Development of Petrochemical Clusters in India Success Factors & Agenda

Transcription

1 6 th Petrochemical Conclave Development of Petrochemical Clusters in India Success Factors & Agenda July, 2017 Anshuman Maheshwary Partner & Lead, Chemicals and Oil & Gas India

2 Petrochemical industry in India provides significant opportunities though challenges persist Growing deficit provides tremendous opportunity for domestic petrochemical sector Petrochemicals 1 supply demand in India (in MM MT) However, several challenges are impeding rapid growth High feedstock prices compared to global peers Logistics and infrastructure challenges Under developed downstream sector (intermediates, specialties) E Demand Capacity Deficit 4 Regulatory and policy issues (e.g. inverted duty structures) Indian petrochemical industry has seen asymmetric growth of industry in regions with feedstock and/or infrastructure capabilities 1. Includes major derivatives of Ethylene, Propylene, Aromatics and Butadiene, Nexant 2

3 To spur manufacturing in India PCPIRs were conceptualized - several factors have impeded the implementation Concept and implementation of PCPIR policy Salient features of PCPIR However, several challenges are impeding rapid growth Feedstock accessibility Refinery / feedstock company as anchor investor Best in class infrastructure Rail, road, airport connectivity Utilities and other services Chemical cluster Value chain coverage Ancillary and support sectors Lack of investment (investors concern about financial risk) Infrastructure bottlenecks (e.g. power/water in Vizag) Land acquisition and related regulatory issues (e.g., land in Dahej; single window) 4 Limited planning and focus (e.g., limited pre-feasibility studies) Source: Press articles, India chemicals website, A.T. Kearney 3

4 Multiple examples of large chemical/petrochemical hubs exist globally Select examples of successful chemical hubs 1 Rotterdam, Europe 120+ integrated companies including 5 refineries and 45 chemical companies; 35% of European cracker capacity Efficient inland and international transport via pipelines, rail, barge, road and sea 2 Jurong Island, Singapore 95+ leading petroleum, chemical and supporting companies with investments exceeding $20 bn. Significant scale despite no natural source of oil & gas - Yearly output of $85+ bn. 2 Fujian, China Over $30 bn. in yearly production output Excellent port network, advanced inter provincial rail system and highway network 4

5 Five key factors are essential to drive success of a petrochemical hub Key Success Factors Creation of a robust ecosystem with anchor investors 3-5 anchor companies Complementary industries across value chain Key support & ancillary industries High quality logistics network to enhance efficiencies High quality transportation Robust onsite logistics Investor friendly policies, regulations & incentives Single window clearance Suitable fiscal incentives High quality infra and well defined operating model Customized infra availability Quality social infra Well defined operations processes Well defined ownership structure and business responsibility Suitable alliances for ownership Well defined responsibilities 5

6 1 A robust eco-system with anchor investors & complimentary industries is key for an efficient petrochemical hub Schematic representation of an eco-system Logistics Safety & security Banking IT Support industries Basic chemicals Engineering advisory Ancillary units Processors Equipment suppliers Polymers Packaging Reagent Mfrs Spclty. Chem. Assembling & maintenance Technical services Plastic Analytical support Complementary value chain industries Captive customer base Promotes competition and drives productivity Ancillary companies for necessary supplies Technical services companies for improving efficiencies Support industries for smooth operations 6

7 1 Frankfurt Hoechst provides a robust ecosystem integrated chemical chain, ancillary and support industries Case Example Frankfurt Hoechst Chemical Hub Ecosystem Operations Support Postal Service Provider Machine Cleaning Plant Operations Catering Services Vehicle Maintenance Industrial Cleaning Transport & Logistics Safety Inspection Laboratory Equip Support Gebr. Buddeberg Clinical Studies Safety Devices Lab Analysis Petrochem & Basic Chemicals Packaging Reagents for Pharma Technical Services Plant Engineering Process/ Plant Engineering Polymer Specialty or Fine Chemicals Automation Assembling & Maintenance Ancillary Companies Fuel Cells Electronic & Display devices Pharma Precision Instruments Preservatives for Pharma Nutrinova Chemical Analyses Business Support Health Insurance Travel Mgmt. Private Bank Law Firm IT Solutions Pension Benefits Patent Filing Employee Welfare Education & Training 7

8 1 Most successful hubs have been anchored by few large investors who are typically leaders in their respective fields Case Example Shanghai Chemical Industrial Park (SCIP) Wave 1 Anchor Investments Investor SECCO (JV of BP with SPC and SINOPEC) Bayer BASF (JV with Hunstman, GPCC, SHYG) BASF Project Ethylene cracker Integrated chemicals MDI / TDI PTHF Wave 2 Follow-up Investments Investor GPCC Shanghai based companies Degussa Lambertti Mitsubishi Gas Bayer Project Phenol and Acetone Caustic soda and PVC Organic Peroxide Fine Chemicals Hydrogen Polyurethene BP, Bayer, BASF as anchor investors investing over $7 bn in first stage Support industry & infra investments (~$1.5 Bn) Anchor investors further attracted subsequent investments in wave 2 Degussa Another 5-6 domestic & international players Lucite MMA Shanghai Mitsui Bisphenol 8

