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Adaptability: the Key to Success in Petrochemicals

By Nguyen Hai Van, Vietnam News, Vietnam

Bangkok, Thailand – Far away in Binh Son district of Vietnam’s central coast province of Quang Ngai, the construction of Dzung Quat Industrial Zone which is designed to include oil refineries and petrochemical plants, has been undertaken by construction workers and local villagers. Some 650 hectares of land and sea have been cleared off for the first oil refinery, which is expected to start operation in three years. Four petrochemical plants in the complex will be operational within ten years.
Meanwhile, petrochemical plants, here in the Eastern Seaboard of Thailand, have operated with speedy success over the similar time of ten years. But they are now facing a gloomy presence.
The dark future would unlikely happen to Vietnam when it has a decade ahead to prepare for the challenges of a new but vital industry.

Demand boom
The submarine liquid somewhere down three kilometers can become your hand-bags, tables, chairs, drink bottles, clothes and a variety of other things from head to toe after it is processed in petrochemical plants. Just imagine when you wake up in the morning, there must be some petrochemical products around, as close as a tooth-paste and a tooth brush.
Those wonderful things were all imported and unavailable in Thailand until the first petrochemical plant, National Petrochemical Public Company Limited (NPC) was established in 1984 and had quickly grown up. NPC’s products had been always sought after in the market, and demand has always been greater than supply. The production of the company and some other competitors, which were established later, only met the demand of 950,000 tonnes last year.

Strategic location
Based in Maptaphut in the Eastern Seaboard – a strategic industrial zone encouraged by the Thai government, NPC was given eight years of tax reduction and exemption as incentives. Directly connected to the oil and gas field by a 400 km submarine pipeline, the company is ensured to have a stable and sufficient source of material for its production.
Along with promising profits, the advantageous location of the plant was among vital factors that drew investors in, all coming from the private sector.
Meanwhile, taking a look to Vietnam and its current petrochemical project, the location conversely is the main obstacle that is keeping foreign investment away. Foreign companies which intended to involve in the project all pulled their money out when Vietnamese government chose the site estimated 600 km from the oil field while the country’s infrastructure is underdeveloped.
But Hoang Xuan Hung, refinery department chief of Petro Vietnam, the state’s oil controlling body, explained that such a distance would not be a major problem when a long term view of how Vietnam would deliver its own processed oil products to markets was taken into account. He said further, “the project was designed with great care of environment”. Currently, the environment of petrochemical plants in Maptaphut, Thailand has been seriously damaged as a result of inconsiderable design.

Economic environments differ
Right when the crisis hit Thailand with the collapse of 56 banks and financial institutions for their too – opened system and a US$ 90 billion foreign debt, the basic industry – petrochemicals immediately became one of the victims that received a hard blow. Figures for the year 1998 are not yet available but they would have been more affected because the crisis has deepened and many industries, which depend on petrochemical goods such as textiles, construction, or automobiles, slowed and even halted their production. The situation has triggered a tough competition among companies to carve out their footholds in the market, which is described as "oversupplied".
NPC’s public relations officer, Ms. Suwanna, confidently said, “We have cut costs and raised the quality to stand in the crisis. It is quite possible for us to sell at a lower price because we have all raw materials locally made”.
However, the minus 8 per cent GDP growth predicted by economists for 1998 is not a bright future for any business. Petrochemical producers would, said analysts, have maximum 1 per cent increase of the consumer demand in the coming time.
Further, the baht devaluation is also attributed to such severe shortage of capital in companies that most of expansion plans are postponed. NPC is not an exception from the exchange rate fall that has led to huge problems over loans in US dollars, though NPC was very wealthy before. “I can say for sure that our company will be able to clear that foreign debt because it is long-term.” Ms. Suwanna provided.
Fortunately, Vietnam, so far, does not have financial problems, though the crisis has affected many regional countries. The country is also aware of how significant oil refineries and petrochemicals will play in its national industrialisation and modernisation targets.
Twelve years have elapsed since Vietnam found the first drop of oil but it is still a plastic pellet and resin importer of other countries, mostly Singapore. Yet, the processing has never met the local consumer demand. Vietnamese economists have foreseen that the plastic production will be doubled or tripled to 1997’s figure of 300,000 tonnes if the petrochemical plants work.
Mr. Hung from Petro Vietnam has drawn up a bright future by saying that about US$ 70 million will be saved per year when Vietnam begins using its processed oil. That prospect is not so easy when the country has committed investing in Dzung Quat industrial zone alone.

Optimistic future
" Where there’s a will, there’s a way". The saying will be definitely true if Vietnam consistently pursues its policy of maximizing the internal strengths and lessens the problem of finance and technology. Similarly to Thailand’s petrochemical industry, and NPC in particular, they all are seeking their own ways out of the crisis. NPC’s public relations officer, Ms. Suwanna, revealed  "our company is seeking foreign partners to help with more advanced technology and to keep the operation up rather than firing any workers. However, we can not remain four work-shifts a day as before".
NPC has for a long time focused on the local market which is now over-saturated. At present, the export market is really a savior for Thai producers, with the estimated consumption of nearly half of the total of local petrochemical production, against 18 per cent in 1996. Undoubtedly, changing and restructuring will help to recover the petrochemical industry and the Thailand economy as well.
Likewise, state funded petrochemical industry in Vietnam is still a good project if possible shortcomings can be seen, counted and solved.


Copyright 2009 IMMF.