According to analyst the cost of the new cracker would be in the range of $230-250 million. The company officials say that project feasibility report for putting up the new cracker has been prepared and the company is working on the financial closure for the project. The scrapping of the old cracker is nothing new as these are the general ways the industry operates. However, this would be the first time, IPCL would be doing it.

Last month, Japanese firm Schwag had scrapped a much bigger 2.13 lakh tonne ethylene cracker as the unit was below the present day size of minimum economic size of unit of three lakh tonnes. Even Nocil has plans to phase out the present cracker and replace it with much bigger cracker of minimum viable size.

At the same time, the company wants to continue with all its polypropylene plants in Baroda which, according to the company officials, has an outdated technology. According to them, only PP technology has undergone a substantial change in the last one decade. But still, the internal evaluation by the company has placed the cost economics in favour of the old plant.

If the company goes in for new plants for PP, the capital cost would be minimum of $460 per tonne. This would have its effect on interest as well as depreciation. Considering that the present plants of PP are fully depreciated the gains in variable cost (due to better yield rates and lower energy requirements) do not offset the advantages of negible fixed cost of the present plants.

Basically, IPCL has three PP plants in Baroda having a capacity of 25,000, 30,000 and 75,000 tonnes. The first PP-1 having a capacity of 25,000 tonnes has not run for the entire year so far. But the company spokesperson is quick to point that the reason for not running the plant is not low yield rates.

The plant suffered raw material linkage problems. The new port at Gandhar is not sufficient to meet the import requirements of all the products. As a matter of priority, the company first imports naphtha, then ethylene and lastly propylene. This choice again is dependent on host of criteria such as market prices for various products and feedstock prices in international markets.

Last year (1998-99), propylene prices (raw material for making PP) were high, while naphtha (raw material for cracker) and ethylene (raw material for making polyethylene) were low. It made better economic sense to produce polyethylene rather than PP. The reduced amount of raw material led to the company operating only PP-2 and PP-3 plants. The advantages were better cost structures in PP-3 plant and PP-2 plant, as their output is higher and energy requirements per tonne is lower.

The raw material problem is not expected to be eased out in this financial year. The port being built by IPCL, Gujarat Fertilisers and other partners in Gujarat would take another three quarters for completion. Once the port is completed, the raw material linkages problem would be solved and the company would start operating the PP plants at full capacity.

According to the company spokesperson, out of the two 12,000 tonnes lines of the acrylic fibre plant, one of them is very old and requires technology upgradation. In ethylene glycol, the capacity of the plant is too small compared to that of minimum economic size.

But for the other plants in Baroda, not much change is required. Last year, the PVC plant (1998-99) operated at 101 per cent capacity utilisation. The technology at this plant is better than DCW and similar to that of Reliance.