The Kaohsiung oil refinery owned by state-run CPC Corp. Taiwan has had a notorious history, even after being shut down in 2015. It was long the target of environmental protests and has left behind Taiwan’s largest-scale soil contamination site. But it could soon be reborn as a science park with six 12-inch semiconductor wafer foundries by 2026.

That is the plan put forth by Kaohsiung’s Economic Development Bureau, according to briefing materials for a high-level Executive Yuan meeting on Aug. 25 obtained exclusively by CommonWealth Magazine.

If the plan becomes a reality, the site, the nearby Kaohsiung Nanzih Technology Industrial Park and high-speed rail station in Zuoying, combined with the Ciaotou and Luzhu science parks to the north, will form a 20-kilometer high-tech corridor in northern Kaohsiung. It would be Taiwan’s newest semiconductor cluster and potentially generate more NT$1 trillion in output a year.

Kaohsiung, which was left behind when Taiwan’s high-tech sector took off, is hoping the ambitious plan will rid itself of its image as a “Rust Belt City.” 

(Source: Chien-Tong Wang)

Particularly startling, however, is that under the plan, ground is expected to be broken on the first two wafer foundries in June 2022, with commercial operations starting in August 2023.

They will be located on the site of CPC’s Fifth Naphtha Cracker complex and its controversial refinery, which were shut down in 2015. The complex’s towering gas flares have been torn down, leaving a large swath of empty land.

Of the 273-hectare site, 176 hectares have been designated by the central government’s Environmental Protection Administration as a contaminated soil and groundwater site. Much of the contamination stems from total petroleum hydrocarbons (TPH), buried as deeply as six meters into the soil. 

Two months ago, the city of Kaohsiung budgeted NT$5.2 billion to remediate Section 3 of the site – roughly the size of the 26-hectare Daan Forest Park in Taipei – with the work to be completed by February 2022. Once that happens, that land’s designation as a controlled contaminated site will be lifted, paving the way for an environmental impact assessment and an urban redevelopment plan that will open the door to TSMC’s 7nm foundries. 

TSMC appeared resolute last year when it said it would not invest in Kaohsiung, so what changed? At least four factors came into play.

Factor No. 1: TSMC’s US$100 billion global expansion plan

The most important, according to a TSMC insider, is the company’s “three-year US$100 billion” investment plan.

TSMC CEO C.C. Wei (魏哲家) sent a letter to the company’s customers at the beginning of April announcing an expansion plan of an unprecedented scale featuring US$100 billion in investment over the next three years in both advanced and mature technologies and processes.

(Source: CommonWealth Magazine)  

The ambitious plan, he said, was in response to “structural and fundamental growth,” including in the 5G and high-performance computing fields. 

Also important has been the structural change to the global economy brought by COVID-19, Wei said at the time. “It has forever changed how people work, entertain themselves, communicate and learn, and turned semiconductors into a daily necessity.”

If in fact TSMC invests an average of US$30 billion a year for the next few years, it would nearly double the company’s US$17.2 billion in capital expenditure in 2020.
Some of that will go to TSMC’s new investments, including in Japan, Germany and Nanjing, China, that will begin to surface in the next few months.

At home, TSMC’s two planned wafer foundries in Kaohsiung will use the 7-nanometer process (or an upgraded version of the 6-nanometer process) and be dedicated to semiconductors for automotive electronics purposes, according to the briefing materials for the Executive Yuan meeting,

An industry insider said TSMC will invest US$20 billion alone in the first stage of the Kaohsiung investment plan.

Still, why is TSMC willing to bet on a contaminated site once used by CPC Corp. rather than build new capacity in existing science parks?

Factor No. 2: Problems in Tainan

The Southern Taiwan Science Park still has available land ‒ a 300-hectare plot planned for the science park’s third phase that is currently part of Taiwan Sugar Corporation’s Kanxi Farm ‒ and it is a stone’s throw from TSMC’s Fab 18 in the Tainan branch of the science park, known as the Tainan Science Park. 

When the Tainan Science Park became saturated two years ago, Tainan Mayor Huang Wei-cher (黃偉哲) figured that the Taisugar land would be the site of TSMC’s next phase in its expansion process.

But the Ciaotou Science Park, strongly backed by Chen Chi-mai (陳其邁), then the deputy chief of the Executive Yuan and now the mayor of Kaohsiung, eventually beat the Tainan Science Park to the punch.  

(Source: Chien-Tong Wang)

At the time, the Taiwan Science Park decided to keep to its schedule and not start expropriating the land for the expansion until 2023.

Two years later, the old Kaohsiung oil refinery site got in on the environmental impact assessment process ahead of Tainan. When Huang was asked how he felt about it, he had little to say other than “administrative power had an impact.” 

He was referring to Kaohsiung’s administrative efficiency in attracting TSMC’s investment and providing the necessary regulatory and funding support.

One example of that is the plan to remediate the old CPC Corp. refinery site. The state-run oil refiner had planned to rehabilitate the 176 hectares of the site’s contaminated soil by 2033. 

But after Chen became mayor of Kaohsiung last year, he moved the timetable up 10 years.

Remediation of “Section 3” of the site is scheduled to begin in early 2022, enabling “Company T” to break ground on its foundries before nationwide mayoral elections, including in Kaohsiung, are held at the end of next year.

