The Chatterjee Group plans Haldia consolidation for Indian operations

After settling the long-drawn dispute with the West Bengal government over the shareholding pattern in its flagship project, Haldia Petrochemicals Ltd (HPL), Purnendu Chatterjee-owned The Chatterjee Group (TCG) has started consolidating itself in the state, making Haldia, a port city in West Bengal its stronghold in the country.

TCG has decided to set-up a refinery in Haldia at an investment of Rs 26,000 crore and has already floated a company, which will become the holding company for the new venture. For the project, it has acquired around 800 acres of land and has asked the state government to allot another 1,700 acres.

An official in knowledge of the plans said that TCG is yet to narrow down on the refinery capacity which may either be 15 million tonne (mt) or 30 mt but it will need huge tracts of land, preferably near the Haldia port to establish a township which will be part of the refinery project.

TCG became the flagbearer of industrialisation in West Bengal under the Left Front rule when it set up HPL during the 1990s. The idea to open a refinery and consolidate its presence in Haldia was conceived together with the plan. However, HPL ran into trouble with its consolidated losses stretching beyond Rs. 3,400 crore on account of stressed market dynamics and unavailability of working capital.

Thus while HPL took off with raw material assurances from Indian Oil Corporation, the idea of the refinery was left behind.

A senior company official said that the banks were hesitant to offer a loan restructuring package as its shareholding with the state government was disputed which worsened the situation.

“Amidst these concerns, the idea of the refinery was buried. Now that the issue of shareholding has been resolved and the financial condition improved, we can again relook at the refinery”, a senior HPL official said.

The stakeholding dispute was resolved in 2015 and a consortium of banks, led by SBI, helped the company to bounce back via debt restructuring.

As per the official, TCG had always wanted to consolidate itself in Haldia, use the port to its benefit and operate its projects on the backward integration model. 

Despite HPL being India’s largest polyethylene producer with an installed capacity of 0.7 million tonne (mt) and also can roll out around 0.34 mt of polypropylene each year, it remained dependent on sourcing raw materials from Indian Oil’s refinery in Haldia as TCG’s own refinery didn’t come up. After a few years, the stress on sourcing increased as Indian Oil itself entered the petrochemicals business and thus began competing head-on with HPL.

Now, Chatterjee, who was once West Bengal’s poster-boy for re-industrialisation of the state under the Left Front, wants to implement the model he had envisioned during the foundation of HPL.

The naphtha which will be produced from the refinery will be used as the primary raw material for HPL to manufacture polyethylene and polypropylene. Besides, its recent acquisition of the Mitsubishi Chemicals plant also assures steady supply of paraxylene to HPL which is another key input material.

“The proposed refinery and the recently acquired chemicals plant from Mitsubishi gives HPL security over the input materials which has been a concern since operations started”, a source said adding that there is going to be definitive reduction in the procurement cost of raw materials by HPL.

In November last year, HPL had decided to pump in Rs 300 crore to set up a 40,000 tonne butane producing unit to reduce its raw material dependency from other sources.

On a revival mode, HPL is hoping that its earnings in the 2016-17 fiscal year would hover around Rs 7,500 crore with a good profit margin to pay off part of its near Rs. 4,000 crore debt.