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INDIAN PETROCHEMICAL INDUSTRY –CHALLENGES AND OPPORTUNITIES

9th International ConferenceIndian Petrochem - 2007

MumbaiNovember 19-20, 2007

Presented ByA K Purwaha, Director (Business Development)

GAIL (India) Limited

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PRESENTATION OUTLINE

• Petrochemical Scenario

• India Outlook

• Challenges

• Enablers

• Conclusion

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Petrochemical Scenario

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WORLD ETHYLENE CAPACITY

THE GLOBAL PETROCHEMICAL INDUSTRY IS SET TO UNDERGO A STRUCTURAL CHANGE –THE BALANCE OF POWER IS EXPECTED TO SHIFT FROM WEST (NORTH AMERICA & WESTERN EUROPE) TO EAST (ME & CHINA)

Source : Oil & Gas Journal July 2007 (as on Jan 1, 2007)

0.20Brazil

1.90Thailand

1.00Taiwan

0.80Singapore

0.57Trinidad & Tobago

1.05Venezuela

0.34Germany

0.850Oman

6.308Saudi Arabia

1.50UAE

3.80Qatar

36.236

0.85

8.438

2.12

6.23

0.56

Total

Kuwait

Iran

India

China

Belgium

Ethylene Expansions, 2007-11

31.6

8.524.4

12.4

5.0

35.7

India Current - 2.5 MMTPA (2%) Future - 4.62 MMTPA (3%)

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PETROCHEMICALS – GLOBAL SCENARIO

827722ETHYLENE OXIDE

26381929PARA XYLENE

17331330STYRENE

PROPYLENE

ETHYLENE

Product

82

127

Global

Capacity Projection

2007

4310134

5216339

AsiaGlobalAsia

Demand Projection

2015

(MMTPA)

Source: Nexant

WIDE APPLICATION WITH NEW USAGE HAS ACCELERATED DEMAND

2525SBR

1214DMT

1826720MEG

PSPPPVCHDPELDPELLDPE

Product

154940352121

Global

Capacity 2007

7158336921224621194711923614326

AsiaGlobalAsia

Demand Projection 2015

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EXISTING PLANTS AND FUTURE EXPANSION – PETROCHEMICAL COMPLEXES IN INDIA

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Haldia

NagothaneThane

Hazira

BarodaGandhar

Pata

PETROCHEMICAL CAPACITY - INDIA

1770

310550910

-

60

160

450

-

240

HDPE-LLDPE

205

--

205-

-

-

-

95

110

LDPE

750NaphthaRIL / Jamnagar / Gujarat

1400Sub Total RIL

Gas

Naphtha

Naphtha

Gas

Naphtha

Naphtha

Gas

Feed Stock

1700TOTAL

-GAIL / Pata / UP

300HPL / Haldia / WB

-

RIL (Nocil)/Thane/ Maharashtra

-RIL (IPCL)/ Gandhar/ Gujarat

400RIL / Hazira / Gujarat

150RIL (IPCL) / Baroda/Gujarat

100

RIL (IPCL) / Nagothane /Maharashtra

PPCompany/Location

(KT/YR)

Indian Petrochem Market is dominated by RIL. HPL and GAIL are the other major players

Petrochemical Complex

Jamnagar

Source: Industry Estimate

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Substantial Capacity Enhancement in India in next 5 – 8 years

PETROCHEMICAL CAPACITY ADDITION IN INDIA

-(Also SBR-140)

3401020ONGC, Dahej

2010-11-600RIL

2009-10600650IOCL, Panipat

2008-0915080HPL, Haldia

2011-12350-HPCL, Bhatinda

2011-12 (Also PX – 1067Styrene – 469)

650-IOCL, Paradeep

2011-12

2007-08

2010-11

Expected Timeline

60220GAIL, Assam

2670

100

-

PE

3050Total

-GAIL, Pata

900RIL, Jamnagar

PP

(KT/YR)

GAIL, Pata

HPL, Haldia

RIL, Jamnagar

ONGC, Dahej

HPCL, BhatindaGAIL, Assam

IOCL, Paradeep

Source: Industry Estimate

Proposed Capacity Augmentation / New complex

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INDIAN DEMAND PROJECTION & CAPACITY FOR PE AND PP

FUTURE CAPACITIES TO LOOK FOR EXPORT ALONG WITH DOMESTIC SALES – CHINA ALONE IS PROJECTED TO IMPORT ABOUT

7.7 MMT OF PE AND ABOUT 3.7 MMT OF PP IN 2012

Capacity Build-Up by 2012-13

(KT)#

Demand Projection by 2011-12* (KT)Projected* Demand in

2006-07(KT)