Factor No. 3: President Tsai’s involvement

Money was exchanged for time. The remediation budget ballooned from just over NT$10 billion to NT$26.2 billion, and that number could end up at about NT$40 billion by the time the work is done, estimated one scholar who participated in the planning of the project.

The huge amount will be borne entirely by CPC Corp., and the work will be contracted out and overseen by the city’s Public Works Bureau.

When Chen Chu (陳菊) was the city’s mayor (from December 2006 to April 2018), she tried to get involved in the rehabilitation of oil refinery site, but she was rebuffed by CPC.

(Source: CommonWealth Magazine)   

“CPC was not going to pay any attention to Chen Chi-mai either. It was actually President Tsai Ing-wen who made the move,” said a Kaohsiung insider familiar with the remediation plan for the refinery site. 

The source said President Tsai lobbied TSMC. Otherwise, TSMC “had had no interest in Kaohsiung,”

In January 2021, Kaohsiung authorities invited senior TSMC executives for a briefing by Mayor Chen on the plan for the CPC refinery site. But the source said it was only after Tsai intervened and invited TSMC Chairman Mark Liu to the Presidential Office for talks that the company changed its mind.

“His (Chen Chi-mai’s) biggest pain point is the outflow of Kaohsiung residents northward (to find work). If the ‘silicon shield protecting the country’ comes here, he is sure to win reelection,” said the Kaohsiung insider, referring to TSMC’s status as the shield that is protecting Taiwan from a Chinese attack because of its importance to the world economy.

A business source active in the remediation project had another explanation for TSMC’s change of heart, arguing that it was closely tied to Taiwan’s serious drought in the spring. At one point, TSMC’s foundry in Tainan faced a water emergency, and the company actually sent water trucks to the Kaohsiung refinery site to fetch water.

Factor No. 4 Kaohsiung has water

Kaohsiung Deputy Mayor Lo Ta-sheng (羅達生) said the city can supply up to 1.6 million cubic meters of water per day while demand is about 1.5 million cubic meters, so “supply is greater than demand.”

According to the Economic Development Bureau report, in their initial phase, the two planned foundries will consume about 33,000 cubic meters of water per day, about 60 percent of the amount used by TSMC’s foundry in the Central Taiwan Science Park in Taichung that also mainly runs 7nm processes.

A difficult EIA, cleverly contained at local level

The current plan is for the Taiwan Water Company to supply water from two different sources to TSMC’s foundries. The old refinery site also has access to groundwater through 19 wells near the Gaoping River, capable of providing 60,000 cubic meters per day. Pipes from those sources will channel water directly to the plant, to be used as a reserve during droughts.

An official with Taiwan’s Ministry of Science and Technology (MOST) was shocked after hearing that TSMC would set up shop on the CPC refinery site. “That’s not possible,” the official said. “There are many obstacles to overcome during this process, and every one of them will be a challenge.”

(Source: Chien-Tong Wang)

The biggest barrier could be the environmental impact assessment (EIA), a process most companies dread. 

Because of that, the Kaohsiung authorities decided to limit the first parcel of land to be developed to 29.8 hectares.

“To meet the requirements of industrial development, the city government is developing the industrial park on its own. By limiting the first phase of remediation of the refinery site to an area of about 30 hectares, according to regulations, the EIA can be handled by the local Environmental Protection Bureau.

According to the project’s timetable obtained by CommonWealth Magazine, only three months have been left for the EIA to be conducted from the time when the remediation project ends to when groundbreaking is pegged to begin in June. 

“Timing is the key. The schedule is the top priority,” Lo said.     

(Source: Chien-Tong Wang)

The city government has also planned to convert the Nanzih Technology Industrial Park into a science park under the jurisdiction of the MOST just two months after the start of construction of the TSMC fabs, a nod to TSMC’s desire for its foundries to all be situated in science parks to standardize management practices.

This overall approach has been adopted to save time. Under normal circumstances, any science park under development would have to undergo an EIA review at the central government level, regardless of the area of land involved in the project.

TSMC’s team planning the new plants and other vendors have already very quietly made their way to the refinery site to prepare for the EIA. An environmental consultant with whom TSMC has collaborated for many years, for example, has already been made responsible for ecological surveys.

(Source: CommpnWealth Magazine)

An old industrial zone reborn?

At the end of August, CommonWealth Magazine noticed a drill truck at the site’s “Section 3” taking soil samples. “It was hired by TSMC,” said an industry source.

If the refinery site can be successfully transformed into a science park and accommodate TSMC, it will become a model for “brownfield development,” a term referring to rehabilitating contaminated industrial or commercial property, and could set a standard for Taiwan’s future. 

(Source: Chien-Tong Wang)

TSMC may be the world’s largest contract chipmaker, but it continues to grow at a rapid pace. As demand for semiconductors continues to pour in, and agricultural and undeveloped land in Taiwan’s western corridor becomes increasingly scarce, the challenge of finding space for new semiconductor foundries will inevitably mount.

Similar to the concept of “urban renewal” in Taiwan’s cities, the rebirth of old industrial parks is an option for Taiwan’s high-tech sector that deserves more attention, and a responsibility it should embrace.  

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Have you read?

♦ Why is TSMC building 28nm capacity in Germany and Japan?
♦ TSMC pours US$3B into 28nm production for major customer
♦ The coming TSMC boom: Can it double sales by 2023?

Translated by Luke Sabatier
Uploaded by Penny Chiang