Formosa Fails To Learn

There’s an old saying that goes, “If you think that safety is expensive, try having an accident.” It’s a saying that originated in the airline industry, but it also applies to the chemical industry. For some reason, Taiwan’s Formosa Plastics Group has so far failed to heed the adage’s advice.

In the 12 months leading up to July 2011, no fewer than seven major fires broke out at Formosa’s main chemical complex, in Mailiao, Taiwan. The latest two accidents, in July, took place four days apart.

The cost of the accidents to Formosa keeps on rising. Taiwan’s government has ordered the company to inspect all of the pipe work in the vast complex and to conduct repairs where necessary. The effort will cost $400 million, Formosa estimates, and will entail the temporary closure of several facilities. It will be a complicated and distracting undertaking that will include having to locate and hire many skilled welders and technical experts from abroad.

Formosa companies have invested well over $20 billion at Mailiao in oil refineries, power plants, chemical production facilities, and related infrastructure. The site is the main engine of revenue generation and profit for a family of companies that together were the world’s sixth-largest chemical maker in C&EN’s latest Global Top 50 ranking (C&EN, July 25, page 12). Plant closures at the site are proving costly.

In its latest quarterly financial results announcement, Formosa Petrochemical, one of the core companies of the Formosa group, reported a loss of $47 million for the three months ending Sept. 30, largely because it had to close plants in Mailiao. This differs greatly from a pretax profit of $346 million in the previous quarter.

The Formosa group will be hit financially in other ways. The cost of insuring facilities at Mailiao will increase. And financing Formosa companies may cost more. Following the accident, Taiwan Ratings lowered the credit outlook for the group, citing diminished cash flow stemming from work stoppages. The agency added that Formosa may face new difficulties complying with the demands of Taiwanese regulators.

What is most puzzling about how Formosa neglected to maintain its Mailiao facilities is that the company had fought so hard to convince the Taiwanese public that the site would be problem-free. It took Formosa 13 years of hard lobbying to obtain authorization from Taiwan to start building the complex in 1994. Fed up with the industrial accidents that plagued the island’s chemical industry, many Taiwanese residents had ferociously opposed construction of the complex.

And in recent years, it’s not like Formosa had no hint that safety management was a problem within the group. In October 2005, a forklift at a Formosa olefins production unit in Texas hit a valve, resulting in an explosion and fires that burned for five days. Rebuilding the plant took five months. In April 2004, an explosion at a plant in Illinois killed four employees. Those accidents should have served as a wake-up call to Formosa.

Following the July fires in Taiwan, both the chairman of Formosa Petrochemical, Wilfred Wang, and the unit’s president, C. Y. Su, stepped down. Formosa Petrochemical assumed particular blame for the accidents because four of the fires happened at its facilities.

The new chairman of Formosa Petrochemical is Bao-lang Chen, who had previously served in senior positions within the Taiwanese-government-owned refiner CPC. At a press conference soon after he joined Formosa in September, Chen said the management of Formosa Petrochemical had in the past not given proper consideration to industrial safety. He vowed to change that.

But it will take more than promises to convince the public that Formosa has seen the light when it comes to safety. The group will have to avoid spectacular accidents for at least a decade before it can hope to improve its now tarnished image. If Formosa fails to ameliorate its safety record, it will face difficulties expanding its operations both in Taiwan and in other countries. As it is, numerous protests against Formosa have taken place in Taiwan in the past few months.

Changing the safety culture at Formosa will be hard, but there are precedents among Taiwanese companies. China Airlines, Taiwan’s flagship carrier, was once one of the world’s least safe airlines. Between 1986 and 2002, eight of the company’s airplanes crashed in accidents that killed hundreds of people. This record prompted China Airlines to fundamentally reform its safety culture, and it has not suffered another crash in the past nine years.

At the rate things have been going, it will be an achievement for Formosa to avoid an accident at Mailiao for even nine months. The group has no choice but to confront its safety lapses. In the past, Formosa’s accidents cost it a lot of money. The Taiwanese public’s patience is now worn so thin that future accidents could cost the firm its position at the top of the global chemical industry.