TASK FORCE ON PETROCHEMICALS SUBMIT REPORT TO GOVERNMENT

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Dr. G.V. Ramakrishna, Chairman, Task Force on Petrochemicals presented the Report of the Task Force to Shri S.S. Dhindsa, Minister for Chemicals and Fertilizers here today. The high powered "Petrochemical Vision 2010 - Advisory Group" was assigned the task to study various facets of the petrochemical industry, major policy issues and make recommendations for further strengthening the petrochemical industry, boost exports and facilitate enhanced foreign direct investments.

Recommendations of the Task Force

Keeping in view the potential of the domestic petrochemical industry and the need for development of high value added, quality petrochemical products at globally competitive price the Task Force has made following recommendations:

• The domestic synthetic fibre industry is fragmented and most of the plants are of sub-optimal size using outdated technology. Considering the necessity of modernisation and upgradation of technology in synthetic fibre sector, inclusion of synthetic fibre under Technology Upgradation Fund Scheme (TUFs) is essential.
• Rationalisation of Excise Duty on Synthetic Fibre/Yarns: In order to make the synthetic fibre industry competitive and to facilitate investment, rationalisation of excise duty on all types of yarn/fibre is required.
• SSI Modernisation : Continuation of SSI reservation after removal of Quantitative Restrictions is discriminatory. Therefore, it should be gradually phased out.
• Disposal of Plastic Waste : Plastics are recyclable. It is the indiscriminate littering habits, which create problems like clogging of sewage drains etc. To avoid such environmental problems, concerted efforts are required to find suitable methods for disposal of plastic waste and educating the people about its disposal. In addition for safe disposal of plastic waste, suitable mechanism should be developed for segregation at source, systematic waste collection and high quality recycling technology, promoting organised recycling industry support for development of degradable/biodegradable polymers.
• Phasing out of JPMA: The Jute packaging Materials Act (JPMA) was enacted in 1987 and since then it is continuing. Under the current provisions of the JPMA, entire quantities of food grains and sugar have to be compulsorily packed in jute sacks. The Act denies consumers the choice of packing material. An early phase out of the JPMA would be in consonance with the current economic policies.
• Feedstock : India does not have feedstock advantage. Therefore, the import duty on naphtha should be brought down to the level of import duty prevailing in other countries in the Asian Region (about 5%). In case of C2/C3 fraction used for production of olefins, an appropriate pricing mechanism should be devised keeping in view the low gas prices prevailing in the Middle East and the fact that C2 fraction is not tradable. Globally competitive size plants should be set up with a judicious mix of feedstock, namely, naphtha and C2/C3. Due weightage also needs to be given to propylene derived from refineries.
• Tariff : For maximizing value addition, a clear distinction needs to be drawn between raw materials/intermediates/components and final products. Manufacture of petrochemicals involves multi stage operations. Hence, more than two slabs of customs duty would be desirable. In addition, customs duty on capital goods for petrochemicals should be reduced to a level prevailing in other Asian Countries (0-5%). State sales tax across the country on plastic goods vis-à-vis competing materials should be rationalised and made uniform.
• Infrastructure: For the petrochemical industry, clean and continuous power should be made available at affordable tariff. Captive power generation capacity should be encouraged.
• The Plastic processing industry is fragmented, small in size and uses outdated technology. The crying need of the hour is its modernization and upgradation. In the wake of removal of Quantitative Restrictions (QRs) and with a view to harnessing advantage of economies of scale, the compulsory reservation for manufacture by the SSI sector should be removed in a phased manner over the next 3 to 4 years.

• Government recently initiated labour sector reforms. It is desirable that the Labour Laws have a flexible provision of retrenchment/exit with adequate compensation for the affected people.

Competitiveness of Petrochemical Industry

The Report states that the Indian petrochemical industry has a large and growing domestic market, expertise in niche markets, large availability of trained man-power at low wage rates, ability to adapt & assimilate new technology and competent managerial & technical man-power. However, its competitiveness is affected mainly due to the following factors:-

• Inadequate infrastructure facilities and high power cost.
• Availability of Feedstock and its pricing
• Higher cost of capital, as compared to other Asian countries.

