Saturday, January 6, 2018

INDIA SPECIAL.... Year in review: Some hits, many misses

Year in review: Some hits, many misses

2017 has been a significant year for industry, in general, and for the chemical industry, in particular. As the economy recovered from the punch of demonetisation in November of 2016, that disrupted businesses, especially consumer facing ones, it had to grapple with the complexities of the Goods and Services Tax (GST) – multiple levies, strained IT infrastructure and lack of training both amongst industry and advisers in concerned government departments. Exporters, in particular, have been concerned about the refund of taxes paid for manufacture of goods and services sent overseas, which they claim has eroded their competitiveness and this is a matter that the government is now engaged in addressing.
Grappling with GST
But not withstanding the teething troubles GST still poses, it is a welcome rationalisation of the indirect tax system. The chemical industry, with several steps of value addition for most products, should particularly benefit from it for several reasons. For one, the cascading effect of taxes will be minimised only to the level of value addition, and this should make raw materials available at more competitive prices. For another, it will permit rationalisation of logistics and distribution practices, enabling greater efficiencies and so minimise the costs associated with taking products to the marketplace – something that is much higher in India than in most other countries. In the long-term, GST could also drive a consolidation in the chemical industry, and eliminate two-bit players who have managed to stay out of the tax regime through unsavoury practices. This should lead to a healthier environment for companies in the organised sector.
New petrochemical projects
In the petrochemicals industry a notable milestone in the year was the commissioning in March of the world-scale multi-feed cracker by ONGC PetroAdditives Ltd. (OPaL). With a capacity of 1.1-mtpa of ethylene and 0.34-mtpa of propylene, with matching units for the respective polymers, this is the biggest project to have been commissioned in the year. The company is also the anchor investor in the Petroleum, Chemicals and Petrochemicals Investment Region (PCPIR) that has been cobbled together at Dahej, and will in the years to come form the nucleus around which a multitude of downstream units will crop up.
In June this year, India’s leading petrochemicals company, Reliance Industries Ltd., also announced the commissioning of the final phases of its world-scale p-xylene (PX) complex in Jamnagar. This elevated the company to second place in global rankings for PX, with a 11% share of global capacity. The project highlights the critical benefits of integration in the cutthroat polyester value chain, and indeed for all petrochemicals.
Refinery-petrochemical integration in focus
2017 also saw a welcome shift in emphasis amongst all of India’s oil refiners in the public sector – from being just producers of fuels to that of value-added petrochemicals as well. Several initiatives were launched in 2017, in particular to add value to propylene produced at refineries, and some of these projects will see completion in 2018 or the following year. Investments in a couple of naphtha crackers – a far more capital-intensive exercise – were also in the drawing boards in the year, and these should make progress in 2018, with commissioning possibly by the turn of the decade.
Plans to build a massive 60-mtpa oil refinery in the West Coast of India by a consortium of all three oil refiners, and possibly a foreign partner – the name of Saudi Aramco has been bandied about, though no firm announcement has yet been made – moved a little forward in 2017. This project is to be implemented in two phases, with a refinery with 40-mtpa of crude oil processing capacity, an aromatic complex, naphtha cracker and polymer complex, to be set up in Phase 1 at a cost of a whopping Rs. 120,000-crore to Rs. 150,000-crore. This phase alone will take 5-6 years from the ‘zero date’, and faces several hurdles and challenges. The location is a particularly sensitive area from an environmental standpoint, and a few other large-scale projects have been scuttled in the past due resistance from locals. Land acquisition will also be challenging, considering the vast expanse that will be needed. But the most important aspect that needs close scrutiny is the relevance of the refinery for a future in which traditional fuels will have a smaller role due the government’s own plans for electrification of cars and for use of renewable fuels to meet domestic electricity needs. 2018 should hopefully see some energetic debate on all of these aspects, prior to a ‘go no-go’ decision on this mega-project.
New plans for PCPIRs
The commissioning of the PCPIR at Dahej also starkly highlighted the lack of progress in the several others mooted for the coastal States of India. The good news is that there is now a realisation amongst planners that the PCPIR Policy as it now stands clearly needs to be tailored to better suit the ground realities. 2018 should see a modified policy put in place for accelerating the pace of investments, and will not be a day sooner.
The chemical industry in India is very much in need of dedicated zones in which the projects that will serve the needs of the country for decades to come will be located and the PCPIRs are the logical place to house them. Several countries have clearly-demarcated areas for such activities. Even China, which has a haphazard spread of chemical units like India, at times close to residential centres, is now pursuing an aggressive relocation of manufacturing plants to special zones to mitigate the impact of any accident. India’s planners must therefore create these zones on an urgent basis. If they are well planned and marketed – as Dahej has been – they will be a magnet for investors who will need little coercion to relocate existing operations or greenfield projects.
Dedicated steering teams need to be set up for each of the PCPIRs proposed to be created, comprising officials from the Central and State governments, the relevant ministries (Petroleum, Chemicals, Environment, Transport) and industry representatives. There is no time to be lost!
National policies – little progress
The National Petrochemical Policy and the National Chemical Policy continued to remain in the works for all of 2017, and hopefully, the New Year will see their release. Their priority should be the exploitation of conventional and unconventional feedstock to build a broad-based chemical industry in the country based on state-of-the-art technologies, and in compliance with the environmental laws of the land. It should delineate the demand-supply scenarios for high volume chemicals and outline strategies for meeting the needs, wherever possible through domestic investments. Importantly, it should address the constraints faced by promoters in modernisation and upgradation of manufacturing facilities, in the form of direct or indirect fiscal support, and promote innovation in an industry that has little to show for till now.
The policies should also address the methodology for creation of a national inventory of chemicals in commerce. India is probably the only country in the world with a sizeable chemical industry that still does not have one. A registration and authorisation system, akin to that existing in other parts of the world, but keeping in mind the ground realities here, should ensure that the industry in India is in sync with that in much of the world in so far as safety of chemical use and manufacture is concerned. It could also spur innovation in the development and shift to safer alternatives for some of the chemicals known to be hazardous to human health or the environment. There are international commitments that India has made that calls for such a system to be put in place by the end of the decade and it is a pity that there has been little progress in 2017 on this front.
Plastics waste management
2017 also brought the matter of waste plastics to the fore in several states, including Maharashtra. There have been shrill calls for a ban on all plastics, not recognising the important role these versatile materials play in aiding modern living. Hopefully, wiser counsel will prevail and there will be pragmatic solutions that will be launched in the New Year.
Short-lived plastic packaging – such as thin-walled carry-bags and sachets that are now used to pack myriad products from vegetable oils, to shampoos & detergents – are a problem that urgently needs solutions. While there are bans almost nationwide on the manufacture and use of carry-bags thinner than 50 microns, these remain poorly implemented (except in a handful of states) and it is a common sight to see roadsides and water bodies littered with the stuff in rural and urban India. Stricter enforcement of the law is clearly needed, but industry too must own up to irresponsible behaviour and change its habits. It is obviously far easier to throttle supply than to thwart consumption of these plastic goods that have little economic life beyond their brief period of usage.
The issue with other forms of plastic packaging will need to be tackled through recycling systems – be it for lower grade applications or for energy generation. In 2017 some steps were taken in this direction, but the way to go is to impose some kind of ‘mass balance’ in the quantum of plastics packagers recycle. The government, industry and civil society will need to work together to enable this to happen on a scale at which it will make a difference. Hopefully, the next year should some progress in this direction.
- Ravi Raghavan

CHWKLY 02012018

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