As filed with the Securities and Exchange Commission on September 22, 2017
April 27, 2022
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM20-F
☐REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR
OR
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2016
OR
☒ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2021
OR
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
OR
☐SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number:001-14862
BRASKEM S.A.
(Exact Name of Registrant as Specified in its Charter)
N/A | The Federative Republic of Brazil | |
(Translation of Registrant’s Name into English) | (Jurisdiction of Incorporation or Organization) |
Rua Lemos Monteiro, 120 – 24° andar
Butantã— – São Paulo—Paulo, SP – CEP05501-050 – Brazil
(Address of Principal Executive Offices)
Pedro van Langendonck Teixeira de Freitas
Braskem S.A.
Rua Lemos Monteiro, 120 – 24° andar
Butantã— – São Paulo—Paulo, SP – CEP05501-050 – Brazil
Telephone: + (55 11) 55 11 3576-9000
Fax: + (55 11)55 11 3576-9532
(Name, Telephone,E-mail and/or Facsimile number and Address of Company Contact Person)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
Title of Each Class | Trading Symbol | Name of Each Exchange on which Registered |
Preferred Shares, Class A, without par value per share, each represented by American Depositary | BAK | New York Stock Exchange |
Securities registered or to be registered pursuant to Section 12(g) of the Act: None
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:
TITLE OF EACH CLASS:
6.450% Notes due 2024, issued by Braskem Finance Limited
The total number of issued shares of each class of stock of Braskem S.A. as of December 31, 20162021 was:
Common Shares, without par value
345,010,622 Preferred Shares, Class A, without par value
578,330 Preferred Shares, Class B, without par value
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ ☒No ☒☐
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. Yes ☐No☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes☒No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of RegulationS-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☐☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or anon-accelerated filer.an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” and large accelerated filer”“emerging growth company” inRule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer☒ | Accelerated filer ☐ | Non-accelerated filer ☐ | Emerging growth company ☐ |
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards†standards provided pursuant to Section 13(a) of the Exchange Act. † The term “new or revised☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial accounting standard” refers to any update issuedreporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the Financial Accounting Standards Board toregistered public accounting firm that prepared or issued its Accounting Standards Codification after April 5, 2012.audit report. ☒
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
U.S. GAAP ☐ | International Financial Reporting Standards by the International | Other ☐ |
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow. ☐Item 17 ☐ Item 18
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined inRule 12b-2 of the Exchange Act). Yes ☐No☒
Page
PRESENTATION OF FINANCIAL AND OTHER INFORMATION | i | ||||||
CAUTIONARY STATEMENT WITH RESPECT TO FORWARD-LOOKING STATEMENTS | xiii | ||||||
PART I | 1 | ||||||
Item 1. | Identity of Directors, Senior Management and | 1 | |||||
Item 2. | 1 | ||||||
Item 3. | 1 | ||||||
Item 4. | 62 | ||||||
Item 4A. | 102 | ||||||
Item 5. | 102 | ||||||
Item 6. | 144 | ||||||
Item 7. | 167 | ||||||
Item 8. | 176 | ||||||
Item 9. | 193 | ||||||
Item 10. | 195 | ||||||
Item 11. | 215 | ||||||
Item 12. | 218 | ||||||
PART II | 238 | ||||||
Item 13. | 238 | ||||||
Item 14. | Material Modifications to the Rights of Security Holders and Use of Proceeds | 238 | |||||
Item 15. | 238 | ||||||
Item 16A. | 240 | ||||||
Item 16B. | 240 | ||||||
Item 16C. | 240 | ||||||
Item 16D. | 241 | ||||||
Item 16E. | Purchases of Equity Securities by the Issuer and Affiliated | 241 | |||||
Item 16F. | 242 | ||||||
Item 16G. | 242 | ||||||
Item 16H. | 245 | ||||||
PART III | 246 | ||||||
Item 17. | 246 | ||||||
Item 18. | 246 | ||||||
Item 19. | 246 |
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PRESENTATION OF FINANCIAL AND OTHER INFORMATION
All references herein to the “real,” “reais” or “R$” are to the Brazilianreal, the official currency of the Federative Republic of Brazil, or Brazil. All references to “U.S. dollars,” “dollars” or “US$” are to U.S. dollars, the official currency of the United States. All references to “CHF” are to Swiss francs, the official currency of Switzerland.
All references herein (1) to “we,” “us” or “our company” are references to Braskem S.A., its consolidated subsidiaries and jointly controlled entities, and (2) to “Braskem” are references solely to Braskem S.A. All references herein to “Braskem Europe” mean Braskem Europe GmbH and its consolidated subsidiaries, including Braskem America, Inc., or Braskem America.
On September 21, 2017,March, 31, 2022, thereal/U.S. dollar exchange rate forreaisinto U.S. dollars was R$3.13474.7378 to US$1.00, based on the selling rate as reported by the Central Bank of Brazil (Banco Central do Brasil), or the Central Bank. The selling rate was R$3.25915.5805 to US$1.00 onas of December 31, 2016,2021, R$3.90485.1967 to US$1.00 onas of December 31, 20152020 and R$2.65624.0307 to US$1.00 onas of December 31, 2014,2019, in each case, as reported by the Central Bank. Thereal/U.S. dollar exchange rate fluctuates widely, and thethese selling rate on September 21, 2017rates may not be indicative of future exchangeselling rates. See “Item 3. Key Information—Exchange Rates” for information regarding exchange rates for thereal since January 1, 2012.
Solely for the convenience of the reader, we have translated, some to the extent applicable, real amounts included in “Item 3. Key Information—Selected Financial and Other Information” and elsewhere in this annual report fromreaisinto U.S. dollars usingat the selling rate as reported by the Central Bank as of December 31, 20162021 of R$3.25915.5805 to US$1.00. These translations should not be considered representations that any such amounts have been, could have been or could be converted into U.S. dollars at that or at any other exchange rate. Such translations should not be construed as representations that therealamounts represent
All references herein to (1) “we,” “us,” “the Company” or have been“our Company” are references to Braskem S.A., its consolidated subsidiaries and jointly controlled entities, and (2) “Braskem” are references solely to Braskem S.A. All references herein to “Braskem Europe” are to Braskem Europe GmbH and its consolidated subsidiaries, including Braskem America, Inc., or could be converted into U.S. dollars as of that or any other date.Braskem America.
Financial Statements
Braskem Financial Statements
We maintain our books and records in reais.reais. Our consolidated financial statements as of December 31, 20162021 and 20152020 and for the three years ended December 31, 20162021 have been audited, as stated in the report appearing herein,therein, and are included in this annual report. These financial statements and related notes included elsewhere in this annual report are collectively referred to as our audited consolidated financial statements herein and throughout this annual report.
We have prepared our consolidated financial statements included in this annual report in accordance with International Financial Reporting Standards, or IFRS, as issued by the International Accounting Standards Board, or IFRS.IASB.
Market Share and Other Information
We make statements in this annual report about our market share in the petrochemical industry in Brazil and our production capacity relative to that of other petrochemical producers in Brazil, other countries in Latin America, the United States and the world. We have made these statements on the basis of information obtained from third-party sources that we believe are reliable. We have calculated our Brazilian market share with respect to specific products by dividing our domestic net sales volumes of these products by the total Brazilian domestic consumption of these products. We derive information regarding the production capacity of other companies in the Brazilian petrochemical industry and the estimated total Brazilian domestic consumption of petrochemical products principally from reports published by the Brazilian Chemical Industry Association (Associação Brasileira da Indústria Química), or ABIQUIM. We derive information regarding the production capacity of other companies in the global petrochemical industry, international market prices for petrochemicals products and per capita consumption in certain geographic regions principally from reports published by IHS, Inc., or IHS. (“IHS”). We derive information relating to Brazilian imports and exports from the System for Analyzing International Trade (Sistema de Análise das Informações de Comércio Exterior), orALICE-Web,ComexStat, produced by the Brazilian Secretary of International Trade (Secretaria de Comércio Exterior) and the Brazilian SecretaryMinistry of Development, Industry and Foreign Trade (Ministé(Ministério do Desenvolvimento,da Indústria, e Comércio Exterior e Serviços, the “MDIC”). We also derive information from reports published by Brazilian Association of the Alkali, Chlorine and Derivatives Industry (Associação Brasileira da Indústria de Álcalis, Cloro e Derivados, the “Abiclor”). We also include information and statistics regarding economic growth in emerging economies obtained from the International Monetary Fund, and statistics regarding gross domestic product, or GDP, growth in Brazil, the United States, Europe and Mexico obtained from independent public sources, such as the Brazilian Institute of Geography and Statistics (Instituto(Instituto Brasileiro de Geografia e Estatística), orstica); the IBGE;U.S. Bureau of Economic Analysis of the U.S. Department of Commerce, Eurostat,Commerce; the statistical office of the European Union;Union (Eurostat); and the Mexican Institute of Statistics and Geography (Instituto(Instituto Nacional de Estadística y Geografía)a).
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We provide information regarding domestic apparent consumption of some of our products based on information available from ComexStat, produced by the MDIC and reports published by Abiclor. Domestic apparent consumption is equal to domestic production plus imports minus exports. Domestic apparent consumption for any period may differ from actual consumption because this measure does not give effect to variations of inventory levels in the petrochemical supply chain.
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We have no reason to believe that any of this information is inaccurate in any material respect. However, we have not independently verified the production capacity, market share, market size or similar data provided by third parties or derived from industry or general publications.
We provide information regarding domestic apparent consumptionCertain Industry Terms
Glossary of some of our products, based on information available from the Brazilian government, Institute of Applied Economic Research (Instituto de Pesquisa Econômica Aplicada), IPEA and ABIQUIM. Domestic apparent consumption is equal to domestic production plus imports minus exports. Domestic apparent consumption for any period may differ from actual consumption because this measure does not give effect to variations of inventory levelsSelected Terms in the petrochemical supply chain.Petrochemical Industry and in the Context of Our Business
Term | Meaning | Main uses | In the context of our business |
Aliphatics | Aliphatics are open-chain hydrocarbons that contain no stable rings connecting their atoms, in contrast to aromatics. | Used as fuels, solvents and as basic chemicals in the petrochemical industry. | We produce aliphatics, such as ethylene and propylene, in our chemicals operations that are part of our Brazil Segment. |
Aromatics | Aromatics are cyclic hydrocarbons with stable bonds connecting their carbon atoms. | Used as fuel additives, solvents, and basic chemicals in the petrochemical industry. | We produce aromatics, such as benzene, toluene and xylenes, as co-products in our chemicals operations that are part of our Brazil Segment. |
Benzene | An aromatic hydrocarbon. It is a natural constituent of crude oil. | Used primarily for the manufacture of chemicals with more complex structure, such as ethylbenzene and cumene. | We produce benzene as a by-product in our chemicals operations that are part of our Brazil Segment. |
BTX products | A mixture of benzene, toluene and the three xylene isomers (ortho, meta and para), all of which are aromatic hydrocarbons. | Used as fuel additives, solvents, and basic chemicals in the petrochemical industry. | We produce benzene, toluene and xylenes as BTX by-products in our chemicals operations that are part of our Brazil Segment. |
Butadiene | An organic compound and a colorless gas. | Used industrially as a monomer in the production of synthetic rubber. | We produce butadiene as a by-product in our chemicals operations that are part of our Brazil Segment. |
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Butene | A colorless gas present in crude oil. | Used as a monomer in the production of polymers, as well as a petrochemical intermediate. | We use butene for the production of HDPE and LLDPE in our polyolefins operations that are part of our Brazil Segment. Butene is supplied by our chemicals operations that are part of our Brazil Segment. |
Caustic soda | Caustic soda, or sodium hydroxide, is an inorganic compound. A colorless crystalline solid, caustic soda is toxic, corrosive and highly soluble in water. | Used in the manufacture of pulp and paper, textiles, drinking water, soaps and detergents, and as a drain cleaner. | We produce caustic soda in our vinyls operations that are part of our Brazil Segment. Caustic soda is a by-product of chlorine production required to produce PVC. |
Chlor-alkali | Electrolysis process used in the manufacture of chlorine, hydrogen and sodium hydroxide (caustic soda). | Main industrial process for the production of caustic soda. | We operate chlor-alkali plants in Brazil. |
Chlorine | Chlorine is a chemical element (Cl), a toxic, greenish yellow gas at room temperature. It has a pungent suffocating odor. | Used in the production of paper products, antiseptics, plastics, dyes, textiles, medicines, insecticides, solvents and to treat swimming pools. | We use salt to produce chlorine in our vinyls operations that are part of our Brazil Segment. |
Condensate | Condensate, or natural gas condensate, is a low-density mixture of hydrocarbon liquids that are present as gaseous components in the raw natural gas. | Condensate is used as an input for petrochemical plants, burned for heat and cooking, and blended into vehicle fuel. | We use condensate as a raw material in our chemicals operations that are part of our Brazil Segment. |
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Cumene | An organic compound based on an aromatic hydrocarbon with an aliphatic substitution, cumene is a colorless liquid constituent of crude oil and refined fuels. | Used for the production of phenol and acetone. | We produce cumene as a by-product in our chemicals operations that are part of our Brazil Segment. | |
Dicyclopentadiene | Dicyclopentadiene, or DCPD, is a yellow liquid with an acrid odor. | Used in polyester resins, inks, adhesives and paint. | We produce DCPD in our chemicals operations that are part of our Brazil Segment. | |
Ethane | A type of natural gas liquid (NGL), ethane is a colorless, odorless gas in standard temperature and pressure, extracted from natural gas in liquid form. | Used as a feedstock for ethylene production. | Ethane is one of the main raw materials that we use to produce ethylene in our chemicals operations that are part of our Brazil Segment. | |
Ethanol | A simple alcohol, produced by the fermentation of sugars by yeasts or via petrochemical processes. | Used as a fuel for vehicles, as a disinfectant and as a chemical intermediate. | We use ethanol as a raw material to produce green polyethylene in our chemical operations that are part of our Brazil Segment, which are located in Triunfo, Brazil. | |
Ethyl tertiary-butyl ether | Ethyl tertiary-butyl ether, or ETBE, is a colorless liquid manufactured by the acid etherification of isobutylene with ethanol. | Used commonly as an additive in the production of gasoline. | We produce ETBE in our chemicals operations that are part of our Brazil Segment. | |
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Ethylene | A hydrocarbon, colorless gas and the most widely used organic compound in the chemical industry. Produced mainly via steam cracking of raw materials such as naphtha and NGLs. | Used mainly for the production of polyolefins, primarily polyethylene, the most used thermoplastic resin in the world. | We produce ethylene in our chemicals operations that are part of our Brazil Segment, as a main product of the steam cracking of raw materials. | ||
EVA | Ethylene-vinyl acetate, or EVA, is a co-polymer of ethylene and vinyl acetate. | Used to produce rubber-like materials, with applications in adhesives, packaging, molding, and membranes for electronic devices. | We produce EVA in our polyolefins operations that are part of our Brazil Segment. | ||
Gasoline | A flammable liquid obtained by refining crude oil. | Used primarily as a fuel in combustion engines. | We produce gasoline as a by-product in our chemicals operations that are part of our Brazil Segment. | ||
GHG emissions | Emissions of the six gases listed in the Kyoto Protocol: carbon dioxide (CO2); Methane (CH4); Nitrous Oxide (N2O); Hydrofluorocarbons (HFCs); Perfluorocarbons (PFCs); and Sulphurhexafluoride (SF6). | Used as a metric for our management and in accordance with applicable laws to measure GHG emissions | We use the metric to assess our performance and define a strategy for reducing GHG emissions | ||
HDPE | High-density polyethylene, or HDPE, is a thermoplastic resin produced by the polymerization of ethylene. | Used in a variety of industries, to produce plastic bottles, toys, chemical containers, pipe systems, and other plastic products. | We produce HDPE in our polyolefins operations that are part of our Brazil Segment. | ||
Hexene | An aliphatic, hexane is a clear, colorless liquid with a petroleum-like odor. | Used as a solvent, paint thinner, and chemical reaction medium. Also used as a co-monomer for the production of HDPE. | We use hexene in our Mexico Segment as a raw material to produce HDPE. | ||
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Hydrocarbon resins | Also called petroleum resins, they are produced from the polymerization of aromatic hydrocarbons. | Generally used together with other kinds of resins, in the paint, ink, adhesive and rubber industry. | We produce hydrocarbon resins in our chemicals operations that are part of our Brazil Segment. |
Hydrogen | A chemical element, hydrogen is a colorless, odorless gas. | Used to make ammonia in the production of fertilizers and as an intermediate chemical in the production of plastics and pharmaceuticals. | We produce hydrogen in our vinyls operations that are part of our Brazil Segment. |
Hydrogenated solvents | Odorless, colorless solvents treated with hydrogen. | Used in the manufacture of paints. | We produce hydrogenated solvents in our chemicals operations that are part of our Brazil Segment. |
Isoprene | A common organic compound that is a component of natural rubber. Also a by-product of oil refining. | Used to produce synthetic rubber. | We produce isoprene in our chemicals operations that are part of our Brazil Segment. |
LDPE | Low-density polyethylene, or LDPE, is a thermoplastic resin made from the polymerization of ethylene. | Used for manufacturing containers, dispensing bottles, wash bottles, tubing, plastic bags and molded laboratory equipment. | We produce LDPE in our polyolefins operations that are part of our Brazil Segment. |
Liquefied petroleum gas (LPG) | Liquefied petroleum gas, or LPG, is a mixture of propane and butane, which are two natural gas liquids. | Used in fuel heating appliances, cooking equipment, vehicle fuel, aerosol propellant, and as a refrigerant. | We produce LPG in our chemicals operations that are part of our Brazil Segment. |
LLDPE | Linear low-density polyethylene, or LLDPE, is a linear polymer made by the copolymerization of ethylene with longer-chain olefins. | Used in plastic bags and sheets, plastic wrap, stretch wrap, pouches, toys, covers, lids, pipes, buckets and containers, covering of cables and flexible tubing, among others. | We produce LLDPE in our polyolefins operations that are part of our Brazil Segment. |
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Methanol | Methanol is the simplest alcohol, a liquid produced industrially by hydrogenation of carbon monoxide. | Used as a precursor to other commodity chemicals, including formaldehyde, acetic acid and MTBE. | We use methanol as a raw material to produce MTBE in our chemicals operations that are part of our Brazil Segment. |
Methyl tertiary-butyl ether (MTBE) | An intermediate hydrocarbon liquid stream derived mainly from the refining of crude oil | Used almost exclusively as a fuel additive in gasoline to raise the oxygen content. | We produce MTBE in our chemicals operations that are part of our Brazil Segment. |
Naphtha | An intermediate hydrocarbon liquid stream derived mainly from the refining of crude oil. | Used as a solvent, fuel additive and as a raw material in the petrochemical industry. | We use naphtha as a raw material for the production of petrochemical products in our chemicals operations that are part of our Brazil Segment. |
Natural gas | A naturally occurring hydrocarbon gas mixture, consisting primarily of methane. | Used as a source of energy for heating, cooking and electricity generation, as a fuel for vehicles and as a chemical feedstock. | We use natural gas for electricity generation in our production processes. |
Natural gas liquids (NGL) | A mixture of hydrocarbon components of natural gas, primarily ethane, propane and butane, which are separated from the raw natural gas in the form of liquids. | Used as raw materials in the petrochemical industry, as fuel and in applications for heating and cooking. | We use NGLs such as ethane and propane as raw materials at our plants in Rio de Janeiro and Mexico. |
N-hexane | A hydrocarbon, obtained by refining crude oil. | Used mixed with other solvents, to extract vegetable oils from crops, and as a cleaning agent in the printing, textile, furniture, and shoemaking industries. | We use n-hexane in our polyolefins operations that are part of our Brazil Segment as a raw material in the production of HDPE and LLDPE. |
Nonene | A hydrocarbon, nonene is a colorless liquid with an odor reminiscent of gasoline. | Used as a plasticizer to make rigid plastics flexible, and to produce chemical intermediates. | We produce nonene in our chemicals operations that are part of our Brazil Segment. |
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Olefins | Unsaturated hydrocarbons that contain at least one carbon–carbon double bond, such as ethylene, propylene and butene. Obtained from steam cracking of raw materials. | Used as chemical intermediates for the production of other chemicals and resins. | We produce olefins in our chemicals operations that are part of our Brazil Segment. |
Para-xylene | An aromatic hydrocarbon, para-xylene is produced mainly in refineries and during the steam cracking of naphtha. | Used as a chemical feedstock in the production of polymers, especially PET. | We produce para-xylene as a by-product in our chemicals operations that are part of our Brazil Segment. |
PDH | Propane dehydrogenation, or PDH, is an on-purpose technology used for conversion of propane into propylene. | Industrial process for the production of propylene. | We use propylene from PDH units as a raw material in our plants in the United States. |
Piperylene | A volatile, flammable hydrocarbon in liquid form, obtained as a by-product of ethylene production. | Used as a monomer in the manufacture of plastics, adhesives and resins. | We produce piperylene in our chemicals operations that are part of our Brazil Segment. |
Polyethylene (PE) | PE is the most common type of thermoplastic resin. It is lightweight and durable, and is obtained from the polymerization of ethylene. | PE has a large number of applications, such as: packaging, consumer goods, fibers, textiles, pipes, automotive, wiring, cables, construction, among others. | We produce PE in our polyolefins operations that are part of our Brazil Segment. |
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Polyisobutylene (PIB) | PIB is a gas-permeable synthetic rubber produced by the polymerization of isobutylene with isoprene. | Used as a fuel and lubricant additive, in explosives, as the base for chewing gum, and to improve the environmental stress-cracking resistance of polyethylene. | We produce PIB in our chemicals operations that are part of our Brazil Segment. |
Polyolefins | Macromolecules formed by the polymerization of olefin monomer units. The most common are polypropylene (PP) and polyethylene (PE). | Used in a broad range of consumer and industrial applications. | We produce polyolefins in our polyolefins operations that are part of our Brazil Segment. |
Polypropylene (PP) | PP is a thermoplastic resin and the second most widely produced commodity plastic, after PE. Obtained by the polymerization of propylene, PP is generally harder and more heat resistant than PE. | Widely used in the automotive and furniture industry, in consumer goods, for packaging and labeling, and in other industrial applications. | We produce PP in our polyolefins operations that are part of our Brazil Segment. |
Polyvinyl chloride (PVC) | PVC is the world's third-most widely produced synthetic plastic polymer, after PE and PP, obtained by the polymerization of vinyl chloride monomer (VCM), a monomer generally made of ethylene and chlorine. | Used mainly in infrastructure and construction for pipes and profile applications, such as doors and windows, and also in plumbing, electrical cables, flooring, and as a replacement for rubber. | We produce PVC in our vinyls operations that are part of our Brazil Segment. |
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Propane | A type of natural gas liquid (NGL), propane is a gas in standard temperature and pressure, and is extracted from natural gas in liquid form. | Commonly used together with butane in heating and cooking applications, and also as a raw material in the petrochemical industry. | We use propane together with ethane as a raw materials to produce petrochemical products in our chemicals operations that are part of our Brazil Segment. |
Propylene | A hydrocarbon, propylene is a colorless gas, and the second most widely used olefin in the chemical industry, after ethylene. It can be obtained as a co-product of steam cracking or refining, and from on-purpose production. | Used mainly to produce polypropylene resins and a wide variety of other chemicals, such as propylene oxide and acrylonitrile. | We produce propylene in our chemicals operations that are part of our Brazil Segment as a by-product of steam cracking. Propylene is also the main raw material that we use to produce polypropylene in our polyolefins operations that are part of our Brazil Segment, and United States and Europe Segment. |
Refinery off gas | Gas that is produced as a by-product of the refining of crude oil. It is a mixture of methane, ethane, hydrogen and other gases. | Used as a feedstock in the petrochemical industry. | We use refinery off gas as a raw material in our chemicals operations that are part of our Brazil Segment to produce ethylene. |
Salt | Salt is a mineral composed primarily of sodium chloride. | Used in a wide variety of industries, mainly in the chlor-alkali process to produce caustic soda and chlorine, and as a food additive. | We use salt to produce chlorine and caustic soda in our vinyls operations that are part of our Brazil Segment. |
Sodium hypochlorite | Sodium hypochlorite is a chlorine compound. | Used as a disinfectant or a bleaching agent and to produce other chemicals. | We produce sodium hypochlorite in our vinyls operations that are part of our Brazil Segment. |
Tetramer | Tetramer, or propylene tetramer, is an olefin. | Used as a plasticizer, surfactant, lubricating oil additive and polymerization agent. | We produce propylene tetramer in our chemicals operations that are part of our Brazil Segment. |
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Thermoplastic resins | Raw, unshaped polymers, such as PE, PP and PVC. | Used in the plastic industry and other industries. | We produce thermoplastic resins in our chemicals operations that are part of our Brazil Segment. |
Toluene | An aromatic hydrocarbon. | Used predominantly as an industrial feedstock and a solvent. | We produce toluene in our chemicals operations that are part of our Brazil Segment. |
UHMWPE | Ultra-high molecular weight polyethylene, or UHMWPE, is a special type of thermoplastic polyethylene. | Used in industrial applications that require durability, low friction, and chemical resistance, including wear strips, chain guides, and marine dock fender pads, among others. | We produce UHMWPE in our United States and Europe Segment. |
Vinyls | Vinyls, or vinyl polymers, are a group of polymers derived from vinyl monomers. The most common type of vinyl is PVC. | Used in the plastic industry and other industries. | We produce vinyls in our vinyls operations that are part of our Brazil Segment. |
Certain IndustryOther Selected Terms Used in This Annual Report
As used in this annual report:
· | “first generation products” means basic petrochemical products such as ethylene and propylene produced from naphtha, natural gas, and ethane. The basic petrochemical products are used as feedstocks for the production of second generation products. We also sell certain first generation products to our customers; |
· | “second generation products” means thermoplastics resins, such as PE, PP and PVC; |
· | “third generation” means plastics converters; |
· | “third generation products” means finished plastic products produced by molding thermoplastic resins into end-use applications; |
· | “annual production capacity” means the annual nominal capacity for a particular facility, calculated based on operations during the 24 hours of the day for an entire year; |
· | “production capacity” means the annual projected capacity for a particular facility, calculated based upon operations for 24 hours each day of a year and deducting scheduled downtime for regular maintenance; |
· | “kton” means a kiloton, which is equal to 1,000 tons, or 2,204,622.62 pounds; |
· | “ton” means a metric ton, which is equal to 1,000 kilograms or 2,204.62 pounds. |
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Rounding
We have made rounding adjustments to some of the amounts included in this annual report. As a result, numerical figures shown as totals in some tables may not be arithmetic aggregations of the amounts that precede them.
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CAUTIONARY STATEMENT WITH RESPECT TO FORWARD-LOOKING STATEMENTS
This annual report contains forward-looking statements. Some of the matters discussed concerning our business operations and financial performance include forward-looking statements within the meaning of the U.S. Securities Act of 1933, as amended, or the Securities Act, or the U.S. Securities Exchange Act of 1934, as amended, or the Exchange Act.
Statements that are predictive in nature, that depend upon or refer to future events or conditions or that include words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “estimates”��estimates” and similar expressions are forward-looking statements. Although we believe that these forward-looking statements are based upon reasonable assumptions, these statements are subject to several risks and uncertainties and are made in light of information currently available to us.
Our forward-looking statements may be influenced by numerous factors, including the following:
the adverse effect of global health crises, such as the novel coronavirus pandemic (the “COVID-19 pandemic”) and others, on our Brazilian and international sales and operations, and on the Brazilian and international petrochemical industry; |
· | the adverse effect of war and other armed conflicts, such as the conflict involving Russia and Ukraine, and others on our Brazilian and international sales and operations, and on the Brazilian and international petrochemical industry; |
· | the adverse effect of inflation globally on our Brazilian and international business; |
· | demand for our petrochemical products, our manufacturing facilities, price of raw materials and other inputs of our production, global logistics for our products, raw materials and other inputs of our production, and supply chains; |
· | general economic, political and business conditions in the markets or jurisdictions in which we operate, including governmental and electoral changes, and demand and supply for, and prices of, petrochemical and thermoplastic products; |
· | interest rate fluctuations, inflation and exchange rate movements of thereal in relation to the U.S. dollar and other currencies; |
· | the cyclical nature of the global petrochemical industry; |
· | our ability to successfully carry out our sustainable development strategy, and to successfully develop initiatives to adapt to and mitigate climate change; |
· | competition in the global petrochemical industry; |
· | our ability to successfully develop our innovation projects, in particular in renewable and recycling initiatives; |
· | prices of naphtha, ethane, ethanol, propane, propylene and other raw materials and the terms and conditions of the supply agreements related thereto; |
· | international prices of petrochemical products; |
· | actions taken by our controlling shareholder; |
· | inherent risks related to any change of our corporate control; |
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· | our ability to implement our financing strategy and to obtain financing on satisfactory terms; |
· | our progress in integrating the operations of companies or assets that we may acquire in the future, so as to achieve the anticipated benefits of these acquisitions; |
· | changes in laws and regulations, including, among others, laws and regulations affecting tax and environmental matters and import tariffs in other markets or jurisdictions in which we operate or to which we export our products; |
· | political conditions in the countries where we operate, particularly in Brazil and Mexico; |
· | future changes in Brazilian, Mexican, American and European policies, including the adoption of new environmental policies and related actions undertaken by those governments; |
· | a deterioration in the world economy that could negatively impact demand for petrochemicals and thermoplastic products; |
· | unfavorable decisions rendered in major pending or future tax, labor, environmental and other legal proceedings; and |
· | other factors identified or discussed under “Item 3. Key Information—Risk Factors.” |
Our forward-looking statements are not guaranteesa guarantee of future performance, and our actual results of operations or other developments may differ materially from the expectations expressed in theour forward-looking statements. As for forward-looking statements that relate to future financial results and other projections, actual results will be different due to the inherent uncertainty of estimates, forecasts and projections. Because of these uncertainties, potential investorsreaders should not rely on these forward-looking statements.
iv
All forward-looking statements attributed to us or a person acting on our behalf are qualified in their entirety by this cautionary statement, and you should not place undue reliance on any forward-looking statement included in this annual report. Forward-looking statements speak only as of the date they are made, and we do not undertake any obligation to update them in light of new information or future developments ordevelopments.
