Siam Cement Takes The Long View

It’s very much business as usual at Siam Cement Chemicals, the chemical business of the Thai industrial conglomerate Siam Cement. Last December, a court order halted the construction of new plants worth billions of dollars in Thailand’s Map Ta Phut industrial zone, but the company considers this unprecedented crisis a mere aberration that will soon be behind it.

“We lost some time, perhaps two to three months,” says Cholanat Yanaranop, president of Siam Cement Chemicals. “But we’ve restarted 90% of construction activity, measured in terms of the size of the projects.” Once construction is completed, Siam Cement will obtain permits allowing it to start operations at the plants in the second half of this year, Yanaranop says confidently.

Enduring a court-ordered construction freeze after starting huge new projects at its main production site might appear to be a debilitating fiasco. This is because chemical companies typically make decisions to invest in new plants extremely carefully. Teams of experts spend months drawing up feasibility studies that are reviewed by top management, and projects move forward only when there is a high level of confidence they will be a commercial success. Yet despite the setback in Map Ta Phut, Yanaranop remains alert to the long-term prospects of his business.

The impasse at Map Ta Phut started in December when a high court ordered a freeze on the construction of dozens of chemical plants because their earlier approval by government agencies did not comply with an environmental protection clause in Thailand’s new constitution (C&EN, March 22, page 26).

The freeze affected 18 of Siam Cement’s projects, including $3 billion worth of new manufacturing facilities built with Dow Chemical. Those plants include an ethylene cracker worth $1.2 billion and a propylene oxide plant featuring hydrogen peroxide-based technology that Dow is deploying on a commercial scale for only the second time.

Siam Cement was able to resume building the projects by successfully arguing before the Thai judiciary that the construction work did not generate harmful emissions. “We told them to let us build, test the equipment, and that we would not start production,” Yanaranop says.

Construction of the propylene oxide unit with Dow will not be completed for another year and a half, he estimates, so there is no urgency to obtain an operational license. Siam Cement was subsequently able to obtain operating permits for some of the other frozen projects. And within a few months, Yanaranop anticipates, the government will promulgate laws detailing how companies can properly comply with the new constitution.

So far, the Map Ta Phut situation doesn’t seem to be affecting Siam Cement’s business performance. Sirima Dissara, a financial analyst at the Bangkok branch of the brokerage KGI Securities, wrote in a note to investors earlier this month that the company’s earnings are vigorous and that the outlook is robust, both in chemical and nonchemical businesses. “The sooner-than-expected end to the chemical down cycle and the progress on Map Ta Phut bring an upside to our forecast,” she wrote.

In chemicals, Dissara highlights Siam Cement’s ability to start up its new ethylene cracker and operate at near-commercial levels. She tells C&EN that most plants downstream from the cracker will probably obtain their operating permits by the end of the year. But uncertainty remains. If the company is unable to get operating permits by legal appeal to the court system, she says, it will have to wait for the government to pass new laws, a path that is fraught with unknowns.

That’s because Bangkok, Thailand’s capital, has been under a state of emergency as thousands of protesters demand the resignation of the Thai government. Dozens of people have died in violent clashes between demonstrators and the armed forces. On April 7, protestors even invaded the Thai parliament. Despite his optimism that the government will be able to pass new laws by the year’s end, Yanaranop recognizes that the process will require some degree of political stability. “We are trying to speed things up so that the current administration can resolve the outstanding issues,” he says.

Yanaranop finds it absurd that construction was stopped on so many chemical projects. He has visited petrochemical complexes around the world and believes that Map Ta Phut compares favorably with most of them, including ones in advanced countries such as the U.S. and Japan. In Thailand, he says, chemical plants are relatively new and thus feature the latest in safety and environmental protection.

Moreover, Yanaranop says, Siam Cement had been running an active community outreach program. “We don’t have a concern from our community relations,” he says. “We have monthly meetings with the communities at which we show them what we do, what we plan to do, and that we have technologies to manage any negative effects from our activities.” What Siam Cement was not prepared for, he says, was dealing with environmental activists who came onto the scene out of the blue.

