Uncertainty shrouds Mexico's petrochem industry

10-Jun-05

The Mexican chemical market needs annual imports of over US$10 billion to meet domestic demand. In 2002, Pemex began seeking private investors for a US$2.6 billion, million ton ethylene complex. This project was part of the efforts by the Fox administration to reverse a 10 year decline in Mexico's petrochemical industry and a history of unsuccessful attempts at attracting private capital. A recent report analyzes the agendas of Pemex, the investors and the Oil Union, and identifies issues to be resolved to ensure political and legal viability of the project. The report concludes that there is not enough time left in the political calendar of the Fox administration for Fenix to be finalized. Project Fenix features two innovations: Pemex would be a minority partner and the Oil Union would not have automatic labor rights in the new company. Four investors were selected in October 2004, three Mexican companies and 1 Canadian (Nova). Investors have asked the government for substantial discounts on feedstock and energy costs compared to those of U.S. based competitors. These incentives will counterbalance country and project risk. Such discounts are politically awkward- natural gas prices, for instance, are tied, by law, to the opportunity cost of gas in relevant markets. Another matter is the selection of the site for the complex. Two cities are under consideration: Altamira and Coatazcoalcos. The two state governments are engaged in a full-press public relations effort to bring the complex home. (Based on a report by Baker & Associates)