Environment Clearance
The question of environmental clearance is an important one for Chemcrux (since as ayush rightly mentions in an earlier post, EC rejection would result in capex being delayed by 2-3 years at least). I dug into this in some detail today and there are some very interesting findings:
- I started by going through the environment clearance website going over all requests filed in all years in Gujarat for project type “Industrial Project 2” the type which chemcrux filed their EC request under. No requests have been approved since 2019. In the district Bharuch (where ankleshwar is) itself, 3 requests are pending. This gives us some idea about the state of environment clearance in Gujarat.
- This seemed to be a bit surprising to me (No EC in last 1.5 years) and hence I googled a bit about Ankleshwar a bit. A few good readings that I found on the subject are summarized in the following points:
- Bharuch district and ankleshwar in specific has been a place caught between tug of war between industrialists and the NGT (National Green Tribunal) and Gujarat Pollution Control Board (GPCB). It has been this way for some years at least, with the Indian Drug manufacturers Associated creating a presentation in 2015 demonstrating what steps they had taken to reduce the pollution in Ankleshwar, requesting GPCB to lift the ban on expansion/diversification of APi manufacturers in Ankleshwar.
- In 2018 when NGT via its report published the CEPI (Comprehensive Environmental Pollution Index) for highly polluted zones in India. Ankleshwar was 88/100 (above 60 is considered to be dangerous) was one of the worst polluted places in India.
- As per this TOI article in sep 2019, bharuch district and ankleshwar in specific has been a place caught between tug of war between industrialists and the NGT (National Green Tribunal) and Gujarat Pollution Control Board (GPCB). The NGT report in 2019 had ankleshwar’s CEPI score at 80 (which is a reduction from the 88 last year) but the score was still above the NGT recommended level of 60.
- As per this recent July 2020 article in Business Today this kind of a tussle between industrialists and NGT has been happening all over the country. Supreme Court was hearing a case involving MOEF on one side and NGT on the other. The case involves a May 14, 2002 circular issued by the Ministry of Environment and Forests (MoEF) allowing “ex post facto” (retrospective) environmental clearances (ECs) to polluting industries. About the 2002 circular, the Pune bench of the National Green Tribunal (NGT) first held in January 2016, that it “is illegal, void and inoperative”. The MoEF and the affected industries challenged the NGT order in the SC. The top court’s April 2020 order upheld the NGT’s ruling that the circular granting ex post facto environment clearance is “unsustainable in law”. The apex court declaring “ex post facto” environment clearance illegal is just one part of its order. It struck down two other key orders of the NGT: (i) revocation of green clearances and (ii) immediate closure of the polluting industries (three pharmaceutical companies operating in Gujarat). Why? It said: “The directions of the NGT for the revocation of the ECs and for closure of the units do not accord with the principle of proportionality.”
- As per what I can see online, the AQI for ankleshwar is not that bad. It is at 55. It has been similarly low for about a month. This reduction could possibly be due to the lockdown (it is likely most industries are operating at < 100% capacity utilization). One will have to monitor this over the next few months to understand how the situation is on the ground in terms of pollution levels.
the TL;DR is that this is a highly complex issue with ankleshwar at the center of it. As an aside, I had observed earlier how Chemcrux had adopted the Green color very much for their AR since FY19. In fact environment and energy conservation find special mention in their AR in last few years. This is (as far as I can tell) representative of the management’s focus on ensuring full compliance with all environment regulations.
Based on my findings, I’ll appropriately modify the questions I seek to ask the management.
As of right now I won’t modify my investment. Chemcrux is a good company for investing in. This specific capex might face EC headwinds, but it is difficult to stop a small company which wants to do capex from expanding. The long term investment thesis is still valid, this investigation just highlights the focus that current systems have on being environment friendly and how companies need to adapt in order to comply with existing regulations.