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Price of poly crystalline silicon and wafers which are used in the production of solar power modules have fallen by nearly three quarters in the last one year. Naturally, this has resulted in speculation in India that the cost of production of solar power would come down drastically. While it has already come down to a large extent, many solar players in India think that the price would further fall down and some have gone to the extent of predicting that the price of solar power may become as low as Rs.4 per unit in the near future. In the recent government bids under the Phase II of National solar Mission, some of the bidders are reported to have quoted solar power price of Rs. 6.50 per unit.
However, it is doubtful as to whether such wishful thinking would materialise.
It is necessary to keep in mind that the fall in the production cost of solar power has not been due to any significant technology advancement , though several technology initiatives are being made. The fall in the cost is only due to the fall in the price of poly crystalline silicon and wafers in recent times due to over capacity creation in China.
Earlier, governments in Europe and USA provided subsidies to buy Chinese made panels as part of commitments to boost renewable energy. Such incentives created a glut of suppliers in China since 2010. Meanwhile, debt crisis in Europe has forced European countries to cut government subsidies to the solar sector. US imposed a 31% tariff on Chinese wafers, complaining that manufacturers in China were being underwritten by the Chinese government. Due to subsidy cuts in Europe, pace of progress of solar industry have slowed and orders for Chinese companies rapidly reduced. The price of poly crystalline silicon plummeted to below 20 US$ per kilogramme from more than 100US$ per kilogramme at one time.
By the end of October, 2012,only five to seven firms of the 43 in China maintained active production of solar equipment. Many small Chinese makers suspended lines altogether last year. Some large units in USA and Europe also have severely curtailed their production due to drop in demand for poly crystalline silicon and solar equipment.
Now, the price of poly crystalline silicon at 20US$ per kilogramme is at unacceptable level for the producers and would inevitably lead to the closure of more units , if such low price would persist. Obviously, restructuring of the industry is bound to take place with closure of smaller players and global production capacity being brought down in tune with the demand. Formation of discreet price cartel between producers of poly crystalline silicon to increase the price is also a distinct possibility. When this would inevitably happen , which would happen sooner than later, the price of poly crystalline silicon in the global market would in all probability increase and may ultimately settle down at the price level of around 60 to 70 US$ per kilogramme, increasing from the present level of 20US$ per kilogramme. This would inevitably increase the production cost of solar power , upsetting the wishful calculation of solar industry in India.
The sad fact is that poly crystalline silicon and thin film are presently not produced in India and India entirely depends on imports. This has made Indian solar industry highly vulnerable to the international price pressure. Poly crystalline silicon project of capacity 4500 tonnes per annum would call for an investment of around Rs. 40000 million . For production of one megawatt of solar power , 10 tonnes of poly crystalline silicon would be required.
It is high time that price forecast for solar power should be made based on such ground realities , instead of predicting the price in sensational manner.
After Narendra Modi’s recent strong speeches in Delhi and Kolkata stressing the importance of good governance and appropriate development projects to put India on growth path, there have been sporadic criticisms that Modi’s claim about Gujarat’s progress is exaggerated.
While it is true that all problems in Gujarat have not been solved and still it has a long way to go, the fact is that the quality of governance and achievements made by Gujarat are far better in comparison to all other states in the country. For this, Modi’s leadership has to be given its due.
Gujarat is the only state in the country today which is power surplus and no other state can make this claim in India today. While the cost of power In Gujarat is one of the highest in the country, people do not seem to mind this, since the power is made available adequately. In states like Tamil Nadu, Andhra Pradesh, Uttar Pradesh and others, the average power cut every day now exceed 6 to 8 hours and the industries have to pay much more for power , as they have to generate power by installing their own facilities to some extent. Several small scale industrial units in these states have collapsed due to severe power shortage, resulting in loss of employment and misery to people belonging to lower income group.
Narendra Modi’s initiative in encouraging solar power projects in Gujarat can not but be praised and Gujarat today has the highest solar power generation in India. The canal top solar power plant installed in Gujarat in pilot scale level can be a trend setter for the whole country.
