Braskem optimistic on Venezuela expansion

RIO DE JANEIRO (Reuters) - Brazilian petrochemical company Braskem is set to expand into Venezuela and sees its planned investment in two plants there as safe even though ExxonMobil Corp (XOM.N) had been involved in the same project before quitting that country.

Supplies of high-quality Venezuelan naphtha and abundant natural gas are key to competing with Middle Eastern suppliers of petrochemical products in the Americas and Europe, Braskem (BAK.N)(BRKM6.SA) Chief Executive Jose Carlos Grubisich said late on Monday.

The Venezuelan venture will be Braskem's first project outside Brazil and part of an international expansion for the largest petrochemical company in Latin America.

"It's not a question of optimism, it's business -- we have supply contracts for ethane and propane already negotiated that put us at the same competitive level as the Middle East," Grubisich said during the Reuters Latin America Investment Summit in Sao Paulo.

"It's a fact, plus we are combining advanced technology with global scale -- that's unbeatable," he said. "This opens a very big prospect for us to consolidate our position and become a much more important player in North America and Europe."

Braskem and Venezuela's state petrochemical company, Pequiven, hold stakes of 49 percent each in the Jose petrochemical complex project. Another 2 percent is owned by Japanese trading house Sojitz (2768.T).

Plans call for a 450,000-tonne-a-year polypropylene plant that should start working in early 2010. A 1.2-million-tonne polyethylene plant working on ethane produced from natural gas should launch in 2012.

Braskem estimates the total cost of the two plants at $3.2 billion to $3.5 billion, funded for the most part from debt and equity financing. Braskem's own investment should be around $520 million, Grubisich said.

He brushed off concerns that Venezuela's nationalization drive may threaten Braskem's investment or bring about unbearably high taxes that made Exxon quit the country.

"These projects have a very strong national appeal and logic for Venezuela," he said. "Regardless of future political leaders, they will make sense, creating value for Venezuelan oil and gas, attracting investment, creating jobs. We feel secure that it will continue under any setting of the country's future."

Grubisich also said costs were not a major concern.

"The three of us are investing $120 million this year in economic and technical studies to make sure that the final investment cost would be compatible with petrochemical industry investment globally, but right now we don't have any particular worries about cost rises," he said.

"Of course we have raw material costs," he added, "but we are working on how to offset that rise with project optimization and synergies from the joint implementation of the two projects in one location."

He expected the final investment decision for the polypropylene plant in August 2008 and for the polyethylene unit in August 2009.

Besides the Venezuela projects, Braskem is mulling a polyethylene plant on the Pacific coast in Peru that could use natural gas from the giant Camisea field there.

"It would serve to supply the western coast of North and Latin America and would be in a competitive position to supply China and Southeast Asia," Grubisich said. "We've advanced a lot in Peru, but it's not at the same level of maturity as the Venezuelan project."

Finally, Braskem is considering a polyethylene plant in neighboring Bolivia -- which it had planned before the poor Andean country privatized the gas sector in 2006, which caused a big drop in investments there.

"That's the most embryonic plan so far," he said. "It depends on resumption of investment in new gas reserves. We need to see where the new gas will be produced first."

(Editing by Lisa Von Ahn)