If Mexico cancels or delays its Phoenix Project, the effect on the country's plastics industry will be ``negative and irreversible,'' according to Horacio Lobo, president of Mexico's national plastics trade association.
``Whether the project is canceled or merely delayed, the effects will be the same - loss of competitiveness, and the impossibility of maintaining exports,'' said Lobo, president of the National Association of Plastics Industries (Anipac).
More than 300 representatives of Mexico's plastics sector united in an extraordinary meeting Aug. 4 to discuss how the cancellation of Phoenix would impact the industry and the country. The $2 billion project was designed to decrease Mexican processors' dependence on imported resin. Plans include new plants capable of producing 2.6 billion pounds of ethylene and 1.3 billion pounds of propylene per year.
But the project has remained in limbo since July 11, when the government announced - and later denied - that it would not proceed with Phoenix because partners in the project were requesting preferential feedstock prices that Mexico's Finance Ministry was not prepared to grant. For now, the government's position on the project is unclear.
At the breakfast meeting, held in Mexico City, Lobo said canceling the project would cost Mexico's plastics industry between $7 billion and $11 billion per year.
``What would be lost is far more than what the project could cost,'' he said.
Proyecto Fenix, as it is called in Spanish, was heralded as the most important petrochemicals project in the administration of President Vicente Fox, which began in 2000 and will end next summer. Mexican industrialists have eagerly awaited Phoenix as a much-needed boost to rejuvenate the plastics sector.
Why it's needed
Mexico's plastics producers have been counting on Phoenix as they've suffered through tough conditions, including the rising costs of raw materials. Since 1988 the plastics industry has witnessed the closing of 980 small and midsize businesses, one third of Mexico's total, Lobo said. And since 2000, he said, some 21,000 industry jobs have been lost, or about 12 percent of Mexico's total plastics workforce, according to research from Grupo Texne, plastics consultants in Mexico City.
Negotiations had continued for 18 months regarding where to locate Phoenix and it seemed likely that the chosen site would be Altamíra. In October, Fox confirmed the project was going forward and named the participants: state oil monopoly PetrÃ³leos Mexicanos (Pemex), polypropylene venture Indelpro SA de CV of Monterrey, polystyrene maker Grupo Idesa SA de CV of Mexico City, and Pittsburgh-based Nova Chemicals Corp.
In February - after a severe spate of Pemex explosions and leaks, especially around Coatzacoalcos, led to international attention on poor maintenance of Mexico's pipelines - the consortium of investors presented their proposal with a price formula. The proposal amounted to a 15 percent discount of raw materials, according to news reports, which government officials estimated as the equivalent of a $100 million-per-year subsidy.
The Finance Ministry rejected that proposal, so Pemex came up with an alternative - to expand existing Morelos and Cangrejera plants in Veracruz, which now produce 1.2 billion pounds of ethylene, and increase the volume to 2.2 billion pounds. That move would require a $350 million investment, considerably less than the original Phoenix Project.
The Mexican plastics industry, backed by national petrochemicals firms, said it was committed to Phoenix and would engage in constant lobbying to keep the project intact.
Grupo Texne analyst Eduardo de la Tijera said Aug. 4: ``If the government will listen to us over the next weeks, the project could still not only go ahead, but start on time.''
Anipac analyzed the impact of canceling the project, emphasizing that Phoenix is central to a development strategy that seeks to increase plastics exports from the current $1.1 billion to $3.65 billion, create 80,000 new jobs, curtail plastics imports by $11 billion and eliminate the trade deficit. The group projected investments of $18 billion in the petrochemicals and plastics sector, if Phoenix got the go-ahead.
Also, Anipac pointed out: ``Phoenix would make use of natural gas, a raw material of great value in petrochemicals that currently is being exported at $380 per metric ton and returns to the country transformed into resins at $1,100 [per metric ton] or in plastics products at a price three times higher than that of resins.''
The group said that to defer the project to the next administration (which takes the reins at the end of 2006) will have the same impact as canceling it, because it will extend the raw material crisis from three years to six. Many Anipac members will not survive, the group said.
``Raw materials from Asia or the Middle East will not reach Mexico at competitive prices compared to those available for foreign competitors,'' the Anipac report stated. ``Transport costs from Houston to the border are $20 per metric ton, but cost 10 times more by freight from the Persian Gulf to Veracruz. Chinese producers will find it even easier to push our products out of the national market.''
Partners & politics
Mexico's energy secretary, Fernando Elizondo, had said July 17 that there was no need to postpone the project until the 2006 presidential elections. He insisted that Phoenix could be reworked in just two or three weeks. Fox confirmed Aug. 4 that the project was not dead and he emphasized the country's need to welcome private investment into its energy sector. In the next decade, he said, Mexico's energy consumption will increase 65 percent.
A new Pemex proposal, made Aug. 8, reflects the latest development. The proposal, made to private companies, does not include discounts on raw materials such as natural gas but does offer private investors 20-year supply guarantees through long-term contracts. On the same day, the secretary of the Energy Commission in Mexico's Congress, Juan Fernanco Perdomo, urged the approval of the Phoenix Project as a national priority.
``Not only will canceling fail to generate thousands of jobs but it will cost Mexico $9 billion in the importation of petrochemicals that could be produced here,'' Perdomo told Congress. If the project did not go forward, Mexico would lose credibility before private investors, he warned.
Phoenix partners Idesa, Indelpro and Nova have asked for time to come to a final decision, while political lobbying continues. Anipac's response to the new proposal: ``It isn't much of an offer.''
``We aren't those making the investment, but if you buy one car you pay the price. If you make a commitment to buying a large volume over a period of 20 years, you would expect a different price,'' Lobo said Aug. 11.
Meanwhile the fate of Phoenix is still in limbo, and Anipac says it will keep lobbying to focus attention on the damages that will result from its cancellation.
``We know we have the support of the petrochemicals industry, the Confederation of Industry Chambers and the National Chamber for the Industry of Transformation and everyone else who wants to invest in Mexico and who wants Mexico to grow,'' Lobo said.