Any well informed person would know that the only state in the country where significant manufacturing capacities are being planned and implemented in time bound manner is Gujarat State. In most of the other states, capacity build up in manufacturing sector are stagnating or increasing at slow pace with huge delays due to number of reasons. Huge projects involving thousands of crores of rupees of investment are being built and are being planned and implemented in Gujarat by large companies like Reliance, Essar and others , which are unmatched by any other state. Public sector undertakings in Gujarat like Gujarat Alkali, Gujarat Narmada Fertilisers, (GNFC), Gujarat State Fertilisers (GSFC) are all running profitably and are implementing new projects with dynamic outlook. In most of the states, public sector undertakings are running on loss or stagnating. What is particularly striking about Gujarat is that projects are being completed largely as per the schedule.
Critics say that several industries in Gujarat are polluting. But, the fact is that the Pollution Control Board in Gujarat is known to be implementing environmental standards in stringent manner and several polluting units particularly in the dyestuff sector have been permanently closed in the last few years. The process of cleansing the industry is still on in Gujarat . In this aspect also, record of Gujarat is better than several other states and certainly not worse than any other state.
It is reported that around 10 percent of the petroleum refineries in Europe will be closed down in this decade, as the fuel demand falls to 19 years low in Europe.
Oil consumption in Europe is headed for a fifth year of declines to the lowest level since 1994.
Of Europe’s 104 petroleum refineries, 10 will shut permanently by 2020 from France to Italy to the Czech Republic,.,
Two-thirds of European refineries incurred loss in 2011. It is predicted that purely from the falling European demand point of view, one bigger refinery or two smaller plants would have to shut in Europe every year.
No strategic action plans appear to have been evolved by governments in Europe to overcome this potentially dangerous situation of petroleum refineries getting closed down. Fear of uncertainty in the petrochemical sector in Europe is clearly evident.
The European Commission in a report published says that the European Union’s Registration, Evaluation, Authorisation and Restriction of Chemicals (REACH) regulation has helped to make the use of chemicals considerably safer in Europe.
However, a recent survey carried out amongst the cross section of Indian chemical industries indicate that number of organizations in India who have taken steps to comply with REACH regulations are not many.
Only those companies who are involved in products such as copper phthalocyanine pigment, optical whiteners which are export dependent particularly to European countries, have taken steps for REACH compliance.
Number of medium and large scale organizations involved in products such as caustic soda, soda ash, ammonium phosphate have reported that they have not taken any steps for achieving REACH compliance.
Even awareness of REACH requirement amongst small scale chemical industries in India appear to be at low level, with most units producing products such as sodium sulphate, common salt and others which are SMEs, showing no interest.
The Indian chemical industries seem to think that complying with the REACH is a costly and time consuming exercise and the benefits may not be commensurate with investment made.
Many Indian units also seem to be of the view that market size in regions other than Europe are adequately large and therefore, not catering to the European market may not really matter.
Given such conditions, many Indian chemical industries appear to be of the view that their export market target will not suffer, due to their not having REACH compliance .
With the increasing environmental concerns and fluctuating price of petrochemical feedstock, significant efforts have been putforth in recent time to develop biotechnology route for the production of chemicals from natural products.
Development of technology for the production of epichlorohydrin and propylene glycol from glycerin is a noteworthy achievement. Technology has been developed for the production of butadiene from biomass and commercial operations would commence soon. Efforts have already been putforth for the production of several other products by biotech route including adipic acid, succinic acid, propylene and others.
With such continuing technology development efforts by biotech route, the face of the chemical industry would undergo sea change in the coming years.
In the wake of sulphur dioxide gas leak in Sterlite Industries in Tuticorin (India)a few days back, some political parties and some activists have been demanding closure of the company itself. Some of them have even gone to the extent of saying that Sterlite Industries poses the danger similar to the Bhopal gas tragedy.