Product

LLD /HD

47503443462726341712DEMAND-15%22%9%-CAGR

PP44403379436725791755DEMAND

-14%20%8%-CAGR

205313344285234DEMAND

-6%8%4%-CAGR

AverageOption IIOption ILDPE

*Source : 11th Five Year Plan

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INDIAN DEMAND SCENARIO FOR OTHER PRODUCTS

ONGC’S DAHEJ COMPLEX WILL HAVE 140 KT SBR, IOC’S PANIPAT COMPLEX WILL HAVE 300 KTA MEG AND IOC’S PARADEEP COMPLEX

HAS PLAN TO HAVE 1067 KT PARAXYLENE AND 469 KT STYRENE

*Source : 11th Five Year Plan

-40182438Synthetic Fibres-38792661PTA / DMT-1499920MEG-25602180Para Xylene-14989PBR

-255121EVA-12980SBR

481351241Polystyrene 277220311320PVC

Option IIOption I

Demand Projection by 2011-12* (KT)Demand in 2006-07Product

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India Outlook

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Source: EIU Report, Oct 2007

239.36

41.49

5.9

7.2

4302

1110.48.0

2007 Est.

289.07136.03102.26International Reserves (US$ billion)

39.044.1046.58Exchange Rate Rs:US$ (Av)

5.04.23.8Consumer Price (end-period, %)

6.48.18.4Recorded unemployment (Av; %)

512835382936GDP per head (US$ at PPP)

1140.21080.31049.7Population (million)7.59.28.4Real GDP Growth Rate (%)

2009 Est.

2005 Actual

2003 Actual

Parameters

INDIAN ECONOMY – THE JOURNEY SO FARAND THE ROAD AHEAD

INDIAN ECONOMY IS UNDER FAST TRACK GROWTH WITH INCREASING HOUSEHOLD INCOME,

INCREASING EMPLOYMENT RATE, STEADY ECONOMY AND GROWING FOREX RESERVE

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Per capita polymer usage is growing across various regional markets, driven by following drivers :

– Growing active population – Young India: Assured workforce for next 50 years

– Strong emergence of middle class and increase in consumption expenditure

– Growing urbanisation

– Product introduction and substitution

– Investment in infrastructure

POLYMERS-GROWTH DRIVERS

0

5

10

15

20

India China World

Elastomers Surfactants Syn. Fibers Plastic

GROWTH RATE IN INDIA (12.7%) FOR POLYMER CONSUMPTION HIGHER THAN CHINA (11.7%)

Source: Dept of Chemicals & Petrochemicals, GOI

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62

452

20

25

14 128

156

31

56

4526

Power Road & Railways Ports & AirportsTelecom Irrigation Water supply

(in Billion US$)

GOVERNMENT’S EXPENDITURE IN 11TH PLAN TO GROW BY 163% -MAJOR INCREASE IN EXPENDITURE ACROSS ALL SECTORS

10th 5-year plan(US$ 168 Billion)

11th 5-year plan(US$ 442 Billion)

EXPENDITURE IN INFRASTRUCTURE BY GOVERNMENT

Source: Planning Commission, GoI

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Petrochemicals contribute over 20% of total chemical sector outputPetrochemicals annual consumption growth > 10%Polymer (63%) & synthetic fiber (29%) are major PetrochemicalsPolymer growth rate more than 2 times GDP growth rate in past five years

INDIAN PETROCHEMICAL INDUSTRYINDIAN PETROCHEMICAL INDUSTRY

Source: Department of Chemicals & Petrochemicals, GOI

High Growth observed in the Polymers end-use segments in past 5 years

Consumer ElectronicsConsumer DurablesAutomobilesConstructionInfrastructurePackaging

POLYMER USAGE IS INCREASINGLY FINDING NEW APPLICATIONS -GROWTH DRIVEN BY END USE SECTORS

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CHALLENGES

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CHALLENGES CHALLENGES –– INDIAN PETROCHEMICAL INDIAN PETROCHEMICAL INDUSTRYINDUSTRY

High market demand in domestic market with development of downstream processing industries for export to enable large scale investment, employment generation and margin on processing.

Infrastructure with close proximity to major port facility, Excellent logistics in transportation, tank terminal, container etc and support services like specialized utilities

Feed stock security to compete with low cost producers and maintain profitability during down cycle - Major differentiator as it accounts for 60-75% in Ethylene production cost depending on procurement source & price - Currently Advantaged In The Middle East

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FEEDSTOCKS:

Crude Oil Based Raw Materials (i.e. Naphtha) – available from refinery –India is net exporter of Naphtha – More naphtha expected from de-bottlenecking / upgradation of exiting refinery projects and new green field complexes - Possibility of setting up refinery linked complex for additional availability.

