Petrochem consortium to set up naphtha cracker plant in Bataan

After years of unresolved dispute, the petrochemical industry has decided to form a consortium to be led by the Philippine National Oil Co. and Chinese Petroleum Corp. of Taiwan that will own the country's first and only naphtha cracker plant most likely at the Bataan Petrochemical Park.

Industry sources told reporters yesterday that following a series of meetings called by the PNOC, the industry has finally agreed to band together and form a consortium to collectively invest in the $1-billion naphtha cracker plant to be operational by 2004.

A naphtha cracker plant supplies the basic raw materials for the downstream petrochemical sectors that include monomers (ethylene and propylene) and polymers (polypropylene, polyethylene, polyvinyl chloride and polystyrene) which are, in turn, widely used in a variety for plastics-based products.

According to a source privy to the ongoing negotiations, PNOC and CPC, Taiwan's largest oil refiner, would spearhead the construction of the plant but every sector of the petrochemical industry would have an equity in the project to ensure its viability.

The source explained that in order for the naphtha cracker project to be viable, the petrochemical industry, including downstream fabricators and converters should be part owners of the plant.

As a stand alone project, he said the plant would have to have its own internal rate of return and this would mean higher prices for monomers such as ethylene and propylene which are used by fabricators for the manufacture of polymers such as polyethylene and polypropylene.

"This way, the cracker may not make that much money but industry as co-owners of the plant, would earn at the end of the integrated process," the source explained.

The source said all the industry players have no choice but to join the consortium and be an equity holder in the naphtha cracking facility because no single player has the resource to put up the facility.

The creation of the consortium would settle the long-standing animosity between PNOC which wanted to have a controlling interest in the cracker and the private sector which opposed the PNOC.

According to the source, the PNOC/CPC-led consortium will now include the members of the consortium led by Antonio Garcia's Petrochemical Corp. of Asia Pacific (Petrocorp) and the Gokongwei-owned JG Summit Petrochemical Corp. which already operates a polypropylene and polyethylene plant in Batangas.

Together with downstream fabricators or makers of plastic products, also in the consortium are Bataan Polyethylene Corp., the joint venture between Petrocorp, British Petroleum Corp. and Itochu of Japan.

"We were assured by the multinational companies that they would prefer to source their raw materials locally if there is a naphtha plant," he said, adding that locally produced monomers were preferable to imports which are difficult and expensive to bring in.

"Ethylene, for instance, has been transported under cryogenic conditions and only a few vessels can do this," he said. "This would ensure the market for the output of the cracking facility."

The source said the PNOC is now working on the equity structure of the consortium as well as the workplan. "What we know for sure is that groundbreaking should commence by 2001 and the plant itself must be operational by 2004," the source said.

Initially, the source said the plant will have the capacity to produce between 350,000 metric tons and 500,000 metric tons of monomers every year to meet the demand of local midstream and downstream users as well as to export part of its produce.

Before the creation of the industry consortium, there were two main groups planning to put up their own naphtha crackers. One was led by Petrocorp and British Petroleum and the other was led by the PNOC-Petrochemical Development Corp. (PPDC) which also signified interest in pursuing the naphtha cracker project, together with foreign partners Itochu Corp. of Japan and the state-owned Chinese Petroleum Corp., the largest company in Taiwan.

However, due to the limitations of the domestic market, the country can host only a single naphtha cracker plant to supply between 500,000 to 600,000 metric tons in annual production.

The project is also under pressure to beat the end-2003 deadline for starting commercial operations since at that time, tariffs imposed by ASEAN countries on petrochemicals will be brought down to between zero to five percent in compliance with the ASEAN Free Trade Agreement (AFTA).

The fledgling petrochemical industry has been one of the few beneficiaries in the government's recent tariff protection program.