For additional information on factors that could cause our actual results of operations to release publicly any revisions to thesediffer from expectations reflected in forward-looking statements, in order to reflect later events or circumstances or to reflect the occurrence of unanticipated events.please see “Item 3. Key Information—Risk Factors.”
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I’TEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
Item 1. | Identity of Directors, Senior Management and Advisers |
Not applicable.
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
Item 2. | Offer Statistics and Expected Timetable |
Not applicable.
Selected Financial and Other Information
The following selected information should be read in conjunction with “Presentation of Financial and Other Information,” “Item 5. Operating and Financial Review and Prospects” and our audited consolidated financial statements and the related notes thereto, which are included in this annual report.
The selected financial data as of December 31, 2016 and 2015 and for the three years ended December 31, 2016 have been derived from our audited consolidated financial statements, prepared in accordance with IFRS, and included in this annual report. Our audited consolidated financial statements as of December 31, 2014 and 2013 and for the years ended December 31, 2014 and 2013 have been adjusted for the effects of the restatement more fully described in this annual report and in note 2.4 to our audited consolidated financial statements.
As a result of the independent internal investigation that was conducted by law firms with extensive experience in similar cases in the United States and Brazil, each an Expert Firm and, collectively, the Expert Firms, into the allegations described in note 23.3 to our audited consolidated financial statements as of December 31, 2016 in the context of theso-called Operation Car Wash (Operação Lava Jato), or the Investigation, we identified several errors in our previously issued financial statements as of December 31, 2015 and 2014 and for the three years ended December 31, 2015, which have been restated.
The selected financial data as of December 31, 2013 and 2012 and for the years ended December 31, 2012 have been derived from Braskem’s accounting records and reflect the restatement of improperly classified expenses from selling and distribution expense to other expense and to correct errors in the calculation of tax payables.
We have included information with respect to the dividends and/or interest attributable to shareholders’ equity paid to holders of our common shares and preferred shares since January 1, 2012 inreaisand in U.S. dollars translated fromreaisat the commercial market selling rate in effect as of the payment date under the caption “Item 8. Financial Information—Dividends and Dividend Policy—Payment of Dividends.”
We prepare individual financial statements in accordance with the accounting practices adopted in Brazil, pursuant of Law 6,404/76 and subsequent adjustments, and of the standards issued by theComitê de Pronunciamentos Contábeis (CPC), including for the calculation of dividends.
Statement of Operations Data: Net sales revenue Cost of products sold Gross profit Income (expenses): Selling and Distribution General and administrative Research and development Results from equity investments Other operating income (expenses), net Operating profit Financial results: Financial expenses Financial income Exchange rate variations, net Financial expenses, net Profit (loss) before income tax and social contribution Current and deferred income tax and social contribution Profit (loss) from continuing operations Results from discontinued operations Profit (loss) Profit (loss) attributable to shareholders of the company Loss attributable tonon-controlling interest Profit (loss) per share: Basic: Common shares Preferred class “A” shares Preferred class “B” shares Diluted: Common shares Preferred class “A” shares Preferred class “B” shares ADS(2) For the Year Ended December 31, 2016(1) 2016 2015
Restated 2014
Restated 2013
Restated 2012
Restated (in millions of
US$, except
per share data) (in millions ofreais, except per share data) US$ 14,624,9 R$ 47,664.0 R$ 46,880.0 R$ 45,135.9 R$ 40,229.0 R$ 36,160.3 (10,720.9 ) (34,940.6 ) (36,728.0 ) (39,351.7 ) (35,225.4 ) (32,709.1 ) 3,904.0 12,723.4 10,152.0 5,784.2 5,003,6 3,451.2 (432.9 ) (1,410.8 ) (1,083.2 ) (1,037.4 ) (924.6 ) (932.8 ) (453.3 ) (1,477.2 ) (1,280.5 ) (1,195.5 ) (1,002.7 ) (1,071.0 ) (49.7 ) (162.0 ) (169.6 ) (128.1 ) (115.7 ) (106.2 ) 9.2 30.1 2.2 3.9 (3.2 ) (25.8 ) (1,151.3 ) (3,752.2 ) (731.2 ) 42.8 (320.9 ) 239.9 1,826.0 5,951.2 6,889.7 3,469.8 2,637.5 1,555.3 (1,095.7 ) (3,571.0 ) (3,163.4 ) (2,716.4 ) (2,534.2 ) (2,037.5 ) 211.8 690.1 584.9 399.9 772.0 312.2 (985.1 ) (3,210.4 ) 102.9 (84.1 ) 7.1 (1,678.9 ) (1,869.0 ) (6,091.3 ) (2,475.6 ) (2,400.6 ) (1,755.1 ) (3,404.2 ) (43.0 ) (140.0 ) 4,414.2 1,069.2 882.4 (1,848.9 ) (189.0 ) (616.0 ) (1,660.4 ) (491.0 ) (456.7 ) 783.1 (232.0 ) (756.1 ) 2,753.8 578.2 425.7 (1,065.8 ) 8.3 26.9 6.4 0.1 15.7 281.5 US$ (223.7 ) R$ (729.2 ) R$ 2,760.2 R$ 578.2 R$ 441.4 R$ (784.3 ) US$ (126.3 ) R$ (411.5 ) R$ 3,001.2 R$ 716.0 R$ 444.1 R$ (777.1 ) (97.5 ) (317.7 ) (241.5 ) (137.8 ) (2.7 ) (7.2 ) US$ (0.1691 ) R$ (0.5511 ) R$ 3.7651 R$ 0.8995 R$ 0.5210 R$ (1.3296 ) (0.1691 ) (0.5511 ) 3.7651 0.8995 0.6062 (1.3296 ) — — 0.6065 0.6062 0.6062 — US$ (0.1587 ) R$ (0.5173 ) R$ 3.7732 R$ 0.8996 R$ 0.5210 R$ (1.3296 ) (0.1587 ) (0.5173 ) 3.7731 0.8996 0.6062 (1.3296 ) — — 0.6065 0.6062 0.6062 — (0.3174 ) (1.0346 ) 7.5464 1.7992 1.0427 (2.6592 )
Balance Sheet Data: Cash and cash equivalents(2) Short-term trade accounts receivable Inventories(3) Property, plant and equipment Total assets Short-term borrowings (including current portion of long-term borrowings) Long-term borrowings Capital Shareholders’ equity (includingnon-controlling interest) Other Financial and Operating Information: Cash Flow Information: Net cash provided by (used in): Operating activities Investing activities Financing activities Other Information: Capital expenditures: Property, plant and equipment Investments in other companies Total Sales Volume Data* (in thousands of tons): Ethylene(4) Propylene(4) Polyethylene Polypropylene Polyvinyl chloride (PVC) At and For the Year Ended December 31, 2016(1) 2016 2015
Restated 2014
Restated 2013
Restated 2012
Restated (in millions of
US$, except as
indicated) (in millions ofreais, except as indicated) US$ 2,421.6 R$ 7,892.3 R$ 7,458.2 R$ 4,085.7 R$ 4,335.9 R$ 3,287.6 501.4 1,634.1 2,755.7 2,409.1 2,792.3 2,326.5 1,626.1 5,299.5 6,243.7 5,688.3 5,172.4 4,102.1 9,001.5 29,336.7 34,100.3 29,071.0 25,410.1 21,176.8 15,900.7 51,821.9 60,626.9 49,501.9 46,844.6 41,170.0 796.1 2,594.5 1,970.0 1,419.5 1,249.6 1,836.0 6,362.7 20,736.6 25,380.5 18,926.7 17,362.9 15,675.6 2,467.9 8,043.2 8,043.2 8,043.2 8,043.2 8,043.2 527.9 1,720.7 945.5 5,597.1 7,543.9 8,588.7 US$ 1,456.3 R$ 4,746.2 R$ 7,877.8 R$ 3,813.1 R$ 2,457.8 R$ 2,571.8 (871.7 ) (2,840.9 ) (4,120.3 ) (5,054.1 ) (4,954.2 ) (2,834.3 ) (846.0 ) (2,757.3 ) (97.5 ) 894.4 3,614.2 633.9 871.2 2,839.2 4,103.9 5,378.8 5,656.4 2,792.9 — — — 0.1 — — 576.1 548.6 511.4 535.4 531.9 — 370.6 416.5 445.7 389.0 406.6 — 2,729.7 2,626.9 2,386.5 2,543.7 2,530.0 — 1,671.9 1,513.1 1,591.9 1,580.8 1,648.8 — 645.2 594.9 659.6 636.5 560.9
Exchange Rates
The current laws and regulations governing the Brazilian foreign exchange system allowsallow the purchase and sale of foreign currency and the international transfer ofreais by any person or legal entity, regardless of the amount, subject to certain regulatory procedures. Since 1999, the Central Bank has allowed the U.S. dollar-real exchange rate to float freely, and, since then, the U.S. dollar-real exchange rate has fluctuated considerably.
In the past, the Central Bank has intervened occasionally to control unstable movements in foreign exchange rates. We cannot predict whether the Central Bank or the Brazilian government will continue to permit thereal to float freely or will intervene in the exchange rate market through the return of a currency band system or otherwise. Thereal may depreciate or appreciate against the U.S. dollar substantially. Furthermore, Brazilian law provides that, whenever there is a serious imbalance in Brazil’s balance of payments or there are serious reasons to foresee a serious imbalance, temporary restrictions may be imposed on remittances of foreign capital abroad. We cannot assure you that such measures will not be taken by the Brazilian government in the future. See “—Risk Factors—Risks Relating to Brazil—Brazilian government exchange control policies could increase the cost of servicing our foreign currency-denominated debt, adversely affect our ability to make payments under our foreign currency-denominated debt obligations and impair our liquidity” and “—Risk Factors—Risks Relating to Our Class A Preferred SharesEquity and the ADSs— Debt Securities—If holders of the ADSs exchange them for class A preferred shares, they may risk temporarily losing, or being limited in, the ability to remit foreign currency abroad and certain Brazilian tax advantages.”
The following table shows the selling rate for U.S. dollars for the periods and dates indicated. The informationSummary of Risk Factors
Below is a summary of certain material factors that make an investment in the “Average” column represents the averageour securities speculative or risky. Importantly, this summary does not address all of the exchange rates onrisks and uncertainties that we face. This summary is qualified in its entirety by a more complete discussion of such risks and uncertainties. In evaluating an investment in our securities, investors should carefully read the last dayrisks described below, as well as other risks and uncertainties that we face, which can be found under “Risk Factors” of each month duringthis annual report. If any of the periods presented.following events occur, our business, financial condition and operating results may be materially adversely affected. In that event, the trading price of our securities could decline, and you could lose all or part of your investment. Such risks include, but are not limited to:
Reais per U.S. Dollars | ||||||||||||||||
Year | High | Low | Average | Period End | ||||||||||||
2012 | R$ | 2.112 | R$ | 1.702 | R$ | 1.955 | R$ | 2.043 | ||||||||
2013 | 2.446 | 1.953 | 2.161 | 2.343 | ||||||||||||
2014 | 2.740 | 2.197 | 2.355 | 2.656 | ||||||||||||
2015 | 4.195 | 2.575 | 3.339 | 3.905 | ||||||||||||
2016 | 4.156 | 3.119 | 3.483 | 3.259 | ||||||||||||
Reais per U.S. Dollars | ||||||||||||||||
Month | High | Low | ||||||||||||||
March 2017 |
| R$ | 3.1735 | R$ | 3.0765 | |||||||||||
April 2017 |
| 3.1984 | 3.0923 | |||||||||||||
May 2017 |
| 3.3807 | 3.0924 | |||||||||||||
June 2017 |
| 3.3362 | 3.2307 | |||||||||||||
July 2017 |
| 3.3193 | 3.1256 | |||||||||||||
August 2017 |
| 3.1976 | 3.1161 | |||||||||||||
September 2017 (through September 21) |
| 3.1389 | 3.0852 |
· | We may be affected by instability in the global economy and by financial turmoil, including as a result of military conflict between Russia and Ukraine. |
Source:Risks Relating to Us and the Petrochemical IndustryCentral Bank.
Risk Factors
· | Global or regional health pandemics or epidemics, including that related to the COVID-19 pandemic, may adversely affect our business, financial condition and results of operations. |
· | The cyclical nature of the petrochemical industry may reduce our net revenue and gross margin. |
· | Adverse conditions in the petrochemical industry may adversely affect demand for our products. |
· | Global macroeconomic factors have had, and may continue to have, adverse effects on the margins that we realize on our products. |
· | We face competition from suppliers of polyethylene, polypropylene, PVC and other products. |
· | We may face competition from producers of substitutes for our products as a result of evolving technology, consumer and industry trends and preferences, and regulatory changes. |
· | Higher raw materials costs would increase our cost of products sold and may reduce our gross margin and negatively affect our overall financial performance. |
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· | We depend on Petrobras to supply us with a substantial portion of our naphtha, ethane, propane and propylene needs, and also on logistics services. |
· | We depend on ethane supplied by Pemex TRI in Mexico. |
· | We rely on limited or sole-source suppliers for our raw materials, inputs and energy, including transportation thereof. |
· | We may be materially adversely affected if there is an imbalance in global logistics, which may cause disruptions to our transport, storage and distribution operations, negatively impacting the costs related thereto. |
· | We rely on access to third-party licensed technology and related intellectual property, and if such rights cease to be available to us on commercially reasonable terms, or at all, or if any such third party ceases to provide us with technical support under license or technical services agreements, certain of our production facilities, our operating results and financial condition could be adversely affected. |
· | We may be subject to attempts to acquire our control, which may lead to significant changes in management, the strategies that we are currently pursuing, or in our current corporate governance practices. |
· | Some of our shareholders may have the ability to determine the outcome of corporate actions or decisions, which could affect the holders of our class A preferred shares and the ADSs. |
· | We may face conflicts of interest in transactions with related parties. |
· | We may pursue strategic acquisitions or investments. The failure of an acquisition or investment to produce the anticipated results, or the inability to integrate an acquired company fully, could adversely affect our business. |
· | Adjustments in tariffs on imports that compete with our products could cause us to lower our prices. |
· | Changes in U.S. and global trade policies and other factors beyond our control may adversely impact our business, financial condition and results of operations. |
· | A failure to comply with export control or economic sanctions laws and regulations could have a material adverse impact on our results of operations, financial condition and reputation. |
· | Our business and operations are inherently subject to environmental, health and safety risks. As a result, our business is also subject to several stringent regulations, including environmental regulations. |
· | Unfavorable outcomes in pending or future litigation may reduce our liquidity and negatively affect our financial performance and financial condition. |
· | We could be materially affected by violations of the U.S. Foreign Corrupt Practices Act (“FCPA”), the Brazilian Anti-Corruption Law and similar anti-corruption laws. |
· | Climate change may negatively affect our business, financial condition, results of operations and cash flow. |
· | If we are unable to comply with the restrictions and covenants in the agreements governing our indebtedness, there could be a default under the terms of these agreements, which could result in an acceleration of payment of funds that we have borrowed and could affect our ability to make principal and interest payments on our debt obligations. |
· | Unauthorized disclosure or loss of intellectual property, trade secrets, other sensitive business or personal information, or disruption in information technology by cyberattacks or other security breaches, as well as our failure to comply with data protection laws and information security requirements can subject us to significant penalties or liability and can adversely impact our operations, reputation, and financial results. |
· | There can be no assurance that Novonor will remain our controlling shareholder. Novonor and Petrobras may enter into transactions or other arrangements that may result in us not having a controlling shareholder. If no single shareholder or group of shareholders holds more than 50% of our voting stock or exercise a controlling interest, there may be increased opportunity for alliances between shareholders and conflicts between them. |
· | Novonor and Petrobras have requested us to conduct studies for a potential migration of Braskem to the Novo Mercado listing segment of the B3, which, if completed, would lead to the conversion of all of our class A and class B preferred shares into common shares and the revision of our corporate governance practices to conform to the Novo Mercado rules. |
2 |
· | The intended corporate reorganization communicated by Novonor and Petrobras to us may not be approved or implemented, and the migration to the Novo Mercado listing segment of the B3 may not occur. |
· | We expect to lose the right of preference set forth in the current shareholders’ agreement with respect to new business opportunities in the petrochemical sector, and as result, Petrobras, which is our largest supplier of raw materials in Brazil, will be able to invest in the petrochemical sector independently from us and without first giving us a preference to do so. |
· | Changes in tax laws may result in increases in certain direct and indirect taxes, which could reduce our gross margin and negatively affect our overall financial performance. |
Risks Relating to Brazil
· | Brazilian political, economic and business conditions, and the Brazilian government’s economic and other policies, may negatively affect demand for our products as well as our net revenue and overall financial performance. |
· | Fluctuations in the real/U.S. dollar exchange rate could increase inflation in Brazil, raise the cost of servicing our foreign currency-denominated debt and negatively affect our overall financial performance. |
· | Fluctuations or changes in, or the replacement of, interest rates could raise the cost of servicing our debt or reduce our financial revenue, negatively affecting our financial performance. |
Risks Relating to Mexico
· | A renegotiation of commercial treaties or changes in foreign policy among Mexico, Canada and the United States may negatively affect our business, financial condition, results of operations and prospects. |
· | Political events in Mexico could affect the Mexican economic policy and our business, financial condition and results of operations. |
· | We source part of our ethane feedstock from Pemex TRI in Mexico, which we expect to be our primary source of ethane until the Ethane Import Terminal is operational. |
Risks Relating to Our CompanyEquity and Debt Securities
· | All of the shares issued by Braskem and owned by NSP Inv. are secured for the benefit of certain secured creditors of the Novonor Group. |
· | Holders of our class A preferred shares or the ADSs may not receive any dividends or interest on shareholders’ equity. |
· | If holders of the ADSs exchange them for class A preferred shares, they may risk temporarily losing, or being limited in, the ability to remit foreign currency abroad and certain Brazilian tax advantages. |
· | The relative volatility and liquidity of the Brazilian securities markets may adversely affect holders of our class A preferred shares and ADSs. |
· | Brazilian bankruptcy laws may be less favorable to holders of our shares, ADSs and outstanding debt securities than bankruptcy and insolvency laws in other jurisdictions. |
We may be affected by instability in the global economy and by financial turmoil, including as a result of military conflict between Russia and Ukraine.
Instability in the global markets and in the geopolitical environment in many parts of the world as well as other disruptions may continue to put pressure on global economic conditions. Concerns over inflation, geopolitical issues, the global financial markets, unstable global credit markets and financial conditions and the COVID-19 pandemic, have led to periods of significant economic instability, declines in consumer confidence and discretionary spending, diminished expectations for the global economy and expectations of slower global economic growth going forward, and increased unemployment rates. In addition, we face several risks associated with international business and are subject to global events beyond our control, including war, public health crises, such as pandemics and epidemics, trade disputes, economic sanctions, trade wars and their collateral impacts and other international events. Any of these changes could have a material adverse effect on our reputation, business, financial condition or results of operations.
There may be changes to our business if there is instability, disruption or destruction in a significant geographic region, regardless of cause, including war, terrorism, riot, civil insurrection or social unrest; and natural or man-made disasters, including famine, flood, fire, earthquake, storm or disease.
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In particular, global markets are currently operating in a period of economic uncertainty, volatility and disruption following Russia’s invasion of Ukraine on February 24, 2022. Although the length and impact of the ongoing military conflict is highly unpredictable, it and any other geopolitical tensions could have an adverse effect on the economy and business activity globally, including the following:
· | credit and capital market disruptions, |
· | significant volatility in commodity prices (such as oil and gas and raw materials to our business), |
· | significant volatility in petrochemical product prices; |
· | increased expenses related to direct and indirect materials used in our production process (i.e., logistics and inputs, among others), |
· | increased costs of resources (such as energy, natural gas and coal) for our operations, |
· | slowdown or disruption of the global and local supply chain, which may lead to shortages and lack of critical materials, commodities and products in the market and to our business, |
· | potential appreciation of the U.S. dollar, |
· | increase in interest rates and inflation in the markets in which we operate, which may contribute to further increases in the prices of energy, oil and other commodities, and |
· | lower or negative global growth. |
Additionally, the recent military conflict between Russia and Ukraine has led to sanctions and other penalties being imposed, proposed and threatened by the United States, European Union and other countries. Such sanctions are rapidly evolving, and the United States and other countries could impose wider sanctions and take other actions should the conflict further escalate. See “—A failure to comply with export control or economic sanctions laws and regulations could have a material adverse impact on our results of operations, financial condition and reputation.” Russian military actions counter measures or retaliatory actions (including cyberattacks and espionage) could adversely affect the global economy and financial markets and lead to further instability and lack of liquidity in capital markets, potentially leading, for example, to difficulties in obtaining additional funds and sources of financing for our operations. Already the conflict has caused market volatility, a sharp increase in certain commodity prices, such as oil, and an increasing number and frequency of cybersecurity threats. Actual and threatened responses to such military action, as well as a rapid peaceful resolution to the conflict, may also impact the markets for certain Russian products, such as oil, natural gas and other commodities, and may likely have collateral impacts and disruptions on such sectors globally. It is not possible to predict the length and impact of the ongoing military conflict or its broader consequences, which could include further sanctions, embargoes, regional instability, geopolitical shifts and adverse effects on macroeconomic conditions, currency exchange rates and financial markets. Any such event may increase our costs, decrease our revenues or limit our production and sales volume and adversely affect our business, results of operations and financial condition.
Geopolitical and economic risks have also increased over the past few years as a result of trade tensions between the United States and China, Brexit, and the rise of populism. Growing tensions may lead, among others, to a deglobalization of the world economy, an increase in protectionism or barriers to immigration, a general reduction of international trade in goods and services and a reduction in the integration of financial markets, any of which could materially and adversely affect our business, financial condition and results of operations.
4 |
Risks Relating to Us and the Petrochemical Industry
Global or regional health pandemics or epidemics, including that related to the COVID-19 pandemic, may adversely affect our business, financial condition and results of operations.
Our business, financial condition and results of operations may be adversely affected by the COVID-19 pandemic, which was reported to have surfaced in China in December 2019 and spread to the rest of the world, or by other pandemics or epidemics of similar nature. In 2020, the COVID-19 pandemic significantly impacted economic activity and markets around the world, and its severity, magnitude and duration are highly uncertain, rapidly changing and difficult to predict. At this time, our management cannot fully predict with certainty the final effects that the COVID-19 pandemic will have on our business, financial condition and results of operations and whether these effects will be material to us. The spread of COVID-19 has caused us to modify certain of our business practices, and we may take further actions as required by government authorities or that we determine are in the best interests of our employees, customers, partners and suppliers. Based on operating data for the year 2021 and the publicly reported expected impact on certain industries that are customers to our products (such as automotive and construction), we believe that COVID-19 has affected our business in numerous ways, including, but not limited to, reduction of our production, sales volume and net revenue, increase of some of our costs, and decrease of our gross margin.
We have closely monitored the effects of the COVID-19 pandemic on our business and the communities located in the regions in which we operate. On March 20, 2020, we formed a crisis committee to establish procedures focusing on the health and safety of our employees and the continuity of our operations. To that end, we have adopted the following measures: (i) ordered all of our employees and contractors who were most vulnerable to COVID-19 to work remotely until criteria for a safe return to their worksite were met; (ii) ordered all of our employees and contractors who were not directly related to the safe continuity of our operations to work remotely until criteria for a safe return to their worksite were met; (iii) reduced the number of employees and contractors working at our industrial plants and prioritized operations with fewer people, while ensuring that all rules relating to ensuring personal safety and operational reliability were followed; (iv) restricted visits by non-routine third parties and suppliers to our facilities; (v) created agendas jointly with our customers and local communities to assess whether products on our portfolio could be used to help fight the COVID-19 pandemic; and (vi) created, implemented and monitored the indicators of the Plan for Safe Return to Braskem plants and offices.
During the second quarter of 2020, the capacity utilization rates of our plants in Brazil and the United States were temporarily reduced to 70% and 90%, respectively, to adjust to the weaker demand for our products and to the destocking trend in the petrochemical and plastics production chains. The capacity utilization rates followed market demand and export opportunities that arose in other regions, especially with the restart of economies in Asia, which occurred before other regions of the world.
During the third quarter of 2020, there was strong recovery in demand for resins in Brazil and in the United States that led the capacity utilization rates of the petrochemical plants to return to normal levels. In the fourth quarter of 2020, the demand for resins remained strong and the capacity utilization rates in Brazil and the United States remained at levels similar to those of the previous quarter.
In Europe and Mexico, the capacity utilization rates returned to their normal levels in the second quarter of 2020, following the gradual recovery in demand, resulting in capacity utilization rates of 83% and 80%, respectively. With regard to the fourth quarter of 2020, despite the recovery in demand that began in the previous quarter, the capacity utilization rate in Europe was 64% due to the scheduled shutdown of our European plant. In the first and second quarters of 2021, the utilization rates of petrochemical plants remained above 70% in most regions where we operate. Specific cases of reduction in rates were identified in Mexico due to instability in the supply of ethane by Pemex, and are not directly related to the effects of the COVID-19 pandemic. The utilization rate of petrochemical plants in the third quarter of 2021 in Brazil was 79%, representing an increase when compared to the second quarter of 2021, mainly due to the normalization of activities after a scheduled maintenance stoppage at the ABC petrochemical center, in the state of São Paulo.
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The utilization rate of the PP plants in the United States was 94%, representing a decrease when compared to the previous quarter due to several small reliability interruptions in the PP plants during such period. In Europe, the utilization rate of PP plants was 92%, representing a decrease when compared to the second quarter of 2021 due to minor interruptions in the reliability of PP plants during such period. Finally, the utilization rate of PE plants in Mexico was 68%, representing an increase when compared to the previous quarter due to the higher volume of ethane imports from the United States through the Fast-Track solution, which offset the reduction in the supply of ethane by Pemex.
In 2021, the capacity utilization rates of the petrochemical complexes in Brazil remained in line with the previous year (80.7%). In the United States, capacity utilization declined in relation to 2020 from 92.0% to 85.5%, due to impacts from Winter Storm Uri on the U.S. Gulf Coast in early 2021 and operational faults at one of the PP plants in the last quarter of 2021. In Europe, the capacity utilization rate of the PP plants was 91.2%, and the increase was supported by stronger demand in the region, which was affected by Covid-19 in 2020. The capacity utilization rate of the PE plants in Mexico declined in relation to 2020, from 74.3% to 66.3%, explained by (i) the restriction in operations during most of first quarter 2021 after interruption in natural gas transport; (ii) the unscheduled shutdown during May due to the temporary instability in power supply at Braskem Idesa; and (iii) the reduction in ethane supply volume by PEMEX during 2021.
While we are actively managing our response to potential impacts that are identified, we may not be able to respond to all impacts on a timely basis to prevent adverse effects on our business, financial condition and results of operations.
The cyclical nature of the petrochemical industry may reduce our net sales revenue and gross margin.
The petrochemical industry, including the global markets in which we compete, is cyclical and sensitive to changes in global supply and demand. This cyclicality may reduce our net sales revenue, increase our costs and decrease our gross margin, including as follows:
· | downturns in general business and economic activity may cause demand for our products to decline; |
· | when global demand falls, we may face competitive pressures to lower our prices; |
· | increases in prices of the main raw materials we use, principally naphtha, ethane and propylene; and |
· | if we decide to expand our plants or construct new plants, we may do so based on an estimate of future demand that may never materialize or materializes at levels lower than we predicted. |
Historically, the international petrochemical markets have experienced alternating periods of limited supply, which have caused prices and profit margins to increase, followed by expansion of production capacity, which has resulted in oversupply and reduced prices and profit margins. Prices in the petrochemical industry follow the global petrochemical industry, and we establish the prices for the products we sell in Brazil, other countries in Latin America, the United States and the world with reference to international market prices. Therefore, our net sales revenue, feedstock costs and gross margin are increasingly linked to global industry conditions that we cannot control, and which may adversely affect our results of operations and financial position.
In addition, relevant events or changes in the cycle and in the petrochemical industry, including technological innovations and regulatory changes, may materially affect the future profitability of our business and consequently reduce the recoverable value of our assets, which is reviewed by the annual impairment test, which may adversely affect the profit attributable to our shareholders.
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Adverse conditions in the petrochemical industry may adversely affect demand for our products.
Sales of our petrochemical and chemical products are tied to global production levels and demand, which can be affected by macro-economic factors such as interest rates, international oil prices, shifts to alternative products, consumer confidence, employment trends, regulatory and legislative oversight requirements, trade agreements, regulatory developments, as well as regional disruptions, armed conflicts, natural disasters, epidemics, pandemics, or other global events. Therefore, our net revenue, feedstock costs and gross margin are increasingly linked to global conditions that we cannot control, and which may adversely affect our results of operations and financial position. For example, the persistence of the COVID-19 pandemic or the conflict involving Russia and Ukraine (including economic sanctions and other regulations imposed by the United States and other international countries as a result thereof) could negatively impact supply chains worldwide and demand for our products and the raw materials we use. Should the conflict in Ukraine or other international locations further escalate, it is difficult to anticipate the extent to which the consequences of such conflict, including without limitation effects on the price of oil and current or future sanctions could increase our costs, disrupt our supplies, reduce our sales or otherwise affect our operations. Moreover, the extent to which the COVID-19 pandemic impacts our results will depend on future developments, which are highly uncertain and cannot be predicted, including the severity of the COVID-19 pandemic, actions to contain it or treat its impact, among others.
Our revenue from certain of our customers is significant, and the credit risks associated with certain of these customers could adversely affect our results of operations.
We engage in a number of transactions where counterparty credit risk is a relevant factor, including transactions with certain of our customers and those businesses we work with to provide services, among others. These risks are dependent upon market conditions and also the real and perceived viability of the counterparty. The failure or perceived weakness of any of our counterparties has the potential to expose us to risk of loss in certain situations. Our revenue from certain of our customers ismay be significant, and the credit risks associated with certain of these customers could adversely affect our results of operations. Certain contracts and arrangements that we enter into with counterparties may provide us with indemnification clauses to protect us from financial loss. To the extent the credit quality of these customers deteriorates or these customers seek bankruptcy protection, our ability to collect our receivables, and ultimately our results of operations, may be adversely affected. In addition, delays in payment cycles by significant customers may adversely affect our liquidity and working capital.
