Braskem agrees to Pemex contract renegotiation

Brazilian conglomerate Odebrecht's petchem subsidiary, Braskem, will try renegotiating a long-term ethane supply contract with Mexican NOC Pemex.

The subsidiary agreed to talks after Mexico’s President Andrés Manuel López Obrador (AMLO) floated the idea of canceling the contract. 

Braskem is ready to up investments in the US$5bn Etileno XXI facility and the adjoining port in Veracruz state, Mexican daily La Jornada reported. Revised contract terms were not provided, but Braskem said that total additional investment could range from US$150-200mn. 

The long-term ethane supply contract has been under a cloud of suspicion for years. On February 26, AMLO said his government was conducting “an ongoing investigation” to explore legal avenues for canceling the contract. 

On Wednesday, Braskem reiterated that it and its junior partner in Etileno XXI, Mexico’s Idessa with 30%, had not broken any laws in winning the 20-year contract in 2010. Reuters reported Tuesday that the company claimed it had concluded internal investigations in 2017 and found no wrongdoing related to deal. 

But in that contract, Pemex agreed to provision Braskem with ethane at about US$0.16/gallon, well the below the then prevailing US$0.50/gallon of benchmark Mont Belvieu prices. 

Moreover, Pemex’s ethane production has dropped precipitously – alongside its swooning natural gas production – since Etileno XXI entered operations in 2016. 

That forced Braskem to import 8,000b/d of US ethane in 2Q20, company officials said in a quarterly conference call. Braskem also demanded fines from Pemex for inadequate feedstock provision.

AMLO has become increasingly adamant that such deals, signed over the last decade, are “leonine” contracts that unfairly force state companies Pemex and CFE to subsidize private energy production. 

These accusations have recently resonated as AMLO has repeatedly cited the July 17 return to Mexico of Emilio Lozoya, Pemex’s CEO from 2012-2016, to stand trial on bribery charges. 

In testimony on August 11, Lozoya said that corruption was rife in contracts signed with Odebrecht under the administration of AMLO’s predecessor, Enrique Peña Nieto.