Board of Investments Puts Final Seal of Approval on Philippines Naphtha Cracker

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Researched by Industrialinfo.com (Industrial Information Resources Incorporated; Houston, Texas). The Philippines government Board of Investments (BoI) has put the final seal on and given the go ahead for the country's first naphtha cracker, which has been on a stop-go-stop path since the end of the 1990s. Construction of the cracker will see benefits flow to midstream and downstream petrochemical industries that have been dependent on imported feedstock and have been operating well below capacity in many cases.

The BoI has bestowed $485 million 'pioneer status' on the project, which means that it can enjoy a tax holiday of up to six years, tax and duty free importation of capital equipment, plus a preferential tariff for imported feedstock and raw materials. The project will be owned by JG Summit Holdings (82.28%) and the Marubeni Corp of Japan (17.71%). It will be located in the ten hectare JGSPC complex in Barangay Simlong, Batangas. The total cost of the completed project has been estimated at about $600 million. JGSPC and is a joint venture between the Gokongweis Group's JGS Holdings I (Manila, Philippines) and the Marubeni Corporation (TSE:8002 ).

The 350,000 ton per annum naphtha cracker will effect the backward integration of the company's polyethylene (PE) and polypropylene (PP) plants, which were built with an investment of $350 million and have been on stream since 1998. The plants have only maintained an average production capacity of 42%, since they have had to import all monomer feedstocks. With the feed from the new cracker, the PE and PP plants' full capacity of 350,000 tons per annum will be utilized.

The integration process should encourage further investment in the midstream and downstream segments of the petrochemical industry and increase competitiveness in an industry which has been mired in disputes over tariff implementation and centrally allocated resources.

The naphtha feedstock for the cracker, to be processed into higher value monomers and light hydrocarbons, will be sourced in part from domestic producers, but the majority of the feed will be imported from the Middle East. The ethylene and propylene will be used by the company's own PE and PP plants, and the pyrolysis gasoline will go to the company's on-site power plant, with the surplus being sold to local refineries for blending for bunker fuel sales, or exported.

Project financing will consist of 30% equity contribution and 70% loan. Financial closing on the project is expected by the end of 2005. Commercial operations are scheduled to start in 2008, with a complement of 300 workers.

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