BP dumps old partner to set up acetic acid plant with IOC

Oil and gas major BP gave up on its partner of 15 years in its bid to set up one of world’s biggest acetic acid plants in India.

The reason: It found a bigger and better ally in the Indian Oil Corporation (IOC).

After almost two years of repeated requests from the Gujarat Narmada Valley Fertiliser Corporation (GNFC), a relatively small player to the one it was pitted against, BP refused to extend its patented acetic acid manufacturing licence to the firm to set up a new plant.

Instead, it went ahead and tied up with IOC to set up a world-class acetic acid plant in Gujarat, the announcement of which was made by BP’s chairman Bob Dudley during his recent visit to India.

The proposed plant is expected to be the biggest in the world and would bring in investments worth over R1,000 crore. Unfortunately, it is a major blow to the expansion plans of GNFC.

For the last 15 years, the Bharuch-based GNFC used BP Chemicals’ patented methanol route technology to manufacture acetic acid in India. BP Chemicals is the chemical arm of BP.

Acetic acid was traditionally manufactured from ethanol but, of late, methanol is being looked at as a more viable option as the operating costs are also lower if the plant sizes are substantially big.

Another reason why companies want to go for the methanol route of acetic acid manufacturing is because ethanol in the country is usually used in distilleries for the manufacture of alcohol and, going ahead, it will see increased demand from oil companies because of government norms on blending ethanol with automotive fuel.

By virtue of its extensive usage in the textile industry for processing, printing, paints, adhesives and as an important preservative in the food industry, acetic acid is rapidly growing in demand in India.

BP is one of the few companies in the world with the technology to manufacture acetic acid from methanol. Other major players with a similar technology are Dallas-based Celanese, Salt Lake-based Hunstman International and Chiyoda of Japan.

With an increasing demand and to leverage its market presence and experience, GNFC laid out an ambitious plan to set up a new greenfield facility to produce 6 lakh tonnes of additional acetic acid in the state three years ago, obviously expecting BP to extend the licence for the new plant too. ?We started negotiations with BP three years ago to extend the licence for the new plant but they never agreed,? said a top official in GNFC.

In fact, sources said BP had simultaneously started negotiations with Indian Oil to set up a giant project to manufacture acetic acid in Gujarat, which would give it a firmer foothold in the country, a more cost-effective way of producing acetic acid due to Indian Oil’s access to methanol and possibly a buyback agreement, too, from IOC, he said.

Finally on November 2011, BP signed a memorandum of understating (MoU) with IOC to set up a million metric tonnes per annum plant of acetic acid manufacturing plant in Gujarat.

It was proposed that the plant will also accompany gassification facilities for production of synthesis gas (Syn Gas).

The proposed acetic acid plant would employ BP’s latest Cativa XL technology, while the gassification facilities would utilise petroleum coke feedstock from Indian Oil.

The MoU not only gave a jolt to GNFC’s plans, its agreement with BP does not even allow it to bring in that technology from someone else.

Rajiv Kumar Gupta, managing director of GNFC and principal secretary ? water supply, Gujarat government, said: ?We have scrapped the plan to set up the plant now.?

While he did not give further details, a company official said since its agreement with BP was signed 15 years ago, GNFC does not have any clause to prevent BP from associating with any other player, too. ?We even tried convincing Indian Oil for setting up with us and use our facility, but they never came back with a decision on that,? the official said.

When contacted, RK Ghosh, director ? refineries at Indian Oil, refused to divulge anything on the matter regarding GNFC.

?All I can say is that we are going ahead with the plan to set up the plant,? he said.