Prakrut Mehta

With the markets becoming competitive and demand for industrial land on the rise, site selection is becoming one of the most defining factors. More so, if it is a chemical plant, as it is tagged on with the social and environmental impact. Scrutinising the relevant factors will lead to the determination of the ideal site for setting up of a unit.

Site selection can be best described as a logic-driven exercise that needs to be carried out systematically. When it comes to actually finalising a site for a plant set-up, it is an investment decision having a lot of implications. Therefore, this calls for a lot of time and thought before selecting the site. For a manufacturing firm, it is certainly not a real estate investment alone. Compared to the total investment in plant and machinery, the real estate cost component may end up as a 5-10 percent factor.

Hence, before finalising the site deal, companies need to consider several issues that have the potential to impact the business prospects. Given below is a generic list of factors, which usually influences the decisions.

Political climate: A hassle-free and pro-industrial environment is desired. The broad indicators will be a historical track record of the area. While most established industrial areas will qualify in this aspect, there are few regions in the country that are still not really favourable. A chemical plant set-up in a sensitive densely-populated region may not be the most suitable, if the discharge is toxic even after treatment. One must consider this factor in detail, as some of the issues may be raised after the plant is up and running. This is more applicable if it is a freehold land and not an Industrial Development Corporation’s allotted land.

Site infrastructure: While basic infrastructure like power and water is a must, as on date, availability of these basic facilities vary across regions. Also, it will depend on the type of process plant being set up. A continuous process plant may require continuous power supply where as a Distributed Generation (DG) support system may become unviable. Certain industries may require a large supply of water also. A check on the reservoirs and sources are best advised under such circumstances. Natural gas networks are still being proposed in various parts of the country, which can be a driving factor for many.

Location infrastructure: Proximity to ports will be critical, if it is more of an import- or export-oriented unit. Connectivity through air, sea, roads and rail should also be considered. While highways are being widened in various regions, quality of internal roads to industrial estates is still one of the reasons for favouring a site over another. Currently, as the freight train lines are being revamped across the country, locating the site in proximity and in parallel to container rail stations is advantageous. Availability of a common effluent treatment plant or a sewage treatment plant will be important in case of plants having significant effluent discharge.

Strategic fit of the macro location: All said and done, the location selected should make business sense. Weightages have to be assigned to criteria in order to finally determine on what to compromise and what not to. If not, there is a possibility that one can be flooded with choices and this will result in more time in taking the final decision.

Neighbouring industries: Sometimes the best indicators are the neighbouring industries. It will offer the required insight into the industrial estate related to infrastructure, manpower availability, operations environment, etc. Discussions with existing plants may throw light on factors such as flooding, power outages, lack of water supply during summer season, etc. Also proximity to raw materials or clients may significantly impact the business prospects. A Just-In-Time or continuous supply of the product requirement to the client may result in the attempt to find alternative solutions to any deficiency in the location.

Buying existing unit: In case a chemical unit is to be set up on a land, which was utilised in the past for any activity, investigations need to be carried out to assess the physical condition of the land. Discharge to the soil, levels of penetration of the discharge, condition of ground water, etc. need to be analysed. Reusability of an existing unit is mostly not viable as most chemical plant structures are highly customised. Time and cost factors related to demolition/modification, among others, which will affect the operation start-up date, have to be estimated in advance.

Buy vs lease: The trend in the past for any large industry set-up has been to own the land or take it on a perpetual lease from the concerned State Government’s industrial body. In recent times, many multinational organisations that realise the potential benefits of having a manufacturing unit in the country are considering an initial lease with buy-back options. While a financial analysis may prove that leasing out from a landlord will be more expensive than owning the land over a longer period, many multinational organisations are preferring a lease (or sub-lease in case of an Industrial Development Corporation land), if they are more or less testing the waters in new markets with respect to products manufactured from the particular facility.

Special zones: Setting up a unit in Special Economic Zone (SEZ) or Export-oriented units (EoU) or Industrial Development Centre (IDC) is more or less a financial decision. Any organisation must scrutinise the financial benefits associated with these zones in terms or tax rebates, duty waivers and other factors vis-à-vis the business markets the particular unit will be catering to. What today might be more of an EoU may have a fair share of domestic sale in the next five years.

Greenfield projects: Most contracts in the chemical industry are taken up by specialised engineering contractors. The degree of land development work required also has to be assessed. The type of land – whether marshy or rocky – will have implications in the pilings required and have a bearing on the construction timelines. Land orientation or dimensions will also play a part as many-a-time it is not possible for chemical units to spread out or reorient according to the land orientation. Mostly, a square or a well-proportioned rectangular site is preferred. This has to be arrived upon at an early stage as land availability vs required dimensions can be a challenging factor in many markets.

Expandability: Very rarely will an organisation invest without plans for expansion. This being the case, an option of expandability is crucial. While ground coverage ratios are in play, it is important to foresee how much area-wise expansion is expected in a certain timeline. If expansion is highly sought-after, availability of adjoining land must be considered at an early stage as land may become scarce in future.

Response centres: In case of fire or requirement of medical aid or infrastructure or if a quick response system is desired, government-owned industrial estates are best advised. In such situations, a dedicated body to approach in any emergency will be more readily available than in isolated standalone facilities.

Approvals/permissions/land title: The approvals and permissions have to be sought in two perspectives. One is related to land & building, and the other will be related to the activity proposed. The land has to fall in the industrial use zone. With regard to chemical industries, there are further classifications based on the green, orange or red category the process falls under. Raw materials, processes, effluents and finished products will determine the category.

Defining the ideal site

Though land cost is one of the most important factors while determining the site for setting up of an industrial unit, for a chemical plant it is something that can come into play after various other mandatory criteria are met. An appropriate technical and financial analysis is what will lead one to the best possible site for a long-term set-up.

Prakrut Mehta is national director of industrial and office agency at Knight Frank India.

Source: Chemical World