Phu My PVC Plant, Vietnam

The project is a new PVC plant located in Phu My, an industrial town in Vietnam. The town is in Baria-Vung Tau Province, about 85km south east of Ho Chi Minh city in the southern part of the country. The site's location in a petrochemical development zone was one of the reasons that the joint-venture partners decided to build the PVC plant there, since they hope to benefit from the cluster effect often found in the plastics and petrochemicals industries.

PVC PLANT

The project got the final go-ahead in the second quarter of 2000. The engineering, procurement, construction and commissioning (EPCC) contract for the plant was awarded to Samsung Engineering, the Korean contractor, for $48.6 million. OGP Technical Services Sdn Bhd, a subsidiary of Petronas, was given the role of project management consultant. The project is due to be completed in the course of 2002.

When completed, the project will have a total PVC capacity of around 100,000t/yr. Feedstock from the plant will be supplied by the Petronas' VCM plant at Kerteh in Malaysia. Since Petronas is one of the main partners in the project, the source of the feedstock can be regarded as secure. The Malaysian company has signalled that it is eager to become more involved in the Vietnamese market as part of its long-term strategy.

HIGH DEMAND FOR PVC

The main economic objective of the project is to take advantage of Vietnam's strong economic growth, which is feeding the strong Vietnamese demand for PVC supplies. As a result of its history, Vietnam has not developed as swiftly as some of its neighbours, and therefore the economy still has considerable "catch up" potential, compared with some of the other economies in the region. The investment is also based on the assumption that local production will give the company a key advantage over producers who are forced to import. This assumption is common in chemicals and plastics markets, where transport costs (quite apart from bureaucracy and import restrictions) form a major component of suppliers' costs.

THE PHU MY PLASTICS & CHEMICALS COMPANY

The plant is sponsored by the Phu My Plastics & Chemicals Company for a total cost of about $110 million. The Phu My Plastics & Chemicals Company is a joint-venture company, formed in 1997, specifically to found the PVC plant at Phu My. However, the project faced a major obstacle when one the principal partners, the Japanese Marubeni, who had been expected to take a 30% share in the scheme, decided to withdraw from the plant. The ownership structure of the new venture therefore had to be dramatically changed in order to save the project. Petronas now takes 50% of the equity, making the Malaysian firm the dominant partner. It had previously only planned to take 40%. PetroVietnam, which like Petronas is a state-owned oil, gas and chemicals giant, has a 43% share. PetroVietnam has gone through the biggest change as a result of the Marubeni withdrawal, since it had formerly planned to take a share of only 15% share. The remaining 7% of the equity belongs to Tramatsuco, which had previously intended to have a larger share of 15%. Tramatsuco is the trading arm of the People's Committee of Baria-Vung Tau Province (Vietnam is still nominally, and in some practical aspects, Communist). The plant has a measure of government support since it is likely to act as an agent of import substitution, something which the Vietnamese authorities value. Despite the withdrawal of Marubeni, the other partners decided to progress with the project.