INDIAN PETROCHEMICAL INDUSTRY –

CHALLENGES AND OPPORTUNITIES

Presented By
A K Purwaha, Director (Business Development)
GAIL (India) Limited

9th International Conference

Indian Petrochem - 2007
Mumbai
November 19-20, 2007
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 PRESENTATION OUTLINE

• Petrochemical Scenario

• India Outlook

• Challenges

• Enablers

• Conclusion

2
Petrochemical Scenario

3
 WORLD ETHYLENE CAPACITY
Ethylene Expansions, 2007-11
Belgium 0.56
Germany 0.34
Brazil 0.20
35.7 8.5 Venezuela 1.05
24.4 Trinidad &
0.57
Tobago
31.6
12.4 Singapore 0.80
Taiwan 1.00
Thailand 1.90
5.0 China 6.23
India 2.12
Iran 8.438
India Kuwait 0.85
Current - 2.5 MMTPA (2%) UAE 1.50
Future - 4.62 MMTPA (3%) Saudi
6.308
Arabia

THE GLOBAL PETROCHEMICAL INDUSTRY IS SET TO Qatar 3.80

UNDERGO A STRUCTURAL CHANGE –THE BALANCE OF Oman 0.850
POWER IS EXPECTED TO SHIFT FROM WEST (NORTH Total 36.236
AMERICA & WESTERN EUROPE) TO EAST (ME & CHINA)
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Source : Oil & Gas Journal July 2007 (as on Jan 1, 2007)
 PETROCHEMICALS – GLOBAL SCENARIO
(MMTPA)
Capacity Demand Capacity 2007 Demand
Projection Projection Product Projection 2015
Product 2007 2015 Global Asia Global Asia
LLDPE 21 6 32 14
Global Asia Global Asia
LDPE 21 6 23 9
ETHYLENE 127 39 163 52
HDPE 35 11 47 19
PROPYLENE 82 34 101 43
PVC 40 21 46 22
STYRENE 30 13 33 17 PP 49 21 69 33
PS 15 8 15 7
PARA 29 19 38 26
XYLENE MEG 20 7 26 18

ETHYLENE 22 7 27 8 DMT 4 1 2 1
OXIDE SBR 5 2 5 2
Source: Nexant

WIDE APPLICATION WITH NEW USAGE HAS ACCELERATED DEMAND

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EXISTING PLANTS AND FUTURE EXPANSION
– PETROCHEMICAL COMPLEXES IN INDIA

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 PETROCHEMICAL CAPACITY - INDIA
(KT/YR)
Feed HDPE-
Company/Location Stock LDPE LLDPE PP
RIL (IPCL) /
Nagothane
/Maharashtra Gas 110 240 100
Pata
RIL (IPCL) /
95 - 150 Jamnagar
Baroda/Gujarat Naphtha
Baroda
RIL / Hazira / Gandhar
Hazira Haldia
Gujarat Naphtha - 450 400 Thane
Nagothane
RIL (IPCL)
/ Gandhar/ Gujarat Gas - 160 -
RIL (Nocil)
/Thane/
Maharashtra Naphtha - 60 -
Petrochemical
RIL / Jamnagar / Complex
Gujarat Naphtha - - 750
Sub Total RIL 205 910 1400
Indian Petrochem Market is
HPL / Haldia / WB Naphtha - 550 300 dominated by RIL. HPL and GAIL
GAIL / Pata / UP Gas - 310 - are the other major players
TOTAL 205 1770 1700 Source: Industry Estimate 7
 PETROCHEMICAL CAPACITY ADDITION IN INDIA

(KT/YR)
Expected
PE PP Timeline
RIL, Jamnagar - 900 2010-11
GAIL, Assam
HPCL, Bhatinda GAIL, Pata 100 - 2007-08
HPL, Haldia 80 150 2008-09
GAIL, Pata GAIL, Assam 220 60 2011-12
RIL, Jamnagar
IOCL, Panipat 650 600 2009-10
RIL 600 - 2010-11
HPL, Haldia
ONGC, Dahej 1020 340 -
ONGC, Dahej IOCL, Paradeep (Also SBR-140)
IOCL, Paradeep - 650 2011-12
(Also PX – 1067
Styrene – 469)
HPCL, Bhatinda - 350 2011-12
Proposed Capacity
Augmentation / New
Total 2670 3050
complex

Substantial Capacity Enhancement in

Source: Industry Estimate
India in next 5 – 8 years 8
 INDIAN DEMAND PROJECTION & CAPACITY
FOR PE AND PP

Product Projected* Demand Projection by 2011-12* (KT) Capacity Build-

Demand in Up by 2012-13
2006-07 (KT)#
(KT)
LDPE Option I Option II Average
CAGR - 4% 8% 6% -

DEMAND 234 285 344 313 205

LLD /HD
CAGR - 8% 20% 14% -
DEMAND 1755 2579 4367 3379 4440
PP
CAGR - 9% 22% 15% -
DEMAND 1712 2634 4627 3443 4750
*Source : 11th Five Year Plan

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 9
 INDIAN DEMAND SCENARIO FOR
OTHER PRODUCTS

Demand Projection by 2011-12* (KT)