9 2 A high quality logistics network is critical for smooth inward and outward movement Case Example Land-locked Frankfurt-Hoechst hub Tri Model gateway Optimally combines rail, road and inland water transport Frankfurt Hoechst Hub Excellent cargo handling Loading facility for trucks and trains Capability to handle 40,000 TEUs per year Houses 3 gantry cranes (40 MT each) Loading facilities for trucks and a total of 6 tracks & siding capacity of 230 TEUs Storage and ware-housing Provides ~280 locations each for hazmat and empty containers 9

10 3 Investor friendly processes are critical e.g. single window access for all procedural requirements Case Example Shanghai Chemical Industrial Park (SCIP) Investors Administration center within park for single window clearances SCIP Administrations Center Authorized by Shanghai municipal committee Inspection, Custom clearance Forex, Clearances Settlement of corporate tax Utility bills payment Incinerator, effluent treatment, etc. Liaisons with government, public bodies for clearances Collects income taxes on behalf of govt. Customs Department Industry & Commerce Dept. Income Tax Department Utility bodies Support services Acts as a one stop shop for all payments related to utilities and support services 10

11 3 Most successful hubs provide strong fiscal and other incentives to attract investments Case Examples Shanghai chemical park Kabinburi industrial park Bayport industrial complex Corporate tax exemptions 2 year tax holiday beginning first profit making year Low corporate tax rates of 14% for overseas companies 8 year corporate tax exemption followed by 50% exemption for next 5 years N/A Duty allowances & other deductions Import duty exemption for foreign invested companies on technologies and equipment 75% reduction of import duty and tax on RM Higher tax deductions No export obligation Lower ad valorem taxes Up to 100% property tax abatements Other incentives Dividends exempted from withholding taxes Discounted interest rates on debt 100% foreign ownership allowed Remittance of foreign currency allowed Financial grants for projects in areas of emission reductions 11

12 4 Infrastructural facilities provided through alliances & partnerships can be a strong incentive Case Example Shanghai Chemical Industrial Park (SCIP) Key Highlights $1bn+ investment in basic and chemical industry specific infrastructures JVs / SPVs for infrastructural development in collaboration with foreign partners Two separate companies for road corridor and pipe rack development SCIP Development Corporation Basic Infrastructure SPV for Power Generation SPV for Water $300 Mn $45 Mn Chemical Industry Specific Infrastructure SPV for Effluent Treatment SPV for Incinerator $45 Mn $65 Mn SPV for Jetty and Tank Farm $210 Mn SPV for Construction Jetty $4.5 Mn Comprehensive infrastructural facilities are operated by individual SPVs created as JVs between SCIPDC and foreign collaborators 1. SCIPDC : Shanghai Chemical Industry Park Development Company; 2. SCIPIC : Shanghai Chemical Industry Park Investment 12

13 4 A well nurtured social infrastructure at Jurong Islands enables easy access and retention of skilled employees Key Highlights High rise housing blocks as well as leisure spaces Facilities built with open space and green facilities Provided for educational institutes and medical facilities Technical training center Educational institutes & training centers Landscaped as per Singapore s Garden City Concept Social Infrastructure at Jurong Integrated community center: Skara Skara Park Jurong Hill Park Developed network of public transportation system 13

14 5 Suitable ownership model can become a key facilitator Ownership model options Different types of promoters / owners Ownership Models 1 Petrochemical / Chemical Co s Public E.g. Kabinburi Private E.g. Frankfurt Hoechst Public-private partnership WuXi Singapore Industrial park, China 2 Drivers Drivers Assured product off-take Opportunity to develop downstream capabilities via JV Govt. Industrial Promotion Bodies Promote industrial, economic and social developments Promotes investor friendly policies Ensures region/ industry focus Results in strong efficiencies and accountability Derives benefits of both public / govt. and private / industry associations 3 4 Infrastructure Development Co s Drivers Drivers Financial gains as hub developer and captive activities Financial Institutions Pure financial gains through equity participation 14

15 5-prong action agenda is required to bring the hubs to fruition Develop comprehensive roadmap for showcase hub in line with global benchmarks Provide fiscal incentives to ensure competitive business case for investment Build core infrastructure such as multi model logistics linkage, utilities, other services via suitable SPVs to improve attractiveness for investors Establish investor friendly processes such as single window access for all procedural requirements and policy support for land acquisition Establish a dedicated steering team with center and state government, and industry representation to bring implementation focus Critically, the above agenda needs to be executed in a time-bound manner 15

16 A.T. Kearney is a leading global management consulting firm with offices in more than 40 countries. Since 1926, we have been trusted advisors to the world's foremost organizations. A.T. Kearney is a partner-owned firm, committed to helping clients achieve immediate impact and growing advantage on their most missioncritical issues. For more information, visit Americas Atlanta Bogotá Calgary Chicago Dallas Detroit Houston Mexico City New York Palo Alto San Francisco São Paulo Toronto Washington, D.C. Asia Pacific Bangkok Beijing Hong Kong Jakarta Kuala Lumpur Melbourne Mumbai New Delhi Seoul Shanghai Singapore Sydney Taipei Tokyo Europe Amsterdam Berlin Brussels Bucharest Budapest Copenhagen Düsseldorf Frankfurt Helsinki Istanbul Kiev Lisbon Ljubljana London Madrid Milan Moscow Munich Oslo Paris Prague Rome Stockholm Stuttgart Vienna Warsaw Zurich Middle East and Africa Abu Dhabi Doha Dubai Johannesburg Manama Riyadh 17