Roberto Bischoff, CEO, Braskem Idesa
The CEO of the firm charged with executing Latin America’s flagship petrochemical project speaks out about the implications for Brazilian–Mexican relations and of the economic synergies between the two countries. He also voices his opinions on the Mexican energy reforms and describes the linkages between anticipated upstream investment and the future availability of competitive feedstock for the petrochemicals sector.
We last spoke to Braskem Idesa back in 2012. What’s kept you busy over the past two years?
We have been witnessing significant changes across the Mexican energy landscape, but by far the most important aspect for us has been the impressive progress of our Etileno XXI project which represents the largest industrial investment in the whole of the country. We are talking about an investment of no less than US$3.5 billion in fixed assets and a total investment registering some US$4.5 billion.
We are swiftly moving forward and, by the end of February, we should have reached 63 percent completion. At present, most of the engineering is in place and 80 percent of procurement has been enacted. We are scheduled to come on stream in the 3rd quarter of 2015 and, right now, have around 12,000 workers at the site to ensure that this target is achieved. We are actually embarking upon an important phase where we are changing the qualifications of the labor force by transitioning from primary civil workers to a much more specialized labor pool with an emphasis on pipe fitters, welders and technicians in instrumentation.
Besides all of that, we are moving full steam ahead in establishing the right conditions for the company to operate. In terms of permanent staff, we now comprise around 550 people having recruited 200 new members in the last couple of months alone. Our intention is for Braskem Idesa to eventually have around 800 employees of which 200 would be based at the corporate headquarters with the rest located at the Etileno XXI site. We are simultaneously surging forward with our professional development scheme for the operations team and have no less than 50 workers undergoing training in Brazil where they will gain valuable experience and exposure to shared knowledge about existing technologies.
Meanwhile we have been implementing an important commercial strategy and pre-marketing plan that further develops not only the operational aspects, but also the sales side of the business. So far we have in excess of 140 Mexican customers that we are supplying with imported products from Brazil and a complex network of suppliers that spans North America and extends to well beyond the local region. All in all, we have been aggressively pursuing our milestones and remain very much on track and in line with our initial plans and projections.
A lot has been happening externally with the energy reforms. This will affect not only the upstream segment, but also midstream and downstream. What are the implications for Braskem Idesa? And to what extent will you have to modify the way you conduct business?
Providing the end result remains consistent with the way the energy reforms are being presented right now, this is going to be an immensely positive step for the country. The process of implementing these changes is of course extremely important, but the general underlying concepts are very good and will certainly generate increased investment throughout the sector. The short term impact should be additional decisions of investment. The petrochemicals sector will likely benefit more in the medium and long term. A fundamental matter of interest for the petrochemicals sector will be the availability of competitive feedstock and this availability will ultimately stem from investments made upstream. We inhabit the downstream part of the value chain so will have to wait a little while for the full benefits of the reforms to trickle through.
I can confidently say that our priorities and focus for the next couple of years will remain unchanged. A project on the scale and complexity of Etileno XXI presents many challenges and will demand our full attention to ensure that our deadlines are met on time and on budget. Nevertheless we firmly believe Mexico is going to be in a position to guarantee competitive long-term feedstock as a direct result of the reforms and this opens the door to new possibilities for Braskem Idesa. One possible area of future involvement could be shale gas. Mexico enjoys the 4th largest reserves of shale gas in the world and in the long-term we aspire to take advantage of this. It could be said that we are now witnessing the consolidation of the shale revolution in the US and, though it would be a new frontier for Mexico, many of the techniques have been tried and tested and could be relatively easily applied to the Mexican context. After all, Texas and the north of Mexico share the same geological structures. In the medium-term we also expect to see significantly more investments directed towards developing deep and ultra-deep reserves and that is another area that we will consider participating in and where we will conduct studies to evaluation potential returns on investment.
In 2013, Braskem increased its stake to 75%. What was the rationale behind this and how has it affected the performance of the Etileno XXI project?
Initially the balance of shares was 65 percent for Braskem and 35 percent for Idesa. The rationale has always been about adapting the project needs and equation for project financing to the capabilities of both shareholders. Over time, we have adjusted the weighting slightly by increasing Braskem’s stake to 75 percent and reducing Idesa’s share to 25 percent. We feel this is sensible because it better reflects the relative capabilities of each partner.
The performance and timeframe of Etileno XXI remains unaffected. In the first quarter of 2015 we will start the first test-runs and both commissioning and construction will be happening simultaneously. We will also be doing a lot of work outside the Etileno XXI site in terms of the connections to the Mexican grid and also to water and pump stations. Paying attention to this sort of infrastructure that is external to the complex is necessary because it is the only way of guarantee the full functionality of the project at all times.