Demand in
Product
2006-07
Option I Option II
PVC 1320 2031 2772
Polystyrene 241 351 481
Synthetic Fibres 2438 4018 -
PTA / DMT 2661 3879 -
MEG 920 1499 -
Para Xylene 2180 2560 -
PBR 89 149 -
SBR 80 129 -
EVA 121 255 -
*Source : 11th Five Year Plan

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
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India Outlook

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 INDIAN ECONOMY – THE JOURNEY SO FAR
AND THE ROAD AHEAD
Parameters 2003 2005 2007 2009
Actual Actual Est. Est.
Real GDP Growth Rate (%) 8.4 9.2 8.0 7.5
Population (million) 1049.7 1080.3 1110.4 1140.2
GDP per head (US$ at 2936 3538 4302 5128
PPP)
Recorded unemployment 8.4 8.1 7.2 6.4
(Av; %)
Consumer Price (end- 3.8 4.2 5.9 5.0
period, %)
Exchange Rate Rs:US$ 46.58 44.10 41.49 39.0
(Av)
International Reserves 102.26 136.03 239.36 289.07
(US$ billion)

INDIAN ECONOMY IS UNDER FAST TRACK GROWTH

WITH INCREASING HOUSEHOLD INCOME,
INCREASING EMPLOYMENT RATE, STEADY ECONOMY
Source: EIU Report, Oct 2007
AND GROWING FOREX RESERVE

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 POLYMERS-GROWTH DRIVERS
¾ 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 20

– Product introduction and substitution 15

– Investment in infrastructure 10

0
India China World
Source: Dept of Chemicals & Petrochemicals, GOI Elastomers Surfactants Syn. Fibers Plastic

GROWTH RATE IN INDIA (12.7%) FOR POLYMER CONSUMPTION

HIGHER THAN CHINA (11.7%)
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 EXPENDITURE IN INFRASTRUCTURE BY GOVERNMENT

(in Billion US$)

26
45
14 128

25
62
10th5-year plan 56
11th 5-year plan
(US$ 168 Billion) (US$ 442 Billion)
20

31 2
45

156
Source: Planning Commission, GoI

Power Road & Railways Ports & Airports

Telecom Irrigation Water supply

GOVERNMENT’S EXPENDITURE IN 11TH PLAN TO GROW BY 163% -

MAJOR INCREASE IN EXPENDITURE ACROSS ALL SECTORS
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 INDIAN PETROCHEMICAL INDUSTRY

¾ Petrochemicals contribute over 20% of total chemical

sector output
¾ Petrochemicals annual consumption growth > 10%
¾ Polymer (63%) & synthetic fiber (29%) are major
Petrochemicals
¾ Polymer growth rate more than 2 times GDP growth
rate in past five years

¾ High Growth observed in the Polymers end-use segments in past 5 years

ƒ Consumer Electronics
ƒ Consumer Durables
ƒ Automobiles
ƒ Construction
ƒ Infrastructure
ƒ Packaging
Source: Department of Chemicals & Petrochemicals, GOI

POLYMER USAGE IS INCREASINGLY FINDING NEW APPLICATIONS -

GROWTH DRIVEN BY END USE SECTORS 15
CHALLENGES

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

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.

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 ENABLERS - INDIAN PETROCHEMICAL
INDUSTRY
FEEDSTOCKS:

¾ 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.

¾ 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

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 ENABLERS - INDIAN PETROCHEMICAL
INDUSTRY

INDUSTRY SPECIFIC:

¾Economies of Scale through creation of Mega Complexes -

Integrated complex for refinery and petrochemicals

¾Low cost brown field expansion or de-bottling

¾Higher Plant Operating Rate – This reduces fixed cost per

unit of production and compensate high interest and
depreciation cost of such capital intensive projects

¾ Participation of world majors in Indian petrochemical

business – bring technology of new generation and marketing
ease.

¾ R&D set up for development, innovation and differentiation

- testing and technology adoption of new products

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 ENABLERS - INDIAN PETROCHEMICAL
INDUSTRY

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

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.
Dahej
– Spread over area of ~ 250
sq. km
– Infrastructure through PPP
(Public-Private Partnership)

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

Market Size Demand CAGR

Sector 2006 Projection 2011 ( 2006-11)
(KTA) (KTA) (%)
Fibre & Filament 59 117 14.7
Film & Sheet 1269 2333 13.1
Woven Sacks 860 1570 12.8
Pipe 161 277 11.4
Roto Molding 69 110 10.0
Blow Molding 273 439 10.0
Injection Molding 628 985 9.4

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 24

CONCLUSION

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 SUMMING UP - ADVANTAGES INDIA

High GDP growth &

India is global 4th in Largest democracy
PPP – Economy to – political stability
support consumption & consensus on
reforms

Well developed Liberal &

downstream transparent
industry with investment
opportunities for policies
future investments

Strong Central and state

entrepreneurship, governments are
technical/managerial supportive to
skills / cost industry
leadership

Retail boom – Changing Logistic advantage

lifestyle, Future auto hub, to sell into Asia
Home appliances becoming pacific, European
necessity, growth in Union, Africa, US
infrastructure – strong east coast
market place

POTENTIAL TO BECOME GLOBAL QUALITY LEADER AND LOW COST

MANUFACTURING HUB 26
THANK YOU

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