Mexico City — Braskem Idesa S.A.P.I. has rejected allegations of corruption in a feedstock deal with Mexican state-owned petroleum company Petróleos Mexicanos (Pemex) signed a decade ago.
All investigations "fail to support allegations that affirm or insinuate that Braskem Idesa has participated in any illegal or corrupt activity in Mexico," the Brazilian-Mexican petrochemical joint venture told Plastics News in an emailed Spanish-language statement August 17.
Earlier in the day, Mexico's President Andrés Manuel López Obrador told journalists at a news conference the contract between the two parties "has to be canceled in my opinion because it's unfair. It has to be reviewed."
Pemex is bound by two contracts signed in 2010 to supply Braskem Idesa with 66,000 barrels of ethane a day over 20 years for the latter's $5.2 billion Ethylene XXI petrochemical complex in Nanchital. On Mexico's Gulf Coast, the complex opened in June 2016.
Brazilian conglomerate Odebrecht S.A. has about a 30 percent stake in Braskem. The Mexican government has accused Odebrecht of bribing Emilio Lozoya Austin, Pemex's managing director during the previous Enrique Peña Nieto government.
Lozoya is under house arrest in Mexico City, having been extradited from Spain in July. He is charged with fraud and money laundering
Analysts point out that a forerunner to Ethylene XXI was a far more ambitious scheme to supply companies in Mexico, Central America and beyond with petrochemical products.
Known as the Phoenix Project (Proyecto Fénix), Pemex Petroquimica floated the idea of attracting both national and foreign private investment, with Pemex Petroquimica holding a minority stake.
"This project was promoted worldwide with the major companies of the U.S., Europe, Saudi Arabia, China and others," one analyst told Plastics News. "The idea was to build a big flexi-cracker capable of cracking both ethane and light naphtha."
Despite international enthusiasm for the project, the Mexican government lost interest in it. But the idea spawned what became known as Ethylene XXI, which the federal government supported. Braskem Idesa won the bidding battle to build and operate the complex against several other contenders.
"Terms and conditions of the agreement were not made fully public, with the exception of the idea of building an ethane cracker with a capacity of 1.05 million tons of ethylene and three polyethylene plants, two of them HDPE and one for LDPE with a total capacity of one million tons combined," the analyst said.
Pemex would be responsible for supplying the necessary ethane for the cracker, with 66 TBD (thousand barrels per day).
"For this purpose, there were two contracts to be negotiated and signed. The first one was between the E&P division (Pemex Exploración y Producción), that would supply the liquids containing ethane and other components, and the area responsible for dividing those liquids into fractions and producing the necessary ethane (Pemex Gas y Petroquímica Básica).
"The second contract was negotiated and signed between the above-mentioned division of Pemex and Braskem Idesa, the joint venture that would develop the project. This second contract containing all terms and conditions, including the pricing mechanism, was signed in February of 2010. It is important to underline that both contracts are confidential."
However, according to the analyst, the ethane supply contract brought to light two major problems: price and volume. "The price is based on the Mont Belvieu reference price for Ethane Purity, minus a significant discount on a delivered basis. It has to be said that Pemex's petrochemical facilities pay the same price for the ethane they consume. It has been pointed out by the government audit service that this price is significantly below the production cost of ethane and therefore causes important losses to Pemex.
"With respect to volume, one has to consider that when the contract was executed in February 2010, the consumption of ethane by the existing Pemex petrochemical operations was around 70 TBD. So, when adding the contractual volume of 66 TBD committed with Braskem Idesa, the total demand reached 136 TBD.
"The daily production at that time was 130 TBD, already slightly under the above-mentioned demand. It seems that they placed a bet on the future production of ethane in the upcoming years. Unfortunately, not only this has not happened but on the contrary the production has gone down to such a point that this is currently 70 TBD.
"The result of the above-mentioned situation is that Pemex is only supplying 72 percent of the contractual volume to Braskem Idesa and the remainder is supplied to the Pemex petrochemical facilities."
According to the analyst, Pemex is paying "considerable amounts of money" to Braskem Idesa in penalties for not meeting its supply obligations and Pemex petrochemical facilities are "today operating at around 40 percent capacity."
"Both companies, Pemex and Braskem Idesa, have been importing small volumes of ethane, not even close to their total needs, and at a very high cost if one considers the reference purchasing price, plus all the logistical costs involved."