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Interview

with Roberto Bischoff, Mexico, Braskem

01.09.2011 / Energyboardroom

You are at the head of one of the most important petrochemical projects in this country for decades. Can you outline the main highlights of the project emphasising the impact it will have for the company and the Mexican petrochemical sector?

The project involves the construction of a petrochemical complex that will produce one million tonnes of polyethylene and derivatives. By derivatives I mean Polyethylenes, where we will have two plants of High Density Polyethylene and one plant of Low Density Polyethylene. This is a very important project for Mexico, for Mexican society and the Mexican community, mainly because Mexico is a very large importer of these products. IN fact, Nowadays Mexico consumes roughly 1.8 million tonnes of polyethylenes in general and Pemex only supplies 0.6-0.7 – about one third of that amount. According to 2011 data 1.1 million tonnes came from overseas, mainly the United States.The project will replace a lot of the imports and generate an impact in the economic surplus of Mexico regarding international commerce. In fact, the sales, besides substituting a lot of imports, will have an effect on the balance of payments of the country – between $1.5-2.0 billion per year. So that is a very important effect for the balance of payments. The second important point is that it represents a kind of rebirth of the petrochemical industry in Mexico. For decades we have not seen any important investment, just small investments, especially in maintaining the existing infrastructure and the existing capacity, but not focused on adding new capacity and new products. Etileno XXI, is a huge project that is going to require $3.2 billion of investment. It is one of the most important projects in Mexico, that will generate around 8,000 jobs during the construction phase and around 2,000 jobs during its operation.

Do people realize the benefits of the project?

I think that is very clear. First of all we are trying to keep a very open discussion with local communities about the project. We did two “open house” discussions with local communities where we presented the project’s key points regarding the communities, and will be repeating this approach all through the construction phase. We are very open to answering all questions and we are trying to keep all the relationships with the communities very open. That generates a lot of confidence and goodwill regarding the project.I understand that the Federal government and State governments are very supportive of the project and that is very clear. That is based on all the benefits that the project will generate for the country and for the state. In addition we feel a very strong commitment from local communities. The city mayors of Nanchital and Coatazacoalcos are very committed because they feel that the community wants to have the project. If you go to visit the site right now we are generating more than 1,000 jobs and we have just started the site preparation. We see that the whole picture of the communities has changed in a very short period of time. And they feel like that. Of course, such a huge project generates some inconvenience. For instance, we have a lot of truck movement, just at this stage of land preparation and this generates some inconvenience for the community but the reaction demonstrates that they are fully committed to the project because they recognize the benefits it will bring

Back with the Fox government there was a similar project called Fenix that failed. Etileno XXI is in its way a reality but what will be the major challenges that will need to be overcome to reach the full potential of the project?

It is really challenging to put in place such a huge project in a short period of time. Besides being huge it is a green field project, a really green field. We are starting from scratch, starting from zero. We bought the land, we got the permits, and we have started the preparation of the site from zero. That is very challenging taking into consideration the time that we have to finish it. The project is supposed to be operating by mid 2015. It is a short period of time considering the local conditions, the existing infrastructure, and also considering that the region and the country have not implemented large projects in the petrochemical sector in the past decades. That is really challenging – the timing and the schedule.Secondly, all the financial packages are very complex. You can imagine we are facing a global crisis but the project is so robust that we are not feeling all the potential efects of international crisis and European crisis to finish the project. Third, I mention the idea of a rebirth in the petrochemical industry. If you apply that to our operations it will mean that we have to train people to become skilled operators. That will require a lot of work and training since we will have to develop 800 very skilled people to operate the site.

