Tongkun & Xinfengming jointly invested USD8.6 billion refining-petrochemical projects in Indonesia

On 26 June, 2023,the two leading enterprises in the polyester filament industry, Tongkun GroupCo., Ltd. (Tongkun Group) and Xinfengming Group respectively issuedannouncements, planning to start Taikun Petrochemical (Indonesia) Co., Ltd.(Taikun Petrochemical) to carry out arefining-petrochemical integrationproject in Kalimantan Utara, Indonesia. It isreported that the total investment of the project is USD8,624 million,equivalent to CNY62,409 million.

Basicinformation about the project

Source: Tongkun Group

EquityStructure of Taikun Petrochemical

The main bodyof this project is Taikun Petrochemical. According to the equity structure, themajor shareholders of Taikun Petrochemical are Tongkun Group and XinfengmingGroup. Previously, Tongkun Group and Xinfengming Group respectively establishedwholly-owned subsidiaries Tongkun (Hong Kong) Investment Co., Ltd. and RokosbuckCo., Ltd in Hong Kong. Tongkun Hong Kong and Rokosbuck jointly establishedHuacan International Co., Ltd. in Hong Kong, of which Tongkun Hong Kong accountsfor 51% of the equity and Rokosbuck accounts for 49%. Huacan International andShanghai Qinghong Industrial Development Co., Ltd. jointly established TaikunPetrochemical in Indonesia, in which Huacan International accounts for 90% ofthe shares, and Shanghai Qinghong accounts for 10% of the shares.

Significanceof Taikun Petrochemical Project

XinfengmingGroup and Tongkun Group (hereinafter referred to as the two parties) jointlystated that the project would extend the industrial chain of the two majorgroups of Tongkun and Xinfengming, build an international cross-border supplychain, and ensure the supply of raw materials for Tongkun and XinfengmingPTA-polyester industry chain, thus better promoting the healthy development ofenterprises.

According tothe announcement, it is estimated that by the end of the “14th Five-Year Plan”,the two groups will have a production capacity of more than 20 million t/a ofPTA and 25 million t/a of polyester filament, and the demand for upstream bulkraw material p-xylene (PX) will reach 13 million t/a.

The twoparties jointly stated that for a long time, the domestic PX supply has beeninsufficient, resulting in high import dependence, and the price of acetic acidhas also fluctuated greatly in recent years. These factors have restricted thedevelopment of the textile industry and have posed a serious threat to thestable and high-quality development of the two major groups. Therefore, extendingto the upstream industrial chain and building the development of the entireindustrial chain are inevitable choices for the enterprises to develop the industryand serve the country, and the necessity of overseas layouts of refining-petrochemical projectsis becoming more and more urgent. 5.2 million tonnes of p-xylene (PX) aretransported back to China every year for use in the production bases inZhejiang, Jiangsu, and Fujian of the two groups Tongkun and Xinfengming in abid to accelerate the development of downstream PTA polyester spinning industryand strengthen the development competitiveness. The investment in refining-petrochemical projects inIndonesia is not an industrial transfer but an extension of the industrialchain, which is for the better development and growth of the main domesticpolyester filament industry and for the greater contributions to theinternational competitiveness of China’s textile and garment industry.

In addition tosupplying refined oil and basic chemicals that are in short supply inIndonesia, the project will transport the remaining chemical raw materials andproducts back to China for further processing by Chinese professionalenterprises to produce high-value-added products. The announcement shows thatTongkun Group and Xinfengming Group have set up deep processing bases for refining-petrochemical downstreamproducts in Qinzhou, Guangxi, to meet the domestic demand for many downstreamchemical products in Yunnan, Guizhou, Sichuan, Guangxi, Guangdong, and otherprovinces and countries along the “Belt and Road”, and ensure the supply ofscarce chemicals in the market.

It is reportedthat the project has made positive contributions in building Chinese brands,exporting domestic superior production capacity, equipment, and technology,promoting the internationalization of CNY, and ensuring domestic energysecurity.

1. Most of theequipment and materials of the project will be purchased from China. It isestimated that the total amount of large-scale equipment purchases andinstallation projects from China will exceed USD5.56 billion. TheChina-Indonesia LCS mechanism allows the settlement in CNY, avoidingfluctuations in the exchange rate of USD, so that CNY can gradually become asettlement currency in Southeast Asian countries and promote theinternationalization of CNY.

2. Appropriatelydeploying refining-petrochemical projects overseas is a positiveattempt to ensure national energy security.

3. Part of theproducts of the project can meet Indonesian domestic needs.