Assam Petrochemicals Ltd Management Discussions

1. INDUSTRY STRUCTURE AND DEVELOPMENTS

Methanol (CH3OH) is a single carbon compound which can be produced from Natural Gas, Coal, Biomass. Methanol is an efficient fuel (octane number 100) and emits lesser NOx and Particulate Matter than the Gasoline and produces no SOx and there is no Sulphur in Methanol. China is the largest Methanol producer in the world and they produces almost half of total global production. Globally the Methanol is used for production of Formalin, Acetic Acid, DME, MTO/MTP, as fuel etc.

India is at a nascent stage in methanol production and usage but it has a large potential given its wide applications. There are only five methanol producers in India. In India Methanol is produced from Natural Gas only. In a NITI Aayog report on Methanol Economy stated that the Methanol production has been fallen by 57% from the output in 2010-11 to 2015-16 whereas the Methanol consumption has risen by 61% during the same period. The installed capacity of Methanol in India is largely static and producers are not utilizing their full installed capacity. In order to meet the growing domestic demand India imports 90% Methanol from Iran and Saudi Arabia.

Assam Petro-Chemicals Ltd. is in this business of manufacturing and marketing of Methanol and Formalin for last four decades. Assam PetroChemicals Ltd. is producing Methanol from natural gas available locally. Formalin is a downstream product of Methanol produced by the company in its plant located at Namrup, Assam. The company is one of the leading manufacturers of Methanol and Formalin in the country

2. OPPORTUNITIES, THREATS, RISKS AND CONCERNS

• Opportunities

The Methanol market is growing very fast in India. Considering the growing demand, the company is currently implementing natural gas based 500 TPD Methanol expansion project alongwith a value added downstream 200TPD Formalin Project in Boitamari, Bongaigon district of Assam. The Formalin market is also growing very rapidly in India and our neighboring countries viz. Bhutan and Nepal. In order to tap the growing market demand for Formalin, the company has successfully completed its 25% expansion project in the Financial Year 2012-13 and it is running satisfactorily

The company has been exporting its products to Nepal, Bhutan and Bangladesh. The Act East policy of Govt. of India and opening up trade and business with South East Asian countries is expected to help the company to market its Products in these countries.

The Ministry of Road, Transport and Highways, Govt. of India has allowed the use of M-15, M-85, MD-95 and M-100 as fuel in the country. As per the media report NITI Aayog, the thinktank of the Central Government has moved a cabinet note for approval of the Central Government to make 15% methanol blending compulsory with petrol. The Central Government has also decided to 100% methanol run 10 buses each in Mumbai and Guwahati shortly. Assam Petro-Chemicals Limited will supply required quantity Methanol for running these buses in Guwahati. The company is about to launch a pilot project to use methanol as cooking fuel. The pilot project will be launched at Namrup initially and on success of the project same will us launched on commercial basis. Methanol can also be used as fuel in power generation set and run power tiller in agriculture sector. Generator sets with 4 KW and 15 KW are already available in Indian market. With the introduction of Methanol blending with fuel and other alternative uses will lead to increase the domestic demand of Methanol manifold.

Di-Methyle Ether (DME) is another efficient fuel and burns with lesser NOx, Particulate Matter (PM), no SOx. It is clean fuel can be used diesel alternative and blend with LPG. It is non-toxic

compound and is safe to handle. Assam PetroChemicals Ltd is preparing a DPR for setting up a DME plant at Namrup.

• Threats, Risks and Concerns:

• The existing Methanol plant is twenty nine years old and needs regular maintenance to keep the plant in healthy operating condition to get better results.

• The cost of production is very high due to low capacity of the plant with old technology resulting in high energy consumption as well as high fixed cost per ton of production of Methanol.

• For limited market in the present economic environment in the N.E. region is major concern of the company because of which the products are required to be transported at high freight to the distant market situated at Eastern, Northern and Southern parts of the country.

• Stiff competition for the products due to existence of a large number of small and big manufacturers of Formalin and import of Methanol in large quantity. While the demand of both Methanol and Formalin in the country is constantly on the rise, domestic production is also rising due to setting up of new Formalin plants.

• The company produces Methanol using Natural Gas (NG) as raw material. Oil India Ltd. supplies gas to the company from the gas fields available nearby. Depleting of NG availability and no new major discovery of NG in the adjoining area is a concern for the company.

3. PRODUCT-WISE PERFORMANCE:

Product wise performance is discussed in details in the DirectorsRs Report under the head Operating Results.

4. OUTLOOK:

The company is implementing a 500 TPD Methanol 200 TPD Formalin project along with a Captive Power Plant at an estimated capital investment of Rs1,33,700 lakhs with equity participation of Oil India Limited (49%) and

Assam Gas Company Limited. Oil India Ltd. has since given the commitment for the supply of the requisite quantity of natural gas for the new plants. This new petrochemical complex at Namrup will be a giant petrochemical complex in the entire North Eastern India.

4. INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY:

The company has an effective internal control system which is further strengthened by conducting internal audit by Independent Chartered Accountants firm. All the proposals involving expenditure above certain amount are subject to financial concurrence through the Finance Department followed by approval from Competent Authority of the Management or from the Board of Directors (depending upon the value of proposals).

The company is being a Government of Assam undertaking, Comptroller and Auditor General of India performs the RsTransaction AuditRs and "Performance Audit" from time to time to ensure that the business of the company is carrying on utmost care and no wastage for public wealth.

5. DISCUSSION ON FINANCIAL PERFORMANCE WITH RESPECT OF OPERATIONAL PERFORMANCE:

The financial performance of the company for the Financial Year 2017-18 is discussed in details in the DirectorsRs Report.

6. MATERIAL DEVELOPMENTS IN HUMAN RESOURCES/INDUSTRIAL RELATION FRONT, INCLUDING NUMBER OF PEOPLE EMPLOYED:

The company has been utilizing the available human resources in the most effective manner to improve productivity. The company has been inducting mixture of experienced and young professionals during the last few years such that the strength of the qualified persons in all disciplines does not get depleted. Induction in the intake level is planned to be increased in the future with the implementation of the expansion and diversification scheme undertaken by the company. The manpower strength and Industrial Relation have been deliberated in the DirectorsRs Report in details.