The Hindu Business Line : Petrochem sector may face slowdown in investment

Brakes on
Globally, major expansion projects in the segment are facing one- to three-year delays.
The 5% duty on import of naphtha may further slowdown investments in this sector.

Amit Mitra

Mumbai, March 6

The Rs 65,000 crore Indian petrochemicals sector, which has announced a capacity expansion programme of three million tonnes in the next three to four years, may face a slowdown in investments due to rising capital costs and global shortage of project equipment and manpower, besides the 5 per cent duty on naphtha imports proposed by the Union Budget.

While Reliance Industries is setting up a 9,00,000-tonne polypropylene plant and a 2-million tonnes cracker facility in Jamnagar, Haldia Petrochemicals Ltd (HPC) is expanding its capacity from 1 mt to 1.4 mt. The other major players that are mulling expansion include GAIL, Indian Oil Corporation, Supreme and Chemplast.

As a matter of fact, major expansion projects in the petrochemical segment globally are facing one- to three-year delays. “There is acute shortage in hardware such as fabrication materials and software like basic engineering and manpower,” Mr S.K. Bhowmik, Chairman of CII National Committee on Petrochemicals and Managing Director of HPL, said.

Delays

HPL’s own Rs 800-crore expansion programme is facing delay. The expansion was to be completed before April-May this year, but now it has been rescheduled to 2008-end. “We will shut down our plant for two months from October for the revamp. After the revamp, our capacity will reach 6,75,000 tonnes of ethylene, about 3,00,000 of propylene and the rest chemicals,” Mr Bhowmik told Business Line, on the sidelines of the just concluded two-day International Petrochem Conference here.

In the late 1980s, the petrochemicals epicentre shifted from the west of Suez to the east of Suez, largely due to the availability of crude oil and natural gas in West Asia and the developing markets in Asia. In fact, West Asia is fast emerging as the global petrochemical production hub.

India has not seen a greenfield petrochemical complex since 2001 and there has been no grass root investment, except for incremental increase in capacity by way of de-bottlenecking.

Duty on naphtha

The 5 per cent duty proposed in the Union Budget on import of naphtha, a key feedstock for the petrochemical sector, is likely to further slowdown investments in this sector.

“We are in such a stage that we are wondering whether further investment in this business is worthwhile. Naphtha prices have risen about 37 per cent in the last seven to eight months,” Mr Bhowmik said.

While some producers like HPL totally depends on naphtha as feedstock, GAIL’s production is based totally on gas and RIL uses both naphtha and gas as feedstock.

Additional burden

“The industry imports about 4 to 5 mt of naphtha. The 5 per cent duty will thus impose an additional burden of about $150 million, which will certainly tell upon the bottomlines of petrochemical companies,” Mr K.G. Ramanathan, Advisor to Reliance Group of Companies said.

Availability of gas for use as petrochemical feedstock is also limited, as demand from the fertiliser and power sectors is given priority. “Gas supply to petrochemical sector needs to be given a higher priority. Currently, 1.2 million standard cubic metres per day (MMSCMD) natural gas component is used in petrochemicals, as against the domestic production of 72 MMSCMD,” a CII official pointed out.

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