Formosa Tries To Mend

It took a three-day hike to the top of Hehuanshan, one of Taiwan’s most majestic peaks, for Bao-lang Chen to decide to accept an offer to become chairman of Formosa Petrochemical, a core company of the Formosa Plastics Group. When he made the climb in early September, he had been considering the offer for more than a month. Surveying the view from the top of the mountain, Chen, 68 and a recently retired chemical industry executive, made the decision to take the helm of one of the most troubled companies in Taiwan, knowing that he was submitting himself to intense media scrutiny.

Several weeks earlier, on July 30, 2011, Formosa Plastics Group had suffered its seventh serious industrial accident in the span of a year when an explosion occurred at a propylene unit at its flagship Mailiao petrochemical complex in western Taiwan.

Together, the main companies in the Formosa group—Formosa Plastics Corp., Nan Ya Plastics, Formosa Chemicals & Fibre, and Formosa Petrochemical—have invested well over $20 billion at Mailiao. Opened 12 years ago, the site produces fuels and a wide range of chemicals at more than 50 closely integrated plants. Even before the accidents happened, the local government of Yunlin County, where Mailiao is located, had been complaining of toxic leaks at the complex.

The string of accidents attracted blanket media coverage in Taiwan. Three senior Formosa Petrochemical executives, including the chairman and president, resigned. Five of the seven accidents took place at Formosa Petrochemical, which produces fuels and chemical feedstocks including ethylene, propylene, and aromatics. Now three months into his job, Chen says that Formosa has made much progress in reducing the risk that another accident will occur at Mailiao.

“At this time, the Formosa Plastics Group is filled with determination,” he tells C&EN during an interview in Chinese at his Taipei office. “The group has agreed to spend a lot of money and a lot of effort in upgrading its operations. So I have a lot of hope for Formosa Petrochemical and for the group as whole.”

It is not normal practice for Formosa to headhunt outsiders to manage its operations. But these aren’t normal times for Formosa. The series of accidents has led to public protests in Taiwan and heavy-handed government intervention into how the Mailiao complex is operated.

Shortly after the July 30 incident, C. T. Lee, chairman of Formosa Plastics Corp., and Wenyuan Wang, chairman of Formosa Chemicals & Fibre, went to Kaohsiung, in southern Taiwan, to find Chen, who had retired two months earlier. They pressed him to lead Formosa Petrochemical.

“What were they going to do?” Chen asks. “There’s just been this big accident, and there’s no chairman, no president at Formosa Petrochemical.” Before finally agreeing to take the job, Chen says he obtained assurances from Wang, Lee, and other senior Formosa executives that they would stand behind his decisions. “It’s under these conditions that I agreed to come and help,” he recalls.

Chen is a seasoned veteran of Taiwan’s chemical industry. A chemical engineer, Chen started his career in 1967 as a plant worker at the state-owned refiner and petrochemical producer Chinese Petroleum Corp. Over the years, he rose steadily through the CPC ranks until he became president of the company in 2004.

Mihn Tsao, the new president of Formosa Petrochemical, is a former vice president of CPC and former colleague of Chen’s. The two former CPC executives are now at the helm of the largest company in the Formosa group.

Upon retiring from CPC in 2008, Chen became chairman of CAPCO, a Taiwan-based joint venture of BP and CPC that produces the polyester raw material purified terephthalic acid. At about the same time, he also agreed to chair Kuokuang Petrochemical Technology, a CPC subsidiary that tried, and eventually failed, to establish a petrochemical complex in Taiwan on a scale comparable to Mailiao. Chen left CAPCO in early 2010, and Kuokuang was disbanded in May 2011 after the president of Taiwan announced that he did not support the project.

While he was head of Kuokuang, Chen often visited Mailiao, and he became familiar with the complex. One of the insights he developed during those visits is that the Mailiao facilities are located in a particularly corrosive environment and aren’t well protected against the long-term effects of corrosion. He also came to believe that several changes could be made to how safety is managed at the complex.

The corrosion, he tells C&EN, is not the result of the complex’s seaside location. Many chemical plants operate in coastal locations such as Singapore and Houston without damage from the salty sea breeze. The problem at Mailiao is that the dominant wind direction is from the northeast. A few miles to the northeast of Mailiao is the delta of the Zhuoshui River, which is mostly dry for almost half the year. The wind picks up fine dust particles, as well as some sea salt, from the riverbed and blows them into Mailiao.

Blaming the accidents on dust may sound disingenuous, but informed observers do not dismiss the explanation out of hand. At the Taiwan Environmental Protection Union, an activist group, founder Shin-min Shih says it’s quite plausible that dust from the Zhuoshui corroded Mailiao’s equipment.

