About Formosa Petrochemical Corporation

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In 2010, Formosa Petrochemical Corporation (FPCC) generated US$ 25.7 billion in sales revenue, an US$ 3.9 billion increase and 18 % growth compared to US$ 21.8 billion in 2009.Income before tax was US$ 1.53 billion, a US$0.12 billion decrease and 7 % decline compared to US$ 1.65 billion in 2009.

Sales revenue grew YoY in 2010 due to high crude prices. The main factors contributing to high crude prices include relatively high economic growth in China and India, heated oil market speculation due to US Fed's QE2, and labor strikes in French refineries. In 2010, despite of two fire accidents, FPCC managed to generate a slightly lower income before tax compared to that of 2009. And right after the accidents, we have been diligently working on all the damaged units and expect a full recovery in the second half of 2011.

Faced with the impacts of the two fire accidents and external challenges, FPCC has promoted business practices that adhere to the corporate spirit of ¡§diligence, frugality, and thoroughness¡¨and strived to maximize operation efficiency and competitiveness. In the area of production, we have increased our product value by US$ 0.60 per barrel through improvements in catalyst reformulation and production management. In addition, to aim for the goal of zero emission, we have also implemented a series of waste gas recovering measures. As for the domestic marketing activities, FPCC has continuously strengthened our brand awareness by participating in such events as Yilan Green Expo., Hakka Tung Blossom Festival, etc. Meanwhile, to increase our profitability, we have also constantly formed a variety of marketing alliance with will-established business leaders of different industries in Taiwan.

Our main bus ines ses include refinery,petrochemical, and utilities. In terms of our refining business, refining throughput averaged 433,000 barrels per day, a 10 % decline compare to 482,000 barrels per day in 2009. Domestic petroleum sales grew 12.4 % from 5.22 million KL (kilo liter) in 2009 to 5.87 million KL. To ensure stable supply for our domestic petroleum market, we exported only 14.96 million KL of petroleum product in 2010, a 15% decline compared to that of 2009.In particular, export gasoil sales totaled 8.42 million KL and were primarily sold to Singapore, Philippine, Europe, and Middle East while export gasoline sales totaled 3.23 million KL and were mainly sold to Indonesia, Vietnam, Singapore, and Philippine.

On the petrochemical business, our No. 1 olefin cracker was shut down for 3 months of rehabilitation and No. 2 for 1.5 months of maintenance, respectively. Nevertheless, we managed to produce 2.88 million MT of ethylene and 2.23 million MT of propylene in 2010, a 1 % and 2.7 % growth compared to 2.85 million MT and 2.17 million MT in 2009, respectively. In terms of the utilities division, our Co-generation units have an electricity generation capacity of 2,820 MW. And we produced 20.68 million MT of steam and 15.2 billion KWH of electricity.

In terms of expansion, in response to the ever-growing environmental issues, FPCC has consistently implemented a series of improvement measures in the areas of equipments and production technology. Our goals are increasing product values while maintaining zero additional emission of waste gas. Currently, FPCC¡¦s expansion projects in Mailiao complex include MTBE unit expansion, SAR (spent acid recovery) unit improvement, and C5 recovery. In the meantime, we have been striving to work with the authorities concerned for the approval of Phase V of No. 6 Naphtha Cracking Project. And we look forward to a satisfactory outcome. In addition, we plan to set up a butyl rubber plant with a capacity of 50 KT in Ningbo, China. With this investment, it is planned that isoprene generated from FPCC can be used for the production of high valueadded synthetic rubber. Lastly, following the board¡¦s approval of the investment of US$ 574 million in Formosa Ha-Tinh Steel Corp. In 2008, FPCC has been putting money into it according to the actual construction schedule.

Two major fire incidents occurred in July, 2010. With the assistance of the Authorities concerned, the investigation results have been concluded through the joint efforts of our investigation team, insurance companies, and international experts. One of the accidents happened due to lack of MOC (management of change) which resulting in flange gasket leakage and causing fire. The other one was because of faulty pipeline design causing material deteriorated resulting in leakage and fire. Right after the accidents, with the assistance of the authorities concerned, we have conducted a comprehensive check-up on all of our 58 plants. Besides, we have invited reputable professional consultants to help strengthen our staff¡¥s professional expertise in the areas of process safety management, process hazard analysis, and MOC. Meanwhile, for better internal communication, we have also implemented a measure of SMS (short message service) and adjusted our spokesman system. Also, to improve our relationships with local communities, we have invited local residents to visit our facilities and continuously explain to them our efforts in producing safe products and keeping the environments safe and clean.

To address all the environmental issues, FPCC set up an Energy Conservation & Pollution Control Committee in 2006. Since then, we have persistently put more effort into the areas of energy saving, carbon emission reduction, water saving, and pollution prevention. In 2010, for every hour, we have saved 93.2 MT of steam, 8,855 KWH of electricity, and 3.5 MT of fuel which result in a combined reduction of 354,234 MT of CO2 emission per annum. In addition, due to our efforts in water saving and waste water treatment, we have saved 2,783 MT of water per day. Meanwhile, to effectively prevent emission of VOCs (volatile organic compounds), our Mailiao complex has implemented such measures as stringent selfinspection, periodic maintenance of testing instruments, air quality surveillance, and odor detection programs. Furthermore, with the establishment of a new environmental accounting program in 2010, we now have a better understanding about the costs and benefits of our environmental operations.

In terms of social responsibilities, FPCC has always cared very much about the welfare of our society. In 2010, we donated around US$ 6.88 million in total to 70 social welfare agencies which taking care of employment training for aboriginal teenagers, rehabilitation program for inmates, pneumonia vaccination, electronic hearing aid, and scholarship for various schools. In addition, to show our strong supports to the developments of local agricultural industries and infrastructure constructions, we have jointly donated US$18.91 million with Formosa Plastics Corp., Nan Ya Plastics Corp., and Formosa Chemicals & Fiber Corp. into the Agricultural Development & Stability Fund and the Community Harmony Fund of Yunlin County government.

Looking into 2011, although the economic conditions in Europe and the United States are improving, unemployment remains a challenging issue. Meanwhile, due to the implementation of US Fed's QE2 and the unstable political situations in North Africa and Middle East, rising oil prices are posing new threat to world economic recovery. To avoid overheating and prevent high inflation and asset bubbles, more and more developing countries have therefore adopted various measures of macro economic controls since last year. Because refinery capacity in Asia is expected to increase by only 490,000 barrels per day in 2011, the supply side of oil market will be quite stable. Our estimated gasoline and gasoil sales volume is 5.34 million KL and 9.28 million KL, respectively. As for petrochemical business, while demand in Europe and the United States have not fully recovered, there are strong signs of booming demand in developing countries. And we expect to produce 3.06 million MT of ethylene, 2.31 million MT of propylene, and 428 KT of butadiene. In the mean time, our utilities division is estimated to produce 15.4 billion KWH and 20.96 million MT of steam.

In the future, FPCC will continue to uphold the philosophy of diligence, thoroughness, and innovation. And we will pay more attention to the safety of our working environments, professional training programs, and the improvement of our facilities. Finally, with the joint effort of our employees, FPCC will continuously strive to produce promising results for our shareholders and the community.

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