PH petrochem industry struggling to catch up with Asean peers
The petrochemical industry is supposed to be one of the biggest drivers of the manufacturing sector and the economy, in general. Yet, ironically, it is also one that is in dire need of government support.
Serving as a link to upstream, midstream and downstream sectors, its breadth and scope are wide and encompassing as it provides much-needed raw materials for packaging, adhesives, carpeting, cosmetics, paints, rubber, among other highly in-demand consumer products.
Composed of six players that invested more than $3 billion in state-of-the-art petrochemical plants, the Philippine petrochemical industry has the capacity to produce about 3 million metric tons of various resin products, pays some P2.5 billion in taxes yearly and directly employs more than 5,000 Filipinos to date. The largest of the six is JG Summit Petrochemical Corp. (JGSPC), an industry pioneer and the largest polyethylene (PE) and polypropylene (PP) resin manufacturer in the country, with an annual production capacity of more than 510,000 metric tons of resin products.
A laggard
In a report titled Asia-Pacific’s Petrochemical Industry: A Tale of Contrasting Regions, KPMG Global Energy Institute notes that Asia-Pacific (Aspac) “has been the poster child of the global petrochemical industry” and how “a combination of favorable economic and demographic trends has stimulated a growing appetite for petrochemical products.” It noted projections that in the next decade, two thirds of global petrochemical demand would originate from the region.
While this report paints a rosy picture of the petrochemical industry in the region, the opposite can be said of that of the Philippines, which is lagging behind its peers in the region. The local industry has a lot of catching up to do as its Asean peers particularly those in Vietnam, Indonesia and Malaysia have already undergone aggressive expansion of their respective petrochemical industries. In fact, in the latest survey done by the 2020 World Competitiveness Yearbook, the Philippines ranked the least competitive among these Southeast Asian countries.
KPMG said the Philippine
industry was still in its infancy compared to those in North America and Singapore and the subject of incentives, both fiscal and nonfiscal, is affecting its viability.
Handicaps
Other major problems hampering the competitiveness of the local industry are the unabated direct and technical smuggling of competing petrochemical products, logistical concerns facing upstream-midstream-downstream facilities, trade agreements providing tariff reductions for imported products, and the need for greater ease in doing business in the country.
Official government data indicate a surge in the volume of imported resins in recent years, with significant percentage coming from cost-advantaged origins that put the domestic petrochemical industry at a disadvantage. The influx of cheap competing resins, coupled with
tariff reductions brought about by various trade agreements, undermine the long-term viability of the still developing industry.
Still, even with the fiscal support not yet at par with Southeast Asian countries and other issues, the growth in domestic demand is prompting Philippine petrochemical producers to continue investing in new or expansion projects.
Call for gov’t support
JGSPC, for instance, has ramped up expansion projects at its integrated petrochemical complex in Batangas, increasing its capacity by opening new production lines. Currently under construction are new aromatics and butadiene extraction units and a bimodal PE plant, which are set for commissioning within this year. With more than $1 billion in additional investments, JGSPC will have a capacity to produce 570,000 MT a year of po lye th petrochemical ylene and 300,000 MT a year of polypropylene.
With additional volumes and new downstream value-added products being a step toward product diversification of the Philippine petrochemical industry and thus foreseen to help strengthen the industrial value chain, the Association of Petrochemical Manufacturers of the Philippines (APMP) has not been remiss in reaching out to the government for support.
APMP has been active in consultations related to relevant bills and legislation—such as the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act and the Regional Comprehensive Economic Partnership (RCEP) Agreement— that affect the industry. The association has been calling for solutions to the smuggling problem and the need for Customs modernization. It seeks the strengthening of fiscal incentives for both new builds and expansion projects and shortening of the processing time for tax credit certificates, among other support structures urgently needed by the industry in order to survive and enhance its competitiveness versus imported resins.
APMP and its members, including JGSPC, had held several dialogues with the Board of Investments, where they had emphasized the goal of fostering industry self-sufficiency to fully develop the local petrochemical industry, and thus help with the over-all sustainable development of domestic manufacturing sector and of the Philippine economy.