Global Scenario of Petrochemicals

The global polymer industry is six decade old and witnessed a steady growth in demand. Global polymer demand increased from 74 million tonnes in 1990 to 136 million tonnes in 2002 registering a CARG of 5.3%. Among synthetic fibres, polyester was the dominant fibre/yarn, which recorded the highest CARG of 10.2%. Asian region was the fastest growing region and the prospects for growth in demand of petrochemicals are bright. Major capacity additions have also been planned in China. Due to the abundant availability of feedstock, Middle East emerged as the leading region for production of petrochemicals. In the last decade, the Middle-East had added large capacities in building block _ ethylene and polymers. The total ethylene capacity in the region reached to over 6 million tonnes per annum in 1999. An additional 4 million tonnes of ethylene capacity is expected to come up by the year 2005. Backed by significant cracker capacity addition, polyolefin capacity in the Middle-East is also expanding.

Demand Projections for X and XI Five Year Plans

According to the report the Indian economy has potential for rapid growth and it is envisaged that with proper policy initiatives, the economy can grow at 8% in the foreseeable future. Accelerated growth in our economy will help increase in purchasing power of the people, which will translate into higher growth in demand of various products including petrochemicals. The demand forecast for various segments of petrochemical industry is given in following Table:

Table – Demand Projections of Petrochemicals

In Kilo Tonnes

Polymers		2000-01	2006-07	2011-12	CARG%
06-07/00-01	11-12/06-07
Polymer (Upper case)		3293	7281	14052	13	12
Polymer (Lower Case)		3293	6465	10844	12	11
Synthetic Fibres (excluding NIY/TCY)		1587	2304	3026	6.4	5.6
NIY/TCY		53	67	82	4	4
Elastomers		153	241	652	18.3	13.5
Surfactants		384	615	838	8.2	6.2

Economic Reforms and Petrochemical Industry

The Report states that the economic reforms initiated in 1991 brought significant changes in the structure of the domestic petrochemical industry. Delicensing and deregulation allowed the market forces to determine growth and investment. Mega sized cracker complexes using the state-of-the-art technologies were set up and the ethylene capacity increased from 0.22 million tonnes in 1990 to 2.4 million tonnes in 2002. The India petrochemical industry invested approximately Rs.35,000 crores in the 1990s. The Petrochemical sector is among the fastest growing sector of Indian economy and has been growing at the rate of over 13%, which is more than the double the growth of GDP.

There has been a steady increase in production of major petrochemicals and as a consequence, a fair degree of self-sufficiency has been attained. The consumption of polymers increased from 1.8 million tonnes in 95-96 to 4.1 million tonnes in 2001-02. During the same period production of major synthetic fibres increased from 0.8 million tonnes to 1.67 million tonnes. India has become a net exporter of LLDPE/HDPE, PP and polyester fibre/yarn.

The growth of the polymer industry, which is the dominant part of the petrochemical industry, is linked with the competitiveness of the downstream plastic processing industry. There are about 15,000 plastic processing units, of which more than 75% are in the Small Scale Sector. The Small Scale Sector accounts for about 25% of polymer consumption. The plastic processing industry consume both virgin and recycled plastics. The consumption of recycled plastic constitutes about 30% of total consumption.

Speaking on the occasion Dr. G.V. Ramakrishna said that with the growing domestic demand and the policy reforms initiated in 1991, the petrochemical sector witnessed a steady growth during the last decade. However, at the beginning of this century the industry witnessed a surplus situation due to the bunching of capacities during the 1990’s. Besides, India had certain commitments on the lowering of tariffs. There is a perception that this decline in custom duty has affected the competitiveness of the domestic petrochemical industry. It is in this context that the Department of Chemicals & Petrochemicals constituted a high power "Petrochemical Vision 2010 – Advisory Group" called the Task Force on Petrochemicals. The broad objective of the Task force was the emerging opportunities and challenges faced by the domestic Petrochemical Industry, he said.