In addition, If the viability of the business of certain of our customers deteriorates, it could have a material adverse effect on our cash flows and results of operations.
Our results may be adversely affected by increases in reserves for uncollectible accounts receivable.expected credit losses.
We have a large balance of accounts receivable and have established a reserve for the portion of such accounts receivable that we estimate will not be collected because of our customers’non-payment. As of December 31, 2021, our total trade accounts receivable, net of expected credit losses (R$131.6million) was R$7,167.0million.
If the viability of the business viability of certain of our customers deteriorates or our credit policies are ineffective in reducing our exposure to credit risk relating to such customers, additional increases in reserves for uncollectibleexpected credit losses accounts may be necessary, which could have a material adverse effect on our cash flows and results of operations. We record an allowance for doubtful accountsexpected credit losses in an amount we consider sufficient to cover estimated losses on the realization of our trade accounts receivable, taking into accountconsidering our loss experience and the average aging of our accounts receivable, but we cannot assure you that these amounts will be sufficient to cover eventual losses.In addition, delays in payment cycles by significant customers may adversely affect our liquidity and ability to obtain financing for working capital such as sales of receivables.
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As of December 31, 2016, our total trade accounts receivable was R$2,084.9 million and the provision for doubtful accounts was R$380.6 million. Significant changes in our historical loss experience on accounts receivable which are not apparent through our aging analysis could require significant changes to our provisions for doubtful accounts, and, therefore, have an adverse effect on our results of operations and financial condition.
Global macroeconomic factors have had, and may continue to have, adverse effects on the margins that we realize on our products.
Our results of operations may be materially affected by adverse conditions in the financial markets and depressed economic conditions generally. Economic downturns in geographic areas or jurisdictions in which we sell our products may substantially reduce demand for our products and result in decreased sales volumes. Recessionary environments, including global inflation, adversely affect our business because demand for our products is reduced.reduced and our costs increase.
Reduced or negativeAccording to the latest report released by the International Monetary Fund (the “IMF”) in January 2022, the world’s GDP growth in emerging economies resulted in decreased growth in the global economy, which increasefor 2021 is estimated at 5.9%. In 2020, the world’s GDP contracted by 3.1%, representing a decrease of 6.3 percentage points in 2016,relation to 2019. Regarding the Brazilian economy, the IMF expects a 4.7% growth for 2021. According to the Brazilian Institute of Geography and Statistics (Instituto Brasileiro de Geografia e Estatística, or the “IBGE”), in 2020, Brazilian GDP contracted by 4.1% when compared to growth of 1.2% in 2019, and 1.8% in 2018.
According to the latest report released by the IMF in January 2022, the U.S. GDP growth forecast for 2021 was 5.6%. In 2020, U.S. economy contracted by 3.4%, compared to growth of 2.3% in 2019, and 2.9% in 2018. According to the IMF, the expectation for 2021 is a growth of 5.2% for the European economy, compared to a 6.3% contraction in 2020. In addition, according to the International Monetary Fund. In 2016, Brazil’s GDP contracted 3.6%, asIMF, the expectation for the Mexican economy is for growth of 5.3% in 2021, compared to a contraction of 3.8%by 8.3% in 20152020.
In addition, raw materials and growth of 0.5%other costs in 2014, accordingour business are subject to wide fluctuations depending on market conditions and government policies. These costs are influenced by several factors over which we have little or no control, including, but not limited to, international and national economic conditions, including higher natural gas costs in Europe, regulations, government policies (including those applicable to the IBGE. In 2016,pricing policies of Petrobras, which is one of our main suppliers in Brazil), tariff adjustments and global effects of supply and demand, for thermoplastic resinsparticularly on commodity prices. We cannot assure that the prices of our products may be increased in Brazil declined by 1%.
Ina timely manner or be sufficient to keep pace with, or offset, increases in inflation, operation costs and expenses, amortization of investments and taxes. As a result, we might not be able to pass on the United States, GDP grew by 1.6%increased costs to our customers, which could decrease our profit margin and result in 2016 compared to growtha material adverse effect on our business, financial condition and results of 2.6% in 2015 and growth of 2.4% in 2014, according to the U.S. Department of Commerce. In Europe, GDP grew by 1.7% in 2016 compared to growth of 2.0% in 2015 and growth of 1.4% in 2014, according to Eurostat, outpacing the United States for the first time since the 2008 financial crisis. Mexico’s GDP grew by 2.4% in 2016 compared to growth of 2.6% in 2015 and growth of 2.3% in 2014, according to Mexican Institute of Statistics and Geography.operations.
Our ability to export to other countries is a function ofdepends on the level of economic growth in those countries and other economic conditions, including prevailing inflation and interest rates. In addition, disruptions in the global balance between supply and demand and logistics constraints may impair our ability to export our products in response to a decline in domestic demand for these products. Prolonged volatility in economic activity in our key export markets, such as United States, South America, Europe and Asia, could continue to reduce demand for some of our products and lead to increased margin pressure by importers into Brazil, which would adversely affect our results of operations.
We face competition from producerssuppliers of polyethylene, polypropylene, PVC and other petrochemical products.
We face strong competition across all of our petrochemical products. Our U.S. operations face competition in the United States from other U.S. producers of polypropylene and the other foreign producers of polypropylene that serve the United States. Our German operations face competition in Europe and the other export markets that it serves from European and other foreign producers of polypropylene. Our Mexico operations face competition from Mexican and U.S. producers of polyethylene producers. In Brazil, although only our vinyls business faces competition in Brazil, players from South America are able to export to Brazil with reduced or no import duties. In addition, producers of almost all continents have regular or spot sales to trading companies and direct customers in Brazil for petrochemicals and resins.
We generally set the prices for our second generation products sold in Brazil with reference to the prices charged for these products by foreign producers in international markets. We generally set the prices for our second generation products exported from Brazil based on international spot market prices. We set the prices for polypropylene sold in the United States and Europe based on regional market pricing. The price for polyethylene in Mexico is based on prices for the polymer in the U.S Gulf Coast region.
As a result of the announced commissioning of new ethylene capacity, particularly in the United States, in the Middle East and in China, coupled with the increased competitiveness ofgas-based ethylene producers in United States as a result of their relatively lower raw material costs, we anticipate that we may experience increasing competition from other producers of second generation products in the markets in which we sell these products. In addition, the appreciation of thereal against the U.S. dollar may increase the competitiveness of prices of imported products inreais,which may increase the competition in Brazil from other producers of second generation products. Some of our foreign competitors are substantially larger and have greater financial, manufacturing, technological and/or marketing resources than us. Our U.S. operations face competition in the United States from other local suppliers that serve the North-American market. Our European operations face competition in Europe and the other export markets that it serves from European and other foreign suppliers of polypropylene. Our Mexico operations face competition from Mexican and U.S. producers of polyethylene producers. Competitors from South America are able to export to Brazil with reduced or no import duties. In addition, suppliers of almost all continents have regular or specific sales to trading companies and direct customers in Brazil for our company.products, including resins.
We generally follow the international markets with respect to the prices for our products sold in Brazil. We generally set the prices for our products exported from Brazil based on international market prices. We set the prices for products sold in the United States and Europe based on market pricing in such region. The price for polyethylene in Mexico is based on prices in the U.S. Gulf Coast region.
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As a result of the commissioned fractioned gas-based ethylene new capacities and of the expected new capacities for production of resins and petrochemicals, coupled with the competitive pricing of feedstock for petrochemicals production such as ethane, we anticipate that we may experience increased competition from producers of thermoplastic resins, especially from North American, Middle East and Chinese producers, in the markets in which we sell our products.
In addition, exchange rates variation may affect the competitiveness dynamics in different regions in which we operate. For instance, the appreciation of the real against the U.S. dollar may increase the competitiveness of imported products, which may increase the competition in Brazil from resins producers. Also, (i) the appreciation of the Euro against the U.S dollar may increase the competitiveness of imported products and, as a consequence, increase competition from imports and (ii) the appreciation of Mexican peso against the U.S. dollar may increase the competition from other resins producers in Mexico.
We may face competition from producers of substitutes for our products as a result of evolving technology, consumer and industry trends and preferences, and regulatory changes.
We compete in a market that relies on technological innovation and the ability to adapt to evolving consumer and global industry trends and preferences. Petrochemical products and other products produced with our petrochemical products, such as consumer plastic items, are subject to changing consumer and industry trends, demands and preferences, as well as stringent and constantly evolving regulatory and environmental requirements. Therefore, products once favored may, over time, become disfavored by consumers or industries or no longer be perceived as the best option, which may, therefore, affect our results of operations and financial position.
Plastic waste and climate change are global environmental concerns that receive growing attention from the society in general, national and local governments, private companies, trendsetters, and consumers worldwide. There has been a growing trend to attempt to move away from the use of plastic products, which has been backed by governmental and lawmaking initiatives.
In 2019, the European Union parliament approved regulations banning as of 2021 single-use plastic items such as plates, cutlery, straws and cotton buds sticks and adopting a strategy for disposal of plastic products in a circular economy that aims to significantly increase recycling and targets the plastic products most often found on beaches and in seas. In addition, state and local governments in other countries, for example in China and Brazil, have also proposed or implemented bans on single-use plastic products. With regard to regulatory issues related to plastic for single use in Brazil, proposed regulations are being discussed in the Brazilian congress that aim to regulate issues the single use of plastic and even ban plastic. Additionally, legislative proposals aiming for the carbon-intensive products taxation have been discussed in the United States (Border Carbon Adjustments) and in the European Union (Carbon Border Adjustment Mechanism), including proposals related to the taxation of virgin thermoplastic resins. The expansion of regulation or the prohibition of plastic products use and sale could increase the costs incurred by our customers or otherwise limit the application of these products, and could lead to a decrease in demand for resins and other products we make. Such a decrease in demand could adversely affect our business, results of operations and financial condition.
We have as a core part of our strategy to grow our “green” business, including renewables and recycling. We are supporting several initiatives to foster a “circular economy” (reusing and repurposing resources within the economy), including, but not limited to: (i) partnerships to develop new products and applications to improve efficiency and promote recycling and reuse (circular design); and (ii) investing in the development of new renewable products and technologies to support the circular economy at the beginning of the value chain including through partnerships. We cannot predict the outcome of such initiatives since there still are many goals to be accomplished to reduce plastic waste and marine litter, which may lead to decreased interest in our products by our customers and consumers, and impact our results of operations and financial condition. Moreover, we may not be able to successfully implement to successfully pursue our strategy to grow our “green” business or to establish partnerships to grow our renewables business, which could adversely affect our financial condition and results of operations.
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Factors that may affect consumer perception of our products, or of consumer goods produced with our products, may include health trends and attention to substitute products perceived as more environmentally friendly. For example, in recent years, we have witnessed a shift in consumer preference moving away from plastic straws and in favor of straws made from other materials, such as paper or other compounds. A failure to react to similar trends in the future could enable our competitors to grow or secure their market share before we have a chance to respond.
In addition, regulations may be amended or enacted in the future that would make it more difficult to appeal to our customers, end consumers, or marketing the products that we produce. For example, failure to comply with applicable policies, which could lead to lower demand for our products, banning of plastic products without allowing the search for alternatives employing efficient solutions, including resins produced by Braskem, could have a material adverse effect on our business, results of operations and financial condition. Also, even if we are able to continue to promote our products, there can be no assurance that our competitors (including producers of substitutes) will not be successful in persuading consumers of our products to switch to their products. Some of our competitors may have greater access to financial or other resources than we do, which may better position them to react and adapt to evolving trends, preferences, and regulatory changes. Any loss of interest in our products, or consumer products produced with our products, may have a material adverse effect on our business, results of operations and financial condition.
Higher raw materials costs would increase our cost of goodsproducts sold and services rendered and may reduce our gross margin and negatively affect our overall financial performance.
Naphtha, a crude oil derivative, is the principal raw material used by our Basic Petrochemicals Unit and, indirectly, in our other business units in Brazil. Naphtha accounted, directly and indirectly, for approximately 42.7% of our consolidated cost of sales and services rendered in 2016.
Ethane and propane are the principal raw materials that we use to produce our basic petrochemical products in our petrochemical complex located in Duque de Caxias, in the State of Rio de Janeiro, or the Rio de Janeiro Complex, and represent the principal production and operating cost of that Basic Petrochemicals Unit. Ethanesuch Complex. In connection with our Brazil Segment, ethane and propane accounted, directly and indirectly, for approximately 0.5%0.9% and 1.2%1.3%, respectively, of our consolidated cost of salesproducts sold during the year ended December 31, 2021. Comparatively, they accounted for 0.8% and services rendered0.9%, respectively, in 2016.2020.
Naphtha, a crude oil derivative, is the principal raw material used by our Brazil Segment. For the year ended December 31, 2021, Naphtha accounted, directly and indirectly, for 37.0% of our consolidated cost of products sold. Comparatively, it represented 35.1% in 2020.
Propylene is the principal raw material that we use to produce polypropylene in the United States and Europe and represents the principal production and operating cost of our United States and Europe Segment. We also purchase propylene in the Brazilian market for certain of our Brazilian polypropylene plants. Propylene accounted, directly and indirectly, for 29.6% and 20.9% of our consolidated costs of products sold during the year ended December 31, 2021 and 2020, respectively.
Ethane is the principal raw material that we use to produce ethylene in the Mexico Complex and represents the principal production and operating cost of the Mexico Complex. EthaneIn connection with our Mexico Segment, ethane accounted, directly and indirectly, for approximately 0.6%1.3% and 1.7% of our consolidated costs of salesproducts sold during the year ended December 31, 2021 and services rendered in 2016. Propylene is the principal raw material that we use to produce polypropylene in the United States and Europe and represents the principal production and operating cost of our USA and Europe Unit. We also purchase propylene in the Brazilian market for our Brazilian polypropylene plants. Propylene accounted, directly and indirectly, for approximately 16.8% of our consolidated costs of sales and services rendered in 2016.2020, respectively.
In Brazil, we purchase the naphtha used by our Basic Petrochemicals Unitchemicals operations that are part of our Brazil Segment at prices based on the Amsterdam-Rotterdam-Antwerp naphtha price, or the ARA price, and the ethane and propane at Mont Belvieuon United States market prices.references. We purchase ethane used by our Mexico UnitSegment at prices based on the Mont Belvieu purity ethane. We purchase the propylene used in Brazil and by our USA and Europe UnitUnited States plants at prices based on U.S. Gulf reference price, or the USG price. We purchase the propylene used in our Europe plants as reported by international references based on monthly contract price for propylene for Europe. We purchase light refinery off gashydrocarbon used in the São Paulo petrochemical complex at a price related to imported natural gas price.
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The Amsterdam-Rotterdam-Antwerp marketARA price of naphtha fluctuates primarily based on changes in the U.S. dollar-based price of Brent crude oil on the Intercontinental Exchange based in London. The Amsterdam-Rotterdam-AntwerpDuring the year period ended December 31, 2021, the average price of naphtha price averagedincreased 78.9% when compared to 2020 reaching US$385764 per ton, down 17% from 2015, explainedas a result of oil prices increase due to an increase of the global demand and supply restriction by lower oil prices. The decrease mainly reflects (i)OPEP+ producers and allies. We cannot guarantee that such prices will be sustained.
For the higher production and uncertainties concerning global supply; (ii) higher inventories, especially inyear ended December 31, 2021, the U.S. Gulf region; and (iii) lower demand for fuel production.
Theaverage price of ethane, reference Mont Belvieu, prices of ethane averaged 20 centswas US$0.31 per gallon, or US$146229.0 per ton, increasing 7%62.7% from 2015, explained by2020, resulting from: (i) the stronger demand resulting from logistics debottlenecking projects, which supported higher export volumes.
The U.S. Gulf (USG)increase in the natural gas price, reference for propylene averaged US$759 per ton in 2016, or 12% lower than in 2015, due to the feedstock’s higherincrease in exports given the restrictions on supply in the European region; (ii) the demand increase for ethane for the production of ethylene as a result of the normalization of petrochemical operations in the United States; and (iii) the restrictions on natural gas production in the Gulf of Mexico in the fourth quarter of 2021 as a result of the impacts of Hurricane Ida.
During the year fromended December 31, 2021, the average price of the USG reference propylene was US$1,587.3 per ton, representing an increase of 116.3% compared to 2020, which is explained by: (i) the increase in demand; (ii) the lower supply in the first quarter of 2021 due to the impacts of winter storm Uri in the United States; and (iii) the unscheduled maintenance shutdowns propane dehydrogenation or PDH,facilities during the period.
For the year ended December 31, 2021, the average price of propylene in Europe was US$1,279.8 per ton, representing an increase of 54.7% compared to 2020, which despite some operating difficultiesis explained by: (i) the supply reduction due to scheduled and unscheduled stoppages by local producers and supply chain constraints; and (ii) the healthy demand in the second half of 2016, operated at higher capacity utilization rates than in the prior year.region.
The European price reference for propylene averaged US$727 per ton in 2016, or 23% lower than in 2015, due to limited supply during most of 2015, when low inventories and an above-normal number of unscheduled shutdowns led to price increases in that period. The price of naphtha, ethane, propane and propylene in U.S. dollars has been, and may continue to be, volatile. In addition, fluctuations of the U.S. dollar in the future may effectively increase our naphtha, or natural gasethane, propane and propylene costs inreais. Any increase in naphtha, ethane, propane or propylene costs would reduce our gross margin and negatively affect our overall financial performance to the extent we are unable to pass on these increased costs to our customers and could result in reduced sales volumes of our products.
We do not hedge against price changes in the price of our principal raw materials soand, as a result, we are exposed to fluctuations in the price of these primary raw materials.such fluctuations.
Currently, we do not hedge our feedstock’sexposure to feedstock price exposure.changes beyond transit periods when buying cargoes from foreign sources. We believe there is a natural hedge in the petrochemical industry operations, mainly due to the historical correlation observed between naphtha, the principal feedstock of a marginal producer and with higher production costs, and its final products (PE, PP, PVC, and others). Historically, naphtha price fluctuations show a high historical correlation between our feedstock (most notably, naphtha) and our final products (polyethylene, polypropylene and PVC, among others). Historically, fluctuations in naphtha’s price were followed by variationswith changes in the same direction in first- and second-generation petrochemical products. An eventualTherefore, any hedge solely inwith respect to naphtha’s price would break this natural protection, which could makemost likely making our results more volatile. However, considering our ongoing process of feedstock diversification, withCompared to naphtha and propylene, ethane and propane representingprices show a more significant portion of our variable costs, the natural protection described above tends to be impaired. This occurs because ethane and propane have significantly lower correlation to the price of our final products, when compared to naphtha and propylene. In the past, when this scenario has materialized, we haveproducts. As a result, final consumer prices may not been able to pass on all of the corresponding increases in our feedstocks costs, which reduce our gross margin and net income. If this impairment of our natural protection continues and we experience significant volatility in the prices of our feedstocks or final product, there could be a material adverse effect on our results of operations.reflect feedstock cost fluctuations.
We depend on Petrobras to supply us with a substantial portion of our naphtha, ethane, propane and propylene requirements.needs, and also on logistics services.
Petróleo Brasileiro S.A. – Petrobras, or Petrobras is the onlya relevant Brazilian supplier of naphtha for us and has historically supplied approximatelyup to 70% of the naphtha consumed by our Basic Petrochemicals Unit.chemicals operations that are part of our Brazil Segment. Currently, Petrobras currently is also our primary supplier of ethane, propane and light refinery off gashydrocarbon and has historically supplied the ethane, propane and light refinery off gashydrocarbon consumed at our petrochemical complex located in Duque de Caxias in the State of Rio de Janeiro, or the Rio de Janeiro Complex and our chemical complex located in Capuava, in the State of São Paulo, or the São Paulo Complex.
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We are a party to several propylene contracts with Petrobras refineries, which in 2016 were responsible for the supply of 36.5%have historically supplied 40% of our propylene demandneed to produce polypropylene in Brazil.Brazil at prices based on international references. As a result of limited infrastructure in Brazil to allow the importation of propylene in large quantities and substantial costs associated with the storage and transportation of the product.
One of our propylene agreements with Petrobras will expire on October 31, 2022 and others will expire between 2026 and 2029. We cannot assure you that these agreements will be renewed and, if renewed, whether we are highly dependentwill be able to keep the same terms and conditions currently in force, including with respect to pricing, volume, pipeline and other infrastructure access.
In June 2020, we entered into new agreements with Petrobras for the supply of petrochemical naphtha to our industrial units in Bahia and Rio Grande do Sul. The agreements, with a term of five years following the expiration of the prior agreement with Petrobras, establish the supply of a minimum annual volume of 650,000 tons and, at the option of Petrobras, an additional volume of up to 2.85 millions of tons per year, at the price of 100% of the international reference ARA. In addition, to guarantee access to the naphtha logistics system in Rio Grande do Sul, we also renewed the storage agreement with Petrobras until 2025 at REFAP located in the city of Canoas, and until June 2024 for the storage at TEDUT located in the city of Osório.
In December 2020, we concluded the renewal of our feedstock supply agreements in Brazil with Petrobras for the supply of petrochemical naphtha to our industrial unit in São Paulo and ethane and propane to our industrial unit in Rio de Janeiro. The agreements, with a term of five years following the expiration of the prior agreements, establish the supply of up to 2.0 million tons per year of petrochemical naphtha to our industrial unit in São Paulo and up to 580,000 tons of ethylene equivalent (volume of ethylene per ton of ethane and propane) per year to our industrial unit in Rio de Janeiro, with prices based on international reference.
Petrobras controls a substantial portion of the pipeline infrastructure used to transport naphtha across Brazil and is our primary supplier of naphtha, ethane, propane, propylene suppliedand light refinery hydrocarbon. A failure to renew or extend our existing agreements for the supply of raw materials or pipeline infrastructure use, or a termination of such agreements with Petrobras could lead to difficulties in accessing Petrobras’ pipeline infrastructure. The alternative would be to access pipeline infrastructure by Petrobras.
Thus,Therefore, our production volumes and net sales revenue would likely decrease, while our costs would likely increase, and adversely affect our overall financial performance in the event of the following:
· | significant damage to Petrobras’ supply infrastructure through which Petrobras and Braskem import naphtha, or to any of the pipelines connecting our plants to Petrobras’ facilities, whether as a result of an accident, natural disaster, fire or otherwise; |
· | termination by Petrobras of the naphtha, ethane, propane, propylene and light refinery hydrocarbon supply contracts with us, which provide that Petrobras may terminate the contracts for certain reasons described in “Item 4. Information on the Company”; |
· | considering that Petrobras (and/or its subsidiaries) controls a substantial portion of the logistics infrastructure of our raw material across Brazil and our existing agreements for using its assets and their operation over certain Braskem’s assets, we could also assume that we would face difficulties to import and ensure access of raw material to our crackers in a scenario that these agreements are terminated by Petrobras (and/or its subsidiaries) and therefore with a substantial impact on the infrastructure that we currently access; or |
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· | failure to renew or extend our existing agreements for the supply of raw materials or pipeline infrastructure use considering that Petrobras is conducting a divestment plan of its assets that also includes certain refineries that supply naphtha and propylene to us and some logistic infrastructure assets. |
If the supply agreements are terminated or not renewed, our plants to Petrobras’ facilities, whether as a consequence of an accident, natural disaster, fire or otherwise; or
In addition, although regulatory changes have ended Petrobras’ monopoly in the Brazilian naphtha market and have allowed us to import naphtha, any restrictions imposed on the importation of naphtha into Brazil could increase our production costs.costs which would reduce our gross margin and negatively affect our overall financial performance. For a discussion of additional risks related to sole-source suppliers, see “—We rely on limited or sole-source suppliers for our raw materials.materials, inputs and energy, including transportation thereof.”
We depend on propylene supplied by third parties in the United States and Europe.
Our reliance on third party suppliers poses significant risks to our results of operations, business and prospects. We rely upon third parties to supply our plants with propylene. We acquire propylene for our polypropylene plants in the United States under a variety ofseveral long-term supply agreements and through the spot market. As of December 31, 2016,2021, we had fourteen long-term supply agreements with multiple suppliers. The pricing formulas for propylene under these supply agreements are generally based on market prices. A portion ofWe cannot assure you that these agreements will be renewed and, if renewed, whether we will be able to keep the propylene suppliedsame terms and conditions currently in force, including with respect to our gulf coast plants is provided by a limited agreement that we formed with a leading basic petrochemicals producer, under which we acquire propylene produced by an ethylene facility of that producer in La Porte, Texas. Under the terms of the partnership agreement, the partnership has agreed to provide us with sufficient propylene to produce up to approximately 25% of our U.S. gulf coast plants’ current annual production capacity into early 2018, at prices calculated based on a cost-based formula that includes a fixed discount that declines until 2018.pricing, volume, pipeline and other infrastructure access.
We acquire propylene for our polypropylene plants in Germany under two long-term supply agreements that provide for the supply of 91%90% of the propylene requirements of these plants. We have two main supply agreements in Germany. One will expireexpired in September 2021 and iswas replaced by a new five-year agreement effective as of October 1, 2021 with a term until September 30, 2026, and thereafter will automatically be renewable for consecutive one-year terms, unless terminated by one of the parties. The other agreement expires in December 2023, and thereafter will also be automatically renewable for consecutiveone-year terms, unless cancelledterminated by one of the parties, andparties. We have entered into a third contract that will expire at the other expires in December 2021.end of 2022 increasing the supply of our plants to 93% of the propylene required. The pricing formula for propylene under these supply agreements is based on market prices. We cannot assure you that these agreements will be renewed and, if renewed, whether we will be able to keep the same terms and conditions currently in force, including with respect to pricing, volume, pipeline and other infrastructure access.
Delays in the availability of propylene of acceptable quality, or our inability to obtain such acceptable propylene in the quantities we need over what has been contracted, or at all, may adversely affect our revenue and results of operations.
We depend on ethane supplied by Pemex TRI in Mexico.
InWe currently source a significant portion of our supply of ethane, which is the primary feedstock used in our polyethylene production process, from Pemex Transformación Industrial (“Pemex TRI”), a state-owned Mexican entity, which is a subsidiary of Petróleos Mexicanos, Pemex, the state-owned Mexican oil and gas company, pursuant to an ethane supply agreement, or the ethane supply agreement, entered into by Braskem Idesa S.A.P.I., or Braskem Idesa, which is our joint venture with Grupo Idesa, S.A. de C.V., or Idesa, with Pemex TRI under competitive commercial conditions at prices that reference the Mont Belvieu purity ethane price, a U.S. dollar-based international reference price. As a result, our production volumes, net revenue and profit margins would likely decrease and materially adversely affect our overall financial performance in case one or more of the following events occur:
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· | significant damage to Pemex TRI’s gas processing centers or to any of the pipelines connecting our complex to Pemex TRI’s facilities, whether as a consequence of an accident, natural disaster, fire or otherwise; |
· | any further decrease in the amount of ethane currently being delivered by Pemex TRI to our petrochemical complex; |
· | any dispute with Pemex TRI and Pemex Exploración y Producción or Pemex PEP, related to the ethane supply agreement, including the non-recognition or non-payment of shortfall penalties and the decrease or failure to supply the contracted volume of ethane; |
· | any material default by us or by Pemex TRI to supply ethane in the contractually agreed volumes or qualities under the ethane supply agreement; |
· | any breach or termination by Pemex TRI or by us of the ethane supply agreement, or any breach or termination by other Mexican state-owned companies of related supply (including those for the transportation of supplies) agreements, such as Cenagas (Centro Nacional de Control del Gas Natural); or |
· | delays in the availability of ethane of acceptable quality, or our inability to obtain acceptable ethane in the quantities and quality that we need, or at all, or at reasonable prices. |
Under the ethane supply agreement with Pemex, if Pemex TRI fails to deliver the contracted minimum daily volume during a given quarter, it may offset for this shortfall by delivering additional quantities of ethane during the two immediately subsequent quarters. If it does not do so, Pemex TRI will be required to pay Braskem Idesa a penalty equivalent to the average price of the ethane that was not delivered in the period in question. On the other hand, if Braskem Idesa fails to purchase the contracted minimum daily volume, we may be able to offset this deficit by purchasing additional amounts of ethane during the two immediately subsequent quarters. If it does not do so, Braskem Idesa will be required to pay a penalty to Pemex TRI equivalent to the average price of ethane that was not purchased during the period in question.
Furthermore, the ethane supply agreement could also be impacted by changes in laws and regulations, terminated or repudiated by Pemex TRI as a result of political pressure or be subject to expropriation or other adverse measures by the Mexican government or government entities. Braskem Idesa may also renegotiate the terms of the ethane supply agreement, voluntarily or as a result of changes in laws and regulations, or otherwise.
The provisions for early termination by Pemex TRI under the Ethane Supply Agreement include: (i) failure by Braskem Idesa to pay that continues for more than six months after notice; or (ii) an emergency stoppage in operations or force majeure event due to which Braskem Idesa’s insurers consider the complex to be a total loss, or after which Braskem Idesa cannot or does not resume operations for 48 months.
If Pemex TRI (i) delivers less than an average of 70% of the agreed volume over a six-month period, (ii) reaches the annual limit in respect of shortfall penalties owed by Pemex TRI to Braskem Idesa and such limit is not waived by Braskem Idesa, or (iii) materially breaches any of its obligations related to the supply of ethane thereunder; Braskem Idesa has the right to notify Pemex TRI trough a notice of breach. If such breach continues for more than six months after notice, or an extended period if the parties agree, Braskem Idesa has the right to terminate the ethane supply agreement and require Pemex TRI and Pemex PEP to repay certain outstanding debt and compensate Braskem and Idesa according to an agreed valuation formula including the repayment of certain of our debt in the form of a put option right under the ethane supply agreement.
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Braskem Idesa and its operations in Mexico, including agreements entered into with state-owned or state-controlled entities, are subject to political interference by the Mexican government, which may lead to the termination or repudiation of certain contractual relationships and interference on Braskem Idesa’ s operations that may materially and adversely affect us.
Any termination, cancelation or modification of the ethane supply agreement or reduction in the amount of shortfall penalties owed to us by Pemex TRI for any other reason, could have an adverse effect on our results of operations and financial position. See “Item 4. Information on the Company—Mexico Segment—Supply Contracts of the Mexico Segment—Ethane” and “Item 5. Operating and Financial Review and Prospects—Capital Expenditures—Joint Venture—Mexico Complex.”
