Braskem and Idesa formalize agreement with Pemex

Posted March 16, 2010
MEXICO CITY (March 16, 12:01 a.m. ET) -- Brazilian petrochemicals giant Braskem SA and Mexico’s Grupo Idesa SA de CV have formalized an agreement with Pemex Gas y Petroquímica Básica to build a $2.5 billion petrochemical complex in Coatzacoalcos, Mexico, to include an ethylene cracker and three polymerization plants.

In November, the two companies signed a memorandum of understanding with Pemex Gas y Petroquímica Básica, a subsidiary of state oil company Petróleos Mexicanos (Pemex), for the cracker’s feedstock. The cracker alone will cost $1 billion.

But it was not until last month that the three parties sealed the deal in the presence of Presidents Felipe Calderón Hinojosa and Luiz Ignacio Lula da Silva, of Mexico and Brazil, respectively, by which time a decision to add the polymerization plants had been reached.

The official signing ceremony took place at the conclusion of a summit of Latin American and Caribbean leaders, held close to Cancún, southeastern Mexico, in late February.

According to Idesa, of Mexico City, Braskem’s participation in the joint venture is 65 percent while Idesa’s is 35 percent.

“The participation of Pemex as a minority partner in the project is still being studied,” Idesa said on its Web site.

The plan is to produce 2.2 billion pounds of ethylene and polyethylene per year, starting in 2015, according to Idesa.

It is the largest single Brazilian investment ever made in Mexico and the biggest investment in Mexico’s petrochemicals sector in the last 20 years, it added.

Known as Ethylene XXI, the project “represents the reactivation of the petrochemicals industry in Mexico,” according to Idesa.

“One of the most relevant positive effects [of the complex] is that Mexico will be able to substitute the importation of polyethylene worth approximately $2 billion a year.

“It will have a strong impact on Mexico’s trade balance, in addition to creating 6,800 jobs during the complex’s construction and about another 800 permanent jobs at the complex, once work is finished.”

In a statement last year, Pemex said it will supply Braskem and Idesa with 66,000 barrels of ethane per day for the cracker, which Braskem and Idesa will build and operate, over 20 years.

Headquartered in São Paulo, Braskem is Latin America’s largest petrochemical company.

In a separate deal, Pemex agreed to sell Braskem 375,000 metric tons of naptha, a raw material used in the production of basic petrochemicals that are then converted into thermoplastic resins, Idesa said.