Braskem reaches deal on salt mine closure, resettlements

Houston — Brazilian petrochemical producer Braskem announced Friday that the company has reached a deal with state and federal prosecutors and public defenders on the permanent closure of salt mining operations in Alagoas and the relocations of about 17,000 people in nearby areas.

The company agreed to pay Real $1.7 billion ($422 million) to implement a compensation and relocation support program, and another Real $1 billion ($248 million) for costs to close certain wells associated with the salt mining operation in Maceio, the capital city of the state of Alagoas.

In exchange, the prosecutors and public defenders agreed to release about Real $3.7 billion ($919 million) in previously frozen Braskem cash. Of that, Real $1.7 billion ($422 million) will be placed in a company bank account to fund the compensation and relocation program, which must maintain a minimum of Real $100 million ($24.8 million) of working capital, subject to verification by an external auditor, Braskem said.

That Real $3.7 billion ($919 million) had been frozen to cover potential costs stemming from geological damage linked to Braskem's salt mining operation by the Brazil Geological Survey (CPRM) in a report released in May 2019. Last August, Brazil's Superior Court of Appeals lifted the freeze, though the reprieve was conditional "upon effective presentation of a new insurance guarantee for the same amount by Braskem to the court," according to the company.

In Monday's statement to investors, Braskem said that, in addition to the requirement that an external auditor must verify the compensation and relocation fund maintains the minimum level of working capital, the fund is subject to the substitution of $6.4 billion ($1.6 billion) in surety bonds that the company has presented to the courts.

SALT MINING FALLOUT

Braskem's announcement was the latest in the fallout from its salt mining operations. The company ceased mining shortly after the CPRM released its report in May last year. That closure forced Braskem to shut the larger of its two chlor-alkali plants and its sole downstream ethylene dichloride plant in Brazil, leaving the company dependent on imports of caustic soda to supply customers and EDC to maintain downstream production of construction staple polyvinyl chloride.

Caustic soda is a byproduct of chlorine production and is a key feedstock for the alumina and pulp and paper industries. Chlorine mixed with ethylene makes EDC, a PVC precursor.

In November, former Braskem CEO Fernando Musa said the company aims to restart the shut plants in the first half of 2020.

Musa said Braskem planned to bring salt from Brazil's Rio Grande do Norte state to feed chlor-alkali production, though logistics had yet to be worked out. Braskem was also scouting potential rural locations outside of Maceio to establish a new salt mine from current reserves in Alagoas. Both options were intended to restore Braskem's integrated PVC structure and reduce dependence on caustic soda and EDC imports.

Days after Musa's announcement during Braskem's quarterly earnings call, Braskem named its company chairman, Roberto Simones, as CEO effective January 1, according to a regulatory filing.

-- Kristen Hays, kristen.hays@spglobal.com

-- Edited by Zac Aiuppa, newsdesk@spglobal.com