In an interview with INFRASTRUCTURE TODAY, Sadhan Banerjee, Managing Director, Air Products India outlines the company's India strategy and investment plans.
There are hardly any BOO models as far as refinery projects concerned. How was your experience in implementing this model in India?
Contracting models have evolved over the years globally and have been there for quite some time. Particularly, it has grabbed the attention of the Western world in the last 20 or 30 year. Today, we have 80 plants operating across the globe, and most of them are on build, own, and operate (BOO) model. The structure of this model depends on the customer, requirement, financing, and leasing. The primary reason for implementing BOO is that, in a manufacturing set up, the operation of the hydrogen plant in particular is very critical. And, a lot of expertise is required to run, operate, and maintain the efficiency of such plants. So, maintaining efficiency is passed on to the BOO of the partner, and the client organisation does not really take that risk. That is one key advantage. We run the plant to the optimum efficiency level to ensure that we continue to make money in running the plant. The second reason is that, during the project phase, some of these projects actually overrun; so, the risk of project management - schedule or cost - is actually what the client passes on to the partner. It is quite a lucrative model globally.
How do you view the contractual models in India?
In India, the PPP, BOT, and other types of model with variations are evolving and gaining dominance in the infrastructure sector. Contracting models are maturing. In India, we are the second after Praxair to implement BOO model in refinery project. It is a win-win situation, since we partner with the refineries. The good thing is that in the last few years, the model has actually in line with the concept of Make in India, since this initiative involves Foreign Direct Investments and private participation. In a working committee report prepared by the Government of India about six months back, is lack of refinery capacity. The report suggest capacity increase from the current 230 million tonne per year to 460 million tonne per year, including setting up of new refineries along the West Coast and the upgradation of the existing ones. This is an ambitious shift we are looking for in such a short time. FDI will definitely help here in many ways. It would accelerate the growth in India. Another reason is that carbon capture is also one of the World Health Organisation (WHO) norms on the environment in the European Union (EU). Now, this puts additional pressure on the refineries. Therefore, one of the ways to describe what we do is that we supply the blood to the refinery. As we increase our capacity and upgrade the purification from Bharat IV to Bharat VI, hydrogen is required most. That is how we see a huge potential linked with the Government's vision of Make in India.
What are the other projects you have partnered with the Government of India?
As a part of our business model, we engage with all the refineries, and they are at different maturity stages of expansion. We engage with greenfield and brownfield projects. All these interactions are in the public domain. Other developments are, an FDI set up by the West Coast and an office in Mumbai which is taking shape now. Though early to say now, land issues are getting resolved. Similarly for BPCL, we have installed our plant. The refinery capacity was 9.5 MTPA and will be expanded to around 12-15 MTPA with an investment of Rs 200 billion. Even BPCL is expanding from 6.5 to 12-15 MTPA.
What are your offerings?
We are into multiple segments like oxygen, hydrogen, etc. The global size of industrial gases is around USD 75-80 billion. Out of that, almost 20-25 per cent is in the US, 22 per cent in Europe, 32 per cent in the Asian regions, and 18 per cent in Middle East and India is around 2-3 per cent. We see a great potential and one of the drivers for this is GDP. Going forward, 7.5-7.8 per cent is the average projections and one of the thumb rules is that the industrial gases market space across the globe is one-and-half to two times the GDP, which clearly takes us to around 12 per cent growth rate.
So, we see a big market, and we operate in the refineries and petrochemicals site. Another one would be steel industries, as Indian steel industry is in a expansion mode. Other sectors which are not quite known in India yet are the pharma and medical, and food and beverages. In India, these sectors are not fully organised yet. For example, while we have Walmart and other companies operating in the cash and carry format, transportation of milk is still a challenge. So once that market gets organised, we see a big potential for industrial gases. We look at the larger space. If India is just 2-3 per cent of the $100-billion global market, there is a lot of potential for us to grow. From that perspective, we are seriously investing.
While implementing a project, what are the necessary safety measures?
