Tianjin Petrochemical Complex, China

This project is a $3 billion integrated ethylene and downstream derivatives project in Tianjin, China. The contract was signed in the second half of June 1997. The pre-feasibility study was completed and the project proposal submitted to the State Development and Planning Commission (SDPC) in Nov 1999. The SDPC's approval is still pending. The owners predict a total project schedule (including feasibility, construction and start-up) of six to seven years, and estimate a possible start-up in 2010, although this depends upon the timing of approval.

The owners of the new plant will be US Dow Chemicals, the Chinese Sinopec and Tianjin Petrochemical Corporation (a subsidiary of Sinopec). Dow Chemical will own 50% of the plant and the Chinese companies the other half. Dow Chemical, based in Midland, Michigan, has sales of about $30 billion and claims to be the fifth largest chemical company in the world. It employs more than 50,000 people in 170 countries.

ETHYLENE CRACKER AND DERIVATIVES PLANTS

The first phase of the project involved an ethylene cracker and a number of derivatives plants. These will include facilities for manufacturing polyethylene, polystyrene, polyurethane and epoxy. The ethylene capacity is 650,000t/yr, which Dow wants to increase to 900,000t/yr, although there is a suggestion that this will not be enough with Chinese demand rising to 15 million tonnes by 2005. The complex will also includes a polypropylene plant and a through-production system from chlor-alkali to poly vinyl chloride (PVC). Polyethylene production is the most common use for ethylene in China. The advantages of having an ethylene and polyethylene plant on the same site lie in cost savings and security of supply - China has a continuing ethylene shortage.

HONEYWELL PARTNERSHIP

Sinopec began a long-term special relationship with Honeywell in 1997. This involves Honeywell supplying software and advanced control solutions. The advantage for Honeywell is the entry into one of the world's fastest growing markets. As a preferred automation supplier for DCS, software and so forth. Honeywell should be able to secure market leadership in the area. Sinopec benefits from the significant efficiency improvements that Honeywell technology makes in its plants. Better technology is essential, if the Chinese company is to fulfil its long-term ambition to become a world-class competitor.

CHINESE PETROCHEMICAL INDUSTRY

The Chinese petrochemicals industry still has some residual legacies from Communism. One of these is its continuing status as one of the "commanding heights" of the economy. China remains a large net importer of petrochemicals, partly because of its underdeveloped industry, and partly because of its soaring demand. A second legacy is the Five Year plan. The Tianjin project was part of one of China's six main ethylene projects for the Nineth Five Year Plan (for 1996-2000), which also included a major ethylene joint venture with BP in Shanghai.

Due to a governmental call for western investment, the expansion of the Chinese petrochemicals sector is now being undertaken with the enthusiastic support of numerous multi-nationals, such as BASF, Chevron, BP. However, it is noticeable that such cooperation always takes place through joint ventures, in order to transfer expertise and profits as well as to ensure a measure of local control.

SINOPEC

The China National Petrochemical Corporation (Sinopec) was founded in 1983, and is the largest petrochemical supplier in China. It is a state-owned corporation with 38 major oil refining and petrochemical operations and has 1,200 processing units in China. The company claims to account for 85% of the country's crude oil processing capacity and 82% of the nation's ethylene capacity. Tianjin Petrochemical Corporation is one of the main subsidiaries of Sinopec, and is mainly engaged in the production and sales of refined oil, petrochemicals and synthetic fibres.

Sinopec has already ensured that some of its joint ventures are listed, although this does not include the Tianjin Petrochemical Company. It is rumoured that Sinopec itself may move closer to an overseas listing in Hong Kong, London and New York. While this would improve the company's access to capital, it would also demand much stricter standards of accounting than the firm has hitherto enjoyed. Thus, the company could expect pressure to achieve lower debts and liabilities. This would be in line with its existing commitments to achieve greater profitability, but it may have difficult implications in terms of non-profitable operations, pension liabilities and corporate debts.

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