All such apprehensions are totally baseless and will only create unnecessary and counterproductive fear in the mind of innocent local population.
It would be more appropriate if such matter would be discussed by experts in the field,such as chemical engineers and chemical technologists, who are available in adequate number in the country.
Sterilite Industries operates copper smelter, sulphuric acid and other plants at Tuticorin. Sulphur dioxide gas is reported to have leaked from the plant for very short period and it was controlled quickly . It has not resulted in any injury or loss of lives. It is ridiculous to say that incidents like Bhopal gas tragedy would take place.
There are more than 150 sulphuric acid plants operating all over India.Some of them have been operating for more than 50 years. Hundreds of such sulphuric acid plants are in operation all over the world with various capacities and with some of them having much larger capacities than that of the plant of Sterlite Industries at Tuticorin .A number of other sulphuric acid units are also operating in Tamil Nadu.
While Sterlite Industries has to explain as to why such leakage has happened and how such incident would be avoided in future, there is absolutely no reason to take an alarmist view.
Such hasty approach of a few political parties and some environmental activists will retard the industrial and economic growth of the province.
Complaints are increasingly being heard from suppliers, contractors and consultants about the problems that they face in collecting the payment due to them from many chemical and allied industries in India. Some describe it as painful exercise.
In recent times, it is seen that chemical industries are reluctant to pay advance amount for the jobs assigned, whether it would be equipment supply or service oriented assignments such as consultancy. Chemical industries sometimes insist that they would make payment only after completion of the assignment and after 30 days of raising the invoice. The worse fact is that even such payment schedules are not adhered to on many occasions and the suppliers / contractors / consultants have to wait for several weeks and even months to get the due payment after repeated reminders.. In the process, such service providers fall into deep financial trap themselves, that affect their morale and sometimes even the quality of services provided. In today’s scenario where the salaries and wages and operational costs are going up by leaps and bounds, many service providing organizations are facing grim situation due to such delayed payments.
The above scenario may probably be due to the diversion of resources and lack of prudency in financial management amongst number of chemical industries, which can lead to cash flow problems and consequent difficulties in honouring their payment commitments. While chemical industries do face problems due to the recessionary conditions in the market , such external reasons can not alone be blamed for the cash flow crunch in many instances.
Any careful observer of the Indian chemical industry would see that in recent times, many managements involved in chemical industries are opting for totally unrelated diversifications, that lead to the diversion of funds and investment in areas where the units need not be focused. It is no more uncommon to see units involved in pesticide or fine chemicals or petro chemicals launching hotels or housing projects or even involve themselves in real estate dealings and retail business. When huge funds are diverted to such areas that have long gestation period, the core functions of running the chemical industry can suffer , leading to cash flow issues.
We rarely see such behaviour on the part of the industries abroad in developed countries, where they remain focused. We do not hear about huge multi national companies venturing into areas where they do not have any particular expertise and which are not high focus areas for them.
Chemical industries offer excellent opportunities for growth and they can be well exploited to reap benefits , if the management and top executives would stay focussed in their core areas with tangible long term plans and remaining efficient and dedicated. Long term corporate plans with vision and dynamism can be designed and implemented, only if there would be high level of concentrated efforts, without frittering away the time and energy in implementing whimsical ideas or with short term objectives.
Organizations should always place high level of emphasis on meeting the payment commitments as per schedule, which would be possible only by running the chemical companies well and stay focussed in the core functions.
In recent time, several chemical companies in India have shown eagerness to win the consumer’s confidence by launching advertisement and product promotion efforts and also by taking up activities to fulfill corporate social responsibilities. While such efforts are important, the obvious and best way of spreading reputation is by adhering to the payment schedules to the clients and service providers, who always appreciate the managements that stand by their commitments and they can be the best ambassadors for the companies.
Chemical industries should not be under the wrong notion that while the buyers of their products should be treated with priority, suppliers and others do not need the same level of approach. This is totally wrong method of doing business and it bound to become counter productive in the long run.
