EPS Ethylene Pipeline South Press Conference on March 7, 2005 in Munich – Statement Dr. Peter-Alexander Wacker

Dr. Peter-Alexander Wacker
Deputy Chairperson of the Ethylene Pipeline South Advisory Board
Management Spokesperson for Wacker-Chemie GmbH

The spoken word applies!

Ladies and Gentlemen!

I am also very happy to welcome you to this kick-off press conference for the Ethylene Pipeline South.

As a representative of the ethylene buyers in the Bavarian chemical triangle, I would like to give you an overview of the goals we are pursuing with the Ethylene Pipeline South and describe to you the significance of this project for the future security and competitiveness of the chemical enterprises in south-eastern Bavaria.

A total of five companies are involved in the EPS project as ethylene consumers: in addition to WACKER, they are BASF and its joint venture Basell, Borealis, Clariant and Vinnolit. All in all, these companies process approximately 650,000 tones of ethylene a year at their Bavarian locations, manufacturing many different products that we can no longer imagine living without in our daily lives.

Ethylene is a very important raw material in the chemical industry. It is used in the production of polyethylene, polyvinyl acetate, cellulose acetate, polyvinylchloride (PVC) and other synthetic materials, which are used in turn to manufacture many of the basic consumer items we use on a daily basis: whether as a household appliance, plastic packaging film or detergent, whether as ceramic tile adhesive, grout, plastic beverage bottles, window frames or floor coverings – without ethylene, none of these products would exist.

It is not surprising, then, that not only sales in the three-digit million range are behind the products made of ethylene for the chemical companies involved in the EPS. There are also a significant number of jobs involved: close to 5,000 employees in the Bavarian chemical triangle work directly in the production of ethylene-based products and indirectly, there are another two to three thousand workers. These figures clearly illustrate the enormous importance that ethylene has as a raw material, not only for the economic success of the companies but for employment in the chemical industry in south-eastern Bavaria as well.

Why do the companies in the chemical triangle need the ethylene pipeline? There are two main reasons:

First, to profit from greater flexibility in the ethylene supply, which is a prerequisite for being able to react quickly to short-term fluctuations in market demand and capacities and to produce more economically and more competitively.

And second, to provide long-term planning reliability for the investment measures that will become necessary to keep up with the expected market growth in ethylene-based products and to expand production capacities as required.

As Mr. Roiss already mentioned: While there is already an ethylene network in northern Europe, the companies located in Burghausen and Gendorf as well as the enterprises in Münchsmünster are regionally isolated. The ethylene consumers in the chemical triangle are currently completely dependent on the ethylene produced here.

This has far-reaching consequences: when the demand for our products suddenly increases, it is often not possible to obtain additional ethylene quickly. And vice versa: when the demand for ethylene temporarily weakens in the chemical triangle, the local producers are not able to operate their factories to capacity, to achieve best results economically speaking.

Up to now, the companies involved have been able to compensate for the disadvantages of this rigid regional network by planning with a close eye on future needs. However, in view of the increasingly short market cycles and the constantly growing competitive pressure, limit ations such as these will soon be unacceptable. This weakness in the system can only be overcome by connecting up to the north-western European ethylene network. And that is exactly what the new pipeline will do.

And now on to the second factor that we believe makes the construction of this pipeline indispensable – the need for long-term planning reliability in the expansion of our production capacities.

The growth of the global market for ethylene-based products remains relatively constant – for the WACKER polymer products, for example, that figure averages about 5 percent a year. This requires a continual expansion of our production capacities. In contrast – as Mr. Roiss also already mentioned – the only really efficient way for the local ethylene producers to expand their capacities is in relatively large steps. This means that either we, as the buyers, will be confronted with supply shortages for a longer period of time or that our suppliers will have difficulties in running their expanded production facilities to full capacity to achieve maximum profitability.

This situation is a real disadvantage for the chemical triangle as a business location. After all, one thing is clear: as companies, we require planning reliability for our investment decisions and that most certainly includes a guaranteed supply of raw materials. In the final analysis, that means: the limitations in the ethylene supply in the chemical triangle represent a definite handicap in the competition between companies at different locations for investment capital to expand their capacities. And it will be impossible to eliminate this handicap without building the new pipeline.

Consequently, connecting Münchsmünster and south-eastern Bavaria to the existing ethylene network via the EPS is not only in the interests of the companies involved. It is also crucial for the region in terms of the economy and its success as a business location. Approximately 30 companies in the chemical triangle earn some EUR 8 billion a year in total sales and employ around 25,000 workers. In the past three years alone, the chemical companies in this region have invested more than EUR 1 billion. These figures underscore how important the chemical industry is for the economy of south-eastern Bavaria.

The pipeline is an important element in maintaining the competitive edge of the chemical triangle in the long term and it also opens up new business opportunities for other industrial locations along the planned pipeline route. The degree of public interest in the construction of the pipeline is also expressed in the fact that the Bavarian State Government is providing a significant amount of support for this project – in terms of financing as well as in its support in the approval processes required from the German and European authorities.

Mr. Wiesheu, I am very happy to be able to express to you, as a representative of our state government, our sincerest thanks for all your assistance. And I can assure you that we, the companies involved, stand wholeheartedly behind this project: after all, we have already invested a considerable sum in advance. By the end of 2005, our investments will total EUR 12 million.

Needless to say, we will make every effort to avoid any intervention in nature or the landscape as far as possible in the construction of the pipeline. The route planned already takes advantage of existing lines for the most part, thus minimizing the new area affected. Approximately 320 kilometers will be laid parallel to lines which have already existed for many years. Only some 40 kilometers of the EPS will require the construction of a new route.

Ladies and gentlemen, the introduction of the regional planning process for the pipeline route at the beginning of 2005 was the first important step in the speedy execution of the construction project. On the basis of our information on the project today, we are confident that we will be able to adhere to the ambitious schedule for the construction of the EPS, thus creating one of the major prerequisites for the long-term competitiveness of our companies and Bavaria as an important business location for the chemical industry.

Thank you for your attention.