Thailand's Mab Ta Phut investment dogged by uncertainty

Clouds on the horizon

11 August 2009 00:00  [Source: ICB]

The future is uncertain for Thailand's Mab Ta Phut Industrial Estate

NEARLY 20 years after it was established, Thailand's Mab Ta Phut faces serious challenges to its status as one of Southeast Asia's premier chemical production hubs.

Public protests concerning environmental pollution have been growing stronger over the last few years, prompting the Thai government to announce that it would introduce tougher emission standards. The changing situation has put the site's ability to attract continued investment into question.

More than 50 chemical companies have already invested Baht (Bt) 548bn ($13.81bn) in manufacturing facilities in the 33km3 region in Rayong province, making it the eighth-largest petrochemical hub in the world. Chemical giants such as the state-owned PTT Group and the Siam Cement Group (SCG) and a number of multinationals have plants at the site. They are also working on new projects (see table) and keen to expand further.

But a court ruling in March this year identified Mab Ta Phut as a pollution control zone. The ruling was in response to a petition filed by health and pollution control officials who said area residents were at risk from pollution and industrial waste-related accidents.

While local people celebrated the court's decision, alarm bells have been ringing in the business community, especially among petrochemical companies that are major investors at Mab Ta Phut.

A big concern is that the issue will adversely affect investor confidence and derail planned investments. The Federation of Thai Industries has estimated that up to Bt288bn in new petrochemical investments could be at risk if emission rules and standards for Mab Ta Phut are not clearly spelled out by the government.

Prime Minister Abhisit Vejjajiva had promised to spell out new emission standards by the middle of July, but an announcement has yet to be made. Committees have been set up to review air and water quality and to draw up plans to tackle industrial waste.

The country's Board of Investment (BOI) says that there should be some progress by early 2010. Meanwhile, it is working to allay concerns. The BOI has set up special working units for sharing concerns and opinions and generating ideas to support future investments. It is also helping companies that have received project approvals to connect with various government departments.

"Projects that have already got approval for their environment impact assessment (EIA) studies can go ahead with construction. Projects that are expected to start over the next 12 months are OK," says an industry analyst.

Among the major projects due to be commissioned during this period is a 1m tonne/year ethane cracker erected by PTT Polyethylene (PTTPE). Ethylene from the cracker will feed new low density polyethylene (LDPE) and linear low density PE (LLDPE) plants being built by the company and also a high-density PE (HDPE) unit being set up by Bangkok Polyethylene. Both PTTPE and BPE are subsidiaries of state-owned PTT Chemical.

Another cracker, a joint venture between SCG, one of Thailand's largest conglomerates, and Dow Chemical, is scheduled for commissioning in the second quarter of 2010. It will have a capacity of 900,000 tonnes/year. The two companies are investing around Bt53.7bn on four joint-venture projects at Mab Ta Phut. These projects have secured all approvals, and construction is ongoing.

However, projects that are being planned for the longer term and those that have yet to secure environmental approval are said to be at risk. The Federation of Thai Industries has estimated that eight projects are in the process of seeking an approval.

"These projects may cost more; companies will have to do more studies to meet new standards," says the industry analyst. "But everyone is still waiting [for the new standards to be announced]. We definitely know that in the future it will be more risky. Companies face higher construction costs to meet the new standards. Each company will then have to see the return on investment."

He also notes that in the future the government could move chemical investments to other sites in southern Thailand.

The environmental concerns at Mab Ta Phut come amid political and economic turmoil in Thailand. Clashes between supporters of ex-prime minister Thaksin Shinawatra and the military earlier this year have dented business confidence.

The global economic crisis has hit the country hard. GDP growth in the second quarter of 2009 contracted by 5-6% from a year earlier after shrinking by 7.1% in the first quarter as exports collapsed. Exports for the full year are projected to contract by 15-19%.

Despite these problems, there has, as yet, been no cancellation of projects at Mab Ta Phut. The BOI continues to promote investments in the chemicals sector, although the emphasis has shifted to eco-friendly chemicals and polymers.

While the Mab Ta Phut area still has about 11m square meters available, the government is trying to find other suitable locations to expand the petrochemicals sector, says the BOI.

Incentives are being offered, such as land ownership rights to foreign investors, a corporate income tax holiday of up to eight years depending on the location of the project, and duty exemption or reduction on imported machinery and raw materials. Thailand also does not place any equity restriction for foreign investors.

The BOI hopes that the country's location as a gateway to China and the rest of Asia, modern infrastructure, world-class utilities, free trade agreements with China and India and its par the Asean Free Trade Area will continue to lure investors.

Company Product Capacity (tonnes/year) Start-up
Map Ta Phut Olefins ethylene 900,000 Q2 2010
aromatics 400,000 Q2 2010
SCG Dow propylene oxide 390,000 2011
linear low density polyethylene (LLDPE) 350,000 Q2 2010
Thai Polypropylene polypropylene 400,000 Oct 2010
PTT Polyethylene ethylene 1,000,000 end 2009
low density polyethylene (LDPE) 300,000 2010
LLDPE 400,000 Q3 2009
Bangkok Polyethylene high density polyethylene (HDPE) 250,000 end 2009
HMC Polymers polypropylene (PP) 300,000 Q3 2009
PTT Asahi Chemical Co. acrylonitrile (ACN) 200,000 2010
methyl methacrylate (MMA) 70,000
ammonium sulfate 160,000
PTT Phenol phenol 250,000 2009
bisphenol A (BPA) 150,000 2010
MTP HP JV hydrogen peroxide 330,000 H2 2010
Solvay epichlorohydrin 100,000 Q2 2011
Thai MMA methyl methacrylate 180,000 Q3 2010

By: Malini Hariharan
+65 6780 4359

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