Supreme Court hearing on Oct 9th 2018 for giving exemption on Ban of Pet Coke Import

Quick recap: 

1. On 26^th July SC allowed only 4 industries to import pet coke: Gasification (mostly beneficial to Reliance Industries), Cement, Lime Kiln and Calcium carbide industries.
2. HEG and Graphite India has lobbied hard with govt departments and finally able to convince the SC to lift the ban from importing needle coke.
3. Aluminium and Steel companies were exempted from the ban and were allowed to import CPC for 2 months till 9^th Oct hearing in SC.
4. Calcining companies were the most impacted due to this ban and are now struggling to keep their plants running with very limited days of inventory of GPC remaining with them.
5. Many people can’t understand why it was allowed to be imported by Cement companies who use the low-grade pet coke imports with high sulphur content. But to the fact to keep in mind here is that 4 exempted industries by SC they absorb the maximum sulphur while using pet coke as feedstock. So they don’t pollute much even though they use low-quality pet coke. Whereas in calcining process pet coke is partially burnt to remove the impurity in it. And that process releases sulphur in the environment. If there is no Sulphur Scrubber installed at the plant the entire sulphur pollutes the air and that is the reason why it was put under the ban.

So now what we can expect from SC hearing on 9^th Oct? 

Let’s examine many scenarios:

1)    Lifts the ban completely

SC allows Aluminium and Calcining industry to import pet coke without any restrictions.

Probability:  Very Low

Positive:       For all 

Negative:     None

2)    Lifts the ban conditionally, accepts new BIS norms

SC accepts new BIS norms for permissible limits of Sulphur among other new rules to limit the pollution level arising out of use of Pet Coke. These rules might be stricter from earlier norms. All companies might have to take new pollution clearance certification after inspection by the local pollution dept under new norms. Only after that, they might be allowed to import pet coke. It might take 4-6 weeks before they can actually be able to start importing the pet coke.

Probability:  High

Positive:       Only for those companies who got modern pollution control equipment installed at  

                     plants. Good for Rain Industries and most likely for all Aluminium companies.

Negative:     For Goa Carbon. It has got 3 plants in 3 different states and doubtful to have proper

                      pollution control equipment installed at 2 of those plants.

3)    Lifts the ban for Aluminium and Steel but makes stricter norms for Calciners

Based on Government’s inputs SC puts very strict pollution control norms for Calcining industries. Making them compulsory to have Sulphur Scrubber and other equipment in place before allowing them to import pet coke.

Probability:  High

Positive:       Aluminium Companies.

                      Good for Rain Industries slightly.

Negative:     For Goa Carbon.

Price impact:  Many small calciniers in the country would have to shut down their operations which were dependent on imported pet coke because they cannot invest huge money for such equipment. This will push the domestic prices of CPC to some extent and help larger players.

4)    Lifts the ban for Aluminium but defers the decision for Calciners

SC may allow Aluminium companies to import pet coke based on their readiness of new BIS norms. But it may ask the government departments (EPCA, DGFT etc.)  to formulate the guidelines/pollution norms separately for calciniers. And as usual, it might give them 6-8 weeks’ time for the next hearing.

Probability:  High

Positive:       Only Aluminium Companies.

Negative:     All Calciniers. Rain Ind, Goa Carbon. Rain and Goa Carbon both will struggle to keep their plants running. And might have to shut down the plant for maybe 2-3 months.

5)    Defers decision for next hearing

SC may defer it to next hearing for want of more clarity and info from govt and companies involved.

Probability:  High

Positive:       None.

Negative:     All Calciniers. Rain Ind, Goa Carbon.

6)    Holds the ban

It is least likely but well within Supreme Court's consideration. SC may continue the pet coke import ban for all including to Aluminium and Steel industries.

Probability:  Very low

Positive:       None.

Negative:     Big negative for Goa Carbon, might have to shut down. 

• Medium shock for Rain Industries, they have to curtail or shut down India CPC production. 
• Aluminium companies will have to import pre-baked anodes which will push their cost of production by 50$ per ton. Till now all of them were producing their own anodes using CPC and CTP. So in the worst case, Aluminium companies will survive but the cost of production will increase and profitability will suffer. 
• Himadri Specialty chemicals will also suffer because Aluminium companies were the main users of CTP produced by them in the country. They will have to export that volume, which is not easy.

Conclusion:

Things to remember:

• There is no threat as such on CPC industry in the country. Supreme Court has not banned production of CPC in the country. CPC producers can keep production going on but only with the pet coke (GPC) which is produced in India. Ban is on importing pet coke from other countries. Neither government nor SC has said that CPC producers are polluting more than others and hence are being banned. They have only this position that imported pet coke is causing more pollution than domestic pet coke. This is right but only in the case when it is used as fuel and with low-grade pet cokes.
• In India anode grade pet coke production is very low compared to the demand from CPC producers. It is kind of only 25% demand is fulfilled domestically; the rest 75% has to be imported. In such a case government and SC won’t push for killing this industry for want of raw material. There is no alternative to pet coke to produce CPC.
• Also in the last 2 months, Rupee has been falling nonstop, govt is trying hard to increase export and decrease import in the country to help the Rupee. In this context, they don't like to kill this CPC industry and push all Aluminium companies to depend on imports. DGFT won’t support now such idea.
• Like Graphite Electrodes is for EAF steel production, CPC is also a critical material for producing Aluminium and there is no other alternative way to replace CPC with something else. So this will be a big factor in convincing court about the critical nature of this product.

So in most likely case, Supreme Court may take few more weeks/months to hear the case before coming to a decision. But in all probability things will be better for all better companies mostly who have invested in pollution control measures and are not taking it lightly. Just see how poorly Graphite India management has been managing its Bangalore plant with numerous protests against them by residents. Now SC is in no mood to entertain the polluting industries.