Braskem expects remaining costs for geological damage to reach about Real 8.8 bil: CFO

Houston — Brazilian petrochemical producer Braskem expects its remaining costs stemming from geological damage in the state of Alagoas from the company's former upstream salt mining operation to be about Real 8.8 billion ($1.6 billion), CFO Pedro Freitas said Feb. 1.

Freitas and several other Braskem executives gave investors an update on the status of the company's actions to compensate for the fallout from the damage, which included a small earthquake in March 2018 as well as fissures and other damage in Maceió, Alagoas' capital city.

Braskem in December announced it had reached agreements with Brazilian authorities to end public interest civil actions stemming from the geological damage. The financial impact stems from relocating thousands of families, as well as larger structures like schools and hospitals, to unaffected locations and compensating them for their costs.

That impact also includes closing and monitoring 35 wells associated with a shut salt-mining operation and other measures, Freitas said.

He said of the Real 8.8 billion estimate, Real 4.1 billion was expected to be disbursed in 2021, while the rest would be disbursed in 2022-2025.

A federal lawsuit still pending in the US

While the Brazilian public interest civil actions have been resolved, Freitas noted that a US class-action shareholder lawsuit filed in August 2020 in federal court in New Jersey was pending.

That lawsuit alleges that from May 2016 through July 2020, Braskem made false or misleading statements about or failed to disclose that the company's salt mining operations were unsafe or posed a danger to surrounding areas, risking liability, increased government oversight, reputational damage, and permanent closure.

Braskem has several months to file an answer to the complaint. The defendants named in the suit are Freitas, CEO Roberto Simões, and former CEO Fernando Musa.

The company in May 2019 shut a chlor-alkali plant and a downstream ethylene dichloride unit after a government report linked the salt-mining operation to the damage, leaving Braskem dependent on imports of caustic soda to supply customers and EDC to maintain downstream production of construction staple polyvinyl chloride.

Braskem restarted both plants in late December and expected to bring the second of three production lines in the chlor-alkali plant online in February, according to sources familiar with company operations.

The chlor-alkali plant can produce up to 460,000 mt/year of caustic soda and 400,000 mt/year of chlorine, and the EDC plant has a capacity of 520,000 mt/year. Braskem expects the chlor-alkali plant to reach 66% capacity by the end of first-quarter 2021.

Both are Braskem's sole such plants in Brazil, as the company in 2020 shut a smaller chlor-alkali plant in neighboring Bahia with a capacity of 79,000 mt/year of caustic soda and 64,000 mt/year of chlorine.

Caustic soda, a key feedstock for alumina and pulp and paper industries, is a byproduct of chlorine production. Chlorine is the first link in the PVC production chain.