Indian Petrochemical Clusters – 'refining' its

way to success

Gandhinagar, 29th July, 2017

Petrochemical Conclave - July 29 2017 VFINALSHAREDpptx.pptx 1Draft—for discussion only

Copyr

ight

© 2

014 b

y T

he B

osto

n C

onsultin

g G

roup,

Inc.

All

rights

reserv

ed.

3% 2% 5% 6% 4% 2% 8% 10%

Indian Petrochemicals Industry is poised for sustained

growth

Indian Petrochemical industry

closely aligned to GDP growth

• Additional requirement of 50 +

MMT1 in India by 2025 with GDP

growing between 7-8%

Source: IHS Nextant, Oxford Economics, BCG analysis. Petchem consumption in MMT 1. 57 MMT is the cumulative additional requirement in 2025 compared to 2016

India's GDP & Petchem industry

Per-capita plastics consumption, 2016

8.914.530.7

74.687.591.098.2101.0

0

100

BrazilTurkeyChinaSaudi

Arabia

United

States

Israel IraqIndia

1

1,500

2,000

2,500

75 80 85 90 95 100 Petchem Consumption

GDP ($ Bn)

20162015

2014

20132012

2011

India's ~14 kg/capita of plastic

consumption amongst the lowest in

the world

• Expected to increase to ~27

kg/capita in 2025

CAGR

('11-'16)

Key industries driving petrochemical

consumption expected to maintain

sustained growth trajectory

• Top 3 industries expected to grow

at ~10% CAGR over next 5 years

Top industries driving Petchem industry

Others (13%)

Electronics (4%)Construction (21%) | 7%

Packaging (41%) | 18% Automotive (8%)

Consumer Goods (13%) | 5%

Series (%share of Petchem) | CAGR '16-'21

2

3

Petrochemical Conclave - July 29 2017 VFINALSHAREDpptx.pptx 2Draft—for discussion only

Copyr

ight

© 2

014 b

y T

he B

osto

n C

onsultin

g G

roup,

Inc.

All

rights

reserv

ed.

Strong rationale to set up Petrochemical / Chemical parks

in India (1 of 2)

Significant part of 'landed cost' in polymer

industries is in feedstock procurement &

logistics

Efficient designing of combined ecosystem

& logistics infrastructure to ensure 'efficient

and secure long-term access'

1

0

50

100~3-5% ~10-15%

Raw Mtl.

Cost

Logistics

Split of costs in polymer processing industries

Processing Admin &

Labour

Total Cost1

~70-75%

~10-12%

Chemical industries Auto-mobile industries Textile industries

Source: BCG analysis, industry analyst reports, iBEF website 1. Total cost implies the 'landed cost of the product, i.e includes cost for raw material, processing, admin & labor and logistics for transportation.

Most industries are geographically

dispersed by 'demand', but regionally

clustered around 'supply'

Trade hubs and demand-supply centers can

be co-located in Petchem complexes – to

drive 'efficiency' & ensure 'local content'

2

Industrial hubs due to

supplier base proximity

Demand

centers

Demand

centers

Petrochemical Conclave - July 29 2017 VFINALSHAREDpptx.pptx 3Draft—for discussion only

Copyr

ight

© 2

014 b

y T

he B

osto

n C

onsultin

g G

roup,

Inc.

All

rights

reserv

ed.

Strong rationale to set up Petrochemical / Chemical parks

in India (2 of 2)

Petchem complexes provide significant cost

optimization advantages due to scale and

co-location

• Reduction in energy footprint and

increased efficiency

• Easier movement of final outputs as

inputs to other downstream sectors

• Enables efficient utilization of side streams

• Common investment in required

infrastructures (rail, ports, pipe-

lines, …) - reduces investment requirements

and minimizes environmental footprint

• Shared services on R&D, utilities, waste

management and asset management can be

leveraged

• Ring-fenced fiscal incentives can be

deployed efficiently

3

BASF Ludwigshafen is the

largest integrated chemical

complex in the world

capturing all stream

synergies

e.g. hydrogen from PDH is

reused in Ammonia plant

Leuna in Germany has 70 %

of products leaving by rail &

95 % averaged reduction of

the environmental

impact at the chemical site

since 1989

Air Liquide Ludwigshafen

captures utility synergies

very efficiently

e.g. heat from an exothermic

reaction is reused in an

endothermic process

Validated in global Petchem complexes

Petrochemical Conclave - July 29 2017 VFINALSHAREDpptx.pptx 4Draft—for discussion only

Copyr

ight

© 2

014 b

y T

he B

osto

n C

onsultin

g G

roup,

Inc.

