The Cabinet-level Tariff and Related Matters (TRM) committee in Philippines has decided to maintain the original timeline for the closure of JG Summit Petrochemicals Corp. (JGSPC) financing arrangements. The deadline is retained within a 6 month period for its proposed $350-million naphtha cracker project. JGSPC has proposed to establish a $300 million naphtha cracker plant in Batangas with a production capacity of 150,000 metric tons. Based on the milestones it submitted to the TRM, it will have a plant commissioning in September to November 2008 and commercial operation by December 2008. JGSPC had asked for a six-month extension from its original timeline saying the company to be able to secure project financing with lower interest rate. The Gokongwei owned petrochemical firms have been enjoying tariff protection for a long time, which now needs to be out to an end.
The tariff distortion has been bad for many and has resulted in several companies that use plastic packaging materials like shampoos and other cosmetics, transferring to Indonesia and Thailand. The tariff problem has also induced smuggling, thus petrochemical firms are losing volumes. At present, tariff rates of 7-10% is imposed on 11 petrochemical products imported from ASEAN, while finished plastic products have been levied with 10% tariff rate. Thus, it is better to import than produced plastic packaging materials locally.
Based on the milestones presented by JGSPC, the company will be able to close its financing arrangements between November and December this year or six months from its original financial closing commitment of June this year. Compliance of the milestones would be the basis for continued tariff protection while non-compliance means termination of the tariff cover.
ASEAN had granted the Philippines a two-year exemption for the country’s petrochemical industry from the region’s tariff reduction program, for longer protection to build the country’s first naphtha cracker plant. But the two-year extension granted by ASEAN already lapsed in December last year and yet no naphtha cracker plant was put up not even a firmed up plan. Under the Common Effective Preferential Tariff (CEPT), petrochemical tariff should have gone down to 0-5%.