India Chemicals Blog

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.

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 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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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?

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

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

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

Pic by sir_watkyn

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

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

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

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

A reader of this blog has alerted me about serious problems at Mangalore Refinery & Petrochemicals Ltd (MRPL). An electrical short circuit has forced the company to stop operations at one crude distillation unit, two hydrocracker units, two visbreaker units, two sulphur recovery units and two reformers. The refinery is said to be operating at only 30%.

MRPL's deputy general manager of corporate communications attributed the accident to a rat that snipped the power cables.

However, another report places the blame on two ghosts who have taken shelter in a banyan tree near the entrance to the plant. But it does not explain why the ghosts decided to trip the plant.

And the Deccan Chronicle writes that a special 'pooja' has been performed to seek divine protection and also appease Mother Earth as a number of trees were cut when land was acquired for expansion of the refinery.

Is God listening?