2.4 Plant Location Study: (CITATION Got15 /L 1033)

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2.

4 Plant Location Study


In current modern business environment, many entrepreneurs are facing problems in deciding the
best site for location of his plant as variety factors has to be taken and the selection has to be
based on multiple criteria decision-making (MCDM) [ CITATION Got15 \l 1033 ]. No plant could
fulfill all the criteria and located in a perfect location with maximum benefits. Some factors will
tend to be more important than the other one in which will be the dominant criteria of site
location. For example, if the raw material is quite in large amount and having difficulties in
transporting, then the plant would be desired to be placed in a location closer to the raw material
source instead of accounting other insignificant factors.
A bad location may cause major irreversible setbacks in which may also cause an enterprise to
experience declining profits margin and eventually would lead to bankruptcy. Gothwal & Seha
(2015) also mentioned that once a mistake is made in finding a location for a plant, it becomes
extremely hard to correct it especially if it is in large scale. The initial stage of a selection
process is essential and must be relevant for long- term operational activities. There are 12
factors evaluated which could help in determining the best site location to ensure the entire
process would be carried out efficiently at a minimal cost and the maintenance activity could be
done smoothly. These factors are:
1. Raw Materials Availability
2. Markets
3. Energy availability
4. Climate
5. Transportation Facilities
6. Water Supply
7. Waste Disposal
8. Labor Supply
9. Taxation and Legal Restrictions
10. Site characteristics
11. Flood and Fire Protection
12. Community Factors
2.4.1 Primary Factors

1) Raw Materials Availability

Raw materials availability is one of the most important consideration in which the source of raw
materials should be able to produce feedstocks at maximum rate and with cheap selling price. In
general, companies which produces products in bulk would locate their plant close to source of
raw materials to minimize any sort of extra costs involving shipping and transporting feed. As an
example, the feed stock that we will be using are benzene and ethylene. According to MIDA
(2019), Malaysia being the 28th largest reserves of crude oil and condensates has multiple facility
in producing petrochemical feedstocks to enhance manufacturing industries.

Benzene and Ethylene in Malaysia is being produced by companies such as Lotte Chemical
Titan(M), Petronas Chemicals Aromatics a, Pengerang Refining Company Petronas Chemicals
Ethylene.[ CITATION Che19 \l 1033 ] . The main component in knowing which manufacturer would
be able to meet the plant feed demands is by comparing the production capacity. The capacity of
raw materials being produced by these company varies and the larger a production rate, a better
certainty obtained in which the raw materials supply would meet the demand.

The location of plant from the source of raw materials should also be closer in order to minimize
total transportation cost and is also a factor of the abundancy of the raw materials nearby the
location. If the raw material is universally available, then the selection of plant location would
favor towards market area.

2) Proximity to Markets

The location of market also affects the decision on a site selection and this factor is considered to
play a vital role for long term success of a plant. Having a plant near to market area would help
in providing goods or products to customers at the time needed and at a reasonable price. By
locating plant closer to market area, transportation cost of product would be less besides having
less commitments on the delivery processes. The proximity to market factors would mainly
affect products with low shelf life and is susceptible to spoilage.

Ethylbenzene is primarily used in the manufacture of styrene which is a liquid that can be
chemically linked to form polystyrene. Having a plant in Pasir Gudang would really help in
meeting buyers as there are many factories working with polystyrene and foam nearby. As for
Kertih and Pengerang, the local markets would not benefit much as the plant would be located in
a place that have a low degree of accessibility.

3) Energy Availability

Energy availability is also important as industrial sector is responsible for the 54% of the world’s
total delivered energy. Industrial sectors can be divided under 3 categories which are energy-
intensive manufacturing, nonenergy-intensive manufacturing and nonmanufacturing. As for
ethylbenzene production plant, it is placed under energy-intensive manufacturing as the there are
multiple separators and heat exchangers being used to treat effluent which tend to consume lots
of electricity. Due to the high consumption of energy, the price for energy supply should be
included into consideration. As an alternative, a self-generated energy power plant can be built
for long term energy cost saving. Fuel energy is also needed to produce power and steam.