We depend on services and products supplied by a Mexican state-owned company
Braskem Idesa has entered into agreements with Mexican state-owned companies for the transportation of natural gas and water supply, among others. Any termination, cancelation or modification of such agreements could have an adverse effect on our results of operations and financial condition.
Furthermore, such agreements could also be impacted as a long-termresult of changes in laws and regulations, terminated or modified as a result of political pressure or be subject to expropriation or other adverse measures by the Mexican government or government entities. We may also renegotiate the terms of such agreements, voluntarily or as a result of changes in laws and regulations, or otherwise.
In early December 2020, Braskem Idesa received a notification from Cenagas (Centro Nacional de Control del Gas Natural), a Mexican state-owned agency responsible for all natural gas pipelines and transportation in Mexico, related to the unilateral termination of the service of natural gas transportation, an essential energy input for the production of PE in our Mexico Segment. As a result, in compliance with safety protocols, Braskem Idesa initiated procedures for the immediate interruption of its operating activities. Later in January 2021, Braskem Idesa partially resumed its operations based on an experimental business model to produce PE. Braskem Idesa has taken legal measures pursuant to the ethane supply agreement entered into with Pemex. Braskem Netherlands B.V, which is Braskem Idesa’s direct shareholder, has also taken legal measures under applicable international investment protection standards to protect the interests of Braskem Idesa and its parent company with regard to their investment in Mexico. Such measures include a negotiation period to attempt to resolve the dispute between the parties.
In the first quarter of 2021, Braskem Idesa entered into the following agreements under a strict reservation of all of its rights: (i) a memorandum of understanding with Pemex TRI setting out certain understandings regarding potential amendments to the ethane supply agreement and the development of an ethane import terminal, subject to further negotiation, a definitive agreement and approval by Braskem Idesa’s shareholders and creditors; and (ii) a natural gas transport service agreement with Cenagas for a term of 15 years, which was conditioned upon the execution of the definitive agreement referenced in item (i) above. Following the execution of these agreements by Braskem Idesa, it resumed receiving natural gas transportation services from Cenagas, which had been unilaterally terminated by Cenagas in December 2020.
On September 27, 2021, Braskem Idesa signed the following documents: (i) an amendment to the ethane supply contract with Pemex revising certain of its terms; and (ii) an agreement with Pemex and other government entities that establishes support measures for the project to purchasebuild an ethane from Pemex Transformación Industrial (successorimport terminal, with the capacity to meet all of Pemex Gas y Petroquímica Básica),Braskem Idesa’s raw material needs. In October, Braskem Idesa obtained the applicable corporate approvals, including the final approval of its shareholders and creditors regarding the executed agreements, resulting in the entry into force of the agreements describe above.
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Failure by Cenagas to renew the agreement for transportation of natural gas or Pemex TRI,any other agreement with a Mexican state-owned Mexican company under competitive commercial conditions. Any termination by Pemex TRI of this supply contract could have a material adverse effect on our overallbusiness, results of operations and financial performance. The provisions for early terminationcondition. For a discussion of additional risks related to sole-source suppliers, see “—We depend on ethane supplied by Pemex TRI include butin Mexico,” “—We rely on limited or sole-source suppliers for our raw materials, inputs and energy, including transportation thereof.”
Political conditions in Mexico may affect actions or decisions by the Mexican government, including Pemex TRI and Cenagas, which are, not limitedrespectively, Braskem Idesa’s main suppliers of ethane and provider of natural gas transportation services and Mexican state-owned enterprises subject to (i) material breach ofpolitical interference and related risks.
The Mexican government has exercised, and continues to exercise, significant influence over the Mexican economy. Accordingly, Mexican governmental actions concerning the Mexican economy and state-owned enterprises could have a significant impact on Mexican private sector entities in general and on our obligationsoperations in particular. We cannot predict the impact that political conditions will have on the Mexican economy or failure to cure any breach of the agreement or assignment and (ii) continuous occurrence of a force majeure event or emergency shutdown.
Thus,on our production volumes and net sales revenue would likely decrease andoperations. We can give no assurances that changes in Mexican federal government policies will not adversely affect our overallbusiness, financial performancecondition, results of operations and prospects. We currently do not have and do not intend to obtain political risk insurance.
In 2021, the Mexican government took measures that would strengthen Pemex and the Federal Electricity Commission (Comisión Federal de Electricidad) power over Mexico's energy market and threaten the country’s prospects for private renewable energy generation, including the annulment of certain previous energy policies and the proposed amendments to Mexico's Energy Sector Law (Ley de la Industria Eléctrica) and to the Hydrocarbons Law (Ley de Hidrocarburos). Furthermore, in October 2021, the President of Mexico presented to the Mexican Congress an initiative that, if approved, could imply profound reforms in the eventMexican Constitution and in the Mexican energy sector.
One of our main ethane suppliers, Pemex TRI, is a subsidiary of Pemex, a state-owned entity of the following:Mexican government. The Mexican government controls Pemex, as well as its annual budget, which is approved by the Mexican Congress. The Mexican government may cut or reallocate spending in the future. Any cutbacks or reallocation could adversely affect Pemex's annual budget and its ability to provide us with our contracted supply of ethane. In addition, Cenagas, a Mexican state-owned agency, is responsible for all natural gas pipelines and transportation in Mexico. As a result, Cenagas' failure to renew the agreement for transportation of natural gas to our Mexico Complex, or interruptions in such service, could have a material adverse effect on our business, results of operations and financial condition and on our ability to develop and operate the ethane import terminal.
Inlight of the allegations of undue payments related to the port facilities throughEthylene XXI project, which were originally published in the media in Mexico and were included in the testimony by the former CEO of Pemex TRI would import ethane or to anythe Office of the pipelines connecting our plants to Pemex TRI’s facilities, whether as a consequenceAttorney General of Mexico, Braskem S.A., together with Braskem Idesa, in compliance with the standards established by Braskem’s Global Compliance System Policy and Braskem Idesa’s governance guidelines, approved the hiring of an accident, natural disaster, fire or otherwise; or
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We rely on limited or sole-source suppliers for our raw materials.materials, inputs and energy, including transportation thereof.
We rely on Petrobras for most or all of our supply of naphtha, ethane, propane, light refinery off gashydrocarbon and propylene in Brazil, a few companies for a large portion of our supply of propylene in our USAUnited States and Europe Unit,Segment, and Pemex TRI for most of our supply of ethane in Mexico. AsIn Mexico, Cenagas (Centro Nacional de Control del Gas Natural), which is a result,state-owned agency, is the sole provider of gas transportation services. We rely on Cenagas for the transportation of natural gas to our Mexico Complex. For naphtha supply to Brazil we rely on several international suppliers for most of the purchases to the crackers in the states of Bahia and Rio Grande do Sul, and we rely on Petrobras for the most of the supply only to the cracker located in the state of São Paulo and we rely on Petrobras for the major part of our supply of ethane and propane in the state of Rio de Janeiro. Also, we are subject to substantial risks because of our reliance on these and other limited or sole-source suppliers of raw materials, additives, catalyzers, other inputs, energy and other utilities, including the following risks:
· | if a supplier does not provide naphtha, ethane, propane, light refinery hydrocarbon, propylene, sea salt, other inputs (including natural gas) or energy, as the case may be, that meet our or their specifications in sufficient quantities and with acceptable performance or quality on time or deliver when required, then sales, production, delivery of our products to our customers on a timely manner and revenue from our plants could be adversely affected; |
· | if our relationship with a key supplier changes or is adversely affected, for example, due to competitive pressures (or conflicting interests), we may be unable to obtain naphtha, ethane, propane or propylene, natural gas or other inputs, as the case may be, on satisfactory financial terms; |
· | if an interruption of supply of naphtha, ethane, propane, light refinery hydrocarbon, propylene, sea salt, other inputs (including natural gas) or energy, as the case may be, occurs because a supplier changes its technology roadmap, suffers damage to its manufacturing facilities, decides to no longer provide those products or services, increases the price of those products or services significantly or imposes reduced delivery allocations on its customers, it could take us a considerable period of time to identify and qualify alternative suppliers; |
· | some of our key suppliers are small companies with limited financial and other resources, and as a result, they may be more likely to experience financial and operational difficulties than larger, well-established companies, which increases the risk that they will be unable to deliver products as needed; |
· | some of our suppliers are state-owned enterprises subject to political interference, including in Mexico; and |
· | if a key supplier is acquired or has a significant change in business, the production and sales of our systems and services may be delayed or adversely affected, or our development programs may be delayed or may be impossible to complete. |
Delays in the availability of naphtha, ethane, propane, light refinery off gashydrocarbon, propylene, sea salt, other inputs (including natural gas) or propyleneenergy of acceptable quality, or our inability to obtain such acceptable naphtha, ethane, propane, light refinery hydrocarbon, propylene, sea salt, other inputs (including natural gas) or propyleneenergy in the quantities we need or at all, may adversely affect our revenue and results of operations.
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Our Polyolefins Unit and Vinyls Unit dependBrazil Segment depends on our basic petrochemicals plantschemicals operations to supply them with their ethylene and propylene requirements. In addition, our Brazil Segment depends on certain providers of environmental services for the treatment of effluents, industrial waste and water supply for industrial use.
Our Basic Petrochemicals Unit ischemicals operations, which form a part of our Brazil Segment, are the only supplier of ethylene to our Vinyls Unit,vinyls operations, the only supplier of ethylene to the polyethylene plants and the principal supplier of propylene to the polypropylene plants of our Polyolefins Unit. Becausepolyolefins operations. Additionally, as the cost of storing and transporting ethylene and its derivatives, including butadiene, is substantialsignificant and there is inadequateno adequate infrastructure in Brazil to permitthat allows for the importingstorage of large quantitiesvolumes, a relevant reduction in sales of ethylenethese products may impact the rate of use of the chemical operation, impacting product availability for the polyolefins and propylene, our Polyolefins Unitvinyls operations in BrazilBrazil.
Our polyolefins and our Vinyls Unitvinyls operations in Brazil are highly dependent on the supply of these products by our basic petrochemicals plants.chemicals operations. Consequently, our production volumes of, and net sales revenue from, polyolefins and vinyls productsoperations would decrease, and our overall financial performance would be negatively affected, in the event of the following:
· | any significant damage to the facilities of our chemicals operations through which ethylene or propylene is produced, or to the pipeline or other facilities that connect our polyolefins plants or vinyls plants to our chemicals operations, whether as a consequence of an accident, natural disaster, fire or otherwise; |
· | any significant reduction in the supply of naphtha to our chemicals operations, as naphtha is the principal raw material used by our chemicals operations in the production of ethylene and propylene; or |
· | any significant reduction in the supply of ethane or propane to our basic petrochemical plant in Rio de Janeiro, as ethane and propane are the principal raw materials used in the production of ethylene and propylene by our petrochemical complex located in the Rio de Janeiro Complex. |
Our Brazil Segment depends on Cetrel S.A. (“Cetrel”), Água de Camaçari (“DAC”), both of which are our subsidiaries, Distribuidora de Água Triunfo (“DAT”), Companhia Riograndense de Saneamento (“CORSAN”), Aquapolo Ambiental S.A (“Aquapolo”), Refinaria de Paulínia (“REPLAN”) and Refinaria Duque de Caixas (“REDUC”) for the services such as: (i) treatment of effluents and industrial waste; (ii) supply of reuse water; (iii) supply of demineralized, clarified and potable water; and (iv) management of water reservoirs. An interruption in the operations of Cetrel, DAC, DAT, CORSAN, Aquapolo, REPLAN or propyleneREDUC may result in the shutdown of all of our plants at the Northeastern Complex, Southern Complex, São Paulo Complex, Paulinia plants and Rio de Janeiro Complex, in addition to increased environmental risks. If such a shutdown were to happen, our production volumes and net revenue from sales from our plants referred to above would decrease, and our financial performance and results of operations would be adversely affected.
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We may be materially adversely affected if there is produced,an imbalance in global logistics, which may cause disruptions to our transport, storage and distribution operations, negatively impacting the costs related thereto.
Our operations are dependent upon uninterrupted transportation, storage and distribution of our products. Transportation, storage or distribution of our products could be partially or completely, temporarily or permanently shut down as the result of any number of circumstances that are not within our control, such as:
· | catastrophic events; |
· | strikes or other labor difficulties; |
· | disruption in the global supply chain, including container shortages; |
· | war and other armed conflicts, such as the conflict involving Russia and Ukraine; and |
· | other disruptions in means of transportation. |
For example, in May 2018, Brazil experienced a national truck drivers’ strike that severely impacted the logistics operations of many companies throughout Brazil, including the delivery of our raw materials, our products, and other goods. In response to such strike, we gradually reduced the utilization rate of our petrochemical complexes in Brazil, which operated at 50% of their nominal capacity in May 2018. We cannot assure, however, that we will be able to act in the same way in potential new strikes that may arise in the future. Following the strike, Brazil introduced a national freight cost schedule that set forth minimum prices for freight services provided by truck drivers and freight companies countrywide, which may have a lasting impact on freight prices in Brazil and lead to sustained increased transportation costs in the future in connection with our operations.
Any significant interruption at our distribution facilities, an inability to transport our products to or from these facilities, or to or from our domestic or foreign customers or suppliers, or an increase in transportation costs, for any reason, would materially adversely affect us.
In addition, as from January 2020, the pipeline or other facilities that connectInternational Maritime Organization (IMO) set a limit for sulphur in fuel oil used onboard ships of 0.50% m/m (mass by mass), aimed at significantly reducing the amount of sulphur oxide emissions by ships, down from the previous 3.50% m/m (mass by mass), which could increase our polyolefins plants or vinyls plants to our basic petrochemicals plants, whethershipping costs and, as a consequence, decrease our gross margin.
We rely on access to third-party licensed technology and related intellectual property, and if such rights cease to be available to us on commercially reasonable terms, or at all, or if any such third party ceases to provide us with technical support under license or technical services agreements, certain of our production facilities, our operating results and financial condition could be adversely affected.
We use technology and intellectual property licensed from third parties in the regular operation of our business, particularly in the operation of certain machinery and equipment required for the production of certain of our products such as our first and second generation products, and we may continue to rely on access to third-party technology and intellectual property in the future.
There can be no assurance that we will be able to continue to obtain or renew any such necessary technology and licenses on acceptable terms, or at all. Failure to obtain or renew the right to use third-party technology or intellectual property on commercially reasonable terms, or to maintain access to satisfactory technical support, could ultimately lead to stoppages in our production processes and preclude us from selling certain products, which could have a material adverse impact on our operating results and financing condition.
Additionally, our inability to maintain existing access to third-party technology, licenses and technical support on commercially reasonable terms, or at all, or to obtain additional technology, licenses or technical support necessary to manufacture current products or develop new ones, could require us to obtain substitute technology or licenses at a greater cost or of lower quality or performance standards, or require us to carry out unscheduled interruptions of our production facilities. There can be no assurance that we will be able to replace any such third-party technology, intellectual property or technical support service for any adequate substitute technology, intellectual property or technical support in a timely manner to avoid any unscheduled interruption of our production processes or facilities, or in a cost-efficient manner. Any of these circumstances could harm our business, financial condition and results of operations.
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Capital projects can take many years to complete, and market conditions could deteriorate significantly between the project approval date and the project startup date, negatively impacting project returns. If we are unable to complete projects and investments at their expected cost and in a timely manner, or if the market conditions assumed as a basis for our project economics deteriorate, our business, financial condition, results of operations and cash flows could be materially and adversely affected.
Delays or cost increases related to investment programs involving engineering, procurement and construction of facilities could materially adversely affect our ability to achieve forecasted rates of return and results of operations and financial position. Delays due to required changes or upgrades to our facilities could subject us to fines or penalties as well as affect our ability to contract with our customers and supply certain products we produce.
Such delays or cost increases may arise as a result of unpredictable factors, many of which are beyond our control, including, but not limited to:
· | denial of or delay in receiving requisite regulatory approvals or permits; |
· | unplanned increases in the cost of construction materials or labor; |
· | disruptions in transportation of gear or construction materials; |
· | change in the market conditions assumed as a basis for our project economics; |
· | adverse weather conditions, natural disasters, epidemics, pandemics or other events (such as equipment malfunctions, explosions, fires or spills) affecting our facilities, or those of vendors or suppliers, shortages of sufficiently skilled labor, or labor disagreements resulting in unplanned work stoppages; and |
· | non-performance by, or disputes with, vendors, suppliers (including those responsible for transportation of supplies), contractors or subcontractors. Any one or more of these factors could have a significant impact on our ongoing projects. |
If we are unable to make up the delays associated with such factors or to recover the related costs, or if market conditions change, it could materially and adversely affect our business, financial condition, results of operations and cash flows.
Our insurance coverage may be ineffective, either due to the lack of coverage for any claim, or due to insufficient coverage limits in the event of damage.
We maintain property, business interruption, general liability, environmental, construction, marine, credit and other types of insurance that we believe are appropriate for our business and operations as well as in line with industry practices. However, we are not fully insured against all potential hazards and incidents inherent in our business, including losses resulting from natural disasters, wars or terrorist acts in Brazil. Changes in insurance market conditions have caused, and may in the future cause, premiums and deductibles for certain insurance policies to increase substantially and, in some instances, for certain insurance to become unavailable or available only for reduced amounts of coverage. If we were to incur a significant liability for which we were not fully insured, we might not be able to finance the amount of the uninsured liability on terms acceptable to us or at all, and might be obligated to divert a significant portion of our cash flow from normal business operations. Also, in the event of an accident, natural disaster, fire or otherwise;we are required to undergo a regulatory assessment through which the insurance coverage needs to be confirmed. If coverage is not confirmed, there will be no indemnity to be paid.
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Our level of indebtedness could adversely affect our ability to raise additional capital to fund our operations, limit the ability to react to changes in the supplyeconomy or our industry and prevent us from meeting our obligations under our financing agreements.
Our level of naphthaindebtedness and our leverage, together with changes to our Basic Petrochemicals Unit, as naphtha isratings and those of our debt securities by the principal rawmain credit rating agencies, could have certain material used byconsequences to us, including the following:
· | limit our ability to obtain additional financing for working capital, additions to fixed assets, product development, debt service requirements, acquisitions and general corporate or other purposes; |
· | limit our ability to pay dividends; |
· | a portion of our cash flows from operations must be set aside for the payment of interest on existing indebtedness and is therefore not available for other purposes, including for operations, additions to fixed assets and future business and investments opportunities; |
· | limit our ability to adjust to changing market conditions and place us at a competitive disadvantage compared to our competitors that have less debt; |
· | we may become vulnerable in a downturn in general economic conditions; and |
· | we may be required to adjust the level of funds available for additions to fixed assets. |
As a result of the factors listed above, our Basic Petrochemicals Unit in the productionfinancial condition and results of ethylene and propylene; or
See also “—We manufacture products that are subject to risk of fire, explosions and other hazards” below.
Any downgrade in the ratings of Brazil, our companyCompany or our debt securities would likely result in increased interest and other financial expenses related to our borrowings and debt securities and could reduce our liquidity.
Currently, Standard & Poor’s Ratings Group, a division of McGraw Hill, Inc., or Standard & Poor’s, and Fitch Ratings Ltd., or Fitch, maintain ratings of our companyratings on a global and national basis. Moody’s Investors Service, Inc., or Moody’s, only maintains ratings of our companyratings on a global basis. On a global basis, we maintain an investment grade ratingratings at: (i) Standard & Poor’s ofBBB- with negative outlook;a stable outlook (ii) Fitch Ratings ofBBB- with a stable outlook;outlook and (iii) Moody’s of Ba1 with a stable outlook, the latter beingoutlook. Our ratings are higher than the Brazilian sovereign rating.rating by all these three main rating agencies. On a national basis, we maintain investment grade rating at: (i) Standard & Poor’s as of brAAA with negativea stable outlook and (ii) Fitch Ratings of AAA+AAA with a stable outlook.
Our credit rating is sensitive to any change in the Brazilian sovereign credit rating. The credit rating of the Brazilian federal government has beenwas downgraded in 2015January 2018.
In 2020, the COVID-19 pandemic significantly impacted economic activity and 2016markets around the world, and is no longer investment grade. its severity, magnitude and duration are highly uncertain, rapidly changing and difficult to predict. Actual and potential impacts of the COVID-19 pandemic on the global economy, the economies of certain countries and certain companies has led ratings agencies to review and downgrade the credit ratings of sovereigns and issuers of securities around the world. In May 2020, Fitch Ratings revised the outlook of the Brazilian sovereign credit rating to negative from stable. In November 2020, Fitch Ratings affirmed the negative outlook and later in December 2021, Fitch Ratings reaffirmed Brazil’s rating of BB- maintaining the same outlook.
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Any decision by these rating agencies to downgrade the Brazilian sovereign credit rating, our ratings of our company orand the ratings of our debt securities in the future would likely result in increasedhigher interest rates and other financial expenses relatingrelated to our borrowingsthe loans and debt securities, and the inclusion of financial covenants in the instruments governingagreements regulating such new indebtedness, and coulddebts, which may significantly reduce our ability to obtain such financing, onraise funds under satisfactory termsconditions or in the amounts required by us, andnecessary to ensure our liquidity, and would requireas well as force us to postissue cash collateral pursuant toas a result of our obligationscovenants, or to contract letters of credit to backstop guarantees providedback collaterals given by usus.
We may be subject to attempts to acquire our control, which may lead to significant changes in management, the strategies that we are currently pursuing, or in our current corporate governance practices.
We may be subject to attempts to acquire our control. In the event there is a change in our corporate control, there might be significant changes in management, the strategies that we are currently pursuing, or in our current corporate governance practices.
For example, in June 2018, we were informed by Novonor S.A. – Em Recuperação Judicial, or Novonor, formerly called Odebrecht S.A., about discussions that were being held between Novonor and LyondellBasell Industries N.V., or LyondellBasell, regarding a potential transaction involving the transfer to LyondellBasell of all of Novonor’s interest in us. In June 2019, we were informed by Novonor that such discussions for a change of control transaction with LyondellBasell had been terminated. We cannot assure you that such negotiations will not be resumed, or that Novonor will not initiate discussions with other parties regarding a change of control transaction in the contextfuture.
On August 7, 2020, we received a correspondence from our controlling shareholder, Novonor, informing that, in order to fulfill certain commitments assumed with bankruptcy and non-bankruptcy creditors (credores concursais e extraconcursais), it had taken preliminary measures to structure a process for the private sale of up to its total equity ownership in our company, which, if implemented, will result in the change of our corporate control, adopting the necessary measures to organize such process, with the support of legal and financial advisors.
On December 15, 2021, we received a letter sent jointly by our shareholders Novonor and Petróleo Brasileiro S.A. regarding the progress of discussions for the potential sale of their equity interests in us. In such communication, Novonor and Petrobras disclosed that they agreed to seek the adoption of the Mexican Project.necessary measures: (i) for the sale, through a secondary public offering, of up to all our class A preferred shares held directly or indirectly by them; (ii) to enable Braskem’s migration to the Novo Mercado listing segment of the B3, including in relation to necessary changes to Braskem’s corporate governance, which shall be subject to applicable approvals at the appropriate time and negotiation of a new shareholders’ agreement to conform their rights and obligations to such amended governance structure; and (iii) after the conclusion of Braskem’s potential migration to the Novo Mercado listing segment, carry out the sale of the remaining common shares held directly or indirectly by them and issued by us. The effective implementation of the commitments assumed by Novonor and Petrobras is subject, among other factors, to relevant approvals and market conditions. We are unable to predict the result of the implementation of the commitments assumed, as well as their possible impacts. On January 28, 2022, we received a communication sent jointly by our shareholders Novonor and Petróleo Brasileiro S.A. whereby they decided to temporarily cancel the shares offering due to volatility conditions in the financial and capital markets. Also, Novonor and Petrobras ratified their interest in resuming the equity offering in the future, at a time when a more favorable economic situation with less volatility is verified, and the term sheet entered into between the parties remains in force and the commitment of both to dispose of their respective equity interests in the Company through a secondary public offering(s), in addition to taking all necessary measures to enable the Company to migrate to the Novo Mercado segment of B3, including the necessary amendments to its governance, as the studies in this regard that are being carried out by the Company and referred to in the material fact disclosed on Form 6-K on December 16, 2021 are concluded and to the extent that market conditions are favorable.
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In addition, although we are not currently a party to any pending bankruptcy or other judicial restructuring proceedings in Brazil or elsewhere, we are exposed to certain risks related to the Novonor Judicial Restructuring Proceedings (for more information about Novonor’s judicial restructuring proceedings, see “—Some of our shareholders may have the ability to determine the outcome of corporate actions or decisions, which could affect the holders of our class A preferred shares and the ADSs”), including risks related to the change of our corporate control resulting from decisions taken or agreed under such proceedings and the consequences derived therefrom. We have no control over the Novonor Judicial Restructuring Proceedings, and no assurance can be given on the outcome of the Novonor Judicial Restructuring Proceedings or their effect on us.
Additionally, all common and preferred shares issued by Braskem and held by NSP Investimentos S.A., or NSP Inv. were pledged with fiduciary assignment (alienação fiduciária) as a collateral given under certain financing agreements entered into by Novonor and certain of its subsidiaries with specific non-bankruptcy creditors (credores extraconcursais). It is possible that, under certain circumstances, the pledge over such shares may be enforced, with the consequent sale of the shares, which could result in a change of Braskem's control and other consequences arising therefrom.
Some of our shareholders may have the ability to determine the outcome of corporate actions or decisions, which could affect the holders of our class A preferred shares and the ADSs.
OdebrechtNovonor S.A. (Novonor), or Odebrecht, directly or through its wholly-owned subsidiary Odebrecht Serviços e Participações S.A.NSP Inv., or OSP, owns 38.3%38.32 % of our outstandingtotal share capital, including 50.1%50.11% of our voting share capital, and Petrobras holds 36.1%36.15% of our outstandingtotal share capital, including 47.0%47.03% of our voting share capital. NominessNominees of OdebrechtNovonor constitute a majority of the members of our board of directors. Under a shareholders’ agreement to which OSPNovonor and Petrobras are parties, which we refer to as the Braskem S.A. Shareholders’ Agreement, weall matters that may only undertake certain actions after Odebrechtbe resolved at a shareholder’s meeting or by our board of directors shall be decided by consensus among Novonor and Petrobras have reached a consensus with respect to those actions. However, Odebrecht will have the sole power to approve the(except for our business plan, of our company, throughwhich is approved separately by the board of directors appointed by Novonor, as described under “Item 7. Major Shareholders and Related Party Transactions—Major Shareholders—Shareholders’ Agreements.” AsAgreements”), taking into account our best interest. Furthermore, the shareholders’ agreement provides for the possibility (and not the obligation), if deemed necessary, to hold prior meetings, as a result, Odebrecht has the abilitylegitimate mechanism for alignment between Novonor and Petrobras, with a view to determine the outcome of most corporate actions orensuring consistency and uniformity in their decisions, requiring the approval of our shareholders or our board of directors—in certain instances, with the consent of Petrobras—which could affect the holders of our class A preferred sharesPreferred Shares and the American Depositary Shares, or ADSs.
Furthermore, on June 17, 2019, Novonor, together with certain of its controlling and controlled entities, filed a petition for judicial restructuring before the First Judicial Bankruptcy Court of the State of São Paulo, Brazil, seeking a judicial restructuring and emergency relief staying certain foreclosure actions by their secured creditors, or the Novonor Judicial Restructuring Proceedings. The Novonor Judicial Restructuring Proceedings does not include us.
We are exposed to certain risks related to the Novonor Judicial Restructuring Proceedings, such as risks related to the change of our corporate control resulting from decisions taken and/or agreed in the context of such proceedings and the consequences derived thereto, including but not limited to significant changes in our management and our strategy that may be undertaken by any new controlling shareholders that may arise from the conclusion of these proceedings. We have no control over the Novonor Judicial Restructuring Proceedings, and no assurance can be given on the outcome of the Novonor Judicial Restructuring Proceedings or their effect on us.
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We may face conflicts of interest in transactions with related parties.
We maintain trade accounts receivable and current and long-term payables with some of our affiliates and other related parties, including Petrobras, which is our domesticBrazilian supplier of naphtha and other raw materials such as propylene, ethane, propane and light refinery off gas, and Odebrecht Agroindustrial, which is one of our suppliers of ethanol.hydrocarbon. These trade accounts receivable and trade accounts payable balances result mainly from purchases and sales of goods, which are at prices andmade based on terms equivalent to the average terms and prices of transactions that we enter into with third parties.international price references. These and other transactions between us and our affiliates couldrelated parties can result in conflicting interests, between our company and our shareholders.
We may make significant acquisitions which if not successfully integrated with our company, may adversely affect our results of operations.operations and financial condition.
We may pursue strategic acquisitions or investments. The failure of an acquisition or investment to produce the anticipated results, or the inability to integrate an acquired company fully, could adversely affect our business.
We may from time to time acquire or invest in complementary companies or businesses. The success of an acquisition or investment will depend on our ability to make significantaccurate assumptions regarding the valuation, operations, growth potential, integration, international market and other factors related to that business. We cannot assure you that our acquisitions or investments will produce the results that we expect at the time we enter into or complete a given transaction. Furthermore, acquisitions may result in difficulties integrating the acquired companies, and may result in the diversion of our management’s attention from other business issues and opportunities. We may not be able to integrate successfully the operations that we acquire, including their personnel, financial systems, distribution or operating procedures. If we fail to integrate acquisitions successfully, our business could suffer. In addition, the expense of integrating any acquired business and their results of operations may adversely affect our operating results.
Certain acquisitions, partnerships and joint ventures we make may prevent us from competing for certain clients or in certain lines of business, and may lead to a loss of clients. We may spend time and money on projects that do not increase our revenue. To the extent we pay the purchase price of any acquisition in cash, it would reduce our cash reserves, and to the extent the purchase price is paid with any of our shares, it could be dilutive to our shareholders. To the extent, we pay the purchase price with proceeds from the incurrence of debt, it would increase our level of indebtedness and could negatively affect our liquidity and restrict our operations. Our competitors may be willing or able to pay more than us for acquisitions, which may involve risks, including the following:cause us to lose certain acquisitions that we would otherwise desire to complete. We cannot ensure that any acquisition, partnership or joint venture we make will not have a material adverse effect on our business, financial condition and results of operations.
concluding any asset divestment plan. If we are unablefail to integrate or manage acquired businesses successfully, we may not realize anticipated cost savings, revenue growthimplement an asset divestment plan, it could adversely affect our financial condition and levelsresults of integration, which may result in reduced profitability or operating losses.operations.
