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Turning India into a Manufacturing Hub by Rising above Hurdles
A M Tiwari, Managing Director, Gujarat Alkalies and Chemicals Limited (GACL) India’s growth driver will be its population; states A M Tiwari, Managing Director, Gujarat Alkalies and Chemicals Limited (GACL) in conversation with Mittravinda Ranjan. He comments on the chloralkali market outlook in India as compared to the Chinese market which is slowing down or the Middle Eastern market which sees low energy costs. He also speaks about the competition in the market, anti-dumping duties, potential investments GACL may be making, etc. Here are the excerpts.

According to a recently released report, the Chlor-Alkali market is estimated to witness a CAGR of 6.0 per cent between 2014 and 2019 in terms of value and is anticipated to generate a global market value of USD 93936 million by 2019. How do you see the market dynamics play up in the years to come in India and globally?
The chlor-alkali industry is expected to remain at a range CAGR from 6-7 per cent. It may even improve as the GDP growth of India is expected to be more than 7 per cent in coming years as also growth in other user sectors like Alumina is estimated at more than 10 per cent and more than 8 per cent in the paper and pulp sector. The most robust growth driving factor for India would be its population which is growing at 1.5 percent.

Where does the Indian chlor-alkali industry stand globally in comparison with China, where the industry enjoys economies of scale and with the Middle East where the energy cost is very low?
Comparison with China

China is completely focused on design based processing which cannot be easily done in India due to a number of serious bureaucratic hurdles. One way of improving processes and technology is through research jointly done by the academic institutions and industry. Although India was a step ahead of China in setting up institutes of CSIR, but China did a better job when it set up these institutions. It ensured every institute partnered with some industry or the other and there was a lot of research jointly done by the institutes and the industry. Also, in China, the 1st stage of development was export oriented and they set up plants that were of global scale and had to be super-efficient. The whole taxation structure, financial institutions, logistics, et al was driven with exports in mind.

In India, the basic chemical industry was always focused on the domestic market and as a result our industrial units were smaller in size rather being able to serve the market on a global scale. Between 1970s and 1990s, the plants set up were small in size and now the country faces a problem where majority of our plants are not on par with the global standards. If we take the example of caustic soda, China buys salts from India but can still manage to be competitive. Although the raw material is available at an inexpensive price in India, it is a challenge when it comes to the actual production cost. India is bogged down by many ideological issues and pressure groups which is hurting our competitiveness. However, making world scale plants with captive downstream units to produce further value added chemicals shall be the key to success. Focus on various chlor-alkali products like caustic soda (lye, flakes & prills), chlorine, chloromethanes, hydrochloric acid to African and European countries shall help the Indian chlor-alkali industry to remain on the growth track through economies of scale.

What are your thoughts on Comparison with Middle East?
It is true that the cost of energy is very low in the Middle East but that is mainly due to the fact that Middle Eastern countries make use of low priced natural gas for power generation which is not the case in India. On the other hand, the cost of salt in the Middle East is ` 4000 per tonne or higher but the same will cost not more than ` 800- 900 in India. Similarly, raw water is very expensive there.

Middle East will have little chance of competing with us if gas based value addition is done there, the material is brought here, then converted with some value addition and exported to rest of the world. Dahej in Gujarat is ideally suited for value added export due to its proximity to the Middle East and easy availability of key domestic inputs. But India does not have the port infrastructure to support such a move. Also, the bureaucracy needs to be a little more proactive to such suggestions from the industry as various issues concerning Dahej are already known but no concrete move to address them is being taken up.

Please share your views on the impact of low growth posted by China on the overall market dynamics of chlor-alkali industry and the impact on Indian industry? In your view, how can our domestic industry leverage on the opportunity?
Historically, many of products have been dumped to India from China. High man power cost, internal government policy, low operation capacities are some of the challenges that India needs to work on. Even after the low growth posted by China in recent months it has not dumped caustic soda into India because of the Tianjin port closure due to NaCN blast. The electricity cost in China is greater or at par with India. Apart from this, India is geographically better placed than China to cater to the global market.

In another decade, the African market is going to grow significantly and as of today the country’s export to Africa is fairly good. But India would require major capacity expansions to meet the export requirements. This is possible if India can explore having tie-ups with companies like SABIC or Iranian petrochemical manufacturers from where we bring in investments and natural gas, carry out cracking and conversion into ethylene and propylene and sell it in market for further value addition. This way, the foreign companies will get access to the growing Indian market and still be able to earn a reasonable profit. There are two ways of doing this, either we go and set up plants in countries like Iran or convince them to jointly set up plants in India. Such an arrangement will ensure better realisation in export markets for Indian firms and assured availability of critical inputs. Such steps can work in favour of the country provided decisions are taken quickly.

PCPIRs have been under the planning stage for a very long time. How would these reverse SEZs you speak of work?
PCPIR concept is on the verge of failure due to the unreasonable attitude of so called Anchor Units that are not willing to share the basic building blocks with the downstream units and by doing this, they will single-handedly kill this good initiative. Lack of focus on infrastructure like good port, efficient rail connectivity, logistics handling agencies, reliable utility suppliers, etc. are adding up huge capital costs that are taking away the advantage of port based locations of the PCPIRs. Iran is the 2nd largest producer of natural gas and when it comes to connectivity, Dahej is only a day or two’s journey from Iran. Crackers can be set up in Dahej and ethane can be transported across the Arabian Sea via ships. If this is planned and executed well, it can be a viable solution for huge downstream value addition and export and the problem created by Anchor Units can also be resolved.