One of the activists behind the court order to stop construction work at Map Ta Phut is Suthi Atchasai, founder of the Eastern People’s Network. He told C&EN in February that the concentration of chemical firms in Map Ta Phut has reached a point where the local land, air, and water can’t accommodate new facilities. “The environment no longer has spare carrying capacity,” he said.

It’s a contention that Yanaranop partly supports. He does not expect that further greenfield projects will be built at Map Ta Phut, although he contends that companies should be able to expand existing facilities.

For chemical expansion beyond what it is building in Map Ta Phut, Siam Cement is mostly looking at Vietnam. For nearly five years, the company has considered investing in a $4 billion ethylene-based petrochemical complex in the fast-growing country. Siam Cement and its partners have completed the feasibility studies but have not yet started construction, Yanaranop says, adding that the focus now is on securing financing. The Thai company’s partners in the project would be Vietnamese state-owned firms and Qatar Petroleum.

Siam Cement is not the first foreign company to consider a petrochemical complex in Vietnam, but Yanaranop is confident that he is on surer footing than others. He notes that Siam Cement has operated a polyvinyl chloride plant in the country for the past 10 years, in partnership with Vietnam National Chemical Group (Vinachem). Several Vinachem executives who were involved with the PVC project have since moved on to senior government posts and should be open to Siam Cement’s proposed petrochemical complex, he reasons.

And Siam Cement is adept at developing joint ventures with foreign partners, Yanaranop notes. In Thai joint ventures, the foreign company typically contributes unique technologies, and Siam Cement takes care of local business peculiarities. Abroad, the roles are reversed. The Thai giant contributes the decades of experience it has acquired running major production facilities in Thailand, and the foreign partner provides local know-how. Beyond Vietnam, Siam Cement has been trying to set up projects in Iran for several years.

Yanaranop says that Siam Cement proved its proficiency in dealing with local issues when it convinced the Thai judiciary to allow construction on its projects with Dow to resume. “If we cannot deal with local issues, why have us as a partner?” he asks.

Dow and Siam Cement have been running projects in Thailand for decades, and a high degree of comfort has developed between the two sides, Yanaranop says. Dow’s chief executive officer, Andrew N. Liveris, was country manager in Thailand in the early 1990s, he notes. In addition to Dow, Siam Cement has a string of joint ventures with the Japanese firms Mitsui Chemicals and Mitsubishi Rayon.

Running several different ventures managed in different ways with different partners does not give Siam Cement a corporate version of multiple personality disorder, Yanaranop insists. He acknowledges that over time each joint venture develops its own corporate identity and particular way of doing things. For instance, when the partner is Japanese, he says, managers in the venture are rotated to different positions every few years as is common within Japanese companies.

But Siam Cement managers are fine with the ventures’ disparate management styles. “Joint ventures are in our blood,” Yanaranop says, noting that Siam Cement has been operating them almost since it was formed in 1913.

At the same time, Siam Cement runs many of its operations on a wholly owned basis, notably in the production of olefins and polyolefins, where the Thai firm has developed technological capabilities of its own. If the Vietnam project goes forward, it will be without the help of a technology partner, Yanaranop says, adding that for the past 10 years, Siam Cement has been producing its own catalysts in Map Ta Phut.

As its technical knowledge of the petrochemical industry improves, Siam Cement is becoming a technology provider, in ways similar to Honeywell’s UOP business. Siam Cement is not planning to build a formal corporate R&D center, but it did enter the process-licensing business in February with the acquisition of a 25% stake in the U.S.-based engineering firm GTC Technology. Although Siam Cement has owned attractive technologies for some time, it had lacked the business know-how to license them out, Yanaranop says.

Despite the turmoil that affects Thailand these days, Siam Cement’s chemical business is operating from a strong base, Yanaranop says. He points to a market of 500 million people in Southeast Asia alone—and that doesn’t include southern China. With the excellent infrastructure found at Map Ta Phut, he adds, Thailand is in an outstanding position to serve this increasingly affluent market.