We may face unforeseen challenges in the operation of our Mexico Complex, which could result in this business unit failing to provide expected benefits to our company.us.
During the first half of 2016, we concluded the construction phase of an olefins complex, or the Mexico Complex, located in the Mexican state of Veracruz. For more information about this, which we refer to as the Mexico Complex, see “Item 5. Operating and Financial Review and Prospects—Capital Expenditures—Joint Venture—Mexico Complex.”
Braskem Idesa S.A.P.I., or Braskem Idesa, our joint venture with Grupo Idesa, S.A. de C.V., or Idesa, toTo develop our Mexico Complex, requiredBraskem Idesa disbursed significant capital expenditure.and incurred significant debt. Our ability to achieve the strategic objectives of this business unit will depend largely on its successful operation. Factors that could affect the operation of this business unit include:
· | general economic, political and business conditions in Mexico; |
· | global demand for, and supply balance of, PE; |
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· | the occurrence of unforeseen technical and mechanical difficulties that may interrupt production or lead to unexpected downtime of the Mexico Complex’s plants; |
· | any material default by Pemex TRI under the ethane supply agreement (see “Item 3. Key Information—Risks Relating to Us and the Petrochemical Industry—We depend on ethane supplied by Pemex TRI in Mexico”); |
· | any termination, cancelation or modification of the ethane supply agreement for any other reason (see “Item 3. Key Information—Risks Relating to Us and the Petrochemical Industry—We depend on ethane supplied by Pemex TRI in Mexico”); |
· | the failure by Cenagas to renew the agreement for transportation of natural gas to our Ethylene XXI Project (see “Item 3. Key Information—Risks Relating to Us and the Petrochemical Industry—We depend on natural gas transportation service by Cenagas”); |
· | the ability of Braskem Idesa to service its debt; |
· | an unstable and non-continuous supply (including the transportation of supplies) of ethane, natural gas and other inputs, including energy and water (see “Item 3. Key Information—Risks Relating to Us and the Petrochemical Industry—We depend on ethane supplied by Pemex TRI in Mexico”); and |
· | increased competition from domestic or foreign competitors and/or the emergence of new domestic or foreign competitors. |
In the first quarter of 2021, Braskem Idesa entered into the following agreements under a strict reservation of all of its rights: (i) a memorandum of understanding with Pemex TRI setting out certain understandings regarding potential amendments to the ethane supply agreement and the development of an ethane import terminal, subject to further negotiation, a definitive agreement and approval by Braskem Idesa’s shareholders and creditors; and (ii) a natural gas transport service agreement with Cenagas for a term of 15 years, which was conditioned upon the execution of the definitive agreement referenced in item (i) above. Following the execution of these agreements by Braskem Idesa, it is stillresumed receiving natural gas transportation services from Cenagas, which had been unilaterally terminated by Cenagas in December 2020.
On September 27, 2021, Braskem Idesa signed the following documents: (i) an amendment to the ethane supply contract with Pemex revising certain of its terms; and (ii) an agreement with Pemex and other government entities that establishes support measures for the project to build an ethane import terminal, with the capacity to meet all of Braskem Idesa’s raw material needs. In October, Braskem Idesa obtained the applicable corporate approvals, including the final approval of its shareholders and creditors regarding the executed agreements, resulting in theramp-up phase; entry into force of the agreements describe above.
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We cannot assure you that the Mexico Complex will provide the expected benefits to us.us, even after having completed five calendar year of operations. Any significant interruption could hinder or prevent the implementation of our business plan as originally conceived, and result in revenuesrevenue and net income below what is expected. Further, any material adverse effect on the financial condition or results of operations of the Mexican complex may adversely impact our own financial condition and results of operations. See also “—We depend on ethane supplied by Pemex TRI in Mexico.”
Adjustments in tariffs on imports that compete with our products could cause us to lower our prices.
WeThe first, second and third generation of petrochemical products currently benefit fromrely on imports tariffs imposed by the Brazilian government on imports that allow usMercosur member states to charge prices for our polyolefin and vinyl productsbalance competition in the Mercosur domestic market that include a factor based on the tariffs levied on comparable imports of those products.market. However, the Brazilian government has in the past used import and export tariffs to effectimplement economic policies, with the consequence that tariffs can vary.resulting in varying tariff levels. For example, in September 2012,November 2021, the Brazilian government increased import duties on 100 products related to various industries, including an increase onenacted Resolution GECEX No. 269 providing for temporary reduction in Brazil by 10% of the import tarifftax rates set forth in Resolution No. 125 of the Foreign Trade Chamber, of December 15, 2016. As a result, the current rates for polyethylene. In October 2012, it increased the import tariff for polyethylenePP, PE and PVC resins were lowered from 14% to 20%12.6%. The new rates came into force on November 12, 2021 and in October 2013, it reduced the import tariff for polyethylene to the previous level of 14%. shall be effective, initially, until December 31, 2022.
Adjustments of tariffs could lead to increased competition from imports and cause us to lower our domestic prices and impact the demand for our products, which would likely result in lower net sales revenue and could negatively affect our overall financial performance. Additionally, the products we export to the United States and Europe are subject to tariffs in the amount of 6.5% in each jurisdiction, subject to certain preferences. These tariffs generally favorbalance the level of competition of our products produced locally and any future adjustments to these tariff structures could negatively impact our sales in these jurisdictions. Future trade agreements entered into by Brazil, the Mercosur, the United States or the European Union could also lead to increased competition from imports and lower domestic prices.
Changes in U.S. and global trade policies and other factors beyond our control may adversely impact our business, financial condition and results of operations.
The international environment in which we operate is affected from inter-country trade agreements and tariffs. As a result of recent revisions in the U.S. administrative policy, there are, and there may be additional changes to existing trade agreements, greater restrictions on free trade and significant increases in tariffs on goods imported into the United States, particularly those manufactured in China, Mexico and Canada. Future actions of the U.S. administration and that of foreign governments, including China, with respect to tariffs or international trade agreements and policies remains currently unclear.
The escalation of a trade war, tariffs, retaliatory tariffs or other trade restrictions on products and materials either exported by us to China or raw materials imported by us from China, or other countries, may significantly hinder our ability to provide our products to customers in China or other affected locations. Such developments may result in a decrease in demand for our products as well as delays in payments from our customers. Furthermore, other governmental action related to tariffs or international trade agreements, changes in U.S. social, political, regulatory and economic conditions, or in laws and policies governing foreign trade, manufacturing, development and investment in the territories and countries where our customers are located, could lead to a rebalancing of global export flows and an increase in global competition, which in turn could adversely affect our business, financial condition, results of operations and cash flows.
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A failure to comply with export control or economic sanctions laws and regulations could have a material adverse impact on our results of operations, financial condition and reputation.
We operate on a global basis and face risks related to compliance with export control and economic sanctions laws and regulations, including those administered by the United Nations, the European Union and the United States, including the U.S. Treasury Department’s Office of Foreign Assets Control. Economic sanctions programs restrict our dealings with certain sanctioned countries, territories, individuals and entities. Economic sanctions are complex, frequently changing, and often increase in number, and may impose incremental prohibitions, fines, restrictions on dealings with additional countries, territories, individuals or entities or compliance obligations on our dealings in certain countries and territories. We have conducted, and may in the future seek to conduct, business in certain countries that are subject to sanctions under the laws of the United States, the European Union, or other countries. Although we have pursued these transactions, and intend to pursue any future transactions, in full compliance with applicable laws and regulations, we may not be successful in ensuring compliance with limitations or restrictions on business with companies in any such countries. Additionally, Russia’s annexation of Crimea, recent recognition of two separatist republics in the Donetsk and Luhansk regions of Ukraine and subsequent military interventions in Ukraine have led to sanctions and other penalties being levied by the United States, European Union and other countries against Russia, Belarus, the Crimea Region of Ukraine, the so-called Donetsk People’s Republic, and the so-called Luhansk People’s Republic, including the agreement to remove certain Russian financial institutions from the Society for Worldwide Interbank Financial Telecommunication, or SWIFT, payment system. Additional potential sanctions and penalties have also been proposed and/or threatened and the United States and other countries could impose wider sanctions and take other actions should the conflict further escalate. If we are found to be in violation of applicable sanctions laws or regulations, we may face criminal or civil fines or other penalties, we may suffer reputational harm and our results of operations and financial condition may be adversely affected. Additionally, there can be no assurance that our employees, directors, officers, partners or any third parties that we do business with, including, among others, any distributors or suppliers, will not violate sanctions laws and regulations. We may ultimately be held responsible for any such violation of sanctions laws and regulations by these persons, which could result in criminal or civil fines or other penalties, have a material adverse impact on our results of operations and financial condition and damage our reputation.
We may not be able to specify in details technical specifications required by our customers’ or updated mechanisms to promptly attend regulatory requirements, and we could be subject to damages based on claims brought against us or our customers as a result of the failure of our products specification.
Our products specification may not meet certain technical or regulatory requirements, specifications or standards. In addition, our customers may impose stricter requirements on our products or governments may enact stricter regulations for the distribution, sale or use of our products. Failure to meet such standards could materially adversely affect our business, financial condition and results of operations if we are unable to sell our products in one or more markets or to important customers in such markets.
As with all quality control systems, any failure or deterioration of our quality control systems could result in defects in our products, which in turn may subject us to contractual, regulatory, product liability and other claims, which could have a material adverse effect on our reputation, business, financial condition and results of operations.
We may not be able to obtain or renew all licenses, permits and authorizations necessary for conducting our business.
We are subject to a wide variety of federal, state and municipal laws, regulations and licensing requirements, and depend on obtaining licenses, permits and authorizations to carry out our activities.
We cannot guarantee that we will be able to maintain, renew or obtain any new authorization, license, grant, or permit, in a timely manner, or that any additional requirements will not be imposed in connection with such renewal order.
Failure to obtain or maintain the permits, authorizations and licenses necessary for our operations, or failure to obtain or timely maintain them, may result in fines, loss or early termination of permits, authorizations and/or licenses, as well as closing of facilities, or breach of financing and commercial contracts, which could have a material adverse effect on our results of operations and financial condition.
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Our business isand operations are inherently subject to environmental, health and safety risks. As a result, our business is also subject to several stringent regulations, including environmental regulations.
As a company operating in the petrochemical industry, our operations, operated by us or third parties, involve the generation, use, handling, storage, transportation (mainly by pipeline, road, train, fluvial and maritime), treatment, discharge and disposal of hazardous substances and waste into the environment. Notwithstanding our environmental, health and safety standards, policies and controls, our operations remain subject to incidents or accidents that could adversely affect our business or reputation. Our industry is generally subject to significant risks and hazards, including fire, explosions, toxic gas leaks, contamination of soil and water, spilling of polluting substances or other hazardous materials, smoke or odor emission, failure of operational structures and incidents involving mobile equipment, vehicles or machinery, associated or not with the manufacture of petrochemicals and the storage and transportation of feedstock and petrochemical products. These events may occur due to technical failures, human errors or natural events, among other factors, and could result in significant environmental and social impacts, damage to or destruction of production facilities and communities, personal injury, illness or death of employees, contractors or community members close to our operations or close to our logistic routes, terminals and pipelines, environmental damage, delays in production, and, in certain circumstances, liability in civil, labor, criminal and administrative lawsuits, difficulties in obtaining or maintaining operating permits and environmental licenses, and impacts on our reputation, among other consequences.
In addition, our operations, operated by us or third parties, could generate impacts to the communities, from our regular operations, as well as in the management of the existing environmental liabilities, which may result in environmental, material and human damages, fines and sanctions, including loss of operating license, in addition to damage to our image and reputation.
For example, over 30 years ago, a leak of chemical products occurred from a tank installed on a property owned by the company Companhia Carbonos Coloidais (“CCC”), located in Madre de Deus, in the State of Bahia. These products were property of the company Tecnor Tecnolumen Química do Nordeste Ltda. (“Tecnor”) and may have been acquired by domestic producers at the time, including by Companhia Petroquímica de Camaçari, a company that subsequently was merged into Braskem. Both CCC and Tecnor are companies that have never had any corporate relations with Braskem and no longer have any operating activities.
Given our experience in the chemical and petrochemical industry and related products, the authorities requested Braskem's collaboration for analysis, studies and environmental remediation, with monitoring by local authorities, which has been occurring since 2003. Following the agreement between the City of Madre de Deus, the Public Ministry of the State of Bahia and the “CCC” in 2015, by means of an Amendment to this Term of Commitment, Braskem is supporting the implementation of a vacancy program of an area near to the “CCC” property, declared as public utility by the City Hall in February of 2021. The vacancy of about 197 properties is necessary for the safe continuity of the remediation. As of December 31, 2021, we provisioned R$60.7 million for the program implementation.
Changes to applicable laws may impose changes on standards we have already implemented, which can take time to review and update. For example, we have concluded or are currently concluding studies related to dams located at certain of our industrial sites as a result of a change in Brazilian law that now requires that all water and waste dams have a safety plan for these structures. The detailed assessments of our dams indicated some risks with regard to two structures located in Triunfo, in the State of Rio Grande do Sul. Environmental studies that we have commissioned have indicated instances of environmental contamination at certain of our plants. If the laws and regulations applicable to risks and safety plans change, we may be required to revise the studies that we have carried out, or take further action to rectify potential issues that would not need to be addressed under current laws and regulations. In addition, we and certain of our executive officers have received certain notices related to minor environmental violations and are or have been subject to investigations or legal proceedings with respect to certain alleged environmental violations. These environmental issues, and any future environmental issues that may arise, could subject us to fines or other civil or criminal penalties imposed by Brazilian authorities.
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Also, under Brazilian federal and state environmental laws and regulations, we are required to obtain operating licenses and permits for our manufacturing facilities. If any of our environmental licenses or permits lapse or are not renewed or if we fail to obtain any required environmental licenses or permits or does not to meet the conditions established in the licenses or environmental permits, we may be subject to fines ranging from R$500 to R$50 million, and the Brazilian government may reverse mentioned licenses or permits, partially or totally suspend our activities and impose other civil and criminal sanctions on us, including our managers.
Pursuant to Brazilian environmental legislation and regulations, our corporate veil may be pierced to ensure that sufficient financial resources are available to parties seeking compensation for damage caused to the environment. In this sense, officers, shareholders and/or business partners or affiliates may, together with the polluting company, be held liable for damage to the environment.
In addition, our production and logistics processes are subject to inherent safety risks, which may lead to injuries, disability or death of our employees or individuals participating in such processes and communities, as well negatively impact the environment. Such risks cannot be entirely eliminated or mitigated even with full compliance with all safety measures applicable to us or required by laws or regulations. We may face a negative impact on our image and reputation, and on our business, financial condition and results of operations.
Until May 2019, we operated rock salt extraction wells located in Maceió, in the state of Alagoas. The operation was permanently interrupted due to the indication that it would have contributed to the occurrence of relevant subsidence in the region of four districts, with the occurrence of damage to properties and public roads located in the region. Several individual and collective lawsuits were filed in the state of Alagoas in relation to this geological event.
We have been taking the necessary actions for closing and monitoring the salt wells, environmental actions and other technical matters. Based on the findings of sonar and technical studies, Braskem has defined stabilization and monitoring actions for all 35 existing salt mining wells. Considering the discussions held in December 2021, based on studies of the specialists, the recommendation was to fill five additional salt wells with solid material, for a total of nine wells to be filled, a process that should last for four years. For the remaining 26 existing salt mining wells, the recommended actions are: (i) conventional closure using the tamponade technique, which consists of promoting the cavity pressurization, applied worldwide for post-operation cavities; (ii) confirmation of natural filling status; and, (iii) for some wells, sonar monitoring.
Also in December 2021, an important development in the environmental diagnosis occurred, which resulted in the preliminary proposal of actions for dealing with the environmental impacts identified, which will follow the protocols set forth in the agreement for socio-environmental reparation entered into on December 30, 2020.
Our actual costs related to this matter, considering the actions for closing and monitoring the salt wells, environmental actions and other technical matters for which the amount of R$1.7 billion, net of the adjustment to present value, has been provisioned as of December 31, 2021 may be materially altered based on a variety of factors, including, but not limited to, the result of the monitoring and backfilling actions of the wells, potential future determinations by ANM, unforeseen technical difficulties or costs, or other factors.
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Also due to the geological event, we have entered into agreements to terminate three public-interest civil actions or civil public actions filed by the competent authorities:
· | ACP Labor settlement: we committed to disbursing R$40 million to fund a Business Recovery and Promotion of Educational Activities Program for residents and workers in the districts of Mutange, Bom Parto, Pinheiro and Bebedouro in Maceió, in the state of Alagoas. This agreement has been fulfilled in its entirety. |
· | ACPof Residents settlement: we committed to supporting the relocation and to compensate residents, business owners and owners of vacated properties located in the risk areas defined in the Civil Defense Map through the Financial Compensation and Support for Relocation Program (Programa de Compensação Financeira e Apoio à Realocação – PCF), by offering proposals for financial compensation and entering into individual agreements ratified by court (as of December 31, 2021, the risk area encompasses approximately 15,000 properties); and |
· | ACP Socio-environmental settlement: we committed to (i) adopting the necessary measures to stabilize the cavities and monitor the soil, implementing the measures of the mine closure planning presented to ANM and subject to its approval; (ii) repairing, mitigating or compensating potential environmental impacts and damages resulting from the mining activities (salt extraction) in the city of Maceió, to be defined by an Environmental Diagnosis developed by an expert and independent company approved by the Prosecutor’s Office; (iii) allocating R$1.58 billion to implement measures in the vacated area, actions related to urban mobility and to compensate potential socio-urbanistic impacts and damages, and for social collective moral damages. |
On February 2, 2021, the Company was notified of the filing of a lawsuit by Companhia Brasileira de Trens Urbanos (“CBTU”), initially requesting only a preliminary injunction for maintaining the terms of the cooperation agreement previously signed by the parties. The request was denied in lower and appellate courts, given the fulfillment of the obligations undertaken by Braskem. On February 24, CBTU filed an amendment to the initial request claiming the payment of compensation for losses and damages in the amount of R$222 million and for moral damages in the amount of R$500 thousand, as well as the imposition of obligations, including the construction of a new regulations could require significant capital expendituresrail line to replace the stretch that passed through the risk area. As of December 31, 2021, the updated amount of this action is R$1.4 billion (the initial amount attributed to the claim, by CBTU, is R$1.3 billion). Braskem signed a memorandum of understanding with CBTU seeking a consensual solution and increaseto maintain the lawsuit active during the negotiation period. As a result of a joint petition by the parties, the lawsuit was stayed until December 20, 2022.
Based on our operating costs.assessment and that of our external advisors, taking into account the short and long-term effects of the technical studies, the existing information and the best estimate of the expenses for implementing the various measures related to the geological event in Alagoas, the provision recorded as of December 31, 2021 was R$7,661.3 million, of which R$4,378.1 million is under current liabilities and R$3,283.2 million is under non-current liabilities.
The provisions are based on current estimates and assumptions and may be updated in the future due to new facts and circumstances, including changes in time, extension and way of execution of action plans; new repercussions or developments relating to the geological event; and the conclusion of possible studies that indicate recommendations of experts, and other new developments on the topic.
The measures related to the mine closure plan are subject to the analysis and approval of ANM, the monitoring of results of the measures under implementation, as well as the changes related to the dynamic of geological events.
Continuous monitoring is crucial to confirm the result of current recommendations. As a result, the plans for closing the wells may be revised according to the need to adopt technical alternatives to stabilize the subsidence resulting from rock salt extraction. Furthermore, the completion of studies to confirm the natural filling of cavities and the assessment of the future behavior of the cavities that will be monitored by sonar may indicate the need for additional measure for stabilization.
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The claims to repair, mitigate or offset potential environmental impacts and damages, as provided for in the Socio-Environmental Remediation Agreement, to be financed by Braskem, will be proposed according to the environmental diagnosis, to be conducted by a specialized and independent company. Once all discussions with the regulatory authorities and agencies are concluded as provided for under the agreement, an action plan will be developed, which will become part of the measures for a Plan for Recovering Degraded Areas (PRAD).
At this time, preliminary actions for dealing with the environmental impacts have been identified, but we are unable to predict the final outcome of the environmental analysis, as well as any costs in addition to the estimated costs already provisioned by us.
Additionally, the Socio-Environmental Remediation Agreement provides for the possible adhesion of other entities, including the Municipality of Maceió. In this context, we are negotiating our claims with the Municipality of Maceió. So far, we cannot predict the results and deadline for completion of such negotiation, as well as its possible scope and associated expenses.
It is not possible to anticipate all the new claims, for indemnity or other natures, which may be presented by individuals or groups who understand that they have suffered impacts and/or damage in any way related to the geological phenomenon and the vacancy of risk areas. We likeare still facing (see Note 26 to our audited consolidated financial statements included elsewhere in this annual report) and may face several lawsuits, including individual lawsuits filed by individuals or legal entities not served by the PCF or that disagree with the individual proposal agreement, new collective demands and claims filed by public service concessionaires, so it is not possible to estimate the number of possible claims, their nature or amounts involved. We cannot assure you that there will be no future developments relating to the geological event in Alagoas, or the relocation program and related measures related to vacated areas and its surroundings.
Therefore, we cannot rule out future developments related to the geological event in Alagoas or its associated expenses, and the costs to be incurred by us may differ from our estimates and provisions.
For additional information, see “Item 8. Financial Information—Legal Proceedings—Alagoas – Mining Activities.”
In addition, we and other petrochemical producers are subject to stringent federal, state and local environmental laws and regulations concerning human health, the handling, storage, transportation, treatment, discharge and disposal of solidhazardous substances and hazardous wastes and discharges of pollutantswaste into the air and water. Petrochemical producers are sometimes subject to unfavorable market perceptions as a result of the environmental impact of their business, which can have an adverse effect on their results of operations.
environment. Our operations in Brazil, including those of our subsidiaries Cetrel and DAC, which are responsible for providing environmental services, waste water treatment and water supply to the Camaçari Complex in the state of Bahia, for example, are subject to extensive federal, state and local laws, regulations, rules and ordinances relating to pollution, protection of the environment and the generation, storage, handling, transportation, treatment disposal and remediationdisposal of hazardous substances and waste materials. The Brazilian government enacted anthe Environmental Crimes Law in 1998 that imposes criminal penalties on corporations and individuals causingthat cause environmental damage. Corporations found to be guilty of polluting canthe environment may be fined up to R$50.0 million, have their operations suspended, be prohibited from contracting with the government, contracting, be required to repair damage that they causecaused and lose certain tax benefits and incentives. Executive officers, directors and other individuals may also be imprisoned for up to five years forif environmental violations.violations activities are found to have taken place.
Our operations in the United States, Germany and Mexico are subject to extensive U.S., German, European and Mexican federal, state and local laws, regulations, rules and ordinances relating to pollution, protection of the environment and the generation, storage, handling, transportation, treatment, disposal and remediation of hazardous substances and waste materials. U.S. environmental laws and regulations may impose liability on us for the conduct of third parties, or for actions that complied with applicable requirements when taken, regardless of negligence or fault. Of particular significance to us are (1) regulatory programs to be established to implement air quality standards under the National Ambient Air Quality Standards for ozone and fine particles promulgated by the U.S. Environmental Protection Agency, or the EPA, and (2) various legislative and regulatory measures in the United States whichthat are under review, discussion or implementation to address greenhouse gasGHG emissions. In Mexico, we adhere to the comprehensive responsibility program promoted by the Mexican National Chemical Industry Association (Asociació(Asociación Nacional de la Industria Química de Mexico – ANIQ), which is based on the responsible care standard usedadopted in the United States and Canada. We are also signatories of the Responsible Care program in the United States and Brazil that was launched by certain entities of the chemical industry sector worldwide.
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CostsSuch existing stringent environmental and related regulations require significant capital expenditures, relating toincluding investments, waste and wastewater treatment, emissions management, environment licenses, environmental health or safety matters are subject toliabilities and other environmental expenditures. In addition, evolving regulatory requirements and will dependcould require significant additional capital expenditures depending on the timing of the promulgationadoption and enforcement of specific standards which impose theimposing such requirements. Moreover,In addition, changes in environmental regulations could inhibit or interrupt our operations or require modifications to our facilities. Accordingly, environmental, health or safety regulatory matters may result in significant unanticipated costs or liabilities.
We manufacture products that are subjectmay also, from time to the risk of fire, explosions and other hazards.
Our operations are subject to hazards, such as fires, explosions and other accidents, associated with the manufacture of petrochemicals and the storage and transportation of feedstock and petrochemical products. These hazards can cause personal injury and loss of life, severe damage to or destruction of property and equipment and environmental damage. A sufficiently large accident at one of our plants or storage facilities could force us to suspend our operations temporarily and result in significant remediation costs and lost net sales revenue. See also “—Our Polyolefins Unit and Vinyls Unit depend on our basic petrochemicals plants to supply them with their ethylene and propylene requirements.”
Although we maintain insurance coverage for losses due to fire damage and for losses of income resulting from shutdowns due to fire, explosion or electrical damage, those insurance proceeds may not be available on a timely basis and may be insufficient to cover all losses, which could have a material adverse effect on our financial performance.
Unfavorable outcomes in pending or future litigation may reduce our liquidity and negatively affect our financial performance and financial condition.
We are, and in the future maytime, be involved in numerous tax, civilcertain claims, disputes or litigation proceedings concerning environmental risks and labor disputes,liabilities, health and safety hazards, among others, involving monetary claims. If unfavorable decisions are rendered in one or more of these lawsuits, we could be required to pay substantial amounts. For some of these lawsuits, we have not established any provision on our balance sheet or have established provisions only for part of the amounts in question, based on our judgments as to the likelihood of winning these lawsuits.
In July 2015, two putative class action lawsuits were filed against us and certain of our then-current and former officers and directors, or the Defendants, in the United States District Court for the Southern District of New York. The lawsuits were subsequently consolidated under the caption In re Braskem, S.A. Securities Litigation, No.15-cv-5132. In November 2015, Boilermaker-Blacksmith National Pension Trust, or the Lead Plaintiff, filed a consolidated class action complaint, which asserted claims under Section 10(b) and Section 20(a) of the Exchange Act, on behalf of a putative class of purchasers of our American Depositary Receipt, or ADRs, from June 1, 2010 to March 11, 2015. In the operative complaint, the Lead Plaintiff alleges that the Defendants made misrepresentations or omissions that inflated the price of our stock in violation of U.S. securities laws. We filed a motion to dismiss on July 6, 2016. On March 31, 2017, the court ruled on the motion to dismiss, granting it in part and denying it in part. With respect to the remaining claims, the class action is now in the discovery stage. The parties are also currently engaged in settlement negotiations and have signed a proposed settlement agreement and submitted it to the U.S. court for preliminary approval on September 14, 2017. Under the terms of the proposed settlement, we would pay US$10million to resolve all claims of the settlement class consisting of purchasers of our ADRs during the period from July 15, 2010 through March 11, 2015, that arise out of or relate to the subject matter of the class action, with the exception of any such claims belonging to purchasers who file valid and timely requests to opt out of the settlement class. We have made no admission of any wrongdoing or liability as part of the proposed settlement, and it is subject to a number of conditions, including court approval. Furthermore, we may be named as a defendant in other legal actions, and we may be required, in accordance with any applicable legal and regulatory limits, to indemnify directors, officers and employees that are defendants in this securities class action and any other related actions that may arise in the future. This litigation has required and may continue to require significant time and attention in the future.others. For more information, about our legal proceedings,please see “Item 8. Financial Information—Information––Legal Proceedings.”.
Labor unrest may materially and adversely affect our operations.
Labor unrest in our plants and facilities may have a material adverse effect on our financial condition or results of operations. For example, in August 2010, the unionized employees at our Neal, West Virginia plant went on strike. During the strike, the plant operated under the supervision of management until May 2011, when Braskem America entered into a new collective bargaining agreement. Although we believe that we maintain good relations with our employees, future labor actions, including strikes, could have a material adverse effect on our financial performance.
Natural disasters, severe weather and climate conditions could have a material adverse effect on our overall business.
Some of our facilities are located in places that could be affected by natural disasters, such as floods, earthquakes, hurricanes, tornados and other natural disasters, which could disrupt our operations or the operations of our customers and could damage or destroy infrastructure necessary to transport our products as part of the supply chain. Such events could require maintenance shutdowns, delay shipments of existing inventory or result in costly repairs, replacements or other costs, all of which could have a material adverse effect on our financial performance.
While our energy risk policy dictates that we purchase energy in advance at fixed prices through long-term contracts, the majority of Brazilian power generation capacity is provided by hydroelectric generation facilities. If the amount of water available to energy producers becomes scarce due to drought or diversion for other uses, the cost of energy may increase. Such conditions could have a material adverse effect on our sales and margins.
We could be materially adversely affected by the impacts of the Global Settlement.
In the context of allegations of improper payments in connection with theso-called Operation Car Wash in Brazil, we engaged the Expert Firms to conduct the Investigation and report their findings. We have cooperated with governmental authorities in several jurisdictions, including the U.S. Department of Justice, or the DoJ, the U.S. Securities and Exchange Commission, or the SEC, Brazil’s Federal Prosecutor’s Office (Ministério Público Federal), or the MPF, and Switzerland’s Office of the Attorney General, or the OAG. On December 14, 2016, we entered into a leniency agreement with the MPF or the Leniency Agreement,(the “Leniency Agreement”), which was ratified by the competent Brazilian court on June 6, 2017. On December 21, 2016, we filed a plea agreement in the United States District Court for the Eastern District of New York under which we agreed to plead guilty to aone-count criminal information charging our companyus with conspiracy to violate the anti-bribery provisions of the U.S. Foreign Corrupt Practices Act or the FCPA.(the “FCPA”). On the same date, we consented to the entry of a final judgment in a civil action brought by the SEC based on civil violations of the anti-bribery, books and records and internal accounting controls provisions of the FCPA. The competent federal courts in the United States approved the DoJU.S. Department of Justice (the “DoJ”) and SEC resolutions on January 26, 2017 and February 28, 2017, respectively. In addition, on December 21, 2016, the OAG closed its investigation of these matters. We refer to these actions as the Global Settlement.
