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Mexichem formalizes VCM venture with Pemex

By: Stephen Downer

September 13, 2013

MEXICO CITY — Petrochemicals giant Mexichem SAB de CV says it has formalized the establishment of a $518 million joint venture with state oil company Petróleos Mexicanos to produce vinyl chloride monomer at Pemex's Pajaritos complex, close to Coatzacoalcos in the state of Veracruz.

The two parties shook hands on the deal in January, when it was announced the joint venture would require an investment of $556 million. However, in a filing with the Mexican Stock Exchange September 11, Mexichem said Pemex will invest $228 million in assets in the project while Mexichem will contribute $90 million in assets and $200 million in capital.

The total of $518 million will allow the plant to be modernized, Mexichem said. Pemex uses only 50 percent of the facility's production capacity of 881 million pounds of VCM a year, according to industry consultants.

"It's important to emphasize that this joint venture will enable the development and greater efficiency of the national petrochemicals industry and guarantee that Mexican capital remains in the country while reducing [Mexico's] dependence on importations and the flow of capital to other countries," Mexichem said.

The deal was not an easy one to negotiate. Mexichem withdrew from the scheme in late 2012, accusing Pemex of procrastination, before agreeing to return to the negotiating table in early 2013, by which time a new government had been installed and Pemex had a new management team.