News Code : 45046

Petrotahlil - The ethane contract for the Ethylene XXI polyethylene complex in Mexico attracted more attention from the nation's government, with the attorney general mentioning the project as part of a larger list of allegations from the former head of Pemex, who had been arrested in Spain following allegations of corruption.

Emilio Lozoya has returned to Mexico and spoke with the nation's attorney general, Alejandro Gertz, who summarised his statements in a video.

It was not possible to verify the summary with Lozoya.

Part of the summary was about Pemex's contract to supply ethane to Braskem Idesa's Ethylene XXI complex. The prices for the ethane are benchmarked to those in Mont Belvieu, Texas.

Gertz quoted Lozoya as saying that the contract has benefited Ethylene XXI while causing serious losses to the federal government.

The government criticised the contract in late July, when Andres Manuel Lopez Obrador (AMLO), announced that Pemex is working through the process to terminate it.

Braskem, which holds a 75% stake in Braskem Idesa, referred questions about Gertz's summary to Odebrecht, a Brazilian construction company that owns a controlling stake in Braskem. Odebrecht did not immediately respond to a request for comment.

The remaining 25% stake in Braskem Idesa is owned by Grupo Idesa. Patricio Gutierrez, CEO of Idesa, said he could not comment about the specific allegations that were read by Gertz.

However, he said that the ethane contract is legal, binding and enforceable. Moreover, Idesa has always been open to having discussions with the government and Pemex on finding a solution to the contract that is sustainable in the long term to both parties.

Pemex did not immediately respond to a request for comment.

GERTZ'S COMMENTS

According to Gertz, Lozoya mentioned the contract as part of a larger statement that made various allegations of bribery. Gertz connected none of these bribery allegations to Ethylene XXI.

As told by Gertz, Lozoya alleged that millions of pesos worth of bribes went to the 2012 presidential campaign of Enrique Pena Nieto, who would ultimately win the election. Lozoya alleged that the money came from Odebrecht.

Other bribes allegedly went to legislators to push through structural reforms in 2013-2014, according to the summary. Gertz did not specify from where the money for those bribes came.

After summarising Lozoya's allegations, Gertz said, "There is also another part in which [Lozoya] spoke of Ethylene XXI, which was during the previous administration. In this specific case, he said that there was also a series of economic benefits in favour of this company that also is linked to a Mexican company that is a partner to Odebrecht. And they were given a series of benefits in feedstock prices, resulting in serious losses for the federal government."

PROBLEMS WITH THE ETHANE CONTRACT

In past comments, Braskem has said that the cause of the difficulties of the contract has been a lack of ethane in Mexico.

Mexico's ethane supplies have declined with oil production over the years.

By the time Ethylene XXI started up, Mexico had swung from an ethane surplus to an ethane shortage.

Initially, Pemex honoured the ethane supply contract by diverting feedstock from its own crackers to Ethylene XXI. Pemex was unable to ship enough ethane to Ethylene XXI, so the complex started importing the feedstock from the US. The amount still is not large enough to allow the complex to run at full capacity.

Pemex began to rack up penalties for failing to meet the terms of the ethane contract. It now owes Braskem $56m.

Ethylene XXI includes a 1.05m tonne/year ethane cracker as well as 750,000 tonnes/year of high density polyethylene (HDPE) and 350,000 tonnes/year of low density polyethylene (LDPE).

Braskem is in talks with lenders and the Mexican government about ways to address the country's shortfall of ethane, said Pedro Freitas, Braskem chief financial officer. He made his comments during the company's earnings conference call, which took place before Gertz read his summary of Lozoya's allegations.

Making any changes to the contract would be challenging, since it would require approval of the lenders of the project, Freitas said during the call. Those number 14, and they include international banks, development banks and commercial banks.

Meanwhile, Braskem has opened an investigation following allegations about Ethylene XXI that were reported in the Mexican media, Freitas said during the earnings conference call. "There was a claim in the news that there was something untoward in Braskem Idesa. So we, as part of our normal cycle here in regards to any type of allegation of the company, we opened an investigation."

Freitas did not elaborate on the allegation in the media. He did say that Braskem has found no indication that there is anything behind it.

The company conducted an earlier investigation into Ethylene XXI that was connected to the larger Lava Jato - or Car Wash - scandal. That investigation was completed in 2017 and nothing was found.

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Source : ICIS

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