Haldia Petrochemicals Plans $17.5 Million Transition from Naphtha to Petrochemical Gas as Feedstock for Captive Power Plant

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Researched by Industrial Info Resources (Sugar Land, Texas)--In a bid to reduce annual energy-related costs by $39 million, Haldia Petrochemicals Limited (HPL) (Haldia, West Bengal, India) is planning to invest $17.5 million in HPL Cogeneration Limited (HPLCL), which it acquired in May this year as a wholly-owned subsidiary. The company plans to replace the use of the expensive naphtha with less costly alternatives such as refinery fuel gas and other byproducts from its petrochemicals manufacturing facility as feedstock for power generation. The company plans to involve GE Infrastructure, a branch of General Electric (NYSE:GE) (Fairfield, Connecticut), and Doosan Babcock Energy (West Sussex, United Kingdom) to implement the project.

HPLCL has an installed power generation capacity of 116 megawatts (MW) but produces only 70 MW of captive power and steam. HPL, which procures naphtha from the market for its own use to produce petrochemicals, also supplies the naphtha feedstock for the power plant. This was proving to be an expensive arrangement for HPL, which had come to rely heavily on the captive power plant due to the unstable nature of power supply from the national grid. Further to its acquisition of the power plant in May this year, HPL has been drawing up plans to substitute naphtha with inexpensive alternatives as feedstock. It started considering gas-based power generation in April when faced with the prospect of sourcing natural gas supplies from Reliance Industries Limited (BOM:500325) (Mumbai), which proposed tapping into the gas-rich Krishna-Godavari and Mahanadi basins on India's eastern coast and laying a gas pipeline to Haldia.

HPL is the only petrochemical manufacturing facility in India that imports naphtha for its own use. Other petrochemical producers in the country produce naphtha at in-house refineries or are gas-based units. Prices of naphtha have risen by 36% this year. Further, with the re-imposition of a 5% import duty on naphtha earlier this year by the Indian Government, HPL is estimated to suffer a setback of nearly $50 million. HPL is expected to further incur a loss of $25 million when its plant will be shut down from mid-October to December 2008 for expansion activities. In 2007-08, the company reported a 54% drop in net profit to $65.5 million from the previous fiscal year. Concerned by the negative impact of rising costs on its bottom line, the company is pursuing energy-saving projects that are slated for completion in the current and following fiscal years.

The HPLCL project will be implemented in two phases over a period of 12 to 15 months. In Phase I of the project, the company will invest $11.25 million to direct refinery fuel gas, also known as petrochemicals gas, as feedstock for the turbines in the power plant. HPL has a production capacity of 7 tons per hour of petrochemicals gas, which is being increased to 8.8 tons per hour in the proposed expansion project that is slated for completion by the end of 2008. In Phase II of the project, the company will invest an additional $6.25 million to feed the auxiliary turbine with inexpensive byproducts obtained from the naphtha cracker unit. HPL is expected to see returns on its investments within a period of six months.

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