The project is planned to start up in early 2015 and you were expecting to have the FEED [front-end engineering and design] by mid-2011. Also the same year you were expecting to get financing commitments from banks. What is the current status of the project and what is the financial commitment that you have secured?
The basic FEED engineering was ready by the end of December. We started the construction in October. We anticipated 2.5 months, which would allow us to take the most advantage of the dry season for the land preparation and that timeframe would not be a threat to our schedules. So we have already started the construction and the site preparation and anywhere from April we should start constructing the civil and the super-structure. As for the financial package, we have been working together with the banks since February 2011. The first formal presentation was done one year ago. We expect to have the entire financial package set by the middle of March or April. That is our schedule. We are working with seven very important financial entities that include international banks, development bank, multilateral agencies and also credit agencies. From Mexico there is Bancomext and NAFINSA. From Brazil BNDES is participating. With regards to multilaterals we have International Finance Corporation (IFC), which is part of the World Bank, and Interamerican Development Bank (IDB). We have Eximbamk from the US and SACE the ECA from Italy Those are the core lenders in the group.They are going to finance the project and also support some type of “B loans” to commercial banks, but guaranteed by them. They are the anchors of the whole project finance.

What will be the total investment of the project?

It is about a $3 billion fixed investment and about a $4 billion total investment. It is the largest petrochemical investment in the Americas for the last 15 years. It is also the largest private industrial investment in Mexico.

So far how much it has been invested?

We have achieved aproximately five percent by the end of last year – 2011. Now we will be investing roughly 30 percent in 2012, then another 30 percent in 2013 and another 30 percent in 2014. The five percent already invested is just in engineering and preparation. So the heavy spending starts now with the construction and the acquisition of equipment.

The place where you will have the complex is very near the petrochemical complexes of Pemex. What kind of synergies do you plan to have between their complexes and yours?We have a lot of synergies with Pemex and we are discussing issues in a very open way. Pemex owns almost all the infrastructure in the region and they have their plants operating nearby. Pemex has very important logistical infrastructure in place for chemicals and oil products in the area. Pemex also has a portfolio of products that covers some part of the petrochemical sector but not all of it. Both things I have mentioned creates potential synergies. Hence, Pemex and Braskem-IDESA are trying to find the best way to put all these potential synergies in place. It is challenging because it is new. Pemex used to be the only company to produce important amounts of petrochemicals in the country but now they are very open to discuss all possible opportunities. We expect to move forward in a lot of them because it generates a lot of value, not only for Pemex and for us, but also for Mexico.

This is the first time that Braskem- IDESA has worked with Pemex , how has the experience been so far?

Very good. We have to recognise that Pemex is a state owned company and has to follow different and strict rules, but this is part of the game. We recognize that we are different companies with different management styles. Nevertheless , our relationship with Pemex is good at all levels. We have been working together to develop all the interface regarding the project. Pemex will be the supplier, which is a key success factor for the project. Moreover, Pemex will invest in new infrastructure to supply the project. So I would say that the relationship could not be better.

The project is a joint venture between you and Mexican company IDESA. What has each company learnt from the other?

I think this is one of the best decisions we have taken – to come to Mexico with a Mexican partner. We are leveraging completely different companies. Braskem is a company with a lot of experience in running crackers and polyethylene plants. Idesa is a very important and traditional company in the Mexican petrochemicals sector. They have a lot of knowledge in the way things work in this country . Braskem-IDESA is potentially a very good marriage, leveraging different competencies from different companies. Besides that, the relationship between companies and between the people is very good. We are very happy with our partners in Mexico.

If we come back in five years what will we see?

Braskem Idesa is here in Mexico, not only to stay, but to grow. We see other potential alternatives as a way to grow in Mexico. We are going to be working very hard to develop new alternatives, not only to grow our new business and adding new capacity, but also to develop other alternatives in petrochemicals. In brief, I see a much bigger company with more investments in Mexico.

What have been the most challenging and pleasant parts of running this project?

I would say that challenges are part of the game and part of the job. They are also part of the fun. The entire project has been very pleasant. To work with the Mexican people and to develop new relationships in Mexico has been very pleasant. Mexicans and Brazilians like each other and we have similar cultures. We respect each other and we recognize each other as good partners to do business with. In the other hand, just to move forward and run a project this size is pleasant professionally. Also to build and integrate a multi-cultural team to run this project is amazing.I would say it is difficult to find bad parts of the job.

What advice can you give to CEOs coming to work in Mexico?

Mexico is a country that offers a lot of new opportunities. You must live in Mexico and understand the country to take advantage of that. My advise will be come and try this market.

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