InterviewDecision on merger of PTT affiliates by early Q2 - PTTAR CEO

09 March 2010 03:05  [Source: ICIS news]

By Malini Hariharan and John Richardson

SINGAPORE (ICIS news)--A final decision on a mega merger being planned among four Thai companies - affiliates of oil and gas major PTT - will be made by early Q2, said a senior executive of PTT Aromatics & Refining (PTTAR) on Tuesday.

A merger is being evaluated between PTTAR, Integrated Refining and Petrochemical Complex (IRPC), Thai Oil and PTT Chemical.

“We are doing a study; we are trying to identify synergies. A final decision is not yet taken,” Chainoi Puankosoom President & CEO of PTTAR told ICIS news.

While integration between PTTAR and IRPC’s plants would be easy as the two were located only 30km apart and already had pipeline connections it would be more difficult with Thai Oil, he added.

“The problem is that Thai Oil is 100km from us,” pointed out Puankosoom.

Thai Oil’s 275,000 bbls/day highly complex refinery and 900,000 tonnes/year aromatics plants are located at Sriracha in Chonburi province.

PTTAR operates a 280,000 bbls/day complex refinery with 228,000 bbls/day of petroleum products production capacity and a 2.2m tonnes/year aromatics facility at the Mab Ta Phut industrial estate in Rayong province.

IRPC runs a simple refinery and cracker outside the estate - 30km from PTTAR

PTT Chem, which is focused only on petrochemicals, has its crackers and derivative plants inside the Mab Ta Phut estate.

As part of the merger study, upgrading of plants and routes for value addition are also being studied.

For instance, PTTAR could upgrade residue from IRPC’s refinery at its hydrocracker or PTTAR could send hydrowax, which is currently being recycled, to IRPC to use at its cracker, added Puankosoom.

He emphasised that synergies and integration benefits arising from a merger were of greater priority than cost savings.

“When we merged Aromatics (Thailand) and Rayong Refinery two years back [to form PTTAR] we did not lay off people or reduce salaries. We reallocated resources and the benefits have been more than expected,” he said.

A merger between the four PTT affiliates was first mooted early last year but progress slowed down following the Mab Ta Phut environmental crisis and the Thai Supreme Administrative Court’s ruling last December suspending 76 projects.

“The market also collapsed dramatically in the second half of 2008; margins had become negative and share prices of all the companies had collapsed.

"So we [the PTT group companies] sat down to do something together. We thought of integration to enhance the value of the firms; so that we can survive going forward.

"We thought we would have a clear picture by end-2009. But then when the Mab Ta Phut issue happened; we could not think of integration [projects] until this issue had been resolved and so we decided to do a detailed study,” explained Puankosoom.

He was optimistic that the Mab Ta Phut issue would be cleared by the time the companies sat for a final decision on the merger.

“A solution for the existing 76 projects is due to be announced soon. We have to follow the procedure set up by the government.”

He pointed out that people outside the industry might have misread the environmental issue.

“Industry players are not denying the need for a health impact assessment (HIA) study, which is required under the 2007 constitution.

"The problem was that to set up a body to carry out these studies, laws were needed.

"We wrote to the government at an early stage, asking for a procedure for the HIAs to be carried out. All we asked was that this would be done in parallel [with the construction of projects],” he said.

Puankosoom said that the Thai government’s rules on emissions were more stringent that even Japan and the UK.

“We have to reduce emissions at existing plants to build new plants; there should be a net reduction. So for projects approved since 2007, there will be lesser pollution in Mab Ta Phut [if they are implemented].”

None of PTTAR’s projects have been affected by the Mab Ta Phut crisis, but Puankosoom said that a longer-term solution was needed to attract new investments to Thailand.

The Mab Ta Phut issue affected all industries, he said. And he warned that foreign investors were looking for a clear legal framework.

Thailand would have to address investor concerns to encourage projects either at Mab Ta Phut or at a new site that the government has been talking about on the southern seaboard.

"A hub in the south is not easy. We have to solve the Mab Ta Phut issue first. A lot of things have to be relooked; there must be a better solution to the environmental issue otherwise it would be very difficult to build any more plants in Thailand," he stressed.

But he did not see the need for more refinery investments in Thailand as the country’s total refining capacity of 1.2m bbls/day is in excess of demand which is running at 900,000 bbls/day.

“We are also not as competitive as Singapore in terms of infrastructure. We have to keep 5% of oil as strategic reserve at our cost. And we have to pay full tax,” he said.

Additionally the Thai government’s policy of promoting alternative fuels meant weak demand growth for fossil fuels in the future.

In petrochemicals, the company completed a major expansion project in 2009.

“That was because we had feedstock [condensate] from the Gulf of Thailand. If we have to import condensate then we need to think hard on whether we are competitive. Thailand has plans for natural gas but not condensate. Unless we see more gas supply in Thailand and availability of condensate it would not be economic to build a new plant,” said Puankosoom.

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By: Malini Hariharan
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