News article from Mb.com.ph by Bernie Cahiles-Magkilat
The news is about the appeal of the Philippine Petrochemical Industry (PPI) to the government to prioritize the protection of revenue collection instead of pushing for more tariff liberalization. In accordance with PPI’s strategic roadmap, this will promote more productivity and investments in the industry besides the current $1.4-billion worth of projects.
Tariff and revenue collection are key factors that affect the development of the petrochemical industry in the Philippines. Since 2011, Executive Order 61 implements the tariff structure on petrochemicals and currently maintains a 10 percent tariff rate on polymers. Higher tariff rates will be beneficial to major players of the PPI such as JG Summit since this will limit the imports on petrochemicals which mean competition for the company. However, higher tariff could endanger the local plastic manufacturers (downstream players) since they heavily depend on imports. Applying this to PPI’s petition, lowering the tariff will be beneficial for the local plastic manufacturers and the industry as a whole but remarkably, the petrochemical industry favors revenue collection protection over tariff liberalization. This implies that the tax that the government collects produce higher costs for the industry than the tariff on petrochemicals. This means that the PPI would profit more if they would be protected from revenue collection of their businesses. Given the protection from tax collections, it will encourage more local investments in the industry and further result to productivity. The PPI’s appeal suggests that the tax that the government collects from it has more negative effects than the tariff and it would be more favorable and beneficial for the players of the petrochemical industry to be protected from such revenue collection.
Through this article, the group learned more about the industry players of the PPI and how much these contribute to the industry through investments. Considering this, the government should study and consider the appeal of the Philippine Petrochemical Industry to ultimately aid its development.
Garcia, Kenneth Irvin
News article from Bworldonline.com by ENJD
The article is about the petition of JG Summit Holdings Inc. to increase the tariff on imported polyethylene and polypropylene from 10 to 15 percent. This tariff increase is crucial for the success of its naphtha cracker plant which will operate in 2014. The government is still deliberating whether to approve JG Summit’s petition or not since it means changing the tariff structure of Executive Order 61 which has been applied since 2011 and there is no assurance that the plant could meet the local demand for plastic raw materials.
Polyethylene and polypropylene are polymers produced by refining crude petroleum through distillation, fractionation, and cracking. The Philippines imports these materials since it does not have the technology to transform naphtha into polymers. By producing 300,000 tons of polyethylene and 200,000 tons of polypropylene, JG Summit’s plant is expected to meet the local demand for the said products. However, increasing the tariff could endanger the local plastic manufacturers since they greatly depend on imports. Even if the increase will only be imposed on non-ASEAN countries, the supply for petrochemicals is not enough to meet the demand in the ASEAN. JG Summit’s petition can be seen as is its way to increase its sales since the local manufacturers would be given no choice but to depend on the company. Moreover, the supply of petrochemicals in ASEAN countries is not sufficient and this would mean a larger market and higher profitability for JG Summit.
Through the article, the group learned that economic policies such as tariffs are essential in the sustainability and development of the Philippine petrochemical industry which is primarily dependent on imports. Indeed, the government has to make rational and fair decisions so that it will not only cater to the interests of JG Summit but also to the needs of the other players in the Philippine petrochemical industry.
News article from Abs-cbnnews.com by Lois Calderon
The news is about JG Summit Holdings’ plan to open an $800M naphtha cracker plant by the first quarter of 2014. This will be the first naphtha cracker plant in the Philippines and it will produce an annual 320,000 tons of ethylene, the raw material used to produce polyethylene. The opening of the plant will indeed strengthen JG Summit Petrochemical Corporation’s spot as the leading petrochemical company and one of the largest conglomerates in the country.
Polyethylene is used to make large drums, bleach bottles, shopping bags, crates, nets, pails, heavy-duty sacks, lamination films, industrial cosmetics, and pharmaceutical and food packaging materials. Given the fact that other industries use petrochemicals as a necessary component and material for the products they make, the opening of the naphtha cracker plant will be relevant to the other industries. Since the plant will produce polyethylene, it can be said that the need to import ethylene will be reduced. This will promote the petrochemical industry and benefit the other industries since they will more likely depend on this local plant for cheaper polyethylene and other petrochemical products instead of importing them from other countries given the additional shipment costs and taxes. JG Summit’s plant will also help the Philippine economy by providing more jobs and encouraging more investments in the country.
The news is significant to the group since it helps them understand better the production process of the petrochemical products. Moreover, it helps the group appreciate the petrochemical industry more and consider the Philippines’ potential as a low-cost producer of petrochemical products. The petrochemical industry in the country is not as competitive and well-known as the other industries and this makes JG Summit’s naphtha cracker plant a stepping stone for the potential growth and expansion of the said industry.