SAO PAULO, BRAZIL — A Brazilian resin firm on Sept. 12 inked a controversial deal with the only local supplier of key raw materials, upsetting some competing resin suppliers.
OPP Petroquimica SA signed the 30-year agreement with Petroleo Brasileiro SA-Petrobras. It calls for a jointly owned petrochemical complex in Paulinia, about 90 miles from Sao Paulo. The deal also states that both partners must give the other the option to participate in any new petrochemical business.
Competing resin manufacturers and analysts argue the contract establishes a sort of market protectionism favoring SÃŒo Paulo-based OPP, an affiliate of Odebrecht SA of Salvador, Brazil.
``The day we have five different suppliers of ... raw materials, or if [it] were possible to import raw materials, there would be no problem in Petrobras signing exclusivity agreements with whoever it wished to do so,'' said Edson Vaz Musa, chairman of the board for Unipar SA of Rio de Janeiro, Brazil.
Unipar is a minority shareholder in OPP Polietilenos SA, a subsidiary of OPP Petroquimica, and has a strong presence in basic petrochemical products.
Brazilian President Fernando Henrique Cardoso was present at the ceremony when the deal was signed. However, the Ministry of Mines and Energy is reviewing the agreement, and the Administrative Council of Economic Defense, an arm of the Ministry of Justice, may investigate charges that the deal creates an illegal cartel.
OPP Petroquimica executives deny that the contract is unusually favorable or exclusive for such partnerships.
``We got there first. Whoever wants to be a part of it also can join us,'' said Alexandrino de Alencar, director for institutional relations.
According to Alencar, the new company formed by the deal, Cia. Nacional de Produtos Petroquimicos, is open to receive new partners. He said some firms that now criticize the deal had been invited to participate in the project.
``Now, whoever wants to operate on its own, shall find its own sources of raw materials,'' he said. ``Competitors are irritated, but Petrobras opted for efficiency.''
The companies plan to invest $4.8 billion in the new plant, which will integrate supply of raw materials to the production of resins. Alencar said the agreement is important as a means to face competition from global suppliers.
``In order to compete with players such as Shell, Dow and Mobil, you either form a large-sized company or you will be out of the business,'' he said.
Odebrecht controls two resin companies currently in the middle of a merger: OPP, with a 1.8 billion-pound-per-year capacity for polyolefins, and the 970 million-pound-per-year PVC producer Trikem SA.
Together, those companies account for around 50 percent of the plastic resins produced in Brazil.