Under the Global Settlement, we agreed to pay to the governmental authorities in these jurisdictions an aggregate amount of approximately US$957 million (equivalent to approximately R$3.1 billion)., based on the exchange rate of R$3.27 per U.S. Dollar, applicable at the time of the negotiation.
OfThe MPF will distribute the totalmajority of the amount payable pursuantit receives as restitution to third parties for damages caused by the misconduct. Pursuant to the Global Settlement, we have already paid approximately R$1.3 billion, as follows:
The aggregate amount of approximately R$1.8 billion outstanding pursuantagreed to communicate with other public authorities or entities, as well as stated-owned companies and mixed-capital companies with which Braskem enters into discussions to address the facts under the Global Settlement will be paidand avoid making duplicate restitution payments. In this context, as announced to the market on July 10, 2018, and disclosed in a material fact on May 27, 2019, we have cooperated and engaged in negotiations with the Ministry of Transparency and Controllership (CGU) and the Office of the Attorney General (AGU) in Brazil, and our Board of Directors approved the signing of a leniency agreement with the CGU and the AGU (the “CGU/AGU Agreement”).
The CGU/AGU Agreement, in the following manner:
The Global Settlement may have a material adverse effect on our business, reputation, financial condition, financial instruments and operational results, as well as onSELIC rate, addresses the liquidity and price of our securities, including our class A preferred shares and ADSs. Furthermore, the negative publicity resulting from the Global Settlement, the facts made public through our plea agreement in the United States, and thesame facts that will be made public whenare the Leniency Agreement with the MPF is ultimately disclosed, could have a material adverse impact on our business, including reducing the demand for our products,our financial instruments and other effects that currently cannot be estimated or measured. In addition, other authorities with jurisdiction over our company may seek to impose additional monetary sanctions or fines or commence new investigations against us. Finally, as a resultobject of the Global Settlement we mayexecuted in December 2016 with the Brazilian Federal Prosecution Office (MPF), the DoJ, the SEC and the Swiss Office of the Attorney General (“Global Settlement”). Of this amount, R$2.5 billion will be barred from entering into certain agreements with governmental authorities, and may be subjectoffset by the amount that Company already had undertaken to increased operating costs in connection with our obligations to improve our governance and anti-corruption practices, includingpay under the cost of required external monitorship.
Under the termsscope of the Global Settlement, resulting in an additional disbursement of R$410 million.
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As of December 31, 2021, we are requiredhad paid R$2.8 billion, as follows:
· | R$559.9 million to the AGU, CGU and MPF; |
· | R$296.7 million (US$53.2 million) to the DoJ; |
· | R$407.3 million (CHF94.5 million) to the OAG; |
· | R$1,282.5 million to the MPF; and |
· | R$206.5 million (US$37.0 million) to the SEC |
There is still R$1.1 billion under the MPF Agreement and CGU/AGU Agreement, in four annual installments adjusted by the variation in the SELIC rate and due by January 30, 2025. To guarantee payment of these upcoming installments, Braskem gave as collateral assets from its property, plant and equipment corresponding to one annual installment.
By reason of the Global Agreement, we will continue to cooperate with these relevant governmental authorities and improve our governance and anti-corruption compliance practices. We will also beOver the three years between 2017 and 2020, we were subject to external monitorshipindependent monitoring as a result of the Agreements. Such monitors were responsible for a period of three years, during which time the monitor will assessverifying compliance with the Global Settlement, includingAgreement, as well as the effectiveness of our internal controls, policies and procedures to reduce the risk of anynon-compliance with anti-corruption violations. The monitorship period may be terminated early or extendedlaws.
In March 2020, based on the certification report issued by the independent monitors who have monitored us for up to one year at the authorities’ discretion depending onpast three years, the MPF confirmed the monitoring conclusion, the effectiveness of our compliance program and compliance with the obligations of the MPF Agreement. Later, on May 13, 2020, the DoJ and the SEC confirmed the end of the monitoring provided for in the agreements with such authorities.
We remain under external monitoring with the AGU/CGU until the end of 2022. At this time, all compliance obligations are being met as recommended by the authorities.
The Global Settlement. We have retained monitors pursuantSettlement does not prevent Braskem from being held liable to any legitimate third party, which may seek indemnification for damages for the facts subject to the
We cannot guarantee that the total amount agreed will be sufficient to fully repair any harm.
Unfavorable outcomes in pending or future litigation may reduce our liquidity and negatively affect our financial performance and financial condition.
We are, and in the future may be, involved in numerous tax, civil and labor disputes, among others, involving monetary claims. If unfavorable decisions are rendered in one or more of these lawsuits, we could be required to pay substantial amounts. For certain of these lawsuits, we have not established any provision on our balance sheet or have established provisions only for a portion of the Global Settlement,amounts in controversy, based on our judgments as to the risk of loss for these lawsuits.
In July 2015, two putative class action lawsuits were filed against us and certain of our then-current and former officers and directors, or the Defendants, in the United States District Court for the Southern District of New York, or the U.S. Court. The Lead Plaintiff, Boilermaker-Blacksmith National Pension Trust, alleged that the Defendants made misrepresentations or omissions that inflated the price of Braskem S.A.’s stock in violation of U.S. securities laws.
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On February 21, 2018, a hearing was held in which a decision was handed down for the final approval of the agreement regarding the entire class of investors and the dismissal of the case, and such agreement does not represent the admission of any wrongdoing or liability by Braskem. Said decision became final and unappealable.
On August 25, 2020, a lawsuit was filed against us and some of our current and former executives in the District Court of New Jersey, in the United States, on behalf of an alleged class of investors who acquired Braskem’s securities. The action is grounded in the U.S. Securities Exchange Act of 1934, as amended (the “Exchange Act”), and its rules, based on allegations that the defendants made false statements or omissions related to the geological event in Alagoas. On January 15, 2021, the court named two plaintiffs to act as lead plaintiffs in the action. On April 28, 2021, a lead plaintiff filed a consolidated petition with its initial arguments, defining as relevant period the acquisition of our securities between March 21, 2019 and July 8, 2020. We engaged a U.S. law firm to represent us in the class action and presented a motion to dismiss, which is pending review by the court.
Our management, based on its assessment and that of its external legal advisors, and given the initial phase of the class action mentioned above, considers it is not possible at the moment to reliably estimate the potential amount involved.
We cannot reliably predict the future developments of this matter or the expenses arising from it, including rates and costs in solving the dispute.
In the context of the geological events occurred in Maceio, we entered into agreements for the termination of three public-interest civil actions (ACP Labor, ACP Socio-environmental and ACP of Residents). The terms of the settlements were as follows:
· | ACP Labor settlement: we committed to investing R$40 million to fund a Business Recovery and Promotion of Educational Activities Program for residents and workers in the districts of Mutange, Bom Parto, Pinheiro and Bebedouro in Maceió, in the state of Alagoas. This agreement has been fulfilled in its entirety. |
· | ACP of Residents settlement: we committed to supporting the relocation and compensating residents, merchants, business owners and property owners located in the risk areas defined in the Civil Defense Map subject to relocation, by offering proposals for financial compensation and entering into individual agreements ratified in court (as of December 31, 2021, the risk area encompasses approximately 15,000 properties); and |
· | ACP Socio-environmental settlement: we committed to (i) adopting the necessary measures to stabilize the cavities and monitor the soil, implementing the measures of the mine closure planning presented to ANM and subject to its approval; (ii) repairing, mitigating or compensating potential environmental impacts and damages resulting from the mining activities (salt extraction) in the city of Maceió, to be defined by an Environmental Diagnosis developed by an expert and independent company approved by the Prosecutor’s Office; (iii) allocating R$1.28 billion to implement measures in the vacated area, actions related to urban mobility and to compensate potential socio-urbanistic impacts and damages; and (iv) allocating R$300 million for social collective moral damages. |
It is not possible to anticipate all the new claims, for indemnity or other natures, which may be presented by individuals or groups who understand that they have been approvedsuffered impacts and/or damage in any way related to the geological phenomenon and the vacancy of risk areas. We are still facing (see Note 26 to our audited consolidated financial statements included elsewhere in this annual report) and may face several lawsuits, including individual lawsuits filed by individuals or legal entities not served by the relevant authorities. The monitorsPCF or that disagree with the individual proposal agreement, new collective demands and claims filed by public service concessionaires, so it is not possible to estimate the number of possible claims, their nature or amounts involved, nor their outcome. We cannot assure you that there will be no future developments relating to the geological event in Alagoas, or the relocation program and measures related to vacated areas and its surroundings.
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For more information about our legal proceedings, see “Item 8. Financial Information—Legal Proceedings.”
Labor strikes may recommend changesmaterially and adversely affect our operations.
Labor strikes in our plants and facilities may have a material adverse effect on our financial condition or results of operations. Future labor actions, including strikes, could have a material adverse effect on our financial performance.
Natural disasters, severe weather and climate conditions, or health epidemics could have a material adverse effect on our overall business.
Some of our facilities are located in places that could be affected by natural disasters, such as floods, earthquakes, hurricanes, tornados and other natural disasters, which could disrupt our operations or the operations of our customers or suppliers and could damage or destroy infrastructure necessary to transport our policies and procedures, which we must adopt unless they are unduly burdensome or otherwise inadvisable, in which case we may propose alternatives that the authorities may choose to accept. Operating under the oversightproducts as part of the monitors will likelysupply chain. Additionally, other unanticipated problems such as health epidemics or pandemics, including the COVID-19 outbreak that began in China and spread to the rest of the world, could also cause operational disruptions of varied duration. Such events could require the assumptionmaintenance shutdowns, delay shipments of additional responsibilities by members ofproducts or supplies or result in costly repairs, replacements or other costs, which could have a material adverse effect on our management. We currently cannot estimate the costsfinancial performance.
Our energy risk policy dictates that we are likely to incurpurchase energy in connection with compliance with the Global Settlement, including the implementation of the recommended changes, if any, to our policies and procedures as required by the monitors.advance at fixed prices through long-term contracts. However, the costsmajority of Brazilian power generation capacity is provided by hydroelectric facilities. If the monitorshipamount of water available to energy producers becomes scarce due to drought or diversion for other uses, the cost of energy may increase and our policy of purchases in advance at fixed prices through long-term contracts may be ineffective. In addition, if the amount of water available to industrial facilities becomes scarce, there may be a need to reduce production at the affected sites. Such conditions could be significanthave a material adverse effect on our sales and could negatively impact our company by requiring the efforts of our management team, diverting attention from our ordinary business operations.margins.
Compliance and Control Risks
We could be materially affected by violations of the U.S. Foreign Corrupt Practices Act,FCPA, the Brazilian Anti-CorruptionAnti-Corruption Law and similar anti-corruption laws.
We, our subsidiaries and our joint venture partners are subject to a number of anti-corruption laws, including Law No. 12,846/2013, or the Brazilian Anti-Corruption Law, which became effectiveentered into effect on January 28, 2014, the U.S. Foreign Corrupt Practices Act, or the FCPA and various other anti-corruption and anti-bribery laws of other jurisdictions.
The FCPA, the Brazilian Anti-Corruption Law and similar anti-bribery laws in other jurisdictions generally prohibit companies and their intermediaries from making improper payments to government officials or other persons for the purpose of obtaining or retaining business. Violations of these laws may result in criminal or civil sanctions, inability to do business with existing or future business partners, injunctions against future conduct, profit disgorgements, disqualifications from directly or indirectly engaging in certain types of businesses, the loss of business permits or other restrictions which could have a material adverse effect on our business, financial condition, results of operations or liquidity. Furthermore, the Brazilian Anti-Corruption Law provides for joint and several liabilities between companies of the same economic group. See “—We could be materially adversely affected by the impacts of the Global Settlement.”
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For example, in light of the allegations of undue payments related to the Ethylene XXI project, which were originally published in the media in Mexico and were included in the testimony by the former CEO of Pemex to the Office of the Attorney General of Mexico, Braskem S.A., together with Braskem Idesa, in compliance with the standards established by Braskem’s Global Compliance System Policy and Braskem Idesa’s governance guidelines, approved the engagement of a U.S. law firm to conduct an independent internal investigation of the allegations. The investigation was concluded in February 2022 and did not find evidence to support the allegations by the former CEO of PEMEX regarding allegedly improper payments in connection with, or otherwise related to, the Ethylene XXI project.
Climate change may negatively affect our business, financial condition, results of operations and cash flow.
A considerable number of experts, international organizations, regulators and other analysts argue that global climate change has contributed, and will continue to contribute, to the increase in the unpredictability, frequency and severity of natural disasters (among but not limited to hurricanes, droughts, tornadoes, freezes, other storms and fires) in some parts of the world. As a result, several legal and regulatory measures, in addition to social measures, have been and will be established in several countries to reduce carbon and other GHG emissions and combat climate change globally. Such reductions in GHG emissions is expected to lead to an increase in energy, transport and input costs, in addition to requiring us to make additional investments in facilities and equipment. It is not possible to predict the impact of global climate change, if any, or legal, regulatory and social measures in response to climate change concerns, and whether such factors could negatively affect the business, financial condition, results of operations and operating cash flows.
Also, several countries are evaluating and seeking to implement carbon pricing policies for carbon emitting companies that are producers in these countries or that export products to these countries. If this occurs, our costs may be negatively impacted as we, as a petrochemical company, have a material carbon footprint.
Laws and regulations that seek to reduce GHG may be defined in the future, which could have a material adverse impact on our operating results, cash flows and financial condition. One of the possible effects of the increase in requirements related to the reduction of GHG emissions is the increase in costs, mainly due to the demand for the reduction of fossil fuel consumption and the implementation of new technologies in the production chain.
Additionally, the difficulty of adapting to climate change and reducing the emission of GHG in production processes and the value chain could negatively affect our business, financial condition, results of operations and cash flow.
We are exposed to behaviors of our employees andnon-employees that may be incompatible with our ethics and compliance standards, and failure to timely prevent, detect or remedy any such behavior and/or process vulnerabilities may have a material adverse effect on our results of operations and financial condition.
Our business, including our relationships with third parties, is guided by ethical principles. We have adopted a Policy on Compliance in Acting Ethically with Integrity and Transparency, and several internal policies designed to guide our management, employees and counterparties and reinforce our principles and rules for ethical behavior and professional conduct. We maintain an independent whistleblower channel (denominated “Ethics Line”) managed by a third party available for employees andnon-employees (including third parties). Every whistleblower complaint is investigated and submitted for evaluation by our Ethics Committee.
We are subject to the risk that our employees, counterparties or any person doing business with us may engage in fraudulent activity, corruption or bribery, circumvent or override our internal controls and procedures or misappropriate or manipulate our assets for their personal or business advantage. In the event that we believeInvestigations conducted by us internally or have reason to believe that our employees or agents have or may have violatedthrough outside counsel on potential violations of any applicable anti-corruption laws, including the FCPA we may be required to investigateby our employees or have outside counsel investigate the relevant facts and circumstances, whichagents can be expensive and require significant time and attention from senior management. We have in place a robust Compliance andOur Anti-Corruption Program being implemented through every area of our company, including several processesmay not be completely effective for identifying, monitoring and mitigating these risks, but such programrisks.
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In the future, we may not be completely effective.
Asrequired to conduct additional procedures and analyses with respect to our internal processes and controls that may lead to a delay in the conclusion of our audited financial statements and, as a result, of the Investigation, we determined that material weaknessesprevent us from filing future annual reports in our internal control over financial reporting as of December 31, 2016 existed. We identified material weaknesses relateda timely manner. Any failure to (i) our control environment and anti-corruption compliance controls and programs designed to prevent and detect violations of the FCPA and other applicable anti-corruption laws, (ii) the review and approval of reconciliation and manual payments, and (iii) the review of the ledger accounts used to record accruals and payments of commissions. These material weaknesses were identified primarily because a number of deficiencies in controls and errors were detected during the Investigation.
We subsequently identified an additional material weakness related to (iv) the review and monitoring overin-transit inventory for naphtha imports processed by our subsidiary, Braskem Netherlands. This material weakness was identified during the financial statement audit performed for Braskem Netherlands. And we additionally identified a material weakness related to (v) classification between long and short-term debt obligations in Braskem’s subsidiary, Braskem Idesa.
A material weakness is defined as a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement oftimely file our annual or interim consolidated financial statements will not be prevented or detected on a timely basis.
We are currently implementing several remediation efforts to improve our governance and compliance systems. See “Item 4. Information on the Company—Compliance.” However, such improvements may not be completely effective, and certain of our employees andnon-employees may behave in a manner that is incompatible with our ethics and compliance standards. In addition, we may make accounting errors in our future financial reporting, and we cannot be certain thatreports in the future additional material weaknesses in our internal control over financial reporting will not exist. Any failure—real or perceived—to follow our compliance principles or to comply with applicable governance or regulatory obligations could harm our reputation and image, limit our ability to obtain financing and otherwisemay have a materialan adverse effect on our results of operations and financial condition.business.
If we are unable to comply with the restrictions and covenants in the agreements governing our indebtedness, there could be a default under the terms of these agreements, which could result in an acceleration of payment of funds that we have borrowed and could affect our ability to make principal and interest payments on our debt obligations.
Any default under the agreements governing our indebtedness that is not cured or waived by the required lenders or noteholders could result in the holders of any such indebtedness accelerating the payment of amounts outstanding, which could make us unable to pay principal and interest on those and other debt obligations. If we are unable to generate sufficient cash flow and are otherwise unable to obtain funds necessary to meet required payments of principal and interest on our indebtedness, or if we otherwise fail to comply with the various covenants in the agreements governing our indebtedness, (including covenants in the project finance debt related to our Mexico Complex), we could be in default under the terms of such agreements. In the event of such default:
· | the holders of such indebtedness could elect to declare all the funds borrowed thereunder to be due and payable, together with accrued and unpaid interest; |
· | the lenders or noteholders under such agreements could elect to terminate their commitments thereunder and cease making further loans; |
· | the acceleration under such indebtedness may trigger cross-acceleration provisions under other financing arrangements entered into by us; and |
· | we could be forced into bankruptcy or liquidation. |
In addition, certain of our contractual arrangements, including debt obligations, contain change of control provisions that, together with a ratings downgrade due to such a change of control, provide our counterparties with a termination right or the ability to accelerate the maturity of our indebtedness with them in the event of a change of our control without their consent. These provisions would be triggered in the event Novonor ceases to own, directly or indirectly, capital stock representing more than 50% of the voting power of our capital stock outstanding, or if its control power is reduced, and if because of such a change of control our ratings are downgraded under certain thresholds. As a result, if Novonor ceases to control, or in some cases, own a certain percentage of our common shares, whether as a result of the Novonor Judicial Restructuring Proceedings (or agreements entered into within the context of the Novonor Judicial Restructuring Proceedings) that result in a ratings downgrade, an alternative sale, foreclosure by secured creditors, reorganization, restructuring or other similar circumstance in connection with the Novonor Judicial Restructuring Proceedings or otherwise, if appropriate consents or waivers are not obtained, such counterparties could terminate such contracts or accelerate the maturity of such financing arrangements. The termination of any of our contractual arrangements or the acceleration of the maturity of any of our financing arrangements could have a material adverse effect on our business, financial condition, results of operations and cash flows, and ultimately result in the cross-acceleration of all of our indebtedness.
Furthermore, pursuant to the indentures governing our 3.50% Notes due 2023, 6.45% Notes due 2024, 4.50% Notes due 2028, 4.500% Notes due 2030, 7.125% Notes due 2041, 5.875% Notes due 2050 and Subordinated Resettable Fixed Rate Notes due 2081, a change of control with a ratings decline would require a repurchase of any such outstanding notes, plus accrued and unpaid interest, if any, to the repurchase date.
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Unauthorized disclosure or loss of intellectual property, trade secrets, other sensitive business or personal information, or disruption in information technology by cyberattacks or other security breaches, as well as our failure to comply with data protection laws and information security requirements can subject us to significant penalties or liability and can adversely impact our operations, reputation, and financial results.
We collect, store, process, and use certain confidential information and other personal data in connection with our business operations. We must ensure that any personal data activity such as processing, collection, use, storage, dissemination, transfer and disposal of data for which we are responsible complies with relevant data protection and privacy laws. The protection of information relating to our business partners (customers and suppliers), employees and confidential information related to our business is critical to us. We rely on commercially available systems, software and monitoring tools to provide secure processing, transmission and storage of relevant information, such as business confidential information and personal data including sensitive information.
The Brazilian Constitution, Law No. 10.406/2002 (Civil Code), Law No. 8.078/1990 (Consumer Protection and Defense Code), Law No. 12.965/2014 (Brazilian Civil Rights Framework for the Internet), Decree No. 8771/2016 and the recent Law No. 13.709/2018 (Brazilian General Data Protection Law or LGPD), which entered into force on September 18, 2020, are the main laws governing the practice of processing personal data in Brazil.
The LGPD is a comprehensive legislation, which regulates practices related to the processing of personal data, through a set of rules that impacts all sectors of the economy and organizations of all sizes, both digitally and physically. The LGPD establishes a new legal framework to be observed in personal data processing transactions and provides, among other measures, the duty of transparency on the part of the data controller, the rights of the holders of personal data, hypotheses in which the processing of personal data is allowed (legal bases), obligation to designate a data controller, rules related to information security, incidents involving personal data, requirements and obligations related to international data transfer and data sharing. The LGPD also provides for administrative sanctions that can be applied in case of non-compliance with its provisions by the National Data Protection Authority (“ANPD”), responsible for preparing guidelines and supervising compliance with the law. Non-compliance with any provisions provided for in the LGPD may result in the following consequences: (i) the filing of lawsuits or administrative proceedings by individual or collective competent bodies seeking compensation for damages arising from violations, among others, that are based not only on the LGPD, but also on sparse or specific data protection regulation still in force; and (ii) the enforcement by consumer protection agencies of penalties provided for in the sparse data protection regulation, such indebtednessas those set forth in the Consumer Protection and Defense Code and the Brazilian Civil Rights Framework for the Internet, once that even before the LGPD enters into force and the ANPD is finally structured such agencies have already acted in this regard, mainly in cases concerning security incidents that result in improper access to personal data.
Since August 1, 2021, with the entry into force of the LGPD's administrative sanctions, if the ANPD understands that we are not in compliance with the LGPD, we may be subject to individual or cumulative sanctions, warning, requirement to disclose the incident, temporary blocking and/or exclusion of personal data to which the violation refers, daily fine, simple fine of up to 2% of the company, group or conglomerate's revenue in Brazil in its last fiscal year, excluding taxes, and up to the aggregate amount of R$50.0 million per infringement. In case of recurrence, more severe administrative penalties provided for in the LGPD may be applied, such as partial suspension of the database operation to which the infringement refers for a maximum period of six months, extendable for an equal period, until the regularization of the activity of processing by the controller, suspension of the exercise of the activity of processing the personal data to which the infringement refers for a maximum period of six months, extendable for an equal period or partial or total prohibition of the activities related to the processing of data.
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In addition, we may be held liable for material, moral, individual or collective damages caused to the holders of personal data, including when caused by our subsidiaries or by third parties that process personal data on our behalf or as controllers together with us due to non-compliance with the obligations provided by the LGPD. In this sense, we cannot guarantee that we will be successful in adapting our activities, procedures, documentation and the relationship with third parties hired by us to meet the high standards provided by the LGPD. Administrative sanctions or legal convictions may cause material financial impacts, in addition to adversely affecting our reputation in the market.
Even if we adopt practices in line with the provisions and obligations set forth in the LGPD, it cannot be guaranteed that the measures adopted to adapt our personal data processing activities will be considered adequate or sufficient by ANPD, by other public authorities, such as the Public Ministry and consumer protection bodies, or by the court.
Any additional privacy laws or regulations enacted or approved in Brazil or in other jurisdictions in which we operate could electseriously harm our business, financial condition or results of operations. On May 25, 2018, the Regulation No. 2016/279 of the European Parliament and of the Council of April 27, 2016 on the protection of personal data (the General Data Protection Regulation), or the GDPR, became directly applicable in all member states of the European Union. The GDPR has introduced new obligations relating to declare alldata privacy, control and retention, including, among others: (i) accountability and transparency requirements; (ii) enhanced data consent requirements; (iii) obligations to consider data privacy as any new products or services are developed and limit the funds borrowed thereunderamount of information collected, processed, stored and its accessibility; (iv) constraints on using data to profile data subjects; (v) providing data subjects with personal data in a useable format upon request and erasing personal data in certain circumstances; and (vi) reporting breaches without undue delay.
As we seek to expand our business and operations, we expect to be dueincreasingly subject to laws and payable, togetherregulations relating to personal data activity such as collection, use, retention, security, and transfer of our employee and customer data. These may change over time and may vary by jurisdiction, and it is possible they will be interpreted and applied in ways that will materially and adversely affect our business. Any failure—real or perceived—by Braskem to comply with accruedany applicable privacy or data protection-related laws and unpaid interest;regulations could cause our customers to reduce their use of our products and services.
Compliance with data protection laws requires us to expend resources to revise our procedures and policies. There are no guarantees that we have sufficient resources to comply with new regulations or to successfully comply with this changing regulatory environment. Further, there is a risk of improper implementation and sanctions or reputational damage for noncompliance, both of which could have a material adverse effect on our operations, financial condition, and prospects.
In addition, despite the information security measures that we have in place, our facilities and systems—and those of our third-party service providers—may be vulnerable to security breaches, cyberattacks (including ransomware and phishing), computer viruses, misplaced or lost data, programming or human errors, or other similar events. The ongoing military conflict between Russia and Ukraine has led to an increasing number of cyberattacks globally. Any security breach or perceived threat resulting in the loss or other unauthorized disclosure of confidential information could damage our reputation, expose us to litigation risk and liability, subject us to negative publicity, disrupt our operations and harm our business.
Cyberattacks or security breaches could compromise critical information and cause a disruption in our operations, which are heavily dependent on information technology and telecommunication systems and services. Information assets, including intellectual property, trade secrets, personal data and other business-sensitive critical information are an attractive asset to cyber criminals, cyberterrorism or other external agents. A significant cyberattack, a human error, including from our employees and partners, or obsolescence of technology could result in the loss of critical business information and/or negatively impact our operations, which could have a negative impact on our financial results.
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Although our Mexico Complex is fully operational and Braskem Idesa has satisfied and continues to satisfy its debt service requirements and all other payment obligations under its US$3,194 million senior secured Syndicated Facility on a timely basis, certain defaults have occurredguaranteed and are continuing thereunder. These defaults givesusceptible to new cyberattacks. On October 4, 2020, we detected a cyberattack on our information technology environment.
There can be no assurance that Novonor will remain our controlling shareholder. Novonor and Petrobras may enter into transactions or other arrangements that may result in us not having a controlling shareholder. If no single shareholder or group of shareholders holds more than 50% of our voting stock or exercise a controlling interest, there may be increased opportunity for alliances between shareholders and conflicts between them.
Currently, Novonor, directly or through its wholly-owned subsidiary NSP Inv., owns 38.32% of our total share capital, including 50.11% of our voting share capital, and Petrobras holds 36.14% of our total share capital, including 47.03% of our voting share capital. Each of Novonor (our indirect controlling shareholder) and Petrobras are currently a party to a shareholders’ agreement governing the exercise of their voting rights, appointment of directors and officers and other matters related to our corporate governance and their interests in us. In the event there is a change in our corporate control, we may be subject to significant changes to our management, business plan and strategies, as well as to our current corporate governance practices, all of which may have a material adverse effect on our results of operations and financial condition.
In June 2018, we were informed by Novonor that discussions were being held between Novonor and LyondellBasell Industries N.V. (“LyondellBasell”) regarding a potential transaction involving the transfer to LyondellBasell of all of Novonor’s interest in us. In June 2019, we were informed by Novonor that such discussions for a change of control transaction with LyondellBasell had been terminated. Subsequently, on August 7, 2020, we received a correspondence from Novonor informing us that, in order to fulfill certain commitments assumed with bankruptcy and non-bankruptcy creditors, thereunderit had taken preliminary measures to structure a process for the rightprivate sale of up to voteits total equity ownership in us, which, if implemented, would have resulted in the change of our corporate control. We cannot assure you that Novonor will not re-initiate any similar discussions or processes regarding the potential sale of its equity interest in us.
In addition, as disclosed by us on December 16, 2021, we were notified by Novonor and Petrobras that each of their governance bodies approved, on December 15, 2021, the execution of a term sheet providing for Novonor’s and Petrobras’ mutual commitment to accelerate their debt under this facilitytake necessary measures that could, if implemented, ultimately result in a change of control of our company (the “Notice”).
Pursuant to the Notice, Novonor and exercise their remedies in respectPetrobras agreed to seek the adoption of the collateralnecessary measures: (i) for the facility,sale, through this secondary public offering, of up to all our class A preferred shares held directly or indirectly by them; (ii) to enable Braskem’s migration to the Novo Mercado listing segment of the B3, including in relation to necessary changes to Braskem’s corporate governance, which shall be subject to applicable approvals at the appropriate time and negotiation of a new shareholders’ agreement to conform their rights and obligations to such amended governance structure; and (iii) after the conclusion of Braskem’s potential migration to the Novo Mercado listing segment, carry out the sale of the remaining common shares held directly or indirectly by them and issued by us. We are unable to predict the result of the implementation of the commitments assumed, as well as their possible impacts. On January 28, 2022, we received a communication sent jointly by our shareholders Novonor and Petróleo Brasileiro S.A. whereby they decided to temporarily cancel the shares offering due to volatility conditions in the financial and capital markets. Also, Novonor and Petrobras ratified their interest in resuming the equity offering in the future, at a time when a more favorable economic situation with less volatility is verified, and the term sheet entered into between the parties remains in force and the commitment of both to dispose of their respective equity interests in the Company through a secondary public offering(s), in addition to taking all necessary measures to enable the Company to migrate to the Novo Mercado segment of B3, including the Mexico Complexnecessary amendments to its governance, as the studies in this regard being carried out by the Company and referred to in the outstandingmaterial fact disclosed on Form 6-K on December 16, 2021 are concluded and to the extent that market conditions are favorable.
