Last March, when Formosa Plastics Group chairman Y.C. Wang (王永慶) announced that construction would begin soon on a NT$246 billion (US$9.48 billion) petro chemical complex along Taiwan's central west coast, the news gave the ROC government a long-sought victory. For several years, local officials had been engaged in a fierce tug of war with main land authorities to convince the tycoon to build his planned naphtha cracker facility on their respective soils.
Wang's decision to locate the complex in Taiwan will give the island its largest private investment project ever. The facility will include two light-oil re fineries, two naphtha crackers (which process light oil into basic downstream petrochemical materials), and thirty seven midstream petrochemical plants. Formosa Plastics Group (FPG) will also construct an NT$11 billion (US$423 million) industrial harbor to be used in transporting crude oil and primary materials. To provide for the influx of people to the area, FPG will build a hospital, schools, and residential communities.
But the move gives the island far more than the huge facility itself. Speaking during FPG's annual athletic meet in March, Vincent Siew (蕭萬長), chairman of the Council for Economic Planning and Development (CEPD), said that the complex is expected to create output worth NT$200 billion (US$7.7 billion) annually, including NT$74 billion (US$2.8 billion) in value-added products. This would boost the growth of the gross domestic product (GDP) by 1.6 percentage points. Setting sights even higher, P.K. Chiang (江丙坤), Minister of Economic Affairs, believes the project will help Tai wan achieve 7 percent economic growth in the coming years, enabling per capita income to hit US$20,000 by the year 2000. Last year, the island's industrial output grew by 3.5 percent, half of the 1991 growth rate. Meanwhile the overall economy grew by 6.1 percent, missing the government's target of 7 percent growth.
Perhaps most important in the view of ROC officials, the complex will give business leaders new confidence in Taiwan's investment environment in the face of growing interest in development projects in mainland China. One reason local authorities fought hard to convince Y.C. Wang not to build the complex across the Taiwan Straits was that many feared such a move would spur even more investment in the mainland. In light of Wang's stature among business leaders, his decision to build the facility in Taiwan should help invigorate on-island development.
Within the petrochemical industry, the new facility is expected to relieve much of the island's serious shortage of primary materials needed by downstream manufacturers. Although four naphtha crackers already operate or are under construction, all owned by the government run Chinese Petroleum Corp. (CPC), they have not kept up with the demand for basic petrochemical products. When FPG'S facility begins operating, production of ethylene, the most common primary plastics material, for instance, will be boosted from the current local production of 40 percent of local need, to 90 percent.
The complex is expected to revitalize the island's downstream petrochemical manufacturers, who have recently suffered from dwindling competitiveness in international markets. The industry, including plastics, rubber, man-made fiber, textiles, and footwear, accounts for one third of the island's total manufacturing output and employs 750,000 laborers, or 9 percent of the total employed labor force. In addition, the new access to low cost, primary petrochemical materials is expected to encourage downstream manufacturers to take on investment projects involving plastics, textiles, footwear, electronics, and even high-tech products.
Despite such strong support for the project, the complex has faced six and a half years of frustrating delays and setbacks. When FPG first announced plans to build it in late 1986, the company had chosen a 280-hectare site in the Litze industrial zone in the northeastern county of Ilan. But Ilan residents and environmentalists, under the leadership of then county magistrate Chen Ting-nan (陳定南), strongly opposed the project. When the EPA began its environmental impact assessment of the project, townspeople feared that the agency would not be objective in its analysis of the levels of water and air pollution. In particular, they argued that the facility's hundreds of smokestacks would emit pollutants far exceeding safe levels, because the proposed area is almost encircled by mountains. In the end, critics feared the pastoral landscape of the region would be destroyed, squelching plans to build up tourism.
In 1988, FPG decided to move the projected complex to Kuanyin industrial zone in the northwestern county of Taoyuan. But the project was soon blocked there as well because of exorbitant land prices and insufficient space. Having spent more than NT$I 0 billion (US$380 million) on equipment, storage, and technical know-how only to be faced with no feasible building site, Y.C. Wang began considering building the complex on the other side of the Taiwan Straits.
