Committee on Industry, Minerals and Energy

ASEAN Industrial Projects

The year 1981-1982 saw several significant developments in the implementation of the AIP scheme. In their Eleventh Meeting in Jakarta on 29-30 May 1981, the ASEAN Economic Ministers were already looking beyond the first set of AIPs when they agreed that each country would be allowed to consider up to three AlPs at any one time without waiting for the first one to be implemented. At the Twelfth AEM Meeting in Kuala Lumpur on 14-16 January 1982, the Ministers took a further step forward when they approved the following guidelines with regard to the implementation of AIPs:

(i) AIPs shall be allocated to host country proponents upon nomination by AEM based on direct submission by each country through COIME;

(ii) Once a proposed project is allocated to a member country, that country shall have the authority to unilaterally decide whether to go ahead or not with the project;

(iii)Should it be decided to go ahead with the project, each of the other four (4) member countries shall be given an option to own a minimum of 10 percent of equity each with the additional option to increase this to the extent of the unavailed portion of the 40 percent of equity reserved for the four (4) member countries. This option will be good up to the time the call is made for equity contribution; and

(iv) In order to give each of the four (4) member countries a basis for deciding whether or not to exercise its option to invest in the project, a meeting shall be convened to discuss the feasibility study for the project and clarify the various aspects of the projects. Such feasibility study shall take into account the domestic market of the host country plus not more than 50 percent of the import requirements of the other ASEAN countries. This 50 percent shall not be taken to mean an offtake commitment on the part of any member country. It is only being considered in determining the feasibility of the project.

The 12th AEM Meeting further agreed on a well specified two-year time frame for the implementation of further sets of AlPs and the following procedures:

(i) the host country will be given one year to negotiate for the financing of its AIP. This period would cover the conduct of a financial feasibility study, if necessary;

(ii) if after this one-year period, there is no conclusive decision on financing, the AEM may grant a grace period of another year; and

(iii) if, at the end of the grace period the AIP fails to proceed, the AEM shall decide whether it merits further extension, or failing such decision to extend, any other national project can automatically proceed.

In view of these new procedures and guidelines, the 17th Meeting of COIME held in Manila on 12-14 May 1982 agreed that there is a need to formulate a new legal framework for subsequent sets of AIPs. The 13th Meeting of the EM held in Manila on 20-22 May 1982 concurred with COIME's view and asked COIME to present this new legal framework at the Economic Ministers' 14th Meeting in Singapore.

ASEAN Urea Project (Indonesia). As of April 1982, the overall progress of the Project was reported as 46.4 percent complete with individual activities completed as follows: engineering, 96.1 percent; procurement, 99.8 percent; and construction, 26.4 percent. Various categories of personnel have either embarked on or are about to embark on their training programmes, conducted both locally and overseas, Such training programmes will continue until the end of 1983.

On the basis of progress made, the estimated completion date for the Project is late 1983 or early 1984

ASEAN Urea Project (Malaysia). The project ASEAN Bintulu Fertiliser Sdn Bhd (ABF) was incorporated on 6 December 1980. As of March 1982, the estimated cost of the project is still held at US$327 million which is based on 1980 prices pending the evaluation and award of the main contract.

A loan package of 48 billion yen constituting about 70 percent of the cost of the Project has been negotiated with the Japanese Government. The Exchange of Notes between the Malaysian and Japanese Governments for such loan had been officially concluded and signed on 4 February 1982 in Kuala Lumpur. Since 70 percent of the loan from Japan will have to come from the Overseas Economic Cooperation Fund (OECF) and 30 percent from the Export-import Bank of Japan, separate loan agreements will have to be negotiated based on the Exchange of Notes. The negotiation with OECF has started and is expected to be finalised soon and negotiation with the Exim Bank will start in June 1982.

The contract for the preparation of the site had been awarded to Taisei Corporation following the signing of the Letter of Intent on 4 February 1982. The Project Company (ABF) has yet to finalised the award of the Main Contract.

ASEAN Copper Fabrication Project (Philippines). An Experts Group Meeting on the ASEAN Copper vabrication Project (Philippines) was held in Manila on 16-17 October 1981 to evaluate the findings of the Project consultant commissioned to conduct the feasibility study for the Project. The Experts Group found the Project economically viable and this was subsequently confirmed by the Fifteenth COIME Meeting.

The Fifteenth COIME Meeting held in Manila on 19-21 October 1982 agreed to the following plant design capacity for the Project: 

 (i)  wire rods					20,000 tons/annum


 (ii) rods, bars and sections; tubes; 
      plates and sheets				60,000 tons/annum


           Total				80,000 tons/annum
This approved capacity includes 100 percent of ASEAN import needs excluding both the Malaysian market as well as 40,000 tons of firmly planned Indonesian capacity. The 20,000 tons per annum of wire rods as well as 5,400 tons of special purpose materials included in the above capacity are for the national requirements of the Philippines.

At the Twelfth AEM Meeting, the Ministers agreed that the plant capacity of the Project be increased to 100,000 tons with the assurance from the Philippines that the additional capacity of 20,000 tons is intended for non-ASEAN markets.

