Taiwan outsourcing Pollution to Malaysia?

A long-running saga has come to the end for a US$12.8 billion attempt by the Kuokuang petrochemical company , which is owned by Taiwan's 43 oercebt state-controlled CPC Group, to build a refinery for the production of petrochemical products such as ethylene, benzene, toluene and xylene. It is the victim of environmental protest. The government instead is now seeking to export its environmental problem to Malaysia.

In early July, the state-run oil refiner CPC Corp, without fanfare, signed an investment agreement with Malaysia's Johor state government to build the integrated refinery and petrochemical plant in the village of Pengerang, Johor. Preceding the move was close to a decade of fierce environmental protest in Taiwan, forcing the island's government to choose between major business interests on the one side and nature and health on the other.

In April 2011, Taiwanese President Ma Ying-jeou opted for the latter, and last month an obviously upbeat Malaysian Prime Minister Najib Tun Razak announced that an undisclosed Taiwan-based petrochemicals firm had agreed to invest in a new integrated complex in the south of the country.

But for Taiwan's manufacturing industries, which need the plant to ensure smooth supply for the production chain, the Malaysia twist augurs the emergence of an acceptable solution. But it may be another case for Malaysia, where equally fierce environmental protest has stalled a US$850 million rare earth processing plant being built by Australia’s Lynas Corp. near the east coast city of Kuantan and made the plant a potent political issue.

There is little doubt that Kuokuang's implementation would help drive the Malaysian economy and aid in Najib’s effort to build a regional petrochemical hub in its quest to compete with Singapore. However, the Taiwanese must ask themselves whether their economy can cope with the precedent of environmentalists driving out a major infrastructure operation that is clearly needed by the rest of the island’s business community.

According to interviews with analysts in Taipei, confidence is the prevailing mood, along with a certain amount of satisfaction at having cleaned up what was previously one of Asia’s most polluted environments.Ta

“It won't hurt. Taiwan is now still a developing country but is well on its way to becoming like a member state of the EU,” said Winston Dang, former minister of the Environmental Protection Administration (EPA). “Taiwan must invest in the people's brains in this transitional period, not in high-polluting industries.”

And Hu Sheng-Cheng, an economist and former minister of the Council for Economic Planning and Development, predicted that if Kuokuang's Johor plant does materialize, the Taiwanese government will demand that a certain share of the products be shipped back to Taiwan, thereby ensuring that raw materials will make it to the island's downstream manufacturers. The government would furthermore speed up the upgrading of Taiwan’s own petrochemical industry, he said.

A weak point in the outsourcing scheme is the loss of jobs, however, Hu said, adding that “Taiwan's petrochemical industry is a major employer. The government better come up with subsidies to make up for the jobs leaving.”

He then pointed out that if the Johor plant doesn't come into being, Taiwan may well find itself in a dilemma, as even China has lost its enthusiasm for accepting Taiwan's polluters.

During his ministerial stint from 2007 to 2008, it was the EPA's Dang who killed Kuokuang's initial plans to build its refinery and naphtha cracker in Mailiao in Taiwan’s Yunlin County. His veto led the company to propose building it in Changhua County's Dacheng, which later became the scene of intense protests that eventually drove the project off the island all together.

The 2,000 hectares of Changhua's rare and pristine wetlands, the natural habitat of the endangered Indo-Pacific humpback dolphin near them and last but not least the predicted significant increase of air pollution, which environmentalists say would produce particles fine enough to invade even the smallest airways, led to the emergence of a powerful civic movement that decisively frustrated Kuokuang's plans.

Students and locals teamed up with academics, the media and opposition lawmakers, turning the white dolphin into the alliance's icon. After a health risk assessment report came up with the bizarre finding that the plant if built would shorten life expectancy island-wide by 23 days, about the entire Taiwanese public was in.

That then-Premier Wu Den-yih of the ruling Kuomintang was caught on record stating that the “dolphins should be smart enough to swim elsewhere” obviously did the investors no good. With presidential and legislative elections then looming, President Ma eventually withdrew support from the project.

“That was good news for the local communities – they would have got many more cancer cases but only 2 percent of the taxes Kuokuang would have paid,” said Dang.

The story, Dang said, shows that major development projects that come along with heavy pollution and high energy consumption are no longer feasible on the island.

But are they welcome in Malaysia?

While Malaysia’s Najib was obviously encouraged by winning the plant, there already have been indicators that in Pengerang an environmental storm has begun brewing. Last month saw hundreds of residents rallying against the Kuokuang project, claiming that it would bring severe pollution of air, land and sea, along with land seizures from reluctant villagers and would require relocation of residents, the town's Mandarin school as well as a graveyard containing nearly 3,000 tombs. Also the recent developments surrounding the Lynas case inevitably comes to mind.

In addition an enthusiastic group of Taiwanese environmentalists, who last year fought it out to the end for the Changhua dolphins, has since been spotted at Pengerang beach, fraternizing with their local counterparts.

But Yang Yungnane, director of Taiwan's National Cheng Kung University's Research Center for Science & Technology Governance, is cautiously optimistic that the case is about to be settled to the liking of the government of Malaysia and Taiwan as well as the business world.

“There might be a risk if local environmental groups are strong enough to make the protest getting recognition from the Malaysian public,” Yang said. “But the likelihood that the project passes is higher than it being rejected.”