In late 1989, Wang paid a secret visit to mainland China, where he reached a preliminary agreement with local authorities to establish a US$7 billion integrated petrochemical production complex in the Haitsang area of Fukien province. Wang believed that the combination of FPG'S technology and management matched with the mainland's low land prices, abundant supply of low-cost labor, and free trade zone status, would create the best competitive edge in the international marketplace.
Moreover, the project would solve a major problem confronting FPG: the exodus of Taiwan's downstream petrochemical manufacturers from the island, mostly to the mainland. Although outbound manufacturers were still purchasing raw materials from FPG, Wang feared that they would switch suppliers once their main land industries were established. Such a development stood to disrupt Taiwan's uniquely integrated petrochemical industry, with its primary, secondary, and finished-product sectors.
After Wang announced the planned Haitsang project in early 1990, ROC officials began an aggressive campaign to win back the complex. The government quickly offered a series of unprecedented incentives, including tax benefits, a US$1.49 billion water-supply facility, reduced land and water prices, and a site virtually guaranteed to be free from environmentalist opposition. To break the deadlock at Kuanyin industrial zone, the ROC government proposed that FPG relocate the planned naphtha cracker complex once again, this time to a projected off shore industrial zone to be developed near Mailiao in Yunlin county. Using mainly reclaimed land, the zone was to be created specifically for heavy industries that had been blocked by environmental concerns elsewhere or that were having trouble finding available land.
In August 1991, Wang said he would accept the ROC government's proposal. He would build the complex in Mailiao if he could expand the scale of the project. Meanwhile, he also announced the abandonment of the Haitsang project (al though he soon replaced it with a second mainland project). Mainland officials had taken three years to approve the proposal, and Wang reported that by the time it was accepted, market conditions were no longer as favorable because the company had lost its opportunity to attract down stream manufacturers from Taiwan to Haitsang to create an integrated production area. By 1991, six thousand Taiwan based downstream manufacturers had already set up plants elsewhere in the mainland to make paint, tires, shoe soles, and other petrochemical-based products.
By expanding the planned Mailiao facility, FPG doubled its original investment to NT$90 billion (US$3.46 billion) to cover a new oil refinery. The following June, after nine months of evaluation, the EPA approved the project's environmental impact statement. Of the total NT$90 billion investment, one-fourth, or NT$22.5 billion (US$865 million), was earmarked for antipollution facilities, including a wastewater treatment plant.
Last November, Wang expanded plans for the project yet again, adding a second oil refinery and increasing the projected capital outlay to NT$246 billion (US$9.48 billion). Two months later, as a last step in the approval process, the EPA also approved the expansions to the complex. In addition to the original NT$22.5 billion, FPG will spend another NT$IO.7 billion on antipollution facilities.
In Mailiao, opposition from environ mentalists and residents has been mini mal, largely because the area is relatively unpopulated. The only organized protests have come from the region's seven hundred aquaculturists who charge that the facility will destroy their livelihood. But since most of these fish farmers are operating illegally, and are damaging the environment themselves by drawing vast quantities of underground water from the coastal areas, they have had little impact on the naphtha cracker project.
Many locals support the project for its expected economic benefits. Yunlin county is one of the poorest in Taiwan, and the project is expected to open up thousands of job opportunities. The highly computerized complex itself will offer only six thousand jobs, but the facility is expected to create positions for another fifty thousand people when projected growth in nearby downstream petrochemical plants and related services are taken into account. Including the families of employees, FPG expects to draw 200,000 people to the area.
The new naphtha cracker complex represents a major step in the fulfillment of Y.C. Wang's ambition to build a global petro chemical empire. Locally, the new facility will make FPG a major rival to the state-run CPC, breaking the latter's long standing monopoly in the Taiwan market. The new cracker gives FPG an annual ethylene output of 1.35 million metric tons and a daily refining capacity of 300,000 barrels of light oil. CPC, which operates four naphtha crackers on the island, will soon have an ethylene output of 1.1 million metric tons per year and a daily refining capability of 600,000 barrels of light oil.