Production of coal and natural gas remains virtually stagnant in the country and the scenario is unlikely to change in near future. Production of natural gas is showing clear sign of decline, with no prospects for immediate improvement in the scenario.
Comparative production / consumption profile of crude oil / gas
In million tonnes
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December
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2012
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2011
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Crude oil output
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3.206
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3.173
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Natural gas (billion cubic metre)
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3.333
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3.915
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Refinery output
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15.542
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14.807
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Consumption / demand of petro products
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13.409
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13.018
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According to Planning & Analysis Cell (PPAC), the consumption estimates represent the market demand and is aggregate of sales by oil companies in the domestic market and consumption through direct imports by private parties. While the data for company sales were actual, that of private direct imports are estimated.
To meet the growing petroleum product demand and with no significant increase in indigenous output, the Indian petroleum refineries were compelled to import more crude oil in December 2012 year-on-year. The refineries (18 public sector and two private sector) imported 15.133 million tonne of oil (13.933 million tonnes in December 2011). Reliance Industries does not share planned targets and production data for its export orient refinery in Jamnagar.
While there have been some production of coal bed methane gas which is of insignificant quantity compared to national requirement, government policies on shale gas exploration is yet to be announced firmly. Loud talk and claims about jatropha bio fuel projects have come to mean nothing, as several jatropha bio diesel plants have closed due to lack of imaginative incentive programmes by the government. With regard to algae bio fuel project, the country is moving without definite game plans.
With the substantial stepping of production of shale gas in USA in recent time, there is expectation that the price of natural gas in the global market will remain steady in the future and there is unlikely to be any scenario similar to “crude oil price shock”.
The net result of the scenario is that the country has no convincing and alternative strategies, other than importing natural gas in a big way to meet the future energy requirements. A national consensus has emerged about the inevitable need to depend on import of natural gas to sustain the national economic growth of the country.
Huge capacity creation for methanol in China based on coal feedstock has resulted in under utilization of capacity for methanol industry in China. At the same time, substantial capacity for methanol based on natural gas is being built up in Middle East countries. Therefore, it is possible that there will be surplus supply scenario for methanol in the global market.
Installed capacity for methanol in China is around 39 million metric tonnes, which represents around 70% of the global capacity. Around 4 million metric tonnes of new methanol capacity is under planning / implementation in China. However, the capacity utilization of methanol industry in China is only around 50%.
Number of initiatives have been made in China to develop new application areas for methanol to increase the demand base.
China’s strategy to improve capacity utilisation for methanol industry is to promote methanol gasoline, .coal to liquid projects, methanol to olefin technology (MTO), dimethyl ether (DME).
Investment in chemical projects in Tamil Nadu have been on very low side.Tamil Nadu is no more leader in the chemical industry in India, that it once was.
The only significant new project that is under implementation in Tamil Nadu presently is Nagarjuna Oil Corporation at Cuddalore, which has suffered protracted delay and it is now said that it could be ready only by 2013. There are many investment opportunities like titanium dioxide project due to availability of huge reserves of ilmenite raw material in the state and many petrochemical and pharma projects that have potential to be set up in large capacity.
Methanol is an important building block and there is no methanol project in operation in southern India. It appears that Tamil Nadu government is not encouraging promotion or methanol based industries, possibly fearing misuse of methanol for adulteration with the ethyl alcohol for drinking purposes. This attitude towards methanol is a needless self-destructive over-reaction to the problem: and it is like cutting off the nose to spite the face. Many methanol based projects can be set up in the state that would result in investment of over Rs.30000 million.
Tamil Nadu is the large producer of molasses. Molasses can be considerably utilized for setting up many downstream products. As Tamil Nadu is a large producer of tapioca . there are excellent prospects for setting up many starch based projects in medium and large scale level in the state with investment potential of more than Rs.20000 million. There are so many other opportunities in the chemical sector in Tamil Nadu.
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