Safety is very close to our heart. It is one of our core values and is part of our induction training programme. It is not for construction people alone, but for everyone. We are also involved in training programmes and on-site engagements with site contractors. One of the challenges we face in the developing and emerging market is training the contractors. We focused on safety at our Kochi plant to create a complete LTI free project. We did not have any accident in the two years of construction, which is something we are proud of. Internally, Kochi plant got an award for exemplary safety performance. Similarly, we are building some plants for INOX. Safety is a part of our business model, since that is where our reputation and credibility lie.
Can you gives us details of the six new plants that you are developing?
As we expect 7-8 per cent growth in GDP, we foresee the overall Indian market and the industrial market growing at a particular speed. We can say that our joint venture takes care of and enables the merchant market (retail side) to grow. In various countries, there are different models. For example, while there would be a big plant in a country, it would be supported by cross-country pipelines of hydrogen or oxygen. Another area of interest is transportation. In countries with better infrastructure, transportation is easy; but in India, we build small plants so that we can reduce transportation and have closer reach to the market. So, these six plants are getting developed in Chennai, Pune, Kochi in Kerala, Durgapur in West Bengal, Gujarat, and Uttar Pradesh. They are in different phases of development. Possibly, the first one would be commissioned in a couple of months' time and the last one would be ready by the end of 2019. We have tried to standardise a 200-tonne-per-day capacity for these plants.
How digitally equipped are you?
That is one of our strengths. Monitoring takes place in multiple stages; like, one is the plant operations. From Allan Town, our head office, you can actually see various plants located across the globe. From a safety point of view, this kind of a control and monitoring helps. There are many companies who are doing this for safety, and to bring in efficiency. So the operation of a plant is obviously happening on site, but then the parameters are monitored remotely, and we are trying to improve on things. The operations side of things is a world-class system. On the projects and other aspects, we have dashboards. We have a business quality function globally, which is headed by able people for standardising the dashboards.
Do you see a good area for coal gasification?
It is one of the big markets that we see in India. We are investing heavily in China. So India, as you know, has the fifth largest coal reserve. Going forward, we see that we can tap the coal reserves and save a lot of foreign exchange by that. Apart from coal, we are also looking at the conventional side of things. We are looking at coal gasification, which is one of our future opportunities, both globally as well as in India.
Today, 60 per cent of the coal is used by power plants and possibly around 4-5 per cent in steel and cement. About 30 per cent is used in chemical derivatives, and that is the space we see. Gasification is the cleanest way of using coal. So one of the questions we ask when we talk about coal is, is it clean enough? Gasification technology brings in that advantage. So, we acquired the technology from Shell. We have 200 plants across the world. It is a proven thing and it is promising to have clean coal.
How are funds arranged?
We are one of the few cash-rich companies. We are looking at opportunities with leveraging capabilities, such as cash plus and operating capital from various investments. Our investment can go up to around $12-15 billion globally; so, there is a team studying opportunities in different countries, such as China, Russia, and India. It is all about the right opportunity.
How is ROI in Kochi?
The contract is for 15 years. In our group, we are constantly working on improving our EBITDA margin. Ever since our CEO took charge, four years ago, we have seen significant improvement in our EBITDA earning of around 36 per cent. We do not calculate EBITDA or returns plant-wise or project-wise, per se. Overall, if you see the group's perspective, one of the key parameters is that we monitor ourselves and try to excel.
What are your investment in R&D?
We are a technology-driven company and we brand ourselves that way. R&D is a part of our DNA. One advantage you get is that innovation and development pitch happens. It is a continuous process of people, knowledge, tools and technology, and innovation and improvement. We call the engineering sector that we opened here as the EPC hub.
Does upgradation come with a cost?
You have to be competitive to sustain in the market. Our EBITDA per plant is the best in the industry. We provide services by maintaining particular quality and assurance. We have verticals which are focused on product development. We are continuously evolving on various products in terms of capacity, market need, pricing, etc. So, when you are entering a new market like India, you first need to understand and analyse what the market needs actually, whether global products can fit in, or if we need to localise the products by making them market-specific. This innovation is continuously happening.
- RAHUL KAMAT