Bengal's pet project has much at stake, but imponderables rule
WEST Bengal's largest project and biggest prestige issue, the Rs 5,170-crore Haldia Petrochemicals Ltd (HPL), is now closer to reality. Managing director A. Krishnamurthy is confident of going on stream in November 1999, and reaping profits from the year after. Should he be believed?
The tardy progress of HPL, conceived way back in 1977, signifies all that is wrong with the much-touted economic rejuvenation of West Bengal. That's also the reason why the state is so keen to push Haldia Petro off the ground. Once operational, HPL should not only transform the town of Haldia into the sunrise industry centre, but also catalyse the state's industrial revival.
It was only in 1994 that HPL started looking real, thanks to a new team of promoters—The Chatterjee Group (TCG) of US-based NRI Purnendu Chatterjee, West Bengal Industrial Development Corporation (WBIDC) and the Tatas. While TCG and WBIDC will each hold 21 per cent, the slice of the Tatas, who were the main partners initially, is a thin 9 per cent, fuelling doubts that they may not remain long-term partners. Together, the promoters are contributing 51 per cent, or Rs 1,010 crore (Rs 505 crore has already been pumped into the project).
Chatterjee made it clear to Outlook that his group's involvement in Haldia was more a pragmatic investment decision with huge profit and employment potential than the symbol of an expat Bengali's sentiments. While the main plant will produce polymers by crushing naphtha and is capital-intensive, it will supply feedstock to a clutch of downstream industries which have an employment potential of 1.2-1.5 lakh in the next five years. The prospects have attracted foreign giants like Mitsubishi, which is setting up a Rs 1,600-crore PTA plant. WBIDC expects Rs 9,000 crore to be invested in Haldia in the next couple of years alone.
The long-term prospects of the petrochemical industry is the brightest in eastern India, long starved of polymers and refinery products. Vijay Chaudhry, president (commercial), HPL, feels that in the aftermath of the currency crisis, cheap East Asian products will flood India. "The future will be tough for RIL and IPCL, but by the time HPL goes on stream, the worst should be over," he says. Domestic demand for petrochemicals and downstream products has shot up from 0.43 million tonnes (mt) in 1984-85 to 1.6 mt in 1994-95, when domestic production came to 1.1 mt. And with a low per capita consumption of polymers at 1.8 kg, compared to the world average of 16 kg, the potential is mind-boggling. Even with Reliance Industries' 750,000 tonnes per annum (TPA) and HPL's 500,000 TPA coming on stream in 1999-2000, domestic supply will lag behind demand by over 0.3 mt.
Besides, several infrastructural problems threaten the project. Primarily, project finance. Promoters are supposed to contribute 51 per cent, but since the balance 49 per cent could not be raised from the capital markets, HPL obtained the Foreign Investment Promotion Board's permission to raise foreign equity to 70.84 per cent (including TCG stake). Either Dow Chemicals of the US or Japan's Mitsubishi Corporation will be offered 10-15 per cent of equity.
Another crucial issue: The Tatas are passive partners. TCG is a fund management company which has never set up any greenfield projects. So far, there's no long-haul partner for HPL. While Chaudhry says foreign equity will be raised through private placement at a premium and there won't be a takeover threat, the domestic route is also under discussion. The issue is likely to be finalised in two months.
Another hurdle is the slow pace of land acquisition. TCG is reportedly unhappy since land is yet to be allotted to its two new downstream projects for HPL, a Rs 3,200-crore refinery and a Rs 80-crore polypark.
The fourth bottleneck: transportation. The 140-km four-hour-long road link between Calcutta and Haldia is inadequate to cater to the rapidly swelling Haldia cargo. So is the rail link. D.P. Patra, managing director of WBIDC, says the newly-completed Kona expressway should bring some relief. WBIDC chairman Somnath Chatterjee has talked about a six-lane Rs 700-crore super highway to be built in partnership with Raytheon Corporation of the US, but that may arrive too late for HPL.
In fact, the key to HPL's viability is the Haldia port which is almost nonfunctional. The authorities have taken steps to increase the river draft from the current 8 metres to the rated 10.7 metres. This will raise vessels' cargo carrying capacity from 35,000 tonnes to 50,000 tonnes, reducing freight costs, says Calcutta Port Trust chairman and former Haldia Dock Systems chairman H.P. Roy. But unless the state government ties up the loose ends fast, HPL will continue to remain its great white hope.