Joint Savings
SK Innovation’s Ulsan complex is a jungle of steel structures and pipes. The complex, with a size 2.5 times that of Yeouido, is a place where petrochemical vertical integration is completed from oil refining to complex resin manufacturing.
In this giant complex, the most eye-popping structures are Ulsan Aromatics Corporation (UAC) factories, now being in test operation since last March. The shiny tower-looking steel structures and pipes reflect sunlight brightly, a telltale sign that they are brand-new buildings.
UAC is an aromatics production joint venture created by SK Innovation’s subsidiary SK Global Chemical and Japan’s JX Nippon Oil & Energy Corp’s capital in the ratio of 55.9 percent to 44.1 percent, respectively.
From June it is slated to produce 1 million tons of Para-xylene (PX) per annum, the raw material for Polyethylene terephthalate (PET) bottles, and 600,000 tons of benzene per annum, an ingredient of synthetic detergents. It boasts the largest PX production capacity for a single factory in the world.
The collaboration with JX Nippon Oil & Energy was not without a few bumps on the road. SK Global Chemical launched its joint efforts with its Japanese counterpart beginning in the latter half of 2010, but met with uncertainties caused by Fair Trade Act regulations against the holding company.
The current law stipulates that a holding company’s subsidiary should hold a 100 percent stake in its sub-subsidiary. In the hierarchy that aligns SK Holdings, SK Innovation, and SK Global Chemical, SK Global Chemical is a sub-subsidiary, so to create UAC, it needed to have a 100 percent stake.
However, under the revised Foreign Investment Promotion Act, the requisite stake was modified to 50 percent, if a local company’s seeking a joint venture with a foreign company, which turned out to be a boon to the joint venture business.
There were road blocks in the process of building factories, too. The local company had to go out of its way to meet demanding standards that were imposed by JX.
PX Project 3’s team leader Ok Yung-suk said, “JX is Japan’s number one petrochemical company, and they invest very conservatively. We have to disclose everything and get confirmed by JX people on site.”
Currently, in the case of PX, there is some concern about oversupply in the wake of local companies’ expansion in production facilities.
However, while dispelling such worries, the new joint venture holds a positive outlook, saying that it secured cost competitiveness via raw material procurement and energy cost reductions.
Team leader Ok says, “While the local economy is experiencing a shortage in the raw materials of PX such as xylene, we can procure them cheaply from Japan, where they are abundant. Additionally, by efficiently mobilizing the Ulsan Complex’s heat exchanger network, we cut down on power costs.”
The construction took 19 months, a record time in the industry. Ok says, “We reduced downtime by purchasing the main facilities who’s delivery usually takes a long time. Thanks to Ulsan’s refinery-chemical friendly infrastructure, we could get the job done fast.”
SK Global Chemical is seeking additional joint ventures. One company associate said, “JX seems to have gained confidence in Korean investment on the back of the joint venture this time. JX is mulling over the possibility of further joint efforts, and other foreign major companies are eyeing at SK also.”
The local company stresses that they follow every procedure in safety maintenance also. The prime example is the “One Strike Out” system, where on-site employees get booted out at once if they violate safety regulations such as wearing safety gears. PX Project 3 director Lee Chae-gang says, “China’s state-run oil company SINOPEC came to benchmark our safety management, which received a firm recognition by JX.”