Brazil and Mexico compete in many areas. Both seek to lead Latin American – one from the south and one from the north. Yet Mexican investments in Brazil are nearly ten times higher than Brazilian flows into Mexico. The Etileno XXI Project the largest private investment ever by a Brazilian firm in Mexico so bucks the trend. How significant is this?
I believe that Mexico and Brazil enjoy plenty of synergies. In many ways these are two very complementary economies. Mexico is very much part of North America with a strongly developing manufacturing industry. Brazil has developed a lot in the agricultural and commodities spheres and in mineral extraction. On another level, the Etileno XXI project combines the interests of two very different sets of shareholders that also share many synergies. On the one hand, you have the largest petrochemical company in Latin America and fifth largest in the world with considerable expertise in running ethane crackers. On the other hand, you have a much smaller company, but one that is dedicated to the Mexican market and well integrated with unparalleled knowledge about the Mexican way of doing business.
Brazil and Mexico are the two main Latin American economies, but each operate under very different current conditions and both have very decent prospects for development going forward. This is therefore not a zero sum game. More and more, I expect to see the two countries work together and take full advantage of all the opportunities related to such a relationship. Etileno XXI is perhaps the first big example of this to date, but I am sure this is a trend that we will see a lot more of. There are already quite a lot of Mexican companies investing in Brazil and, with time, more and more Brazilian companies are learning about the Mexican economy and doing business in the opposite direction.
Mexico plays an important role in the overall strategy of Braskem as it represents an important diversification on feedstock. Brazil is very concentrated on liquid feedstock for crackers, but now the balance of competitiveness between liquids and gas is tilted firmly in favor of gas. Also Mexico is necessary to Braskem in terms of diversifying markets. Your alternatives to grow are restricted when you are the main player so need to branch out into other markets and our activities in Mexico are very much part of this.
Last time, social responsibility surrounding the project was high on the agenda and Braskem Idesa had held a number of consultations with the local community. What is being done at this latter stage of the project?
Corporate social responsibility remains very much a core hallmark of Etileno XXI. Given the type of relationship we have developed across the local community, state and regional governments, we are now generating large numbers of jobs across the region and this is something we remain fully committed to. Braskem Idesa actually accounts for more than 85 percent of the jobs generated in construction in the region and we are working very hard with the neighborhood communities to find ways to share the wealth distributed. To that effect, we are in the middle of developing a medium and long term strategy orientated towards translating what we have achieved so far into permanent jobs for the communities and are actively collaborating with the different layers of government to develop the requisite local skills to make this possible.
Our intention is that this should be a win-win scenario for all concerned. We are encouraging small base groups of entrepreneurs with a view to creating modern new jobs and companies that can benefit from our projects and will ultimately help to grow plastics clusters in the region and a long term competitive value chain. We have even been recognized and acclaimed by the International Finance Corporation (IFC) which is part of the World Bank Group for our excellent initiatives on social aspects and now serve as a benchmark and role model for others to follow. We are, of course, very proud of this. We also maintain the same open communities, called ‘open houses’, that we established right at the start of the project which is essentially about holding transparent discussions where we update the local communities and any other stakeholders about any changes to the project and about the opportunities associated with each phase. By sharing our strategy in this way everyone is well positioned to make the most out of the multiple possibilities the project affords.
You mention Braskem Idesa’s role in job creation. Have you encountered any challenges in sourcing and retaining skilled labor?
We have successfully navigated the first human capital challenge which was to identify and hire skilled labor. Now that 80 percent of our end workforce is in place. Mexico possesses large pool of medium skilled workers and our strategy of blending unskilled youth with experience hires fits well with the host market. We have just completed a nine month training program for many of our new hires. One issue we are facing is the need to develop some of the skill sets for our existing projects. This will likely have to be achieved through our internal training programs, because it’s only really Pemex that has that expertise within the Mexican market. This is why, in certain instances, we are bringing in Brazilian workers to speed up the knowledge transfer. All impetus is on training up our workers to the required levels, but we are aware that retaining labor is also likely to be another hurdle to face in the future, especially in the light of rumors from the US about severe labor shortages. Having said that, in a 2013 survey among young people in Mexico conducted by the Cia Talent Consultancy we were ranked as the 6th best company to work for. This is a good sign that we are moving in the right direction.
On a personal note, it must be both difficult and time consuming juggling the competing interests of the shareholders, PEMEX, the media, government and financial institutions. What issue most keeps you up at night?
What makes Etileno XXI a complex project is not only the size of the investment and scale of the workforce required, but also the number of stakeholders involved. The key is trying to pull all stakeholders together and channel them in a common direction. What is good for government must also be good for lenders, shareholders and the local community. My task is to identify the right win-win balance and generally the local community requires more of my attention in this respect because they tend to think very short term about changes to their livelihoods, whereas I have to find ways both of compensating them in short term and encouraging them to buy into our long term vision, which is actually one where they will ultimately reap many benefits.
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