The power play!

When some people get their share of what a group wanted, the first thing they do is seek a bigger share. Following on from the previous post, we won the right to purchase a durene-rich gasoline stream. Now what? Superficially, the answer should be obvious: design the plant, build it, float a company, etc. What actually happened was that I got a much deeper view of how the management of large companies operates. Basically, the egos of many of the managers get in the way. The first thing that actually happened was that ICINZ wished to take over completely the development, thus leaving the small company with nothing to do. They argued we had no experience and could contribute nothing; my concern was that they had equally no experience in a venture this size. I wanted the parent company ICI to do it, and had that happened, I would have been happy to walk away. The UK parent was clearly competent to do this, but it was far from clear that ICINZ could do it. I tried to get them to hire a project manager from the UK, but without luck. However, it was not all bad. We managed a concession: the right to purchase the eventual product at factory price, i.e. nobody could get it cheaper. While ICINZ was busy getting the project underway, we had to work out ways of using the product in further downstream ventures. One of the stranger outcomes of these maneuverings was that the joint venture company had to have its own Board, and it decided to call itself ICI Synchem. The small company put forward the founder with a legal background as its director.

What happened over the next two years could even make a small book. Basically the tension grew, and at one stage I was called into a Board meeting to act as a witness. Our lawyer then accused ICINZ of intending to supply durene to an American company to make pyromellitic acid there, which could compete with the proposed venture. ICINZ denied this vigorously, things got heated, but there was no evidence provided. To maintain the joint venture, that director had to resign, and I found myself a director of an ICI company. (Actually, I was already – that is another story – so that made two.)

Two years later, during which the venture spent $5 million developing the project, the New Zealand government killed the project by selling the synfuels plant and refusing to include the supply contract. Worse, they sold it to one company, without competitive tender or negotiation. They did not inform us, and recall, ICI at the time was one of the largest chemical companies in the world, and one of the largest methanol producers. Even apart from the durene, ICI at least could have been a bidder. ICI then walked away from the venture when it became apparent the new owners would not negotiate supply, with ICI Australia taking over and absorbing ICINZ. There was no legal action for breach of contract.

Why did they do that? Who knows? The Synfuels plant was not a success, but recall in a previous post I showed that it would have been reasonably straightforward to make it earn up to $500 million per year more, and simply selling most of the methanol it made would have made it much more profitable. This illustrates a major problem with a government owning a major productive facility: politicians tend to have fixed ideas, and they apply them wherever they can. This Synfuels plant was so outside their experience they simply had no understanding of what they had, and since it started with the opposition party, why not make it look as bad as possible? That illustrates one of the problems with democracy that will become more prominent in my future history novels: too many voters do not put in sufficient effort to understand what they are voting for.

Why no legal challenge? For ICI it was not necessarily a bad outcome. Their PEEK and PES factories were now no longer under pressure, and since essentially all the work that had been carried out could be called research and development, with the takeover it probably qualified for the Australian 150% tax write-offs. ICINZ had also collected the minor party’s share of the cash, and finally, after shifting staff into ICI Synchem, it could unload certain staff without some of the financial liabilities. Our financiers also did not sue because they had their eyes on the state-owned Bank of New Zealand, which was about to be privatized. The small company was effectively wiped out financially. (At that time, contingency law suits were banned in New Zealand, and when you take a financial hit like that, there is no possibility of paying hideously expensive lawyers, whose only incentive is to keep the suit going as long as possible.) Then, to make things worse, shortly after this, Wall Street decided to collapse. I was down to the financial survival mode! One thing I did have was plenty of spare time so I decided to try my hand at writing again. Rightly or wrongly I felt this unusual history might give me inspiration for novels that were a little different.

 

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Chemicals from Durene (2)

In my previous post on the durene project, our small company needed a sizable partner, so the one remaining functional executive took a flight to the US, with the intention of trying to find one. In a rather remarkable piece of luck, he sat beside an executive of ICINZ, they discussed things, and when they got off the plane at LA, they had an agreement in principle. (I have used little incidents like this to provide background for my novels, thus in Red Gold, when David Gill sits on a plane at Denver and ends up with a contract, that is half inspired by that incident. The other half was when I once got on a plane at Denver, stared out the starboard window, and saw a hole the size of a football in the engine cowling. Fortunately, that motor was not started!)

You might wonder why ICI would be interested in partnering such a small company. The reason was, they had a submission in place. ICI had thought about this project, but decided against it. The exact reason why not is unknown, but one reason might have been, they did not want it as long as nobody got it. The reason was, while polyimide plastics are amongst the best heat resistant plastics that are still processable, at least to some extent, at that time ICI made two plastics that were good performance: polyether ether ketone, and polyether sulphone. If polyimides were made at a level that was possible from that plant, those two ICI plants would have been redundant, so as long as nobody developed this option, they would be fine. However, once it became apparent that a plant could be built, that reasoning would be false.