What kind of competition across Indian chlor-alkali manufacturing industry do you see? How does GACL maintain its competitive edge? What are the various steps a company has to take towards improving top and bottom line margins?
Chlor-alkali is nothing more than an ordinary commodity. This industry does not have any competitive technology on which it can can thrive. There is no differentiation factor for caustic soda as every competitor will sell the same product and it is an everyday struggle to market the product at a reasonable price.

In India, 200-300 tonne capacity caustic soda plants are set up every 200-300 kilometres; be it in Odisha, Bihar, Andhra Pradesh, Tamil Nadu, Gujarat, Punjab and Rajasthan. Gujarat has a higher concentration of the industry as it has raw material available in plenty. It is a wonder for us how in Europe or America a distance of 500-1000 kilometres is not much from the point of view of logistics. Abroad, a company could make a product in one place and sell it as far as 1400 kilometres with ease. In India, this does not turn out to be a viable solution as someone has set up a small plant closer to the customer and has the price advantage there. GACL has found a solution to this issue by setting up a pipeline to the Dahej railway station and leased rakes to transport the product from the West to Nalco, etc. Ship was one of the options GACL tried to explore, but there are complexities like the bunker fuel tax which make sending the product through ship freight within India an expensive affair. In comparison world over, ship transport is the cheapest option, followed by rail and road. The situation is reverse in India due to random policies. Road transport would mean sending 250 trucks whereas the same amount can be sent at once through rail which also saves on time.

Some of the measures GACL is considering to improve margins are outsourcing value added products, compatible expansion plans, improvement in the capacity of existing plants, broadening the base of products baskets, optimisation of energy and operating costs, focus on exports, penetrate eastern region market to balance over supply in the western region market.

Does the Indian market provide level playing field for competition between Indian and international players? What is the structure of anti-dumping duty for various chlor-alkali products to protect the domestic market?
Some products have the anti-dumping support. But it may be a temporary call till the Indian industry can achieve the level playing capabilities to compete with the global players, some of which are deliberately hitting at small Indian producers and the industry must be able to face the international imports/ dumping threats all the time. We have started working on how we can live without antidumping duty. Chemical sector cannot rely on anti-dumping duty beyond 5-6 years. But the important question that remains is ‘What after that?'

So far, major imports are from Iran wherein anti-dumping duty is negligible. After lifting of sanctions, Iran will channelize their products in nearby markets of European and Middle Eastern countries and thus caustic soda export to India will reduce.

GACL witnessed a jump in gross income during the period 2011- 12 from 2070 crores to 2432 crores and after which the growth has plateaued till 2014. Can you please share some insights into the company’s performance during this period?
2011-12 was a remarkable year for the chemical industry and most of the companies made a good profit. I was in GNFC in those days and it made the 2nd highest profits in that year. We wrongly believed that it was due to the efforts the team had put in but the year after we realised that the same success story could not be repeated. 2011-12 was an exceptional year for GACL as well and thereafter the prices kept on declining. Market realisations were not in proportion with the costs due to sluggish demand in the market for main products. But if you do a peer group analysis, GACL performed much better during this period than its peers. The vision at the time was to bring in internal efficiency rather than taking up new projects. Also, at the time, plants were not being run at full capacity because the natural gas and alternative energy costs had gone up. This situation was stabilised at our Dahej complex in next three years. GACL had to also tackle the problem of energy sourcing. The R-LNG and APM natural gas run power plant in Dahej had to be shut down due to a number of hurdles, such as increasing gas cost, policy changes, etc. A number of crucial projects are in the pipeline but would take some extensive planning and timely execution for them to be set in motion.

According to GACL’s annual report for the year 2013-14, high crude oil and natural gas prices impacted top and bottom line margins of the company. With the current fall in crude oil and natural gas prices, what kind of improvement is anticipated for the current financial year?
In 2013-14, GACL was adversely impacted by the depreciating rupee as this badly affected our gas based power plant in Dahej. The company retained its profitability with downstream products like hydrogen peroxide, phosphoric acid and the plants were running at full capacity. The idea was to bring down the energy cost and we expanded our wind power program. Today, we have 156 MW wind power turbines with plans of setting up more to ensure energy efficiency.

What are the future investment plans?
We have been working on debottlenecking of chloromethane which would see an investment of ` 120 crores. The plant’s capacity would be 170 tonnes per day (TPD) as compared to its previous capacity of 110 TPD. Basic engineering has been completed and civil work is to start soon. GACL would be making an investment of ` 40 crores in debottlenecking the caustic potash plant. Currently, the plant has a capacity of 80 TPD which would increase to 140 TPD. Also, we would be setting up a wind farm of 31 MW with an investment of about 190 crore. The total investment would be of about 350 crores.

In the next 2-3 years the company is planning numerous capacity additions to the downstream products viz. chloromethanes, phosphoric acid and hydrazine hydrate, etc. GACL would also be setting up a joint venture with NALCO for an 800 TPD CS plant and a 100MW imported coal based power plant for an estimated investment of about 1790 crores.