City-based South Asian Petrochem (SAPL) may scrap its proposed PET resin joint venture project with Egyptian Petrochemicals Holding Company (ECHEM) if the necessary approvals are not received by this year-end.
SAPL had entered into a 70:30 joint venture with ECHEM and floated a subsidiary company, Egyptian Indian Polyester Company SAE, in February for a 3.15-lakh-tonne PET resin plan to come up at Damietta in Egypt.
PET is the abbreviation for polyethylene terephthalate, a polymer used in the manufacturing of packaging for items such as carbonated soft drinks and mineral waters.
The company has received provisional approval from Egypt’s Industrial Development Authority (IDA), together with environment clearance and approvals for gas and electricity connections. However, the land lease agreement was yet to be signed and the construction could not begin as the clearance from the defence ministry of Egypt was still pending.
“A defence clearance was necessary as per norms of the country which had specifications related to chimney heights and others,” said CK Dhanuka, vice-chairman, SAPL.
“We will follow the situation for another four to six months, and then scrap the proposal if things do not move”, Dhanuka told Business Standard. The construction was scheduled to begin September.
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He refused to divulge financial implications of the possible decision but clarified that as of now not much investment had gone into the JV company. SAPL had 70 per cent equity in the JV, while ECHEM — which is also the nodal agency for the development of petrochemicals industry in Egypt — and Engineering for the Petroleum and Process Industries(ENPPI) held 23 and seven per cent of the equity respectively.
The estimated project completion time was 21 months from commencement and the project cost was pegged at $100 million, excluding the working capital requirement. The global demand for PET resin clocked an average 8 per cent growth last financial year, Dhanuka said.
However, it did not sustain the double digit growth last year as expected, he said adding the demand was expected to surge as the crude prices stabilised. PET prices were expected to stabilise in 2009 following large capacity additions in West Asia.
Back home, Mitsubishi Chemicals (MCC PTA) was increasing its Haldia (West Bengal) plant capacity from 4,75,000 tonne per annum (tpa) to 12,75,000 tpa, that will further secure SAPL’s raw material security, that sourced bulk from MCC PTA and Indian Oil Corporation (IOC) and the rest through imports.
The prices of purified teryphthalic acid (PTA) rose from $910 per tonne to $972 per tonne during 2007-08, partly due to demand-side pressures and partly due to high paraxylene prices(raw meterial for PTA). MEG prices rose from $950 per tonne to $1600 per tonne in the last one year together with a 66 per cent rise in crude oil prices.
To offset rising input costs, SAPL expanded its installed capacity from 180,000 tpa to 200,000 tpa through de-bottlenecking initiatives during the fiscal and reduced its capital costs per tonne to Rs 17,436 in 2007-08 from Rs 26,990 in FY05.
It has plans for further de-bottlenecking this year, in categories apart from its PET resin capacities, Dhanuka informed, without giving out further details.
SAPL has entered into forward contracts with customers to partly neutralise the rising raw material costs.