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In a strange and surprising move, Bharat Petroleum Corporation Ltd (BPCL) has scrapped a ₹11,130 crore project to build a specialty petrochemicals plant for producing polyols at its Kochi refinery stating that the project economics was hit by higher revised cost estimates.
“The Board at its meeting held on January 31 has approved a proposal for evaluating the option of putting up a polypropylene unit at Kochi Refinery and to discontinue the polyols project,” the company said.
Oil industry officials are foxed by the move as it comes at a time when refiners are pumping thousands of crores to produce petrochemicals to hedge against a drop in price/demand of fuels. Besides, integration of refining and petrochemicals can lead to better profit margins.
The polyols project was approved by the firm’s board in September 2018 and the foundation stone for the project was laid by prime minister Narendra Modi in January 2019. The project had all approvals including key environment clearance.
BPCL carried out project activities such as the award for licensing of technology and related activities and picked US-based engineering and consultancy firm Fluor Corporation as a project management consultant.
“During the development of the project, cost estimates with an accuracy level of +/- 10 per cent were prepared based on the front end engineering design of the facilities. However, the revised cost estimates are much higher than the original estimate mainly on account of an increase in equipment and material cost. As this has adversely affected the project economics, the board has approved the proposal to discontinue the polyols project,” BPCL said.
Privatisation uncertainties
Sources briefed on the project, however, said that the project was scrapped due to uncertainties surrounding the privatisation of the company.
The polyols plant at Kochi refinery was planned to produce niche petrochemicals that are extensively imported into India to manufacture polyurethanes used in footwear, foam and other items. Six new process units were to be built for propylene oxide, propylene glycol, polyols, ethylene oxide/mono ethylene glycol, ethylene recovery unit and a cumene unit.
When commissioned this year, the Kochi complex was expected to produce propylene glycol, ethylene glycol and various grades of polyols based on 250 kilotonnes per annum of polymer grade propylene sourced from the refinery.
BPCL commenced production at the Propylene Derivatives Petrochemical Project (PDPP) at Kochi last year with another 250 kilotonnes per annum of propylene supplied by the refinery.
“With the scrapping of the polyols plant, BPCL has to utilise the 250 kilotonnes of propylene made by the refinery meant for the polyols plant. For that purpose, the board has cleared a proposal to weigh the option of putting up a polypropylene unit,” a source said.
A major setback
The scrapping of the polyols plant is a setback to India’s bid to cut polyol imports. India’s polyols demand last year was estimated at 4 lakh tonnes of which only 15,000 tons are produced locally.
Polyols are used for a variety of applications in the automobile, textile and furniture industries. They are also widely used in construction as insulation and sealants.
The polyols plant was also designed to shore up the profitability of Kochi refinery whose margins have been declining due to depreciation from recently opened projects built with huge capex, the source said.
The discontinuation of the polyols plant will also hurt the petrochemical park planned by the Kerala government in Kochi where small industries would manufacture products utilising niche/speciality petrochemicals sourced from the polyol plant and PDPP.
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