All

rights

reserv

ed.

Smaller but denser scale, strong rationale and international

presence are some key lessons from Global Complexes

Complex

Leuna, Germany

ALOSBİ, Turkey

Shanghai, China

Dow, Germany

Scale

13 km2

100 +

9 km2

40 +

29 km2

50 +

6.5 km2

20

Strong Rationale

Proximity to Lignite mines

& need for end to end

services by companies

Proximity to seaport &

existence of the area as

trading hub and heavy

industry zone

Tapping into Shanghai's

human capital strength in

technical education

Need for Dow to leverage

key partnerships in

downstream

Size in km2 # companies

High International Presence

Primary Specialty Consuming ind.

Petrochemical Conclave - July 29 2017 VFINALSHAREDpptx.pptx 5Draft—for discussion only

Copyr

ight

© 2

014 b

y T

he B

osto

n C

onsultin

g G

roup,

Inc.

All

rights

reserv

ed.

Upfront clarity and focus is essential to ensure "execution

certainty" in setting up Petrochemical / Chemical parks

Key levers to mitigate execution risks Issues / questions

Strategic focus

Tenancy objectives

Offering

Supply chain setup

Practices

Marketing

Organization

Financials

Source: BCG analysis

• What are the strategic goals of the PetChem park

and how have others historically strived to reach

them?

• How many (and what kind of) tenants and how

much investment should be targeted realistically?

• What will the Park offer to their tenants in terms of

support and shared services and infrastructure?

• How will the Park position itself in the supply chain of

component manufacturers and OEMs?

• What are the typical logistical facilities and linkages?

• What best practices will the Park adopt to make

themselves attractive towards potential tenants?

• How will the Park market itself domestically as well

internationally?

• What relations and channels could be leveraged?

• How are the organisation / structure / governance

options for the Park?

• What financial objectives should the Park adopt?

• What could be the acceptable trade-offs?

Petrochemical Conclave - July 29 2017 VFINALSHAREDpptx.pptx 6Draft—for discussion only

Copyr

ight

© 2

014 b

y T

he B

osto

n C

onsultin

g G

roup,

Inc.

All

rights

reserv

ed.

Global Petchem Parks have adopted appropriate response

to overcome similar challenges

Well-planned

downstream

industries

Policy incentives

Rigorous

governance

& strategic

partnerships

Design of world-

class integrated

complexes

• The Sadara Chemical Complex has a robust downstream network

• 40+ diverse products can be produced at its 26 plants

• Utility & process synergies are well captured for cost competitiveness

• Petronas RAPID plant Malaysia introduced attractive tax exemption

• Tax incentive aimed at attracting international investment

• Policy resulted in attracting developers to the petchem project

• Alosbi Aliaga Ind. Zone Turkey has a robust governance model

• Permits, licenses & approvals fast-tracked to 50% lesser time

• 'One Stop Office' enables seamless governance and PMO

• BASF Ludwigshafen – world's largest integrated chemical complex

• Diverse industries creating synergies for cost competitiveness

• Process, Infrastructure and shared services synergies fully captured

Petrochemical Conclave - July 29 2017 VFINALSHAREDpptx.pptx 7Draft—for discussion only

Copyr

ight

© 2

014 b

y T

he B

osto

n C

onsultin

g G

roup,

Inc.

All

rights

reserv

ed.

Call to action: Accelerated review of current challenges and

mitigation options

1

Review / refine product opportunities, potential tenants and relevant markets

• Review long-list of product opportunities

• Analysis of target markets in the region

• Investor segments (tenants) and mapping with product opportunities

• Short-list of opportunities, i.e. prioritized opportunities

• .......

2Leverage learnings from global PetChem clusters

• Assessment of select global clusters

3

Review / define a focussed value proposition

• Unique attractive proposition

• Enablers to attract investors (supporting government programs/policies, financing, training

programs, ...)

• Review / refine overall marketing concept

• Align on key communications, outreach initiatives, ...

4Review & refine implementation roadmap and a robust project governance process

• Review and streamline coordination mechanism between stakeholders

Thank you

bcg.com | bcgperspectives.com