Large volume of gas reserve in country – Major Govt. initiatives in place through New Exploration Licensing Policy (NELP) for discovery and monetization; it could be a major feedstock booster for petrochemical industry

ENABLERS - INDIAN PETROCHEMICALINDUSTRY

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ENABLERS - INDIAN PETROCHEMICALINDUSTRY

INDUSTRY SPECIFIC:

Economies of Scale through creation of Mega Complexes -Integrated complex for refinery and petrochemicals

Low cost brown field expansion or de-bottling

Higher Plant Operating Rate – This reduces fixed cost per unit of production and compensate high interest and depreciation cost of such capital intensive projects

Participation of world majors in Indian petrochemical business – bring technology of new generation and marketing ease.

R&D set up for development, innovation and differentiation- testing and technology adoption of new products

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GOVERNMENT POLICY SUPPORT:

Creation of Mega Integrated Complexes – Petroleum, Chemical & Petrochemical Investment Regions (PCPIR)

Promotion of Dedicated Polyparks & Clusters for processing industries

Creation of SEZ for Exports promotion

ENABLERS - INDIAN PETROCHEMICALINDUSTRY

GOVERNMENT OF INDIA HAS RECENTLY LAUNCHED A NATIONAL PETROCHEMICAL POLICY TO BOOST INVESTMENT IN THE SECTOR, INCREASE USAGE OF PETROCHEMICALS IN THRUST AREAS, ADD VALUE IN DOWNSTREAM PROCESSING INDUSTRY AND PROMOTE R&D IN THE FIELD AND EMPHASISE HR DEVELOPMENT.

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PCPIR- POLICY FRAMEWORK

NEED FOR PCPIR

• Provide state of the art infrastructure in specific locations to boost manufacturing, augment exports and generate employment.

• Provide a sustained, transparent, consistent and investment friendly policy and facilitation regime that would encourage production for both domestic and world market.

• Memorandum of Agreement with State Govt. on respective commitments with timelines of both Centre & State

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LIKELY PCPIR LOCATIONS

• Dahej in Gujarat, Mangalore in Karnataka, Visakhapatnam in Andhra Pradesh and Haldia in West Bengal and Paradeep in Orissa have been identified.

• Each P.C.P.I.R.;– Specially delineated

investment region. – Investment of US$ 2.2 bln.– Spread over area of ~ 250

sq. km– Infrastructure through PPP

(Public-Private Partnership)

Dahej

MASSIVE OPPORTUNITIES FOR INVESTMENT

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SPECIAL ECONOMIC ZONE

A specifically delineated duty free enclave deemed to be a foreign territory for the purposes of trade operations, duties and tariffs and introduced for Promotion of export-led growth of the economy supported by integrated infrastructure and package of incentives to attract investment, bringing about increase in employment opportunities, technical knowledge and future tax revenues in return for significant tax concessions offered during start up.

Exemption from central and state Government duties & levies (customs, stamp duty, sales tax, capital gains tax etc) to SEZ developer and Units in SEZ.

Both foreign and domestic investment up to 100% permitted.

COMPREHENSIVE LEGISLATION ON SEZ INTRODUCED BY GOVERNMENT THROUGH SEZ ACT, 2005 AND SEZ RULES, 2006

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HIGH GROWTH END USE SECTORS –DOWNSTREAM MARKET

9.4985628Injection Molding10.0439273Blow Molding10.011069Roto Molding11.4277161Pipe12.81570860Woven Sacks13.123331269Film & Sheet14.711759Fibre & Filament

CAGR ( 2006-11)

(%)

Demand Projection 2011

(KTA)

Market Size 2006(KTA)

Sector

11 FIVE YEAR PLAN ESTIMATES AN ADDITIONAL INVESTMENT OF USD 6 BILLION IN PROCESSING SECTOR - INDIA CAN BE THE LARGEST POLYMER PROCESSING HUB & COMPETITIVE GLOBAL EXPORT BASE BY 2012

Source: Industry Estimate

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CONCLUSION

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Largest democracy – political stability

& consensus on reforms

Liberal & transparent investment

policies

High GDP growth & India is global 4th in PPP – Economy to

support consumption

Strong entrepreneurship,

technical/managerial skills / cost leadership

Retail boom – Changing lifestyle, Future auto hub,

Home appliances becoming necessity, growth in

infrastructure – strong market place

Logistic advantage to sell into Asia

pacific, European Union, Africa, US

east coast

SUMMING UP - ADVANTAGES INDIA

Central and state governments are

supportive to industry

POTENTIAL TO BECOME GLOBAL QUALITY LEADER AND LOW COST MANUFACTURING HUB

Well developed downstream industry with

opportunities for future investments

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THANK YOU