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Signing of a Petrochemical Park Framework Agreement between CPC Corporation, Taiwan and Indonesia’s Pertamina

Developing international cooperation that delivers mutual benefit

November 15, 2018

Thursday 11 October 2018 on Indonesia’s Bali island saw the signing, by CPC Corporation, Taiwan (CPC) and Pertamina – the country’s state-owned energy company – of the Petrochemical Park Framework Agreement. CPC Chairman Tai Chein and Pertamina President Director Nicke Widyawati each represented their companies for the actual signing. The Agreement calls for the two parties to jointly assess the feasibility of building a light oil cracking plant - with an annual production of one million tons of ethylene - at a given location in Indonesia, as well as plant at downstream petrochemical manufacturing sites. Current estimates of the total investment required place the figure at around USD 6.5 billion (approximately NT$ 200 billion).

The International Monetary Fund (IMF) and the World Bank held their 2018 annual autumn joint meeting in Bali on 12 October. Indonesia’s Ministry of State Owned Enterprises (MSOE) specially organized the Indonesia Investment Forum 2018 the day prior to showcase to their delegates the signing of 21 wide-ranging cooperation initiatives with a number of international agencies and organizations. The Petrochemical Park Framework Agreement was the first to be inked, after an announcement by MSOE Minister Rini Soemarno. According to the Agreement, both parties will hire international consulting firms to help compile feasibility studies for the financing of the project and its construction phase.

Related and relevant issues: the demand potential of Indonesia’s market for petrochemical products in the light of the investment niche opportunity created by 20 years’ exemption from business tax

CPC Chairman Tai remarked that Pertamina and CPC have been in discussions over the collaborative building of a light oil cracking plant for quite some time, with the Indonesian side providing five options for the plant’s eventual location. However, a decision as to that has not yet been made, pending an assessment of each one as to its feasibility. Chairman Tai went on to say that a comprehensive investment plan will be put forward sometime in the first half of 2019, with both MSOE and CPC each contributing 45% and the remaining 10% coming from Taiwanese investors together with international mid- and downstream vendors.

CPC Vice President Huang Jen-Hung, the company’s spokesperson, observed that with a population of some 260 million, Indonesia’s demand for  petrochemical products is bound to grow rapidly in the future. But the country currently and foreseeably lacks even a single light oil cracking plant; so if CPC’s plan to build one there comes to pass, it will be a major first. And not only that: light oil cracking plants produce upstream raw materials for  downstream petrochemical product manufacturing, and this is expected to induce Taiwan’s middle- and downstream industry players to establish factories and facilities in Indonesia; that will in turn boost development of the in-country petrochemical supply chain.

To that end, the Indonesian government has this year promulgated measures to attract and reward substantial foreign investment. As an example, this project’s  plan involves CPC funding in excess of NT$ 64 billion (over USD2.0 billion), so it will enjoy 100% business tax exemption for the first 20 years and a 50% business tax reduction for the following two years. It follows that this kind of investment in Indonesia - a large-scale petrochemical park - has great potential to both spur industrial development and to create a profitable investment niche.

CPC has already formed a team comprising petrochemicals experts from both Taiwan and the international industry community and tasked with planning the process of the joint-venture’s plant construction while on site in Indonesia.

The firm is expanding its international presence while working to implement its three-part core philosophy of adopting a long-term approach to growth, seeking diversity in its development and delivering mutuality of benefit in its dealings. In applying that credo to this instance, the particular objective is to create a model for collaboration between Taiwan and Indonesia that does indeed deliver mutually beneficial results.