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If Braskem effectively migrates to the Novo Mercado in the future, all of our class A and class B preferred shares will be converted into common shares, resulting in Novonor no longer holding indirectly the majority of Braskem Idesa. Braskem Idesa has submitted requests for waiverour voting stock. Even if Novonor and Petrobras enter into a new shareholders’ agreement, the potential material sale of these defaultsour common shares held by either or both of them could leave Novonor and Petrobras with less than 50% plus one share of our voting stock.
Irrespective of whether the transactions described in the Notice are implemented, Novonor or Petrobras may initiate discussions regarding other transactions that could ultimately have similar effects in the future.
Should Novonor and Petrobras cease to and is currently negotiating such waiver with the intercreditor agent for this facility. However,hold more than 50% of our voting stock, there can be no assurance that the intercreditor agentinfluence by such shareholders will be maintained, including, without limitation, in relation to corporate governance, business plan, strategical, and key management matters. If a control group emerges with decision-making power over us, we may experience sudden and unexpected changes to our corporate governance and strategic policies, including through the replacement of directors and key executive officers.
The absence of a controlling shareholder or controlling group of shareholders may also affect our decision-making process, as the minimum quorum required by Brazilian law for certain decisions by shareholders may not be reached. In that case, we may be unable to effectively pursue our business plan and strategies. Additionally, we may be more vulnerable to a hostile takeover.
Additionally, all common and preferred shares issued by Braskem and held by NSP Inv. were pledged with fiduciary assignment (alienação fiduciária) as a collateral given under certain financing agreements entered into by Novonor and certain of its subsidiaries with specific non-bankruptcy creditors (credores extraconcursais). It is possible that, under certain circumstances, the pledge over such shares may be enforced, with the consequent sale of the shares, which could result in a change of Braskem's control and other consequences arising therefrom.
Any unexpected change to our management team, business plan and strategies, any dispute between our shareholders, or any attempt to acquire our control may divert our management’s attention and also have an adverse effect on our business plan, strategies, financial condition and results of operations.
Novonor and Petrobras have requested us to conduct studies for a potential migration of Braskem to the Novo Mercado listing segment of the B3, which, if completed, would lead to the conversion of all of our class A and class B preferred shares into common shares and the lenders will agreerevision of our corporate governance practices to extend such waiver, or if they agreeconform to extend such waiver, whether the waiver will include additional obligations with which Braskem IdesaNovo Mercado rules.
In order to be listed on the Novo Mercado listing segment of the B3, a company may only have common shares outstanding. If we were to migrate to the Novo Mercado listing segment of the B3, we would be required to comply.convert all of our class A and class B preferred shares into common shares. Such change to our capital structure would lead to significant changes to our corporate governance, which could have a potential impact on our ability to pursue and implement our business plan and strategies.
Our class A preferred shares may be converted into common shares that will be listed on the Novo Mercado listing segment of the B3 in Brazil. The changes to our corporate governance (including amendments to our by-laws) in connection with a potential migration to the Novo Mercado listing segment, as well as the terms and timing of such migration, including the conversion ratio of the class A and class B preferred shares into common shares, are still subject to studies, discussions and approvals involving us and our shareholders, and we cannot foresee or assure how this process will unfold or what its end result will be. The listing of our shares on the Novo Mercado listing segment of the B3 would require us to take certain steps related to corporate governance matters, including the approval, by our shareholders at a shareholders’ meeting, of the conversion of class A and class B preferred shares into common shares, migration to the Novo Mercado listing segment of the B3, and changes to our bylaws to comply with the Novo Mercado listing rules. In addition, pursuant to applicable Brazilian law, holders of our common shares are not entitled to the same dividend and liquidation preferences that holders of our preferred shares have.
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The intended corporate reorganization communicated by Novonor and Petrobras to us may not be approved or implemented, and the migration to the Novo Mercado listing segment of the B3 may not occur.
As disclosed by us on December 16, 2021, we were notified by Novonor and Petrobras that each of their governance bodies approved, on December 15, 2021, the execution of a term sheet providing for Novonor’s and Petrobras’ mutual commitment to take necessary measures that could, if implemented, lead to the migration of Braskem to the Novo Mercado listing segment of the B3 (the Notice, as defined above).
Pursuant to the Notice, Novonor and Petrobras agreed to seek the adoption of the necessary measures: (i) for the sale, through this secondary public offering, of up to all our class A preferred shares held directly or indirectly by them; (ii) to enable Braskem’s migration to the Novo Mercado listing segment of the B3, including in relation to necessary changes to Braskem’s corporate governance, which shall be subject to applicable approvals at the appropriate time and negotiation of a new shareholders’ agreement to conform their rights and obligations to such amended governance structure; and (iii) after the conclusion of Braskem’s potential migration to the Novo Mercado listing segment, carry out the sale of the remaining common shares held directly or indirectly by them and issued by us. We mayare unable to predict the result of the implementation of the commitments assumed, as well as their possible impacts. On January 28, 2022, we received a communication sent jointly by our shareholders Novonor and Petróleo Brasileiro S.A. whereby they decided to temporarily cancel the shares offering due to volatility conditions in the financial and capital markets. Also, Novonor and Petrobras ratified their interest in resuming the equity offering in the future, at a time when a more favorable economic situation with less volatility is verified, and the term sheet entered into between the parties remains in force and the commitment of both to dispose of their respective equity interests in the Company through a secondary public offering(s), in addition to taking all necessary measures to enable the Company to migrate to the Novo Mercado segment of B3, including the necessary amendments to its governance, as the studies in this regard being carried out by the Company and referred to in the material fact disclosed on December 16, 2021 are concluded and to the extent that market conditions are favorable.
A potential migration of Braskem to the Novo Mercado listing segment of the B3 is subject to certain measures and steps that would need to obtain waivers underbe taken and conditions that would need to be fulfilled, many of which are outside our other indebtednesscontrol, including the satisfactory conclusion of the current studies being conducted by us, as well as the approval by the applicable listing commission of the B3, the approval by our shareholders at a general shareholders’ meeting of Braskem’s revised by-laws to avoid being in default. If we breach any covenants under anycomply with the Novo Mercado listing rules, and the approval by the holders of our debt instrumentsclass A and seekclass B preferred shares at a waiver,separate shareholders’ meetings for each class.
As a result of the foregoing, we may not able to migrate to the Novo Mercado listing segment of the B3 in a timely manner, or at all.
We expect to lose the right of preference set forth in the current shareholders’ agreement with respect to new business opportunities in the petrochemical sector, and as result, Petrobras, which is our largest supplier of raw materials in Brazil, will be able to obtaininvest in the petrochemical sector independently from us and without first giving us a waiverpreference to do so.
Novonor and Petrobras are currently parties to a shareholders’ agreement that provides, among other matters, for the commitment between them to use their best efforts in the development of new business opportunities in the “petrochemical sector” (defined as business opportunities that involve: (i) the use of ethylene and propylene for the manufacture of PE, PP, PVC and cumene; (ii) petrochemical investments for the production of butadiene, paraxylene, PE, PP, PVC, cumene, PTA and PET, as well as the sale of these products; (iii) investments based on pyrolysis of hydrocarbons for the petrochemical industry; and (iv) other investments or products that Novonor and Petrobras may agree in good faith to include in the definition of the “petrochemical sector” relating to new production processes that may be developed in the future), with a right of preference given to us.
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Subject to some exceptions related to specific projects, if there is a direct or indirect business initiative, opportunity, undertaking, investment or participation that each of Novonor or Petrobras intends to pursue in the petrochemical sector (an “Opportunity”) that overlaps with certain objectives described in such shareholders’ agreement, the party that identified the Opportunity (the “Identifying Party”) shall grant Braskem a preference to explore the Opportunity.
If we do not express an interest in exercising the right of preference over a given Opportunity, and the Identifying Party subsequently decides to pursue such Opportunity, the Identifying Party shall offer us the right to market the products related to the Opportunity under mutually satisfactory market conditions.
On December 15, 2021, Novonor and Petrobras entered into an amendment to such shareholders’ agreement, generally providing that, if Braskem’s potential migration to the Novo Mercado listing segment of the B3 is not implemented, Braskem’s right of preference with regard to any future Opportunity will lapse by October 31, 2024. As a result, if the potential migration of Braskem to the Novo Mercado listing segment of the B3 is not completed by October 31, 2024, or, if before October 31, 2024 such migration is completed but such shareholders’ agreement expires or terminates for any reason and no new agreement on preference rights is agreed upon by the parties, Braskem would lose its right of preference with regard to any future Opportunity. The execution of such shareholders’ agreement amendment by Braskem, as an intervening party, is still subject to the appropriate governance approvals. On January 28, 2022, we received a communication sent jointly by our shareholders Novonor and Petróleo Brasileiro S.A. whereby they decided to temporarily cancel the shares offering due to volatility conditions in the financial and capital markets. Also, Novonor and Petrobras ratifeditheir interest in resuming the equity offering in the future, at a time when a more favorable economic situation with less volatility is verified, and the term sheet entered into between the parties remains in force and the commitment of both to dispose of their respective equity interests in the Company through a secondary public offering(s), in addition to taking all necessary measures to enable the Company to migrate to the Novo Mercado segment of B3, including making the necessary amendments to its governance, as the studies in this regard being carried out by the Company and referred to in the material fact disclosed on Form 6-K on December 16, 2021 are concluded and to the extent that market conditions are favorable.
The loss of the right of preference with regard to an Opportunity may result in a decision by Petrobras, which is Braskem’s largest supplier of raw materials in Brazil, to invest in the petrochemical sector, which may affect the implementation of our strategic and growth plans and adversely affect our revenues and results of operations.
We are subject to audit by the tax authorities in the jurisdictions in which we operate, which may adversely affect our operating results and financial condition.
We operate in and sell our products into several countries, such as Brazil, Argentina, Colombia, Chile, the United States, Germany, Netherlands, Mexico and Singapore, each with its own tax legislation and specific audit procedures. The tax legislations in each country are frequently ambiguous and subject to interpretation, which may lead to divergent views between the tax authorities in each country and us and/or our advisors.
We are routinely audited by the tax authorities in different countries and other sub-national authorities in Brazil and abroad. As a result of such audits, our tax positions may be questioned by the tax authorities. We cannot guarantee that we will make provisions in amounts sufficient for lawsuits resulting from inspection, nor that there will be no identification of additional tax exposure. As a result, the required lenders. If this occurs,increase in the amount of taxation as a result of disputes over our tax positions may adversely affect our business, operating results and financial condition.
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For more information on the impact of our tax disputes, see “Item 3. Key Information—Risks Relating to Us and the Petrochemical Industry—Unfavorable outcomes in pending or future litigation may reduce our liquidity and negatively affect our financial performance and financial condition” and “Item 8. Financial Information—Legal Proceedings.”
Changes in tax laws may result in increases in certain direct and indirect taxes, which could reduce our gross margin and negatively affect our overall financial performance.
We operate in several countries, such as Brazil, Argentina, Colombia, Chile, the United States, Germany, Netherlands, Mexico and Singapore. Besides, we wouldsell our products to several other countries through different commercial approaches.
Each of these countries has its own tax legislation, and these tax laws undergo frequent changes according to specific government purposes in each country. An example is the Brazilian government, which implements, from time to time, changes to tax regimes that may increase our and our customers’ tax burdens. These changes include modifications in the rate of assessments and, on occasion, enactment of temporary taxes.
We cannot predict the changes to Brazilian tax law or in any other jurisdiction in which we operate that may be proposed and enacted in default under such agreements, the lendersfuture. However, future changes in these tax laws may result in increases in our overall tax burden, which could exercise their rights or remedies, as described above,reduce our gross margin and we could be forced into bankruptcy or liquidation.negatively affect our overall financial performance.
Risks Relating to Brazil
Brazilian political, economic and economicbusiness conditions, and the Brazilian government’s economic and other policies, may negatively affect demand for our products as well as our net sales revenue and overall financial performance.
The Brazilian economy has been characterized by frequent and occasionally extensive intervention by the Brazilian government and unstable economic cycles. The Brazilian government has often changed monetary, taxation, credit, tariff and other policies to influence the course of Brazil’s economy. The Brazilian government’s actions to control inflation and implement other policies have at times involved wage and price controls, blocking access to bank accounts, imposing capital controls and limiting imports into Brazil.
Our results of operations and financial condition may be adversely affected by factors such as:
· | expansion or contraction of the Brazilian economy, as measured by rates of growth in GDP, which is expected to slightly increase in 2022, when compared to 2021; |
· | fluctuations in exchange rates; |
· | exchange control policies; |
· | interest rates; |
· | inflation; |
· | tax policies; |
· | liquidity of domestic capital and lending markets; and |
· | other political, diplomatic, social, |
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Brazilian markets have been experiencing heightened volatility due to the uncertainties derived from the ongoing Car Wash investigation, which is being conductedcorruption investigations by the Federal Prosecutor’s Office under Operations Car Wash, Zelotes, Greenfield, Efficiency and itsothers, and their impact on the Brazilian economy and political environment. Certain current and former members of the Brazilian government and of the legislative branch, as well as former senior officers of the state-owned oil company and our shareholder Petrobras have faced allegations ofare being prosecuted for political corruption. These government officials and former senior officers allegedly accepted bribes by means of kickbacks on contracts granted by Petrobras to several infrastructure, oil and gas and construction companies, including Novonor, our controlling shareholder Odebrecht S.A.shareholder. We cannot currently predict how the Operation Car Wash investigation, related investigations and any future decisions and actions by authorities or developments in relation to our shareholders, may impact our company.us. The profits of these kickbacks allegedly financed the political campaigns of political parties of the current federal, state and city governments that were unaccounted for or not publicly disclosed, as well as served to personally enrich the recipients of the bribery scheme. As a result of the ongoing Operation Car Wash investigation, a number of current and former senior politicians, including congressman and officers of the major state-owned companies in Brazil resigned or have been arrested. Senior elected officials and other public officials in Brazil are being investigated for allegations of unethical and illegal conduct identified during the Operation Car Wash investigation.
The potential outcome of these investigations is uncertain, but they have adversely affected and we expect that they will continue to adversely affect the Brazilian markets and trading prices of securities issued by Brazilian issuers. We cannot predict whether the allegations will lead to further political and economic instability or whether new allegations against government officials or other companies in Brazil will arise in the future. In addition, we can neither predict the outcome of any such allegations nor their effect on the Brazilian economy. The development of those unethical conduct cases could have a material adverse effect.
In addition, the Brazilian economy continues to be subject to the effectspolitics have been characterized by considerable instability in recent years. The conviction of the outcome of Operation Car Wash. In May 12, 2016, the Brazilian Senate voted to beginFormer President Luiz Inácio Lula da Silva, its review of the impeachment proceedings against President Dilma Rousseff, who was suspended from office. After the legallater reversion and administrative process for the impeachment, Brazil’s Senate removed President Dilma Rousseff from office on August 31, 2016 for infringing budgetary laws. Michel Temer, the former vice president, who has run Brazil since Ms. Rousseff’s suspension in May 2016, was
sworn in by the Senate to serve out the remainder of the presidential term until 2018. However, in May 2017, President Michel Temer was accused of alleged political corruption in connection with theother potential ongoing Operation Car Wash. The resolution of thejudicial appeals may further increase political and economic crisisinstability. In addition, following a divisive presidential race, former Congressman Jair Bolsonaro became Brazil’s president on January 1, 2019. The political divisions in Brazil depends on the outcome of Operation Car Wash, including current investigations into President Michel Temer’s alleged involvement,that arose prior to 2018 elections will continue during 2022, when a new presidential election will occur. The presidential election outcomes could result in congressional deadlock, political unrest and approval of reformsmassive demonstrations and/or strikes that are expected to be promotedcould materially adversely affect our operations.
Additionally, uncertainties in due course. The President of Brazil has power to determine governmental policies and actions that relaterelation to the Brazilian economyimplementation by a new government of changes relating to monetary, tax, labor and consequently,pension funds policies as well as to the relevant legislation may contribute to economic instability. These uncertainties and measures adopted by the new administration could materially adversely affect theour operations and financial performancemay increase market volatility of businesses, including us. The impeachment proceedings against President Dilma RousseffBrazilian securities issued abroad.
Imports of suspension PVC from the United States and Mexico have adversely affected,been subject to anti-dumping duties of 16.0% and we expect18.0%, respectively, that they, together with the potential for future impeachment proceedings against President Michel Temer, will continue to adversely affectwere imposed by the Brazilian marketsForeign Trade Chamber (Câmara de Comércio Exterior, or “CAMEX”). Since 2008, imports of suspension PVC from China have also been subject to a duty of 21.6. In August 2020, the Brazilian government temporarily suspended the application of these measures due to doubts about the feasibility of China returning to export to Brazil. However, after a strong increase in Chinese imports, in September 2021, anti-dumping measures were reapplied at the request of Brazilian industry. The anti-dumping measures applied to suspended PVC imports from the United States and trading pricesMexico would initially expire in September 2021, but we requested the extension of securities issuedthese measures for additional 5 years. Currently, our request is under analysis by the Brazilian issuers, including us. We cannot predictgovernment until September 2022, when a decision must be taken. During this period, the effectsanti-dumping measures in question remain in effect. The anti-dumping measures applied to suspended PVC imports from China were recently renewed and remain in effect until August 2025.
Additionally, in December 2010, CAMEX imposed an anti-dumping duty of 10.6% on PP imports from the United States, which was extended in November 2016. In August 2014, the Brazilian government imposed anti-dumping duties on PP imports from South Africa, India and South Korea of 16.0%, 6.4% to 9.9%, and 2.4% to 6.3%, respectively. These measures were revised in 2020, when the Brazilian government decided to extend the anti-dumping measures applied to PP imports from India, reduce the duties applied to South Africa to 4.6%, and remove the duties applied to PP imports from South Korea. The anti-dumping measures applied to PP imports from the United States would expire in November 2021, but we requested the extension of these measures for additional 5 years. Currently, our request is under analysis by the Brazilian government until November 2022, when a decision must be taken. During this period, the anti-dumping measures in question remain in effect. The anti-dumping measures applied to PP imports from South Africa and India expire in December 2025.
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Finally, in December 2020, the Brazilian government temporarily reduced to 4%, for an initial period of three months initially, for a quota of 160,000 tons, the import tariffs levied on imports of PVC resins from countries that do not benefit from preferential import rates in Brazil. The Brazilian government extended such reduction in March 2021 for three additional months and 160,000 additional tons. In March 2021, the Brazilian government also temporarily reduced to 0%, for an initial period of three months, for a quota of 77,000 tons, the tariffs levied on imports of PP from countries that do not benefit from preferential import rates in Brazil. In November 2021, the Brazilian government enacted Resolution GECEX No. 269 providing for temporary reduction in Brazil by 10% of the recent and potential future impeachment proceedings andimport tax rates set forth in Resolution No. 125 of the Foreign Trade Chamber, of December 15, 2016. As a result, the current ongoing political uncertaintiesrates for PP, PE and PVC resins plummeted from 14% to 12.6%. The new rates came into force on November 12, 2021 and shall be effective until December 31, 2022, at first.
In 2019, 31.4% of Brazilian PE, PP and PVC resins were imported products, which reflected an 8.5% annual increase in the volume of resins imported.
In 2020, 32.4% of Brazilian economy.PE, PP and PVC resins were imported products, which reflected an 11% annual increase in the volume of resins imported.
In 2021, approximately 36.4% of Brazilian PE, PP and PVC resins were imported, which reflected a 17.1% annual increase in the volume of resins imported.
Changes in industrial policy and related actions undertaken by the Brazilian government and local state governments in Brazil may negatively affect demand for our products as well as our net sales revenue and overall financial performance.
We currently benefit from certain industrial policies and related actions undertaken by the Brazilian government and local state governments in Brazil intended to strengthen the domestic economy and certain local industries. Some of these policies and actions have recently included reductions in payroll taxes for plastic manufacturers, a program to improve the competitiveness of Brazilian producers in the export markets by refunding, in part or in full, the federal taxes levied on their export sale, intervention of the federal government to reduce incentives to imports at local ports, increases in import duties on certain products, including polyethylene, and the reduction in the rates of the Social Integration Program (Programa de Integração Social), or PIS,PIS), a federal value-added tax, and Contribution for Social Security Financing (Contribuição para Financiamento da Seguridade Social), or COFINS,COFINS), taxes on feedstock purchases by first- and second-generation petrochemical producers.producers, reduction of the tax burden and tax incentives in certain regions to foster local industries.
These taxes on feedstock purchase were set atIn July 2021, the President of Brazil sanctioned Conversion Bill No. 12/2021, arising from the approved amendments of Provisional Measure No. 1,034/2021, later converted into Law No. 14.183/2021, providing for the gradual reduction of the petrochemical industry special regime (REIQ) until January 1, 2025, when it shall be terminated.
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In December 2021, the Brazilian government issued Provisional Measure No. 1095/2021 amending Law No. 10,865, of April 30, 2004, and Law No. 11,196, of November 21, 2005, in order to extinguish REIQ’s special taxation regime, extinguishing it from April 1, 2022. In order to be effective, the Chamber of Deputies and the Federal Senate must approve such regulation by June 1, 2022. Pursuant to Brazilian laws, the provisional measure must be converted into law to continue to produce effects after it expires. In addition to following legislative proceedings in order to extend its effects, we are evaluating the filing of a ratelawsuit since the tax benefit was given for a certain and determinate term, which is protected under Article 178 of 5.6% for naphthathe Brazilian constitution and 9.25% for other feedstocks prior to June 2013, were lowered to 1% in 2015, increased to 3% in 2016 and 5% in 2017 and will be increased to 5.6% in 2018. by judicial precedent.
We cannot predict or control which policies will be renewed or discontinued and whether future changes to Brazilian industrial policy will be proposed and enacted in the future. If industrial policies that benefit us expire, or policies detrimental to us are implemented, our business, results of operations and financial condition may be adversely affected.
Fluctuations in thereal/U.S. dollar exchange rate could increase inflation in Brazil, raise the cost of servicing our foreign currency-denominated debt and negatively affect our overall financial performance.
The exchange rate between thereal and the U.S. dollar and the relative rates of depreciation and appreciation of thereal have affected our results of operations and may continue to do so.
The Brazilian currencyreal has been devalued on several occasions. Throughout the last several decades, the Brazilian government has implemented various economic plans and various exchange rate policies, including sudden devaluations, periodic mini-devaluations (during which the frequency of adjustments has ranged from daily to monthly), exchange controls, dual exchange rate markets and a floating exchange rate system. From time to time, there have been significant fluctuations in the exchange rate between the Brazilian currency and the U.S. dollar and other currencies. TheOn average, the real depreciated by 8.9% against the U.S. dollar14.5% during 2012,2018, depreciated by 14.6%7.9% during 2013,2019, depreciated by 13.4%30.7% during 2014,2020 and depreciated by 47.0%4.6% during 2015 and appreciated by 16.5% during 2016.2021.
Depreciation of thereal relative to the U.S. dollar also could result in inflationary pressures in Brazil by generally increasing the price of imported products and services. On the other hand, the appreciation of thereal against the U.S. dollar may lead to a deterioration of the country’s current account and the balance of payments and may dampen export-driven growth.
We had total foreign currency-denominated debt obligations, all of which were denominated in U.S. dollars, in an aggregate amount of R$18,176.346,743.5 million (US$5,577.18,376.2 million) as of December 31, 2016, representing 77.9% of our consolidated indebtedness, net of transaction costs. This indebtedness does not include (i)2021 (including an aggregate amount of R$852.612,311.5 million (US$261.62,206.2 million) outstanding as of December 31, 20162021 in connection with derivatives transactions [(including interest rate swaps, exchange rate swaps and currecny options) and (ii) an aggregate amount
of R$10,437.8 million (US$3,202.7 million) outstanding as of December 31, 2016 in connection with the Braskem Idesa Financing (as defined elsewhere in this annual report), which includes an aggregate amount of R$302.6 million (US$92.8 million) outstanding as of December 31, 2016,our secured debt related to a guarantee by Braskem S.A.our Mexico Complex), representing 98.6% of the Braskem Idesa Working Capital Facility (as defined elsewhere in this annual report). For more information regarding this facility, see “Item 5. Operating and Financial Review and Prospects—Indebtedness and Financing Strategy—Short-Term Indebtedness.”our consolidated indebtedness. As of December 31, 2016,2021, we had R$3,407.86,683.4 million (US$1,045.61,229.9 million) in foreign currency-denominated cash and cash equivalents, not including the aggregate amount of R$201.61,773.3 million (US$61.9317.8 million) of Braskem Idesa’s cash and cash equivalents.
A significant depreciation of thereal in relation to the U.S. dollar or other currencies could increase our financial expenses as a result of foreign exchange losses that we must record and could reduce our ability to meet debt service requirements of our foreign currency-denominated obligations. To enable us to more efficiently manage the effects of exchange rate fluctuations on our results, in 2013 we decided to designate part of our U.S. dollar-denominated liabilities as a hedge for our future exports. However, we cannot assure that the designation of part of our U.S. dollar-denominated liabilities as a hedge for our future exports will be enough to not affect our financial results.
The prices of naphtha, our most important raw material, and of some of our other raw materials, are denominated in or linked to the U.S. dollar. NaphthaFor the year ended December 31, 2021, naphtha accounted, directly and indirectly, for 42.7%37.0% of our consolidated cost of sales and services rendered in 2016.products sold. When thereal depreciates against the U.S. dollar, the cost inreais of our U.S. dollar-denominated and U.S. dollar-linked raw materials increases, and our operating income inreais may decrease to the extent that we are unable to pass on these cost increases to our customers.
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The Brazilian government’s actions to combat inflation may contribute significantly to economic uncertainty in Brazil and reduce demand for our products.
Historically, Brazil has experienced high rates of inflation. Inflation, as well as government efforts to combat inflation, had significant negative effects on the Brazilian economy, particularly prior to 1995. The inflation rate, as measured by the General Price Index—Internal Availability (Índice Geral de Preços—Disponibilidade Interna,), or theIGP-DI, “IGP-DI”), reached 2,708% in 1993. Although inflation rates have been substantially lower since 1995 than in previous periods,years, inflationary pressures persist. Inflation rates, as measured by theIGP-DI, were 8.1%negative 0.4% in 2012, 5.5%2017, 7.1% in 2013, 3.8%2018, 7.3% in 2014, 10.7%2019, 23.1% in 20152020 and 7.2%17.7% in 2016.2021. The Brazilian government’s measures to control inflation have often included maintaining a tight monetary policy with high interest rates, thereby restricting availability of credit and reducing economic growth. Inflation, actions to combat inflation and public speculation about possible additional actions also may contribute to economic uncertainty in Brazil and to heightened volatility in the Brazilian securities markets.
Brazil may experience high levels of inflation. Increasing prices for petroleum, the depreciation of thereal and future governmental measures seeking to maintain the value of thereal in relation to the U.S. dollar may trigger increases in inflation in Brazil. Periods of higher inflation may slow the rate of growth of the Brazilian economy, which would lead to reduced demand for our products in Brazil and decreased net sales revenue. Inflation is also likely to increase some of our costs and expenses, which we may not be able to pass on to our customers and, as a result, may reduce our profit margins and net income. In addition, high inflation generally leads to higher domestic interest rates, and, as a result, the costs of servicing ourreal-denominated debt may increase, causing our net income to be reduced. Inflation and its effect on domestic interest rates can in addition, lead to reduced liquidity in the domestic capital and lending markets, which could adversely affect our ability to refinance our indebtedness in those markets. Any decline in our net sales revenue or net income and any deterioration in our financial condition would also likely lead to a decline in the market price of our securities, including class A preferred shares and the ADSs.
Fluctuations or changes in, or the replacement of, interest rates could raise the cost of servicing our debt andor reduce our financial revenue, negatively affectaffecting our overall financial performance.
Our financial expenses are affected by changes in the interest rates that apply to our floating rate debt. As of December 31, 2016,2021, we had, among other debt obligations, R$1,525.2 million of loans and financing that were subject to the Long-Term Interest Rate (Taxa de Juros de Longo Prazo), or TJLP; R$1,736.6 million of loans and financing that were subject to the Interbank Deposit Certificate (Certificado de Depósito Interbancário), or CDI, rate; R$602.6million of loans and financing that were subject to the Special System for Settlement and Custody (Sistema Especial de Liquidação e Custódia), or SELIC; and R$2,571.7 million of loans and financing that were subject to the London Interbank Offered Rate, or LIBOR.obligations:
· | R$46.9 million of loans and financing that were subject to the Interbank Deposit Certificate (Certificado de Depósito Interbancário, or “CDI”), rate; |
· | R$590.0 million of loans and financing that were subject to the Extended National Consumer Price Index (Índice de Preços ao Consumidor Amplo, or “IPCA”); and |
· | R$5,552.9 million of certain of our loans and financing that were subject to the London Interbank Offered Rate (LIBOR), maturing between 2026 and 2031. |
The TJLP includes an inflation factor and is determined quarterly by the Central Bank. In particular, the TJLP, the CDI and the SELIC rateIPCA rates have fluctuated significantly in the past in response to the expansion or contraction of the Brazilian economy, inflation, Brazilian government policies and other factors. See “Item 11. Quantitative and Qualitative Disclosures about Market Risk.”. A significant increase in any of these interest rates could adversely affect our financial expenses and negatively affect our overall financial performance.
Due to the concerns regarding LIBOR, there have been market initiatives to enact its replacement. In June 2021, the Federal Reserve’s Alternative Reference Rates Committee selected the Secured Overnight Financing Rate (“SOFR”), as the preferred alternative to U.S. Dollar LIBOR. Subsequently, a schedule has been announced for the cessation of LIBOR. The ICE Benchmark Association, or IBA, has announced that it has ceased to publish the 1-week and 2-month LIBOR after December 31, 2021. The remaining tenors of LIBOR would remain in publication until June 2023, on a representative basis; after this date, publication will cease altogether. New risk-free rates, or RFRs, are also being introduced alongside SOFR for interbank offered rates in other currencies, such as the Euro, British pound, Swiss franc and Japanese yen. Due to these changes, interest rates on future indebtedness may be adversely affected, in which case we would need to renegotiate the terms of our existing facilities to replace LIBOR with the new standard, and to otherwise agree with lenders, trustees or agents, as applicable, on a new means of calculating interest. The elimination of LIBOR or any other changes or reforms to the determination or supervision of LIBOR could have a material adverse effect on our financial expenses and/or financial revenue and materially adversely affect our overall financial performance.