4) Climate

Adverse climatic conditions at a site can cause an increase in cost. Irregularly, low temperature
will need a supply of additional insulation and special heating for equipment and pipe runs. The
stronger structure will be required at locations subject to high winds (hurricane/cyclone) or
earthquakes. The needs of considering climate as a major factor is if the products manufacturing
processes is severely affected by a small change in humidity or temperature.

5) Transportation Facilities

Transportation facility is a factor that plays an important role in getting products delivered to
customers besides increasing geographic accessibility. Mode of transportation can be in the form
of land transport, railway tracks, and sea freight. Certain site may cost less in obtaining them, but
they might not have proper transport facility which may hinder the production rate due to delays.
Plant located near to a port could perform exports and imports of quicker internationally which
may boost their product distribution through sea. By using train, the transportation mode is faster
and is cheaper but railway tracks only cover certain regions in Malaysia. Road accessibility is the
most important mode of transport as local distribution would be faster by road if the market is
situated close to the plant.

6) Water Supply

The minimum charge for water supply comes from Terengganu if compared to Johor areas. This
is because, Syarikat Air Terengganu(SATU) has decided to fixed the water supply price at a
lower tariff compared to Johor area in which for industrial plants, the tariff is 3 times higher.
Some process industries use large quantities of water for multiple functions such as cooling,
washing and steam generation. This is the reason a plant would normally be located near to any
water bodies such as sea, river or a lake. Large amount of water should also be kept in case of
any explosions. If the water is involved in the processes then factors such as temperature,
mineral content, sand content, biological content, and purification should be analyzed.7) Waste
Disposal.

All industrial processes produce waste products, and full consideration must be given to the cost
and difficulties of their disposal. The disposal of toxic and harmful effluents will be covered by
local regulations, and the proper authorities must be consulted during the first site survey to
decide the standards that must be met. An environmental impact assessment should be made for
each new project or major change or addition or an existing process.

8) Labour Supply

For the construction of the plant and to run it, labour will be needed. Experienced and skilled
construction workers will normally be brought in from outside the site area, but there should be
enough pool of unskilled labour availability locally and labour suitable for training to operate the
plant. Skilled tradesmen will be required for plant maintenance. Restrictive practices and local
trade union customs will have to be considered when assessing the suitability and availability of
the local labour for training and recruitment.
9. Taxation and legal restrictions.

Grants, tax concessions, and other inducements are often given by governments to direct new
investment to desired locations such as areas of high unemployment. In site selection, overriding
of such grants can override the considerations. In addition to the main plant, we also have to
consider the associated services which have to be combined within a particular plant site.
General utilities, parks, canteen, emergency medical services and places for storage must also be
taken into consideration during deciding on a particular site. In choosing a site, legal restriction
must be one of the biggest factor to be considered in order to run a plant. Pioneer status is a form
of inventive that provides tax exemption if the company participated in a promoted activities and
this status is clearly important for any sorts of plant to have no tax applied on them.

As for ASEAN countries exporting services, under Malaysian Custom Act 1986 around 0-
10% of the profit is being taxed and they will be refunded by 90% back. For Kertih, Terengganu,
there would be Investment Incentives Act 1968 being applicable for East Coast sides including
Terengganu where the main target is to promote exports. Pasir Gudang meanwhile, is considered
as a Free Trade Zone (FTZ) where it possessed minimal custom control. All the customs act will
be applied except for any prohibition of imports and exports.

10. Site Characteristics.

Adequate suitable land must be present to build a proposed plant and for its future expansion.
The land has to ideally be flat, well-drained and have suitable load-bearing characteristics. A
full site evaluation would be made to find the need for piling or other special foundations.

11. Flood and Fire Protection.

The site should be located nearer to where the port is located. However, protection such as flood
protection should be considered. The plant must build at the place that has low possibilities to
be flooding. It can be measured by studies the topography of the site location. For the fire
protection, the plant should have much protection for the fire such as fire extinguisher, and
etc. The location of the fire extinguisher must be easy for the people to see. It is because the fire
extinguisher can be used easily when getting an emergency situation.
12. Community Factors.

The local community must be fit in and satisfy with the proposed plant to avoid any other further
problems. Full consideration should be given to the safety where the plant is going to be located
so that it does not impose any consequential other risks to the community. On a new site, the
local community must be able to provide adequate facilities for the plant people such as banks,
schools, housing areas, recreational and cultural facilities. All of the state or site was chosen for
the potential site of the ethyl alcohol plant has considerably complete and enough facilities of
their own country.

