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PCPIRs: A Distant Dream for India?
To ensure PCPIRs achieve their objectives, we need to clearly identify the critical success factors from global best practices and apply them to India, write Vijay Sarathy and Pratik Kadakia. In this article, they further elucidate how India should move forward keeping the challenges at bay.

India currently accounts for about 2-3 per cent of the global chemical industry. In light of the country’s booming population (one in seven global citizens is an Indian); this sector clearly needs to play a larger role. To encourage investment in India’s chemical industry, PCPIRs (Petroleum, Chemicals and Petrochemicals Investment Regions) were conceived a few years ago. Although some progress has been made and the concept has evolved since then, it remains to be seen whether PCPIRs will achieve their objectives. To make sure they do so, we need to clearly identify the critical success factors from global best practices and apply them to India.

One of the objectives of PCPIRs in their original design was to establish chemical industry parks. In Western Europe, these parks were formed as a response to increasing urbanisation, industrialisation and shortage of resources. They served many purposes:
  • Economic steering: attracting new businesses, providing integrated infrastructure in one location, creating new job opportunities for qualified employees and providing eligibility for government benefits
  • Clustering: concentrating dedicated infrastructure in a specific area (and thereby reducing the cost of that infrastructure for each business), focusing the businesses on a dedicated value chain and strengthening business initiatives through improved cooperation between companies
  • Environmental protection: moving industry away from urban areas, thus reducing the environmental and social impact
  • Resource management: providing localised environmental controls that are specific to the needs of an industrial area and saving resources through efficient use of by-products and residuals

Participating in such industrial parks offers many advantages for a chemical company. The necessary infrastructure is readily available (utilities, regulatory clearances and permits, etc.), the company is integrated along the value chain and can leverage synergies with other companies and businesses can share facilities and access to well-trained people. All of these benefits allow companies to focus on their core business and therefore operate successfully.

Yet the road to reaping these benefits is not without stumbling blocks. The National Chemical Policy, initiated by the Planning Commission in 2010 and driven by the Ministry of Chemicals with active industry participation, identified the challenges facing PCPIRs today. These need to be addressed if PCPIRs are to achieve their intended objectives:
  • Feedstock access: Industry expected the lead/anchor tenants of PCPIRs to make feedstock available, and infrastructure and ancillary industries would then develop around them. However, the way it has evolved, the lead/anchor tenants achieve economic viability with investment plans that include downstream products such as polymers, elastomers, derivative products, etc. Therefore, with feedstock ethylene, propylene, etc. not being made available, other downstream investment in PCPIRs was not forthcoming
  • Infrastructure: Dedicated pipelines, rail and port access, roads, power and utilities along with clear land are essential. Some of the proposed PCPIRs have not taken off as envisaged since these elements have not been adequately provided
  • Regulatory clearance: Delays and procedural issues for environment clearances plus pollution-related clearance even for compliant companies have affected the plans and operations of many businesses, thus affecting investment and expansion

The devaluation of the rupee may make a case for local manufacturing, as it further escalates the cost of import-intensive components and technology for the project. Sustained high interest rates, long project ramp-up periods and Free Trade Agreements (FTAs) with Association of South East Asian Nations (ASEAN) and other countries are making it more difficult to argue in favor of investing in India. All in all, given the time it takes to execute a project of the size of a world-scale cracker plus the downstream/ ancillary units in specialty chemicals, achieving the desired investment in the coming decade is unrealistic.

So, Where do We Stand Today and What are the Options for Moving Forward?
Of the five PCPIRs initially announced, the one at Dahej has become operational largely due to state-owned OPal going ahead with their investment. Dahej is located in the state of Gujarat, which already hosts more than half the Indian chemical industry. Three of the other PCPIRs are located on India’s eastern coast: Haldia, Paradip and Vishakhapatnam. Of these, Haldia was scrapped, and Paradip has not yet announced a naphtha-based cracker, given the shale gas cracker investment being made elsewhere in the world and the lack of available gas in India. Vishakhapatnam is still investigating the feasibility of setting up a world-scale cracker.

As for the refinery and chemicals complex at Jamnagar, the expansion plans announced by Reliance Industries are already in an advanced stage of implementation. These plans include an off-gas cracker that will benefit from the company’s record refining capacity. Besides this and the cracker at Dahej, no other cracker or downstream investments are likely to be realised over the next decade. By that time, the market for petrochemicals and specialty chemicals is likely to more than double, mostly met through foreign investment in manufacturing abroad.

Reliance Industries is rapidly becoming a success story for the development of the Indian chemical industry. Their announced investment will most likely go ahead, at the moment it would simply be a question of when. The company has unparalleled refining capacity on a global scale and the resulting access to feedstock. It has been operating successfully at this location for over two decades, gaining much experience and generating goodwill in the process. Reliance also boasts competitive access to the undersupplied markets in west and north India, technological expertise in running and optimising its existing cracker, plus a pool of talented people who can execute the project in record time and on budget. We need more such business cases for the Indian chemical industry to truly flourish.

Are PCPIRs a distant dream for India, given the potential and strong intent of the chemical industry to grow profitably? I suggest we rephrase the question: how can PCPIRs continue to remain relevant in the current context? There are a couple of lessons to be learned from global best practices, which can be adopted to boost India’s competitiveness in the chemical industry.

Lesson one is shale gas. Shale gas has revolutionised the chemical industry in the US and made it competitive once again, offering cheap feedstock and energy, supported by developed infrastructure. India would do well to explore and exploit its own shale gas reserves, which are estimated to be quite significant.

While shale gas can serve as much needed feedstock and source of cheap energy for the chemical industry, certain critical factors are needed to successfully exploit its potential. These include availability of land and water to extract the gas from the shale deposits, pipelines to transport it safely and effectively to the most competitive sites for processing, as well as the power and infrastructure to manufacture and transport this even farther. India is still a long way from this point, and needs to develop a plan that reflects the experience of challenges faced in executing the PCPIR policy.

Besides extending to shale gas, the PCPIR programmes should also look at existing chemical investment/clusters. It can shape them into eco-industrial parks by providing incentives for developing the relevant ecosystem around these plants. Many such opportunities exist in India. A single site can expand to become a multi-company complex through joint ventures and alliances if the businesses are offered the right incentives to invest and promote investment.

We can learn from BASF’s example at their Tarragona site in Spain, which started out as a single site in 1969. Today, the 112-hectare site has 8 companies employing 1,000 people, and generating an annual output of 750,000 metric tonnes today.

Shale gas and existing clusters would serve as a two-pronged approach to push investment. The approach would also establish a chemical ecosystem with the goal of moving toward an eco-industrial park that is sensitive to the environment and promotes additional investment. This goal is consistent with that of PCPIRs.

PCPIRs will remain relevant in India’s quest to boost the competitiveness of its chemical industry. However, the scope of the programmes may need to be redefined in response to the trends that have impacted the industry globally.