Saturday, June 6, 2009

Tracing self-sufficiency back to energy security

From plastics to petrochemicals to oil and gas

I was recently hired to be an interpreter for a Thai technician who was sent to Mexico by a French company based in Thailand to re-adjust a serigraphy machinery built in Thailand and imported to Mexico last year. I was intrigued about why and how the machine came from Thailand and started doing some research about plastic packaging.

Mexico is a major oil producing country and plastics would seem to be a natural downstream industry. However, she imports many of her raw material because the petrochemical industry is not able to produce enough due to lack of new investments in the last 20 years. Oil production and its by-products is a government monopoly run by PEMEX, Mexico’s equivalent of PTT in Thailand. However, the energy sector in Thailand is more fortunate than Mexico’s since competition has been engineered into the sector since the beginning.

Having grown up in the Middle East, I’ve been fascinated by the story of oil and its power over the world economy. I presented a paper about foreign investment in the oil sector of Thailand for my Master’s thesis. So I find myself visiting the theme enthusiastically again prompted by this unexpected visit to a Mexican plastic factory.

The starting path of Thailand’s industrialization

I discovered that PTT is celebrating 30 years of achievement. Very short compared to PEMEX’s 70 years history. In contrast to Mexico’s faltering petrochemical industry Thailand is quite fortunate to have a thriving one. This is confirmed by the presence of a French company who was confident enough in the future of this sector to invest in building silk-screening machines for plastics in Thailand.

According to PTT’s website, this progressive company was founded in 1978 as a response to an energy crisis stemming from the 1973 Arab Oil Embargo. Achieving energy security was an imperative. Our bloggers’ comments about Thai people’s lack of planning is definitely proven wrong if we look hard enough for some hard evidence, as in the remarkable story of the dedication, persistence, and success achieved in building diverse and competitive upstream and downstream oil and gas industries in Thailand.

PTT was partially privatized in 2001 as a result of a process of liberalization and reform in the energy sector initiated during the premiership of Anand Panyarachun continued by Chuan Leekpai under the leading role of Sawat Bhodivihok. The Thai government has no plans to relinquish its 69% stake with the main enterprise, but gradual liberalization and reforms in the energy sector were set into motion since the 90s. Thailand had found a balance between public and private ownership of this important industry.

Fluctuating oil prices and financial crisis were taken in their stride and the company continues to flourish and is even confident enough to embark acquisitions locally and abroad.

What would this have to do with self-sufficiency? We need to produce what is needed. Energy is the main driving force of any economy. Thailand is still dependent on imported energy but I have hopes measured from how far we have come in 30 years, that PTT’s traditions and vision will guide us towards developing alternative energies and continue to generate other beneficial economic side activities.

Industry organizations and business clubs

Another unique character of business in Thailand and SE Asia is the curious organization of "Associations". These non-profit organizations bring together members of industries to promote dialogue among its members and help make sectors of industries more transparent. Businessmen have a forum to gather and brain storm in nearly a semi-bureacratic atmosphere. The public private cooperation in Thailand therefore is not top down with policies imposed upon businesses by governments. It actually can be a two sided process, depending on each industries' strengths and charismatic leaders as well as industry participants willing to work towards common goals. The role of these organization allow business partners and competitiors alike to know each other. Once confident and comfortable as a group. they are bold enough to approach or give feedback to the government with requests that can help industries grow.

One such organization is The Federation of Thai Industries, under which there is a Petrochemical Industry Club, as well as a Plastic Industry Club. Each club has sections listing directories of company (all members major participants of each sector), and sections explaining the structure or processes of each sector.

The Petrochemical Club (FTIPC) is actually organizing a three day training seminar entitled "Introduction to Petroleum & Petrochemical Business" from June 13-15. You can check the program at their website. (Too bad I cannot attend.)

They are also hosting a regional conference/exhibition, PRA 2010 later in the year during 16-18 November.

Apart from connecting businessmen within the country, the FTIPC is also dedicated to making connections with similar organizations across the region, such as, JPCA (Japan Petrochemical Industry), KPIA (Korea Petrochemical Industry Association) , MPA (Malyasian Petrochemicals Association), and SCIC (Singapore Chemical Industry Council).

The Plastic Industry Club of the Federtaion of Thai Industries was formed in 1982 and has 151 members. These companies are engaged in comprehensive integration of upstream, downstream investments. They range from petrochemical to plastic pellets, components and parts of cars, electrical and electronic appliances, packaging and wide-ranging consumer products including toys, machines and moulds. The state of the indsutry in 2000, reported by the Plastic Industry Club has primary and secondary industries operating at 80-100% of total capacity while plastic pellets exported to South and Southeast Asia rose by 53%. China also shifted polyethylene import from Korea to Thailand. Despite higher output, plastic pellet imports total US$ 1,217 million (+35 %) in 2000 as overseas buyers stepped up orders to forestall any impact from high crude oil prices.

Some comparative figures

PTT was ranked by as 207th largest companies on the Fortune 500 list for the year 2007 and climbed to 135 in 2008. It is also ranked as 17th fastest growing in 2008, with its revenue in 2008 was 51,192.5 million dollars having grown 59.7% from 2007. It’s profit increased by 33% from 2007.

A comparison with other global competitors in the petroleum refining industry can be looked up at:

According to FTIPC’s market overview, the petrochemical industry contributed a revenue that measured 5.8% of Thailand’s GDP in 2008, that is a value of 512,774 Million Baht or 15,539 Million US.

Exports of petrochemicals was 4.82% of total export at 253,294 Million Baht (2007). Its largest market is China.

**(Side note: For the sake of weaving stories, I would like to point out Khun Tawan’s blogpost of July 5, 2008 titled “Thailand’s Energy Solution”. The discussions raised about alternative energies are worth a visit.)

**** A recently published book in Thai, “PTT: The S-curve Story”, can be found at Putalay Bookshop.

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