In light of news from the past weeks related to Ethylene XXI and/or Braskem Idesa, we thought it would be appropriate to issue this statement with respect to our partners, customers, suppliers, and, in particular, to address the truth behind this matter:
Alleged testimony by Emilio Lozoya
- We don't have any knowledge, information, or evidence of the alleged testimony and hearsay about irregular payments linked to Braskem Idesa's "continuation of the contract ". The ethane supply contract, after being signed, has never been authorized for continuity. Our relationship with the authorities has always been conducted in a legal manner with respect for the institutions.
- The bidding rounds that resulted in the contract between Petróleos Mexicanos (Pemex) and Braskem Idesa were held throughout 2008 and 2009, this was three to four years before Constructora Odebrecht's dealings in Mexico that are associated with the former director of Pemex (2012-2013).
Ethane Contract with Pemex
- The ethane supply contract between Braskem Idesa and Pemex was the result of an international public auction in which more than 30 national and international companies participated. Braskem Idesa won by offering Pemex the most attractive proposal in terms of technical capabilities and affordability.
- This is evidenced by the 2016 Specific Audit Report from the Federal Superior Auditors (ASF), which concluded that no irregularities were found in the bidding process for Pemex's ethane supply contract with Braskem Idesa.
- The main clauses of the contract between Pemex and Braskem Idesa (price, location of the plant in Coatzacoalcos, timeframe, volume), were proposed by Pemex prior to the start of the auction to more than thirty international and national participants in the selection process, in addition to Braskem Idesa.
- Upon inviting the participants to the process, Pemex presented and committed to ethane availability projections that would meet the needs of its petrochemical complexes and the new project that was going to be implemented; they contractually committed to supply the raw materials for 20 years. That commitment is fundamental for any investment in a petrochemical complex. Considerable petrochemical investments are never made without first having a commitment for the raw materials.
- The "fines or penalties" that are part of the contract are one of the many contractual clauses. They are common in any type of contract that quantifies the amount payable in the event that a party fails to fulfill its obligations to purchase or supply.
- The supply contract between Pemex and Braskem Idesa is governed by a "take or pay " / " deliver or pay " model, which is typical of long-term supply contracts associated with infrastructure investments, such as pipelines, petrochemical plants, or thermoelectric plants. Braskem Idesa was obligated to buy a certain amount of ethane gas from Pemex, and Pemex agreed to supply this amount. If either party fails to fulfill its part of the agreement, with the agreed upon proportion, they should pay penalties to the other party.
- It is important to clarify that the pricing formula does not give preference to either party. The formula that is being used was proposed by Pemex to establish the ethane price. This is typical in long-term contracts for raw materials and consistent with the pricing used by Pemex in the 16 years leading up to this auction, which can be verified in existing public documents.
- This pricing formula was approved by the Energy Regulatory Commission (CRE) and is the same as was applied to the Pemex Etileno subsidiary and to other private companies such as PMV-Petroquímica Mexicana de Vinilo, and was in effect one year before Braskem Idesa started its operations, which can be verified in ASF's reports.
Auditing, Monitoring, and Investigation
- The two (individual) agreements made between Odebrecht and Braskem SA with the US Department of Justice (DOJ), available on the DOJ website, confirm that there is no mention of any corruption in Mexico by Braskem or Braskem Idesa.
- Likewise, the Brazilian Public Ministry sent a letter to the Government of Mexico, confirming that it did not find any irregularities by Braskem SA related to Mexico.
- Braskem and Braskem Idesa have carried out exhaustive internal investigations, with independent lawyers, who concluded that there was no inappropriate activity or link with Constructora Odebrecht in Mexico.
- In accordance with the Compliance Rules of Braskem and Braskem Idesa, the issue continues to be monitored.
Commitment to Mexico
- Braskem Idesa has made the largest private industrial investment in Mexico in the last 30 years with the development of the Ethylene XXI Petrochemical Complex in Nanchital, Veracruz, thus boosting the national petrochemical sector and the economy. We are proud to contribute to Mexican industry and its international reputation through the production of high-quality polyethylene.
- Braskem Idesa invested $5.2 billion dollars to construct and begin operation of the Ethylene XXI plant, through its trust in the country, today it generates quality jobs, mainly in the southeast of the country, and among other benefits, has had a significant positive impact on Mexico's trade balance.
- The investment took $3.2 billion dollars of financing from 17 financial institutions, among them global export agencies and development banks (IFC World Bank, IDB Inter-American Development Bank, BNDES-Brazil, BANCOMEXT and NAFIN-Mexico, SACE-Italy, EDC-Canada).
- To date, the company has fully complied with its commitments to Pemex and with financial institutions, however, the shareholders have not received any return on their investment, after approximately 5 years of construction and four years of constant operation.
- Braskem Idesa is constantly working with Pemex to search for solutions to the insufficient production of ethane in Mexico, which is the root cause of the difficulties and what is damaging the country's petrochemical industry.
- Braskem Idesa is even willing to make additional investments to develop an ethane import terminal, which is the only solution that has been identified so far to resolve the situation.
We trust that any dialogue with the authorities will take place within a context of rule of law and legality, an essential condition for investment confidence; Braskem Idesa will continue to cooperate with authorities as they always have done in the past.
We conclude by reiterating that all of the investigations carried out did not find any information that suggests that Braskem Idesa participated in any illegal or corrupt activities. We also would like to reiterate the legality and legitimacy of Braskem Idesa's operations and the Etileno XXI project.