Braskem CEO: Petrobras Crisis Threatens Production

Braskem SA, Latin America's largest petrochemical company, may halt production at most of its plants in March if it fails to extend a supply agreement with oil company and key shareholder Petrobras, Braskem's CEO said in a newspaper interview on Monday.

Braskem's plants in Sao Paulo, Bahia and Rio Grande do Sul are dependent on naphtha supply and may need to interrupt production, said CEO Carlos Fadigas. The move would be a potentially heavy blow to Brazil's beleaguered economy at a time when it is being undermined in part by a corruption scandal at state-run Petroleo Brasileiro SA, as Petrobras is formally known.

The Odebrecht Group, which controls Braskem, also supplies construction and engineering, shipping and other services to Petrobras. Executives from Odebrecht and other major construction and engineering firms have been caught up in the Petrobras corruption probe that has forced Petrobras to suspend payments as well as its work with some companies.

Petrobras owns 37 percent of Braskem and is Odebrecht's principal partner in the company.

Petrobras' refining chief Jose Cosenza, who oversaw the supply contract with Braskem, resigned last week along with CEO Maria das Graças Foster and four other top executives. Foster was replaced by former Banco do Brasil SA CEO Aldemir Bendine, a confidant of Brazil's President Dilma Rousseff.

Braskem's and Petrobras' naphtha supply agreement, worth about 9 billion reais ($3.2 billion) a year, expires at the end of the month. Naphtha accounts for more than two-thirds of Braskem's costs, according to the O Estado de S.Paulo newspaper.

"I don't know what happens next. When we discussed renewing the contract in the past, Petrobras said it would not deliver any naphtha without an agreement," Fadigas told Estado in the interview.

Braskem already froze investments worth 1 billion reais due to the uncertain naphtha supply, Fadigas said. Long-term deals with potential clients have also been postponed.

"Some of our clients want to expand their plants and others are working on new projects, and all of them ask for long supply contracts of about 15 years. This deadlock means we are not in a position to reach any deal for such a long period. So nobody invests," Fadigas told Estado.

The naphtha problem comes as Braskem is already struggling with the falling price of oil and natural gas, an important petrochemical feedstock. Cheap natural gas has made U.S. petrochemical companies more competitive than many Braskem plants.

Estado's interview with Fadigas was conducted on Friday, Estado said.

Reporting by Silvio Cascione