Table 1: Factors Considerations for Selection of location

Location Kertih, Terengganu Pasir Gudang, Pengerang, Johor


Criteria Johor
Location Kampong Labohan, Pasir Gudang Pengerang Industrial
Kertih Industrial Estate Area (Next to PIPC)

Availability of suitable 217194 sq. ft. 435,600 sq. ft. 261,360 sq. ft.
Land
Price of land RM16.99/ sq. ft. RM48/ sq. ft. RM40/ sq. ft.
Benzene
1.Aromatics Malaysia 1. Lotte Chemicals 1.Pengerang Refining
2. Petronas Chemicals Titan Company
Aromatics 2.Pengerang Energy
Complex,PEC (2022)
Raw Material Supply
Ethylene
1.Ethylene Malaysia 1. Lotte Chemicals 1.Pengerang Refining
2.Optimal Olefins Titan Company

Airport Kuala Terengganu 1. Senai Airport 1.Senai international


Transportatio Sultan Mahmud 2. Changi Airport Airport
n Airport 2. Changi Airport
Land Along the Asian Pasir Gudang Highway Pengerang Highway
Highway 18 And close exit to through Sungai Rengit
(Kemaman-Dungun) North- South
Expressway
Railwa KTM (Gemas- Johor -KTM (Gemas- Johor -MRL East Coast Rail
y Bahru) Bahru) Line in Kuantan
(ECRL) -under
construction
Port Facility 1. Kemaman Port 1. Johor Port 1. Johor Port
2. Kertih Port 2.Tanjung Pelepas Port 2. Tanjung Pelepas
3. Kuantan Port 3.Tanjung Langsat port Port
Electric Supply Tenaga Nasional Berhad (TNB)
According to Tariff E3(High Voltage):
Peak Period= 35.50 sen/kWh
Off Peak Period = 21.90 sen/kWh

Water Supply 1. Syarikat Air 1. Syarikat Air Johor 1. Syarikat Air Johor
Terengganu (SATU) Sdn. Bhd. Sdn. Bhd.

For industrial (fixed): For industrial(>35m3): For industrial(>35m3):


RM1.15/m³ Rm3.30/m3 Rm3.30/m3

2. Located Near to 2. Located along Johor 2.Located Near Johor


Kertih River Strait River
Climate Average Temperature: Average temperature: Average temperature:
(25oC- 31oC) (23oC- 30oC) (24oC- 31oC)

Average Annual Average annual


Rainfall: 1700 Rainfall:2350mm/year Average annual
mm/year Rainfall
Relative humidity:84% Rainfall:2462mm/year
Relative
humidity:78% Relative humidity:77%
Waste Management 1.Kualiti Alam 1.Proven Vision Sdn. 1. Kualiti Alam Sdn .
Company Bhd. Bhd.
2.Casa Armada Sdn
Bhd. (CASB) 2.Scheduled Waste 2. Zaquin Resources
Management (SWM) Sdn. Bhd.
Professional
Local Community and 1. Population: 66545 1.Population: 46,571 1.Population: 15169
Labor Supply people 2.Labour market 2. Labour Market
2. Labour market existed in Pasir existed in Johor Bahru
existed near Kuantan Gudang or Johor or Kota Tinggi
Region Bahru

Table 2:Ranking and Weight Method applied for the location evaluation

Site Score Weighted Score


Kertih, Pasir Pengerang, Kertih, Pasir Pengerang,
Terengganu Gudang, Johor Terengganu Gudang, Johor
Johor Johor
Factors Weight
1.Raw materials 12
availability
2.Markets 11
3.Energy 7
availability

4.Climate 7
5.Transportation 9
Facilities
6.Water supply 8
7.Waste 6
disposal
8.Labour supply 10

9.Taxation and 10
legal restrictions
10.Site 7
characteristics
11.Flood and 6
Fire protection
12. Community 7
Factors
TOTAL 100
 Site Score Ranging from 1 -5 in which:
1= Very Bad, 2= Bad, 3= Moderate, 4= Good, 5= Very Good

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