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In the second week of May, as the brutal second wave of Covid-19 began to fade in Maharashtra, Chief Minister Uddhav Thackeray was in Osmanabad. A sugar factory in the) district opened a new factory.

It is not an ordinary plant. The steel structure, with huge cylinders nested in it, is an oxygen generation facility. The state first appeared in a sugar factory, which relied on pressure swing adsorption technology to produce oxygen from the atmosphere by filtering other gases.

Before that, the country had hardly used PSA technology. When the daily demand for medical oxygen in India surged from 700 metric tons before the pandemic to more than 9,000 metric tons, PSA technology became the focus of attention in the second wave. Due to the country’s difficulty in transporting liquid medical oxygen over long distances, many patients have died, even in hospitals.

In the face of criticism of its failure to expand its oxygen capacity, the center has accelerated the installation of PSA equipment in hospitals because they are cheaper and faster to install than large-scale liquid medical oxygen equipment. In turn, the state government has proposed policies to encourage private investment.

Attracted by the unexpected gains made by many oxygen suppliers in the second wave, entrepreneurs began to see the PSA factory as a business opportunity. Some people think this is a way to contribute to society. In Maharashtra, PSA factories have even begun to appear outside hospitals, such as sugar factories.

When the Chief Minister personally inaugurated the PSA plant of the Dharashiv Sugar Factory in Osmanabad, it reinforced the view that this business is supported by the government.

But five months later, the Dalashif factory was idle. With it, the initial enthusiasm of private companies in establishing oxygen plants is waning. Some entrepreneurs investing in this industry worry about the losses they face. In the sugar belt of Maharashtra, the bubble seemed to burst.

Six months after the disastrous second wave of Covid-19 swept India and plunged the country into a severe oxygen crisis, how did the government's management of oxygen develop? Is India prepared for the third wave of pandemic? A three-part series will be studied in detail.

Throughout India, states have announced a series of subsidies to encourage private companies to build oxygen plants.

The 2021 Medical Oxygen Production Promotion Policy initiated by the Delhi government in August provides full reimbursement of stamp duty on land purchased for the oxygen plant and goods and services tax incurred when the equipment is purchased. Private companies that set up factories will receive electricity subsidies of up to Rs 4 per piece of equipment and capital subsidies of up to Rs 2 million for purchased factories and machinery in the first five years.

Rajasthan provides capital subsidies of up to 25%; Madhya Pradesh can reimburse up to 50% of construction and machinery costs, as well as a rebate of 1 rupee. In Tamil Nadu, a private PSA factory will not only receive a 30% capital subsidy, but also reduce stamp duty, electricity bills and loan interest.

Maharashtra has also proposed generous incentives: a discount of Rs 2 per unit of electricity for five years, a 5% rebate for term loans, a stamp duty exemption for the purchase of land, and a fixed purchase of up to 20% for the establishment of a PSA factory asset.

Kaustubh Diwegaonkar, a regional collector in Osmanabad, claims that these incentives will ensure that the investment in the PSA plant is recovered within one year after the start of oxygen supply to the private hospital.

But industry insiders are skeptical.

At the Dharashiv sugar factory in Osmanabad, Chairman Abhijeet Patil said that despite government subsidies, they are unlikely to even recover their initial investment in the oxygen plant.

"There is no need for oxygen now," he said. "A third wave is expected, but we don't know how much demand will increase. In addition, government hospitals have also established their own factories."

The PSA plant in the Dalashif plant is part of the transformed ethanol plant-ethanol is a by-product of sugar production. The land on which it is located is worth 4.77 million rupees, the civil engineering cost is 3.63 million rupees, and the factory and installation costs are 1.88 million rupees.

The factory owner originally planned to build an oxygen plant with a daily capacity of 25-50 metric tons when the oxygen crisis reached its peak in April. But in the end, they decided to limit daily production to 4 metric tons per day—enough to fill 200 cylinders in a day—and then only expand when demand increases.

By May 2, the factory was ready. But for the next four months, until August, the factory could only sell 50 gas cylinders, which were supplied to a hospital in Pandharpur 130 kilometers away in May.

Since then, its demand for oxygen has been zero.

Dattatray Gaikwad, the general manager of the plant, said that the PSA plant’s project proposal has identified eight nearby private hospitals and other hospitals located in Osmanabad, Solapur and Latour further away as its will produce Potential buyers of oxygen.

But none of these hospitals placed any orders.

Patil said that although the low oxygen demand surprised him, his intention to establish a PSA factory was never to make a profit. "We view this investment as our contribution to society."