ASEAN Rock Salt-Soda Ash Project (Thailand). The Fifteenth Meeting of COIME in Manila on 19-21 October 1981 adopted the Joint Venture Agreement for the ASEAN Rock Salt-Soda Ash Project and the Memorandum of Under-standing and the Regulations of the ASEAN Rock Salt-Soda Ash Industrial Company Limited. The Meeting also recommended that the Supplementary Agreement on the Project be initialled by the AEM. This was subsequently done by the Twelfth AEM Meeting for subsequent signing by the ASEAN Foreign Ministers in June 1982.

The salient features of the Project are as follows:



On the basis of the following major assumptions and financial parameters, the IRROI after tax is estimated at 9.42 percent per annum:

(i) project life = 15 years
(ii) soda ash selling price (c.i.f.) in 1985 US$ 225-230 per metric ton
(iii) ammonium chloride selling price in 1985 US$ 150 per metric ton
(iv) rock salt selling price (ex-mine) in 1985 US$ 11.45 per metric ton
(v) the price of ammonia in 1985 US$ 235 per metric ton
(vi) the price of natural gas in 1981/1982 US$ 3.75 per MMBTU
(vii) transportation cost of rock salt from the rock salt mine to the soda ash plant in 1985 = US$ 10 per metric ton.

Arrangements for Trade in AIP products

With the prospect of AlPs beginning commercial operations in the not-too-distant future, the attention of COIME over the year was also increasingly directed towards the question of the institutional mechanism for preferential trade in AIP products. The urgency was especially felt as provisions for such arrangements in the ASEAN PTA, as well as in the Basic Agreement on AIPs and Supplementary Agreements on particular AIPs, are couched in general terms.

Aspecific question arose with regard to market support for the ASEAN Rock Salt Soda-Ash Project (Thailand) as a result of Indonesia's proposal to establish a national soda-ash plant. Indonesia undertook to guarantee offtake from the ASEAN Project at a level that was previously envisioned so as not to affect the viability of the Project. To institutionalise such arrangements, the 13th AEM Meeting, upon the recommendation of the 17th COIME Meeting, "agreed in principle to the commitment to support offtaking of AIP products by member countries according to their requirements as envisioned in the project feasibility study approved by the ASEAN Economic Ministers provided that prices are comparable to the prevailing world market prices generally applicable to ASEAN before taking into account tariff preferences enjoyed by AIPs."

On tariff preferences, the Sixteenth COIME Meeting agreed that a substantial margin of preferences shall be extended to products of the first five AIPs exclusively for the first five years from the date of commercial operation. It was envisaged that such a preferential margin would not be less than that enjoyed by AIC products. This was also approved by the 13th AEM Meeting.

ASEAN Industrial Complementation

The Basic Agreement on ASEAN Industrial Complementation was formally signed by the Foreign Ministers at their Fourteenth Annual Ministerial Meeting in Manila on 17-20 June 1981. With its signing, the First Package of Existing Automotive Components under the AIC scheme was formally implemented. At the Twelfth AEM Meeting it was agreed that the 50 per cent across the board tariff cut for the products of the First Package, as agreed to by the Ministers in their Eleventh Meeting, would be implemented on 1 June 1982 whether or not bilateral non-tariff preferences had been negotiated.

Bilateral negotiations on non-tariff preferences have already begun even before the conclusion of the Basic Agreement. However, in view of the fact that ASEAN was venturing into such forms of industrial cooperation for the first time, progress was understandably slow. In addition, various details with regard to different administrative practices among countries had to be sorted out. Bilateral negotiations were held in Manila in March 1982 between Indonesia, Malaysia and the Philippines.

With regard to the Second Package of New Automotive Components, the following was approved by the Tenth AEM Meeting and confirmed by the Eleventh AEM Meeting: 
  Indonesia   - steering systems
  Malaysia    - headlights for motor vehicles
  Philippines - heavy duty rear axles for commercial vehicles
  Singapore   - fuel injection pumps
  Thailand    - carburettors.
At the Fifteenth Meeting of COIME in Manila on 19-21 October 1981, it was agreed that for the purpose of implementing this Second Package a period of two years be adopted. Specifically, 1 January 1984 or the actual date of start-up, whichever comes first, shaII be set as the start-up date for the implementation of this Second Package.

At the Twelfth AEM Meeting, Singapore's allocated component of "Fuel Injection Pumps" was replaced by "Differential Gears for Motor Vehicles".

In view of the technical complexities involved and the need for a clear definition of product coverage, the Sixteenth Meeting of COIME drew up precise descriptions for all products in the Second Package. The Meeting was however informed that Thailand wished to substitute front and rear wheel hubs for passenger cars and commercial vehicles in place of carburettors. The Meeting was also informed that headlights as well as differential gears were currently being produced in the ASEAN region, and both Malaysia and Singapore would have to review their product allocation for the Second Package.

In view of the difficulties in defining the coverage of automotive components or assemblies, particularly in allocating these among the ASEAN countries, the 17th COIME Meeting agreed to deferinalisation of the Second Package pending a thorough review of the Guidelines for product identification and allocation, and the AIC package. It was also agreed to convene the Fifth Meeting of the Experts Group on the Automotive Industry sometime in August 1982, to be attended by the COIME leaders of delegations. The Experts Group will study, among other things, the possibility of brand-to-brand complementation.

