LG Chem and Lotte Chemical Halt Factories for Over a Week
Power Outage Traced to Joint Venture 'C-Tech'... Responsibility Remains Unclear
Ample Inventory Amid Market Slump Minimizes Impact on Earnings
In February, a power outage at the Daesan Industrial Complex in Seosan, Chungnam, forced LG Chem and Lotte Chemical to halt factory operations for up to two weeks. However, due to ample inventories amid sluggish market conditions, the impact on their earnings was not significant. The cause of the outage was traced to C-Tech, the joint power supplier in which both companies hold a 50% stake, revealing a structure in which the affected companies were also responsible parties.
According to industry sources on May 2, the power outage at Daesan Industrial Complex on February 25 lasted about one hour and thirty minutes, during which LG Chem and Lotte Chemical suspended operations for 13 days and 9 days, respectively. During this period, raw materials that had already been introduced into the process were incinerated, and after re-inspecting the halted facilities, the companies gradually resumed operations.
On the morning of February 25, power supply was cut off to LG Chem and Lotte Chemical in the Daesan Industrial Complex, Seosan City, Chungnam Province, causing factory operations to halt. Meanwhile, a process of burning raw materials used in production was carried out, resulting in black smoke billowing from the chimneys. Photo by Yonhap News.
The cause of the outage was found to be in the facilities of C-Tech, the joint power supplier in which each company owns a 50% stake. Immediately after the incident, LG Chem and Lotte Chemical, together with Korea Electric Power Corporation and CGN Daesan Power, investigated the cause of the outage. As it was concluded that C-Tech was responsible, the companies are covering the restoration costs themselves. The industry estimates that the restoration costs could reach several billion won.
In 2006, LG Chem and Lotte Daesan Petrochemical filed a claim for 10.4 billion won in damages for losses caused by a power outage resulting from a Korea Electric Power Corporation equipment failure. However, since this recent incident occurred within a joint venture, it is difficult to hold an external party accountable. Currently, C-Tech and the two companies have formed a joint investigation committee to discuss the circumstances of the incident and the allocation of responsibility.
This incident did not attract much external attention, partly due to the sluggish market environment. As demand for petrochemical products has declined, production has outpaced shipments, and the companies were able to meet customer delivery schedules without major disruptions by utilizing inventory stored in warehouses.
The three companies have formed a joint investigation committee to determine the details of the incident and the allocation of responsibility. Initially, LG Chem and Lotte Chemical considered filing claims for damages, but given that the responsibility lies with their internal joint venture, there is a consensus that it is difficult to demand compensation from external parties. As mentioned previously, in 2006, LG Chem and Lotte Daesan Petrochemical filed a 10.4 billion won claim for damages related to a power outage caused by Korea Electric Power Corporation equipment failure.
Separately from the power outage, Lotte Chemical has temporarily suspended operations at the entire Daesan plant for about two months since last month to deplete existing inventory and adjust supply and demand. An industry official commented, "There was direct damage from the suspension of factory operations, but thanks to inventory reserves, the impact on sales was limited."
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