About 50 kilometers away, Natural Sugar and Allied Industry Ltd established a PSA plant in June with a daily production capacity of 2.5 metric tons, which can fill up to 80 jumbo cylinders per day. The company invested 8 million rupees in the plant and purchased 100 giant cylinders at a cost of more than 1 million rupees. So far, it has not found an absorber of oxygen.

Explaining the reasons for their decision to establish a PSA factory, BB Thombare, Chairman and Managing Director of Natural Sugar, said: "We have seen a lot of people die due to lack of oxygen."

Thombare is also the chairman of the West India Sugar Mills Association, which has 66 member factories in Maharashtra. "At least 25 sugar factories want to help and plan to set up a PSA factory in Maharashtra. But now many of them have cancelled their plans," he said.

For example, Mahadev Athani, managing director of Vitthalsai Sahakari Sakhar Karkhana Ltd, has suspended plans to establish a PSA factory in his factory in Omerga. "I even invited a quote and am preparing to place an order. But now I have to wait for a while before I can finalize anything," he said.

Not only in Maharashtra, but even in neighboring Madhya Pradesh, many merchants invested in oxygen production and were attracted by the huge profits witnessed by the second wave.

Although the National Pharmaceutical Pricing Administration limits the price of medical oxygen to 15.22 rupees per cubic meter, oxygen distributors in Madhya Pradesh stated that they purchased up to 38 rupees per cubic meter from manufacturers in April and May. Rupee liquid oxygen.

“Before the pandemic started, we used to buy oxygen at 13 rupees per cubic meter,” said Sarang Saraogi, an oxygen cylinder supplier in the Katni district. "Manufacturers have increased costs by increasing shipping costs."

At that time, approximately 60% of India's liquid medical oxygen was produced by Inox Air Products, which produced a maximum of 2,800 metric tons per day during the second wave.

Managing Director Siddharth Jain stated that they have complied with the price cap set by the National Drug Pricing Administration. “But if we have to travel 1,000 kilometers to reach the internal hospital, transportation costs will increase. The price of diesel will rise from 70 rupees to 100 rupees per liter,” he said.

As manufacturers charge higher prices, middlemen in the supply chain have also increased their rates. In some parts of the country, the cost of refilling oxygen cylinders has tripled.

Data from the Civil Surgeon’s Office in Latour District, Maharashtra, shows that before and after the second wave of outbreaks, the cost of refilling a giant cylinder with a capacity of 7 cubic meters rose from 294 rupees to 425 rupees. During this period, the cost of the large cylinder itself rose from 12,000 rupees to 16,000 rupees.

Wahid Shaikh, Latour’s oxygen management official, remembers that when he asked local suppliers to sell oxygen at government prices, the latter stated that there were no stocks sold at that price. “We can refill the cylinders at a higher price or wait for the oxygen supply in Bellary, Karnataka, which may take a few days,” he said. "I chose to buy oxygen locally because we endanger the lives of patients."

In the Dhar district of Madhya Pradesh, Ilias Parawala, who owns an air separation unit that produces liquid medical oxygen, recalled that he saw a long line outside his unit in the summer. The patient’s family and hospital staff are eager to refill the gas cylinders.

Palavala said that most of the private sector participants who subsequently responded to the government's incentives to establish PSA factories were affected by the scramble and huge profit promises that emerged in the second wave.

He said they were unaware of the difference between the purity levels of oxygen produced by the PSA plant and the air separation unit. The oxygen produced by the PSA factory has a purity of 92-95% and can only be used for medical purposes. In contrast, the liquid oxygen produced in the air separation unit can also be used for industrial purposes such as processing steel.

This means that when the pandemic is over, there may be no recipients for the oxygen produced by the PSA plant.

Perhaps it is this recognition that has inhibited the enthusiasm for investment in PSA factories. In Delhi, an official dealing with medical oxygen management stated that despite a series of incentives, the state government has not yet received any proposals from private companies for oxygen generating devices.

This does not mean that PSA plants are useless at all. Large hospitals with more than 200 beds will benefit from having a PSA factory because medical oxygen is needed to deal with a range of medical emergencies, including asthma attacks, snakebites and accidents.

But outside of the hospital environment, PSA factories may prove to be loss-making businesses. "Some people think this is a profitable business. But if you think about the future, it's not," Palavala said.

Read the rest of this series here.

The report was funded by Thakur Family Foundation. Thakur Family Foundation does not exercise any editorial control over the content of this article.

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