The proposed naphtha cracker plant of the JG Summit Holdings is unlikely to materialize due to the viability issue of the plant, which is small scale versus the giants in the region, that the Gokongweis would rather put their money where return on investments is assured.

This was the assessment of Philippine Plastic Industry Association (PPIA) president Alfonso Siy after a meeting with Board of Investments managing head Elmer C. Hernandez.

According to Siy, the proposed JG Summit project would only be dwarfed by the petrochemicals manufacturing giants in the region, particularly those from the Middle East.

“We are sure the JG Summit project is not feasible because of its size. Compared to the giants, the JG Summit project is very small,” Siy said.

Siy even noted that during the company’s last stockholders meeting, the company has enumerated all their plans and projects but there was no mention of its naphtha cracker project.

“There was no mention of this project during the stockholders meeting. Perhaps, they feel they are better off spending their money elsewhere,” he noted.

In May 2008, the BOI approved the revised 2005 application of the JG Summit Olefins Corp. (formerly JG Summit Petrochemical Corp.) to establish a naphtha cracker plant at a cost of P34.38 billion from the original P25.6 billion proposal.

The plant is expected to start commercial operation in January 2012 with 87 workers as against the 2008 original schedule.

The revised project has a production capacity of 320,000 metric tons of ethylene, 190,000 metric tons of propylene, 270,000 MT of Py gas, and other by-products such as methane, pyrolysis fuel oil and acid gases.

The plant would be located in barangay Simlong, Batangas City, near the company’s existing polypropylene (PP) and polyethylene (PE) manufacturing plants. A naphtha cracker is an upstream activity of petrochemical manufacturing complex while the PE and PP are midstream operations.

Aside from the viability issue of the proposed naphtha cracker plant, the PPIA has been protesting over the prolonged tariff protection that the Gokongwei-owned firm has been enjoying for years for its existing polypropylene and polyethylene operation, which produces the intermediate products used in the manufacturing of plastic products by the downstream plastic manufacturers.

Siy related their frustration in getting the government to level the playing field between tariffs on finished products and their raw materials.

“JG Summit has been enjoying and we are suffering. I hope the government would really support our industry because we are creating jobs,” Siy pointed out.

The tariff on imported finished product is at 5 percent while the tariff on raw materials is at 10 percent.
PPIA even feared that if the zero duty in ASEAN would be implemented next year including finished products, their raw materials would still remain at 10 percent because the tariff protection
was a result of a court order that the executive branch of government has no jurisdiction.

It could be recalled that in January 9, 2003, Malacañang issued 161 maintaining the 10 percent tariff on 11 intermediate petrochemical products: PE, PP and PP with co-polymers, expansible polystyrene (PS), polyvinyl chloride (PVC), plasticized and non-plasticized PVC.

EO 161 was issued after the government was able to get a two-year exemption from the Common Effective Preferential Tariff of the ASEAN Free Trade Area over the scheduled tariff cuts on midstream petrochemical products from 10 to 5 percent. As a result, the Philippines has to compensate Singapore for the loss business opportunities.

The government was persuaded to grant the exemption after the Gokongweis have committed to put up the country's first naphtha cracker plant saying they could only do so with a higher tariff protection.

In January 2006, the government then issued EO 486 lifting the suspension and imposing the 5 percent tariff on petrochemical resins.

But the 10 percent tariff on petrochemical products was reimposed in August 2008 last year after the Gokongwei-led APMP was able to get an injunction from the Regional Trial Court of Makati over EO 486.

The court order, which in effect restored the 10 percent tariff protection, has benefited the midstream petrochemical operation of the Gokongweis up to now. The local plastic manufacturers
cannot source their raw materials from the JG Summit because the company’s production is only enough for its own use.

Not only that, it also created a tariff distortion because the tariff on finished plastics products, which had been reduced at 5 percent already, because tariff on imported intermediate raw materials for the downstream plastic manufacturers is at 10 percent.

This has seriously affected the downstream plastic manufacturers competitiveness and viability and resulted in the substantial reduction in their workforce.