ASEAN Industrial Joint Ventures

As conceived, ASEAN Industrial Joint Ventures (AIJVS) are private sector equivalents enjoying exclusivity privileges similar to AIC products. In view of the modifications to the Basic Agreement on AIC as initialed by the Eleventh AEM Meeting, specifically as regards exclusivity privileges, the draft Basic Agreement on AIJVs as presented to the Fifteenth COIME Meeting was also similarly revised.

Discussion at the Fifteenth COIME Meeting on the AIJV centred mainly on the scope of the joint ventures (i.e. whether it should be extended to include non-industrial sectors), the extent of non-ASEAN equity participation, and the nature of preferential trading arrangements.

The various issues regarding AIJVs were discussed by the Twelfth AEM Meeting. On the scope of AIJVs, it was felt that it shoed be limited to industrial ventures though such a scheme can be subsequently extended to other sectors. As the discussions revealed further complexities, the scheme was referred back to COIME for further study.

An important element of the AIJV scheme, as contrasted with the AIC scheme, is its greater flexibility. For example, an AIJV requires only two participant countries instead of four for an AIC package. Also, while a given package under the AIC scheme must comprise products in a given industrial sector, a given scheme of AIJVs can comprise ventures from different industrial sectors. At the Sixteenth COIME, therefore, some member countries proposed further conceptual changes to the AIJV scheme in order to give it even greater flexibility and further improve its attractiveness to the private sector. The most important is the concept of freedom of location whereby the private sector is free to locate projects anywhere within the territories of the participating member countries in a given scheme of AIJV products.

At the 17th COIME meeting the various concepts were orchestrated in greater detail in a list of Guiding Principles and Procedures for the AIJV scheme and it is expected that these Principles and Procedures would be incorporated into a final draft Agreement for the approval of the AEM.

Cooperation on Minerals

Further to the formulation of the proposed ASEAN Minerals Cooperation Plan by the COIME Working Group on Minerals at its Fourth Meeting in Bangkok on 9-12 January 1981, various proposals for cooperation under the Plan were presented by member countries and considered at the First Meeting of ASEAN Experts Working Group on Minerals, which replaced the former Working Group, in Bangkok on 8-9 February 1982. After due consideration, the Experts Working Group agreed on the following three priority projects:
At the 17th COIME Meeting it was decided that a Seminar for Kaolin experts be held in Indonesia in August 1982. COIME also agreed to seek third country funding for the feasibility studies on the Low Grade Barite Project and the establishment of the ASEAN Training Centre on Mine Safety and Health.

ASEAN Cooperation on Energy

The Third Meeting of ASEAN Senior Officials on Energy Cooperation held in Kuala Lumpur on 9-11 September 1981 recommend to the AEM on Energy Cooperation the creation of a Coal Information Centre and to instruct the Experts Group on Coal to (I ) determine the feasibility of setting up a Regional Coal Depots, (2) determine the need for joint procurement of coal and propose the implementing mechanics, if this need is established; and (3) prioritize the other recommendations on ASEAN coal cooperation a proposed by the Experts Group on Coal in their first meeting in Bandung and approved at the Second AEM on Energy Cooperation held in Kuala Lumpur on 27 April 1981.

These recommendations were reiterated at the next SOM on Energy held in Manila on October 6, 1981, prior to the Third AEM on Energy Cooperation, Manila, 8-9 October 1981. The Third AEM on Energy Cooperation confirmed the above recommendations. As to the establishment of the Coal Information Centre the AEM on Energy agreed that the centre be established in Thailand.

The Second Meeting of the ASEAN Experts Group on Coal was held in Kuala Lumpur on 4-5 February 1982. This Meeting recommended the following: (1) development of coal centres in the. member countries to service wider areas and subsequently interlink them to form a regional distribution network; and (2) development of a joint approach to joint procurement of coal in the long-term.

The Meeting also recommended the following as regards cooperation on coal matters: (1 ) to conduct a joint coal market survey; (2) to conduct studies on the distribution and utilization of coal; (3) to develop joint cooperation in coal with third parties; (4) to develop coal resources; and (5) to acquire coal technology and training.

In the long-term, the Meeting proposed joint undertakings in survey and exploration, in coal mine development, in coal exchanges and in coal emergency sharing.

ASEAN Cooperation in Power Utilities/Authorities

The Task Force on Power Utilities that was formed at the Third Meeting of the Senior Officials on Energy Cooperation to prepare courses of actions related to cooperative projects in power recommended (1 ) that the focal point country responsible for each project nominates a coordinator; (2) that each respective country form a working group responsible for each of the projects.

These recommendations were subsequently adopted by the third meeting of the AEM on Energy Cooperation. Ten working groups were established in each of the following projects: microhydro development; computer applications; interconnection; research, development and engineering; training; geothermal development; nuclear power for electric power generation; rural and urban electrification; standardization and the development of an electric power information centre.

For more information, please refer to the project details