“But Formosa should have flagged this problem when the complex was first established,” adds Shih, who is also a professor of chemical engineering at National Taiwan University. “Whenever you build a major petrochemical complex, you make a list of possible risk factors.”

Design issues at Mailiao further contributed to the degradation of equipment, Chen acknowledges. Five of the seven accidents involved pipe failures. Formosa employees failed to notice the damage in time because the pipes are laid out too close to each other and are stacked up to five levels high. The pipes often touch, creating crevices where water, dust, and salt can collect. And there is no way for an operator to safely inspect them without risking life and limb climbing to the top of the pipes.

Fixing the equipment problems at Mailiao is relatively straightforward, if expensive, Chen says. On the basis of recommendations he endorsed, Formosa is currently spending about $400 million to upgrade the huge complex. A large chunk of the money will go to protecting the pipes from corrosion by encasing them in aluminum and plastic. To reduce the density of the piping, the group is also removing hundreds of pipes that are no longer in use.

In addition, as instructed by Taiwan’s government, Formosa is conducting a detailed inspection of the Mailiao complex in accordance with plans drawn up by Lloyd’s Register and TÜV Rheinland. Both organizations are global providers of expertise in the safe conduct of production, transportation, and construction activities. “This is a job that requires a lot of additional manpower,” Chen says, and every day 11,000 contract workers are at Mailiao helping with the inspections. The job will be completed in December 2012, he expects.

To further reduce the risk of new accidents, Chen is reforming the way the complex is operated. Over the past few months, Formosa Petrochemical has hired 130 additional permanent staff for Mailiao. “There weren’t enough people at Mailiao,” he says. “It was easy for a small incident to turn into a much larger event.”

Other employees of Formosa Petrochemical are also in training, he adds.Chen points out that Formosa Plastics Group, one of the world’s largest producers of polyvinyl chloride, started producing fuels, olefins, and aromatics only with the opening of the Mailiao site. That means that Formosa Petrochemical does not have personnel with multiple decades of refining and olefins production experience, as is common at plants in the U.S. and Europe.

Separately, Chen is also attempting to improve morale at Mailiao with frequent visits. Formosa’s headquarters are in Taipei’s financial district, a two-hour drive from Mailiao, which is to the south. Chen contends that his regular visits are compelling heads of other Formosa companies to emulate him. “The employees of other group companies can see me visiting Mai­liao often, and they wonder why their own chairman isn’t doing the same,” he says.

It’s his responsibility to promote safe practices, Chen says, because in his experience, lower level employees adopt the habits of upper management. “If you’re the boss, and you like to play golf, you will find that the people below you play golf too,” he explains. “And if you’re concerned about safety, they’ll be concerned about safety.”

Inside and outside Formosa, many are skeptical about Chen’s ability to effect fundamental changes. A middle manager at Formosa’s Taipei headquarters who is not authorized to speak to the media tells C&EN that many Formosa executives believe the upgrades that Chen supports are too expensive, especially his proposed encasement of pipes in plastic and aluminum. Although top Formosa executives publicly express their support, this manager foresees that Chen will in practice face much internal foot-dragging.

Formosa business managers are traditionally encouraged to maximize profit, he says, and spending so much money on maintenance and repairs is not normal practice. “Managers get promoted based on their profit performance; if there’s an equipment failure, they wager it will happen after they’ve been promoted,” he adds.

Corporate culture may help explain why so many accidents have occurred at Mailiao, says Tai-shan Yu, a section chief at the sustainable development unit of the Industrial Development Bureau of the powerful Taiwanese Ministry of Economic Affairs. Since the July accident, Yu’s section has overseen safety inspections at the Mailiao site.

“The dust is one of the reasons explaining the accidents, but it doesn’t explain everything,” she says. As a rule of thumb, Yu adds, human error is 80% of the reason industrial accidents occur; equipment failure explains only 20%. “We will continue our oversight of the Mailiao complex,” she promises. Concerning the influence that the two former CPC managers are having on safety management at Formosa, she says it’s far too early to say.

Chemical engineer and activist Shih is skeptical that Formosa is addressing all the problems at Mailiao. The complex is mostly built on land reclaimed from the sea, and Formosa struggled with land subsidence during construction. He believes the ground is still not properly stabilized. “The land could sink unevenly and break the pipes or the sealants,” he says. “It’s a threat to this complex.”

As to how much Chen will be able to change the culture at Mailiao, Shih is skeptical as well. “He faces both an engineering and a people challenge,” Shih says. “Many components of the Mailiao complex need to be replaced, but it’s expensive and the people under him may not support such an expenditure.”

Chen acknowledges that his verbal assurances of improved safety at Mailiao will be met with skepticism. “There’s only one way left for Formosa Plastics Group: no more accidents,” he says. “The time for talk is over. There needs to be a long time passing without an accident, and then we can regain public confidence.”