Anyway, an application was made to add ICINZ as the partner and operator. Unfortunately, then ICINZ wanted to add to the submission, to let everyone know how big ICI was, etc. This was manna from heaven for the new government, because they permitted the others to alter their submissions too. In effect it was a new contest, although no new players were permitted. Decision time was delayed. It took three years to get a decision made. In the intermediate time, it became obvious that my position as a government scientist would not continue, and prior to the final decision, I left and formed my own company. The people financing the small company also financed my laboratory, the purpose of which was to aid the durene project, but also to form spin-off ventures.

It was around this time that my self-published novel, Gemina came out. One of the conditions, however, of getting the lab finance and a carried interest in the durene venture, was that I stayed out of the media and did no promotion, including for the laboratory company. As you might imagine, selling books when you cannot advertize or promote them, and you have no real knowledge of the book trade, was hardly ideal. I lost money on that book, but not as much as I first feared.

Finally, this will be the last post for 2012. The southern hemisphere summer holiday season is upon us, so, I wish you all a very Merry Christmas and a prosperous New Year.

Chemicals from durene (1)

The next few posts will involve issues in my life that have been helpful in providing some background to my novels, particularly involving industrial startups, small business, and government. The posts might also convince some why governments should stay out of specific commercial enterprises. These incidents occurred at the same time as I was trying to find a place to publish Gemina. As I mentioned in the previous post, I had lobbied to persuade the New Zealand government to sell durene from the Motunui synthetic fuels plant. To develop the offshore Maui gas field, the government had entered into a “take or pay” agreement with the company that would construct and operate the platform, so, having paid for it, the government owned the gas. A simple thing would have been for the government to sell the gas to the company operating Motunui, but the simple approach seems to elude certain politicians. They decided they would retain ownership of the hydrocarbon stream, and pay a toll to get it converted. Reason: they saw oil as always increasing in price, and I suppose there was also the strategic element.

The reason why this project made sense was because durene had to be removed from the synthetic petrol, therefore the cost of making it was close to that of petrol, which made it an order of magnitude cheaper than durene from other sources. Durene could be converted by a known process to pyromellitic dianhydride, which could be used to make the very high quality polyimide plastics, and it was then being made at about 500 t/a. The competitive advantage was cost, and with the price of oil falling, nobody was going to construct a similar plant to Motunui.

One fruit from my lobbying was the approach of a small company. This company had no experience at chemicals or fuels, but it claimed to know how to raise money, and how the political system worked. As the only game in town, I supported them, at first without much hope, but strangely enough, they exceeded all expectations. I put together, in my spare time, a technical proposal, and the company began looking for joint venture partners. The first effort was with an American multinational, and it was embarrassing, as two of the “official presenters” merely demonstrated they knew nothing about chemicals. Neither did the third, but he had the sense not to pretend. After a somewhat blunt discussion, those two exited from further presentations, and I ended up attending presentations and was responsible for the technical issues. I was on somewhat uncertain grounds here, being employed by a government scientific department. My defence was that I was following the organization’s mission statement. What was impressive about this defence was that it appeared I was one of the very few that even knew such a statement existed, let alone had read it! Anyway, things started progressing at last. I had apparently made sufficient nuisance of myself that there was sufficient groundswell that at last the politicians could not ignore it.

Two events happened. The first was that the small company entered into an agreement with the state-owned entity, Petrocorp, and now there was a player that made sense. (Petrocorp owned a methanol plant and an ammonia-urea plant, each run by gas, and hence had a reasonable amount of brownfield development on which to add a further chemical plant.) The second was that the government announced a bidding process for the development of durene, the process to be run and judged by the Department of Energy. Now, suddenly, the officials asked me to join in the judging process. I refused, explaining that my role was to ensure that at least one sensible proposal was on the table. Then, Petrocorp sent one of their senior executives, an executive from the small company, and me to the headquarters of Fluor Corporation, in southern Los Angeles. (This gave me one scary moment; the driving was left to the small company man because he was a native of Los Angeles and had been in New Zealand for a few years. At one point he made a left turn and to my horror we were on the left side of a divided multilane street. Apart from that minor piece of forgetfulness, though, I appreciated his driving, because he knew where he was going.)

I was fairly pleased with myself for a while, because here I was discussing a venture with engineers who knew how to build chemical plant, and they were validating most of what I had said. They agreed with me that a certain amount of development work was needed, but they were convinced this was doable. Then a spanner in the works. On the last day, with about an hour left, the Petrocorp executive produced a critical blow: Petrocorp would not be part of the bid. Why not? What I was told was that at the Petrocorp Board meeting, the Secretary of Energy, who was also a Petrocorp Board member, had said there was no need to reach a decision at that meeting, and everything could be delayed until the next. With no need to do something, they did nothing. The problem was, the next Board meeting would be after submissions closed, and that Secretary knew that, or should have, after all, his Department was running the process. Whether I was told the truth is another matter, but that borders on the irrelevant. The small company no longer had a joint venture partner, and it was not big enough to be credible. Forked? Whatever, the small company put in its submission, stating that if it won, the win would be dependent on its finding a suitable partner. More will follow!