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Year in review: Some hits, many misses
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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.
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- Ravi Raghavan
CHWKLY 02012018
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