Clearer Investor Horizon Will See Philippine Polys Output Soar At Batangas

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Researched by Industrialinfo.com (Industrial Information Resources Incorporated; Houston, Texas). The release of the findings from a feasibility study on the proposed $600 million naphtha cracker plant in Bataan, north of Manila, is imminent after a protracted period of discussions and disagreements between the state owned Philippine National Oil Company (PNOC) and private sector companies.

The findings are being distributed to interested investors and the bidding process is being opened. The PNOC has been holding talks since 2001 with Malaysia's state owned Petronas and the Brunei government over proposed stakes in the cracker. Although no specific agreements have yet been closed, it is expected that the PNOC through PNOC-Philippine-Petrochemical Development Company (PPDC) is expected to take a 30% to 40% stake, with Petronas taking up at least 20% and Brunei looking at a 35% stake. This expectation could also indicate a pre-selection process rather than a full in-the-open bidding process.

The naphtha cracker plant is likely to be funded through a combination of debt and equity. A number of investment banks have shown interest in underwriting the project and/or becoming financial advisors. The advisor position will not be decided until after the full conclusion of the study.

The plant will have the capacity to produce 600,000 to 700,000 metric tons per year of ethylene and is targeted to be fully operational by 2005. The cracker will support downstream polypropylene and polyethylene plants. In November 2001, PNOC announced that a second plant would start construction two years after the first plant begins commercial production. This will double the total project investment and will be partly financed by proceeds from the first plant.

In addition to the PNOC activity, Bataan Olefins and Polymer Company (BOPC) (Philippines) is planning a 450,000 to 600,000 ton per year ethylene plant at the Batangas petrochemical site and a 350,000 ton per year cracker project is being planned by JG Summit (Philippine). Petrocorp, a lead partner in BOPC, already operates a 160,000 ton per year polypropylene facility in the PPDC petrochemical park in Bataan.

Two other consortia are considering joint ventures to reduce individual cost and risk. The Petrocorp led consortium is looking at a $600 million naphtha cracker. The state owned Taiwanese Chinese Petroleum Corporation (CPC) led consortium is considering a $600 million naphtha plant with an estimated annual output of 600,000 tons per year of ethylene and 310,000 tons per year of propylene. PPDC and Itochu will provide financing.

When the cracker output is commissioned, downstream plants will proceed with their plans to integrate into vinyl chloride and ethylene chloride production. Shell (LSE:SHEL) (London, England) has announced that it will build a 500 km pipeline from Batangas to Malamapya/Camago.

The Batangas petrochemical site was initiated with JG Summit's polypropylene and polyethylene facility in 1998. This plant, which is equipped with Dow (NYSE:DOW) (Midland, Michigan) technology, produces a total of 355,000 tons per year.

Most of the projects at Batangas, which have been initiated or are in the mature planning stages, have specific future planning built-in. The whole basket of project financial plans is at present in a process of negotiation and clarification with the government on structures and sources along with the horizon for tariff protection behind which production can be built to meet the country's fast growing needs. These projects will be assisted by a healthy (for investors) growth in prices.