But Wang's plans for FPG expand far beyond Taiwan. Although he abandoned the original mainland Chinese project in Haitsang, FPG quickly replaced it with a project along the Yangtze River. In it, the company will cooperate with other Tai wan-based manufacturers to establish forty new processing plants along the plains of the Yangtze. The new plants will be man aged by the Taiwan-based manufacturers while FPG provides part of the capital and some necessary management assistance. Products will be targeted for mainland markets. Eventually, the company plans to establish a naphtha cracker in the mainland with an expected annual capacity of 900,000 metric tons of ethylene.
The Yangtze River project calls for a total investment of US$6 billion. The mainland authorities have accepted the proposal in principle, with the condition that they be allowed to participate in the investment. The project will be managed by Nan Ya Plastics, a wholly owned subsidiary of FPG.
Meanwhile, Wang's new US$3 billion naphtha cracker in Point Comfort, Texas, is scheduled to begin operating in July and will produce 680,000 metric tons of ethylene annually. Sixty percent of its output is targeted for use in the group's midstream manufacturing plants in the United States; most of the remainder will be shipped back to Taiwan. When the U.S. and the Taiwan facilities come on line, FPG'S combined ethylene output will top 2 million metric tons-an amount comparable to that of global petrochemical leaders such as Exxon and Shell. The launching of the operations of the Taiwan naphtha cracker complex and the Texas facility will more than double FPG'S global revenue, which topped US$5.2 billion in 1992.
When construction finally begins on FPG's facility in Mailiao, it will not only be the result of the iron will of Y. C. Wang. The ROC government's unreserved sup port for the project has also played a major role in getting it launched. Official support included offering several unprecedented incentives. The government first broke CPC's forty-year monopoly on oil refining so that FPG could set up its own refineries. Then officials agreed to sell the necessary 1,400 hectares of land to FPG for NT$2 billion-a cost far below official land rates. And while private companies cannot own harbor areas, FPG is being al lowed to claim, under a special arrangement, nearly all of the site's projected industrial harbor. The government has also pledged to supply the huge amount of
water needed by the complex at a low rate set preliminarily at NT$3 per cubic meter-less than one-third the amount charged for household water. And public funds will cover construction of an NT$38.7 billion (US$I.49 billion) water supply facility that will serve the complex and surrounding areas.
In addition, the government will al low the petrochemical giant's projects to enjoy a five-year tax holiday, on the grounds that it was filed before the expiration of the now defunct "Statute for Encouragement of Investment." And a consortium of thirty-one domestic banks will provide FPG with NT$140 billion (US$5.38 billion) in fifteen-year, low interest loans. The Executive Yuan may provide another no-fee loan of NT$11 billion (US$423 million) for construction of the industrial harbor. FPG, along with five local petrochemical manufacturers, will be responsible for the remaining 35 per cent of the total.
Construction on the project will begin as soon as engineering firms are chosen to oversee land reclamation and construction of the industrial harbor. U.S., European, and Japanese companies are now competing for these projects. Once work gets under way, the entire complex is expected to be completed within four years.
Several problems persist. One is that land in the area is sinking due to extensive illegal pumping of ground water by aquaculturists in the area. In recent years, the land surrounding Mailiao has sunk 90 centimeters and is now sinking by 10 centimeters a year in some places. If the situation continues, the complex could eventually be flooded.
It is also uncertain whether there is an adequate water supply, especially considering the extensive needs of the projected town. Moreover, some environmentalists are wary of the ecological impact that land reclamation could have on the nearby sea and coastal area. Another major concern is the impact that the huge project could have on the domestic supply of capital, construction materials, and labor. Construction alone will require ten thousand to fifteen thousand workers daily. But judging from the strong will al ready exhibited by Y.C. Wang, and the unprecedented support that the ROC government has given the project, it seems certain that the new petrochemical complex will soon become a reality.-Philip Liu (劉柏登) is editor-in-chief of Business Taiwan, published in Taipei.