% this year, down from the double-digit growth seen in the last few years but still the highest in Asia Pacific.

The average pay hike for the region is expected to be only 4.8%, down from 6.9% in 2008. Globally, average salaries should increase 4.7% this year, compared with 6.2% last year.

ECA also estimates that a quarter of the world's companies plan to freeze salaries this year.

The Hay Group expects a more moderate salary increase of 7.25% in India this year. And it says the biggest concern for Indian companies is still attraction and retention of talent.

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.

Trevira was Reliance's first global acquisition and was expected to be the start of a wider programme to extend Reliance's global reach through mergers and acquisitions.

But just five years later Trevira is once again on the block after filing for insolvency with a German court. Reliance has pumped in Euro55m to clear outstanding bank liabilities but it is clear that it will distance itself from Trevira.

Trevira has blamed the economic crisis for its problems. The textile and auto industries, two key end-use segments, have been hit hard by the crisis resulting in falling orders amid growing competition from Asia and Eastern Europe.

Trevira's new managing director, an insolvency expert, has said that Reliance does not plan to be "engaged with" Trevira any longer. It would eventually be sold to a suitable investor who could offer a long-term future.

She has also said that Trevira has good products and is 'basically competitive'.

But if that's the case why does Reliance, the largest integrated polyester producer in the world, want to exit from Trevira? Surely Reliance with its deep pockets can afford to ride through the crisis.

If Reliance with its strong management capabilities has failed to make Trevira work other companies are likely to struggle. I suspect it will be tough for Reliance to find a buyer willing to pay a high enough price for this business in the current economic climate.

Indian information technology (IT) companies may no longer be queuing up at campuses for fresh graduates but engineering students continue to rank this sector above all others, according to the latest Nielsen Campus Track T-Schools study.

Chemicals, not surprisingly, does not figure on the list although oil and gas was seen as the 'industry of the future'. Other promising sectors, as identified by students, were nanotechnology, power, telecom and IT services.

The survey also showed that half of the 2010 graduates planned to move out of their first job in three years or less, with 51% citing higher studies as a reason for leaving. Better career opportunities, better salary, better designation, and job satisfaction are some other reasons for moving out.

But students are willing to stay back if the employer pays them well (39%), if they are satisfied with their job (34%), if their job provides a good work environment (32%), and if the employer is willing to sponsor their higher education (31%).

And what do graduates want from their first job?

"The soon-to-be engineers want to work for a technically sound company when they pass out, ranking it the highest on the list of drivers that influence choice of an employer. They want to work on sophisticated and state of the art technology, where there is good learning on the job and want to work in a growing industry, where they get 'hands on' exposure to projects," says The Nielsen Company.

Indian chemical companies should be able to offer this but can they match salaries offered by IT companies?

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.

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.