Tri Polyta moving toward upstream integration

JAKARTA (JP): Publicly-listed petrochemical giant PT Tri Polyta Indonesia said yesterday it was considering a merger with its main feedstock supplier, PT Chandra Asri Petrochemical Center, to move toward upstream integration.

Tri Polyta vice president commissioner Peter F. Gontha said the move would reduce the company's risk profile from feedstock price volatility.

"We are in the preliminary stages of examining a propane dehydrogenation joint venture to produce propylene, our main feedstock," Gontha said after the company's annual shareholders' meeting.

Tri Polyta, listed on the Jakarta and New York stock exchanges, produces polypropylene, a plastic material used to manufacture a wide range of products such as carpets, rope, textiles and automobile parts.

The company, in cooperation with Nippon Shokubai Company Ltd. and Tomen Corp., is currently moving sideways into building acrylic acid and acrylic ester production facilities.

The company is also looking into another venture possibility to produce oxo-alcohol, the main feedstock for producing acrylic esters.

Gontha said that by 1999 Tri Polyta would need 520,000 tons of propylene a year to produce polypropylene, acrylic acid, acrylic ester and oxo-alcohol.

By then its main feedstock supplier PT Chandra Asri would produce a maximum 300,000 tons a year.

"As there will be a shortage, we are evaluating the possibility of building a propane dehydrogenation facility... Otherwise, we will have to import the balance," he said.

Chandra Asri currently supplies about 240,000 tons of propylene a year to Tri Polyta which needs about 360,000 tons. Tri Polyta imports the balance, he said.

Propylene and polypropylene are currently protected by import tariffs of 25 percent and 40 percent respectively.

Tri Polyta said the propane dehydrogenation facility would be completed in the second half of 1999.

It would have a designed annual minimum capacity of 350,000 tons and a maximum capacity of 500,000 tons of polymer-grade propylene.

The company said the investment for propane dehydrogenation would be about US$250 million to $300 million, 30 percent of which was expected to be equity financed and 70 percent through project loans.

Natural gas, the basic material for propane is abundant in Indonesia, the Middle East and Australia.

"We are still looking for a gas supplier for the facility," Gontha said.

He said Tri Polyta was considering a merger with Chandra Asri to boost performance.

"The matter is being studied...but no decision has been made yet," Gontha said.

Gontha declined to give further details about the possible merger with the propylene producer. Chandra Asri uses naphta, processed from crude oil, to produce propylene.

He said mergers between upstream and downstream petrochemical companies were sometimes done to limit risk amid sharp price fluctuations in the international market.

He said currently propylene prices in the region were soaring to some $700 a ton, up from $400 last year, due to the lack of supply.

On the other hand, polypropylene prices were dropping to some $850 a ton, from $950 last year, due to the abundance of suppliers.

"This cyclical situation is nothing special. But it has cut our margin," Gontha said.

Tri Polyta posted a net profit of Rp 26 billion ($10.9 million) last year, down sharply from Rp 58.52 billion in 1995.

The company yesterday decided not to pay dividends and to add last year's profit to its retained earnings.

"We decided not to pay dividends because we are not sure when the downcycle will end," Gontha said. (rid)