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Brazilian government exchange control policies could increase the cost of servicing our foreign currency-denominated debt, adversely affect our ability to make payments under our foreign currency-denominated debt obligations and impair our liquidity.
The purchase and sale of foreign currency in Brazil is subject to governmental control. The current laws and regulations governing the Brazilian foreign exchange system allow the purchase and sale of foreign currency and the international transfer of reais by any person or legal entity, regardless of the amount, subject to certain regulatory procedures. Many factors could cause the Brazilian government to institute more restrictive exchange control policies, including the extent of Brazil’s foreign currency reserves, the availability of sufficient foreign exchange on the date a payment is due, the size of Brazil’s debt service burden relative to the economy as a whole, Brazil’s policy towards the International Monetary FundIMF and political constraints to which Brazil may be subject. A more restrictive policy could increase the cost of servicing, and thereby reduce our ability to pay, our foreign currency-denominated debt obligations and other liabilities.
Our foreign-currency debt denominated in U.S. dollars represented an aggregate of 77.9%98.6% of our indebtedness on a consolidated basis as of December 31, 2016,2021, including transaction costs. This indebtedness does not include (i) the aggregate amount of R$852.6million (US$261.6 million) outstanding as of December 31, 2016 in connection with derivatives;costs and (ii) the aggregate amount of R$10,437.8 million (US$3,202.7 million) outstanding as of December 31, 2016 in connection with the Braskem Idesa Financing, which includes the aggregate amount of R$302.6 million (US$92.8 million) outstanding as of December 31, 2016 related to the Braskem Working Capital Facility, for which Braskem S.A. is guarantor. For more information regarding this facility, see “—Indebtedness and Financing Strategy—Short-Term Indebtedness.”Financing. If we fail to make payments under any of these obligations, we will be in default under those obligations, which could reduce our liquidity as well as the market price of our securities, including our class A preferred shares and the ADSs.
Changes in tax laws may result in increases in certain direct and indirect taxes, which could reduce our gross margin and negatively affect our overall financial performance.
The Brazilian government implements from time to time changes to tax regimes that may increase our and our customers’ tax burdens. These changes include modifications in the rate of assessments and, on occasion, enactment of temporary taxes, the proceeds of which are earmarked for designated governmental purposes. We cannot predict the changes to Brazilian tax law that may be proposed and enacted in the future. However, future changes in Brazilian tax law may result in increases in our overall tax burden, which could reduce our gross margin and negatively affect our overall financial performance.
Risks Relating to Mexico
Political conditions in Mexico could materially and adversely affect Mexican economic policy and, in turn, our operations.
Political events in Mexico may significantly affect Mexican economic policy and, consequently, our operations. On December 1, 2012, Mr. Enrique Peña Nieto, a member of the Revolutionary Institutional Party (Partido Revolucionario Institucional, or PRI), formally assumed office for asix-year term as the President of Mexico. As of the date of this annual report, no single political party has a majority in either chamber of the Mexican Congress. The absence of a clear majority and the lack of alignment between the legislature and the administration could result in deadlock and prevent the timely implementation of political and economic reforms, which in turn could have an adverse effect on Mexican economic policy. We cannot assure you that the current political situation or future developments in Mexico, over which we have no control, will not have an adverse effect on our business, financial condition or results of operations. Further, we cannot assure you that any new government policies will not adversely affect our business, financial condition or results of operations.
Political and economic conditions and government policies in Mexico, including political interferences in state-owned companies such as Pemex TRI and Cenagas, and elsewhere may have a material impact on our operations.
A deteriorationDeterioration in Mexico’s economic condition, social instability, political unrest or other adverse social developments in Mexico could adversely affect our business and financial condition. These events could also lead to increased volatility in the financial markets, thereby affecting our ability to maintain financial liquidity and service our debt. Additionally, the Mexicanspending cuts related to Pemex or other government recently cut spendingexpenditures, or lack of investments in response to a downward trend in international crude oil prices,natural gas and it may cut spending in the future. These cutsethane recovery, could adversely affect Pemex, Pemex’s ability to produce and recover ethane, the Mexican economy and, consequently, our business, financial condition, operating results and prospects.
In the past, Mexico has experienced several periods of slow or negative economic growth, high inflation, high interest rates, currency devaluation and other economic problems. These problems may worsen or reemerge, as applicable, in the future and could adversely affect our business and ability to service our debt. A worsening of international financial or economic conditions, such as a slowdown in growth or recessionary conditions in Mexico’s trading partners, including the United States, or the emergence of a new financial crisis, could have adverse effects on the Mexican economy, our financial condition and our ability to service our debt.
Furthermore, our long-term supply agreement to purchase ethane from Pemex TRI, a state-owned Mexican company,entity, could be modified through regulatory means, terminated or jeopardized by them as a result of political pressure to not comply with the agreement, to change the terms of the agreement, expropriation measures, or change in laws regulations by the Mexican government. Any non-compliance, modification, termination or interruption of this supply agreement could have a material adverse effect on the results of our operations or our financial condition.
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For additional information, see “—We depend on ethane supplied by Pemex TRI in Mexico,” “—We rely on limited or sole-source suppliers for our raw materials, inputs and energy, including transportation thereof” and “We depend on ethane supplied by Pemex TRI in Mexico.”
Mexico has experienced adverse economic conditions, which may adversely affect our business.
Mexico has historically experienced uneven periods of economic growth. Mexican GDP increased by 2.2% in 2018, before two subsequent decrease by 0.1% and by 8.2% in 2019 and 2020, respectively, and then increasing by 5.0% in 2021. We cannot assure you that these estimates and forecasts will prove to be accurate. Any future economic downturn, including downturns in the United States, Europe, Asia or anywhere else in the world, could affect our financial condition and results of operations.
Decreases in the growth rate of the Mexican economy, periods of negative growth or reductions in disposable income may result in lower demand for our products. The Mexican government recently cut spending in response to an austerity policy and a downward trend in international crude oil prices, and it may further cut spending in the future. These cuts could adversely affect the Mexican economy and, consequently, our business, financial condition, operating results and prospects. In addition, there can be no assurance that the recent Mexican sovereign debt rating downgrades will not adversely affect our business, financial condition or results of operations.
Our revenues are subject to risk of loss from unfavorable political and diplomatic developments, social instability, and changes in governmental policies, including expropriation, nationalization, international ownership legislation, interest-rate caps and tax policies. As a result, the actions of the Mexican government concerning the economy and regulating certain industries could have a significant effect on Mexican private sector entities, including us, and on market conditions, prices and returns on Mexican securities, including our securities.
A renegotiation of commercial treaties or changes in foreign policy among Mexico, Canada and the United States may negatively affect our business, financial condition, results of operations and prospects.
In recent years, economic conditions in Mexico have become increasingly correlated with economic conditions in the United States as a result of the North American Free Trade Agreement, or NAFTA, and increased economic activity between the two countries. Adverse economic conditions in the United States or other related events could have a significant adverse effect on the Mexican economy, which could adversely affect our business. As a result of talks to renegotiate NAFTA, on November 30, 2018, the United States, Canada, and Mexico signed the United States-Mexico-Canada Agreement (the “USMCA”). The USMCA replaced NAFTA and, although it entered into force on July 1, 2020, it may fail to be implemented. If such event occur, it could adversely impact our business and operations. Although the USMCA, which replaced NAFTA as the principal trade agreement between the U.S., Mexico and Canada, went into force in July 2020, its long-term impact on our operations remains uncertain. With the current U.S. Administration having taken power in January 2021, the status of U.S. trade policy and U.S. involvement in international trade agreements going forward remains to be determined and could drastically shift in a manner that increases or mitigates adverse effects on our businesses. The last U.S. Administration also implemented changes to U.S. immigration policy and other policies that impact trade, including increasing tariffs, and the current U.S. Administration has taken steps to reverse some of these changes and could take other relevant measures concerning these matters. Such policy changes or other measures could adversely affect imports and exports between Mexico and the U.S. and negatively impact the U.S., Mexican and other economies and the companies with whom we conduct business, which could materially adversely affect our business, financial condition, results of operations, cash flows and/or prospects.
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Since 2003, exports of petrochemical products from Mexico to the United States have enjoyed a zero-tariff rate under NAFTA. Any action taken by the current U.S., Mexico or Canada administrations, including changes to or non-compliance with the USMCA requirements that would increase the tariff rate between the countries, could have a negative impact on the Mexican economy, such as reductions in the levels of remittances, reduced commercial activity or bilateral trade, or declining foreign direct investment in Mexico. In addition, increased or perceptions of increased economic protectionism in the United States and other countries could potentially lead to lower levels of trade and investment and economic growth, which could have a similarly negative impact on the Mexican economy. These economic and political consequences could adversely affect our business, results of operations and financial condition.
Our profitability is affected by numerous factors including demand for the products we provide. The demand for our products in Mexico, Central and South America, the Caribbean, Europe the U.S. and in the other countries in which we operate may be adversely affected by the tightening of credit markets and economic downturns. As a global company, we depend on the demand from customers in Mexico, the U.S. and the other countries in which we operate, and reduced consumer spending that falls short of our projections could adversely affect our business, results of operations and financial condition.
Political events in Mexico could affect the Mexican economic policy and our business, financial condition and results of operations.
In Mexico, political instability has been a determining factor that investors, in general, take into consideration when deciding on business investment. Political circumstances in Mexico may significantly affect Mexican economic policies, which could affect our operations. Significant changes in laws, public policies and/or regulations, or the use of public referendums (consultas populares) could affect Mexico’s political and economic situation, which could, in turn, adversely affect our business. We cannot provide any assurances that political developments in Mexico, over which we have no control, will not have an adverse effect on our business, results of operations, financial condition and prospects.
We cannot assure you that changes in the Mexican federal government policies or regulations will not adversely affect our business, financial condition and results of operations.
In general, changes that may be made to the existing legal framework, as well as the impact of new regulations, may result in increased costs to us or our customers and may require us to amend existing permits, secure additional permits to operate natural gas, ethane or render our services, or take additional measures to secure permits for our projects. Specifically, Mexican tax legislation is subject to continuous change, and we cannot assure you that the Mexican government will maintain existing political, social, economic or other policies or that such changes would not have a material adverse effect on our business, financial condition, results of operations and prospects.
The administration of Mr. López Obrador has taken actions that have significantly undermined investors’ confidence in private ventures following the results of public referendums, such as the cancellation of public and private projects authorized by previous administrations, including the construction of the new Mexican airport, which immediately prompted the revision of Mexico’s sovereign rating from stable to negative and the cancellation of the construction of a brewing facility of “Constellation Brands” in Baja California, Mexico. Investors and credit rating agencies may be cautious about the president’s political party administration’s policies, which could contribute to a decrease in the Mexican economy’s resilience in the event of a global economic downturn. We cannot assure you that similar measures will not be taken in the future, which could have a negative effect on Mexico’s economy.
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Additionally, President López Obrador has conducted and expressed his intentions to move forward with certain substantial changes in Mexico’s policies and laws, including various austerity measures, the cancellation of government trusts, amendments to the pension system and the national energy generation and distribution system, among others. Also, he has declared that he will seek government de-centralization, meaning that there could be important changes to the constitution, laws, policies and regulations, or a decrease or elimination of the independence of government agencies, which may change the economic and political situation of the country. We cannot predict if the new administration will implement substantial changes in law, policy and regulations pertaining to the petrochemical sector in Mexico, any of which could negatively affect our business, financial condition, operations and prospects. For instance, in October 2021, President López Obrador submitted an initiative to the Mexican Congress, aiming to carry out substantial reforms at the Mexican energy generation and distribution framework. Such reforms imply potential significant changes to the Federal Electricity Commission (Comisión Federal de Electricidad), and other energy authorities and agencies and individuals participating in the Mexican power sector. If approved under such proposed terms, the effects that such reforms may have in our business and operations are still unknown and could adversely affect our business, financial condition and results of operations.
Measures adopted by the Mexican government with respect to the economy and productive state-owned companies could have a significant effect on the private sector companies in general, including the Company, as well as on Mexican market conditions, securities and commodities prices and the return on investment of certain Mexican securities issuers.
Developments in other countries could adversely affect the Mexican economy, our financial performance and the price of our shares.
The Mexican economy and the market value of Mexican companies may be affected to varying degrees affected by global economic and market conditions, globally,and the economic and market conditions in other emerging market countries and major trading partners, in particular the United States. In recent years, economic conditions in Mexico have become increasingly correlated with economic conditions in the United States as a result of the North American Free Trade Agreement, or NAFTA, increased economic activity between the two countries, and the remittance of funds from Mexican immigrants working in the United States to Mexican residents. Therefore, adverse economic conditions in the United States, the termination of, or modifications to, NAFTA or its successor agreement, USMCA, or other related events, including global trade disputes and instability, could have a significant adverse effect on the Mexican economy. We cannot assure you that events in other emerging market countries, in the United States or elsewhere will not adversely affect our financial performance.
Mexico has experienced a period of increasingincreased criminal activity, whichincluding violence associated with drug trafficking and organized crime, and such activities could adversely affect our operations.financing costs and exposure to our customers and counterparties.
InDuring recent years, Mexico has experienced a period of increasingincreased criminal activity and violence, primarily due to organized crime. This violence has taken place throughout Mexico, including the activitiesState of drug cartels and related criminal organizations. In addition,Veracruz, where our Mexico Complex is located. Despite the developmentefforts of the illicit market in fuels in Mexico has led to increases in theft and illegal trade in the fuels that Pemex TRI, our principal supplier in Mexico, produces. In response, the Mexican government has implemented variousto increase security measures and strengthenedby strengthening its military and police forces, aimed at decreasing incidentsdrug-related violence and crime continues to threaten the Mexican economy and the peace and security of theftcertain regions, resulting in economic and otherpolitical instability and uncertainty in Mexico. Systematic criminal activity directedand isolated criminal events could interrupt Braskem Idesa’s operations, affect its ability to generate revenue and increase the cost of its operations. Continued violence could result in the Mexican government adopting additional security measures, such as transport restrictions, prohibiting the transit of goods and people at petrochemical facilitiescertain times, and petrochemical products. Despitecross-border trade. We cannot assure you that these efforts, criminal activity continues to exist in Mexico, some of which may target our facilities and products, including thefts of our products while transported by truck or rail, or those of Pemex TRI and other suppliers. These activities, their possible escalation and the violence associated with them, mayover which we have no control, could have a negative impact on the business environment in which we operate, and therefore on our financial condition and results of operations.operations and financial condition.
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We may interpret certain provisions of our ethane supply agreement differently than our counterparty Pemex TRI.
Our Mexico Segment currently sources part of the ethane for the production of polyethylene at our Mexico Complex from Pemex TRI pursuant to the ESA and the Amended ESA. The ESA, including the Amended ESA, is a complex agreement and, for that reason, we may interpret certain of its provisions differently than Pemex TRI does. For example, if Pemex TRI fails to supply a determined percentage of the ethane contractually specified under the Amended ESA for six consecutive months, we will have the right to terminate the Amended ESA and require Pemex TRI to pay to the other parties involved in the project an amount equal to the termination value of the project (the value of which is determined pursuant to the ESA and takes into consideration, among other factors, the outstanding debt of the project and the amount invested in the project at such time). A difference of interpretation between us and Pemex TRI of certain provisions of the Amended ESA, including the termination provisions, could have an adverse effect on our results of operations and financial position. Further, under Mexican law any dispute regarding the interpretation of the Amended ESA shall be resolved by mediation and/or arbitration before International Chambers of Commerce.
We source part of our ethane feedstock from Pemex TRI in Mexico, which we expect to be our primary source of ethane until the Ethane Import Terminal is operational.
We currently source part of our supply of ethane, which is the primary feedstock used in our polyethylene production process, from Pemex Transformación Industrial, or Pemex TRI, a state-owned Mexican entity, which is a subsidiary of Petróleos Mexicanos (“Pemex”), the state-owned Mexican oil and gas company. Pursuant to the Amended ESA, ethane prices negotiated under such an agreement are referenced to the Mont Belvieu purity ethane price, which is a U.S. dollar-based international reference price. As a result, in case one or more of the following events occurs, our production volumes, net revenue and profit margins would likely decrease, materially adversely affecting our overall financial performance:
· | significant damage to Pemex TRI’s gas processing centers or to any of the pipelines connecting our complex to Pemex TRI’s facilities, whether as a consequence of an accident, natural disaster, fire or otherwise; |
· | any further decrease in the amount of ethane currently being delivered by Pemex TRI to our petrochemical complex; |
· | any dispute with Pemex TRI and Pemex Exploración y Producción (“Pemex PEP”), (which engages in exploration and production activities) related to the Amended ESA, including the non-recognition or non-payment of shortfall penalties and the decrease or failure to supply the contracted volume of ethane; |
· | any material default by us or by Pemex TRI to supply ethane in the contractually agreed volumes or qualities negotiated under the ESA; |
· | any repudiation or termination by Pemex TRI or by us of the Amended ESA, or any repudiation or termination by other Mexican state-owned companies of related supply (including those for the transportation of supplies) agreements, such as Cenagas (Centro Nacional de Control del Gas Natural); or |
· | delays in the availability of ethane of acceptable quality, or our inability to obtain acceptable ethane in the quantities and quality that we need, or at all, or at reasonable prices. |
As provided in the Amended ESA, any daily volume rejected by us must be purchased in installments in subsequent deliveries until the deficit has been resolved, and the same mechanics apply to Pemex TRI delivery obligations. If Pemex TRI delivers to us less than the volumes required under the ESA and fails to compensate for the shortfall in subsequent deliveries, it needs to pay compensation for shortfall penalties to us.
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Furthermore, the Amended ESA could also be impacted by changes in laws and regulations, terminated or repudiated by Pemex TRI as a result of political pressure or be subject to expropriation or other adverse measures by the Mexican government or government entities. We may also renegotiate the terms of the Amended ESA, voluntarily or as a result of changes in laws and regulations, or otherwise.
The provisions for early termination by Pemex TRI under the Amended ESA include: (i) our failure to pay that continues for more than six months after notice; or (ii) an emergency stoppage in operations or force majeure event due to which our insurers consider the petrochemical complex to be a total loss, or after which we cannot or do not resume operations for 48 months.
Delays in the availability of ethane of acceptable quality, or our inability to obtain acceptable ethane in the quantities and quality that we need or at all, or at reasonable prices, have in the past and would in the future have a material adverse effect on our business, results of operations and financial condition.
Risks Relating to Our Equity and Debt Securities
All of the shares issued by Braskem and owned by NSP Inv. are secured for the benefit of certain secured creditors of the Novonor Group.
Pursuant to a shares fiduciary assignment agreement (alienação fiduciária em garantia) entered into by the Novonor Group and some non-bankruptcy creditors (credores extraconcursais) on November 27, 2013, as amended on May 13, 2016, July 19, 2016, April 24, 2017, May 23, 2018, March 29, 2019 and October 9, 2020, all ordinary and preferred shares issued by Braskem and held by NSP Inv. are secured for the benefit of certain secured creditors of the Novonor group in connection with certain financing agreements entered into by Novonor and certain of its subsidiaries. In the event that Novonor and certain of its subsidiaries default on such financing agreements, or if such financing agreements are accelerated and, as a result, or if creditors consolidate the ownership of the shares and dispose them (assuming that Petrobras does not exercise its preemptive rights to acquire such shares) we may be subject to a change of control following statutory, legal and procedural formalities required pursuant to our shareholders’ agreement. A change of control under these circumstances may adversely affect us.
The foreclosure or sale of our shares held by NSP Inv. - whether in the Novonor Judicial Restructuring Proceedings or agreements entered into within the context of the Novonor Judicial Restructuring Proceedings - may result in a change of our control. As we do not have the ability to consent to or otherwise influence or control the Novonor Judicial Restructuring Proceedings or the acquirer of the shares from any such disposal, we may be subject to a change in our corporate control in the foreseeable future.
Holders of our class A preferred shares or the ADSs may not receive any dividends or interest on shareholders’ equity.
According toAs permitted by Law No. 6,404/76 (the “Brazilian Corporate Law”), ourby-laws and Brazilian corporate law, we must generally pay our shareholders at least specify that 25% of our annualadjusted net incomeprofit for each fiscal year must be distributed to shareholders as mandatory dividends, or interest on shareholders’ equity, as calculatedthe Mandatory Distribution of Dividends. Under our by-laws, our class A and adjusted under Brazilian GAAP (which, for this purpose, is identicalclass B preferred shareholders are entitled to IFRS). This adjusted net incomean annual non-cumulative preferential dividend, or the Minimum Preferred Dividend, equal to 6% of their pro rata share of our capital before dividends may be capitalized, usedpaid to absorb losses or otherwise retained as allowed under Brazilian GAAP and may not be available to be paid as dividends or interest on shareholders’ equity.our common shareholders. The Brazilian CorporationCorporate Law allows a publicly traded company like ours to suspendnot distribute the mandatory distributionMandatory Distribution of dividendsDividends in any particular year if our board of directors informs our shareholdersin connection with an annual shareholders’ meeting that such distributions would be inadvisable in view ofincompatible with our financial condition, or cash availability. Holdersprovided that such suspension does not affect the Minimum Preferred Dividend, which is still payable to the holders of preferred shares. However, the shareholders, including the holders of our class A preferred shares or the ADSs, may not receive any dividends or interest on shareholders’ equity in any given year if we do not record a profit. The non-payment of dividends may frustrate expectations of cash return on the part of our boardinvestors, and may lead to a loss in the value of directors makes such a determinationour shares in the market.
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In addition, the income tax exemption on the dividends distribution and the taxation currently levied on the payment of interest on equity provided for in current legislation may be revised through tax reforms carried out by the Brazilian government, and both dividends received and distributed by the Company may become taxed or, if our operations failin the case of interest on equity, have its taxation increased in the future, reducing the net amount to generate net income.be paid to shareholders, which may have an adverse effect on the price of the securities we issue.
Our class A preferred shares and the ADSs have limited voting rights and are not entitled to vote to approve corporate transactions, including mergers or consolidations of our companyCompany with other companies, or the declaration of dividends.
Under the Brazilian CorporationCorporate Law and ourby-laws, holders of our class A preferred shares and, consequently, the ADSs underlying these shares are not entitled to vote at meetings of our shareholders, except in very limited circumstances. These limited circumstances directly relate to key rights of the holders of class A preferred shares, such as modifying basic terms of our class A preferred shares or creating a new class of preferred shares with superior rights. Holders of preferred shares without voting rights are entitled to elect one member and his or her respective alternate to our board of directors and our fiscal council, depending on specific circumstancesrequirements provided in the Brazilian CorporationCorporate Law. Holders of our class A preferred shares and the ADSs are not entitled to vote to approve corporate transactions, including mergers or consolidations of our companyCompany with other companies, or the declaration of dividends. However, if we do not pay dividends for three consecutive years, holders of our class A preferred shares and the ADSs will be granted voting rights. See “Item 10. Additional Information—Description of Our Company’sBy-laws—Voting Rights.”
Holders of the ADSs may find it difficult to exercise even their limited voting rights at our shareholders’ meetings.
Under Brazilian law, only shareholders registered as such in our corporate books may attend our shareholders’ meetings. All class A preferred shares underlying the ADSs are registered in the name of the depositary. ADS holders may exercise the limited voting rights with respect to our class A preferred shares represented by the ADSs only in accordance with the deposit agreement relating to the ADSs, which provides that voting rights are only available to ADS holders at our discretion. There are practical limitations upon the ability of ADS holders to exercise their voting rights due to the additional steps involved in communicating with ADS holders. For example, we are required to publish a notice of our shareholders’ meetings in certain newspapers in Brazil. To the extent that holders of our class A preferred shares are entitled to vote at a shareholders’ meeting, they will be able to exercise their voting rights by attending the meeting in person, or voting by proxy.proxy or by remote voting, if applicable. By contrast, holders of the ADSs will receive notice of a shareholders’ meeting by mail from the depositary following our notice to the ADRADS depository requesting the ADRADS depository to do so. To exercise their voting rights, ADS holders must instruct the depositary on a timely basis. This noticed voting process will take longer for ADS holders than for holders of class A preferred shares. If it fails to receive timely voting instructions for all or part of the ADSs, the depositary will assume that the holders of those ADSs are instructing it to give a discretionary proxy to a person designated by us to vote their ADSs, except in limited circumstances.
In the limited circumstances in which holders of the ADSs have voting rights, they may not receive the voting materials in time to instruct the depositary to vote the class A preferred shares underlying their ADSs. In addition, the depositary and its agents are not responsible for failing to carry out the voting instructions of the holders of the ADSs or for the manner of carrying out those voting instructions. Accordingly, holders of the ADSs may not be able to exercise their voting rights, and they will have no recourse if the class A preferred shares underlying their ADSs are not voted as requested.
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If holders of the ADSs exchange them for class A preferred shares, they may risk temporarily losing, or being limited in, the ability to remit foreign currency abroad and certain Brazilian tax advantages.
The Brazilian custodian for the preferred shares underlying the ADSs must obtain an electronic registration number with the Central Bank to allow the depositary to remit U.S. dollars abroad. ADS holders benefit from the electronic certificate of foreign capital registration from the Central Bank obtained by the custodian for the depositary, which permits it to convert dividends and other distributions with respect to the class A preferred shares into U.S. dollars and remit the proceeds of such conversion abroad. If holders of the ADSs decide to exchange them for the underlying preferred shares, they will only be entitled to rely on the custodian’s certificate of registration with the Central Bank for five business days after the date of the exchange. Thereafter, they will be unable to remit U.S. dollars abroad unless they obtain a new electronic certificate of foreign capital registration in connection with the preferred shares, which may result in expenses and may cause delays in receiving distributions. See “Item 10. Additional Information—Exchange Controls.”
Also, if holders of the ADSs that exchange the ADSs for our Class A preferred shares do not qualify under the foreign investment regulations, they will generally be subject to less favorable tax treatment of dividends and distribution on, and the proceeds from any sale of, our preferred shares. See “Item 10. Additional information—Exchange Controls” and “Item 10. Additional Information—Taxation—Brazilian Tax Considerations.”
Restrictions on the movement of capital out of Brazil may impair the ability of holders of our shares, ADSs and debt securities to receive payments on their respective obligations or guarantees and may restrict our ability to make payments in U.S. dollars.
In the past, the Brazilian economy has experienced balance of payment deficits and shortages in foreign exchange reserves, and the government has responded by restricting the ability of Brazilian or foreign persons or entities to convertreais into foreign currencies. The government may institute a restrictive exchange control policy in the future. Any restrictive exchange control policy could prevent or restrict our access to U.S. dollars, and consequently our ability to meet our U.S. dollar obligations under our shares, ADSs and the guarantees we granted pursuant to our outstanding senior notes,debt securities, and could also have a material adverse effect on our business, financial condition and results of operations. We cannot predict the impact of any such measures on the Brazilian economy.
The foreign exchange policy of Brazil may affect the ability of Braskem to make money remittances outside Brazil in respect of our equity securities or debt securities.
Under current Brazilian regulations, Brazilian companies are not required to obtain authorization from the Central Bank in order to make payments under guarantees in favor of foreign persons, such as the holders of our shares, ADSs or theour outstanding senior notes.debt securities. We cannot assure you that these regulations will continue to be in force in the event that Braskem is required to perform its payment obligations under its shares, ADSs or the guarantees under our outstanding senior notes.debt securities. If these regulations or their interpretation are modified and an authorization from the Central Bank is required, Braskem would need to seek an authorization from the Central Bank to transfer the amounts under such obligations out of Brazil or, alternatively, make such payments with funds held by Braskem outside Brazil. We cannot assure you that such an authorization will be obtained or that such funds will be available. If such authorization is not obtained, we may be unable to make payments to holders of our shares, ADSs and/or the applicable senior notesdebt securities in U.S. dollars.foreign currency. If we are unable to obtain the required approvals, if needed for the payment of amounts owed by Braskem through remittances from Brazil, we may have to seek other lawful mechanisms to effect payment of amounts due under the shares, ADSs or the senior notes.debt securities. However, we cannot assure you that other remittance mechanisms will be available in the future, and even if they are available in the future, we cannot assure you that payment on the outstanding senior notesdebt securities would be possible through such mechanism.
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Holders of the ADSs may face difficulties in protecting their interests because we are subject to different corporate rules and regulations as a Brazilian company and our shareholders may have fewer and less well-defined rights.rights than under the laws of other jurisdictions, including in a jurisdiction in the Unites States.
Holders of the ADSs are not our direct shareholders of our company and are unable to enforce the rights of shareholders under ourby-laws and the Brazilian CorporationCorporate Law.
Our corporate affairs are governed by ourby-laws and the Brazilian CorporationCorporate Law, which differ from the legal principles that would apply if we were incorporated in a jurisdiction in the United States, such as the State of Delaware or New York, or elsewhere outside Brazil. Even if a holder of ADSs surrenders its ADSs and becomes a direct shareholder, its rights as a holder of the class A preferred shares underlying the ADSs under the Brazilian CorporationCorporate Law to protect its interests relative to actions by our board of directors may be fewer and less well-defined than under the laws of those other jurisdictions.
Although insider trading and price manipulation are crimes under Brazilian law and are the subject of continuously evolving regulations promulgated by the Brazilian Securities Commission, or the CVM, the Brazilian securities markets are not as highly regulated and supervised as the U.S. securities markets or the markets in some other jurisdictions. In addition, rules and policies against self-dealing or for preserving shareholder interests may be less well-defined and enforced in Brazil than in the United States and certain other countries, which may put holders of our class A preferred shares and the ADSs at a potential disadvantage.disadvantage when compared to holders of shares of companies incorporated in other jurisdictions. Corporate disclosures also may be less complete or informative than for a public company in the United States or in certain other countries.
Holders of the ADSs may face difficulties in serving process on or enforcing judgments against us and other persons.
We are a corporation (sociedade por ações) organized under the laws of Brazil, and all of our directors and executive officers and our independent public accountants reside or are based in Brazil. Most of our assets and those of these other persons are located in Brazil. As a result, it may not be possible for holders of the ADSs to effect service of process upon us or these other persons within the United States or other jurisdictions outside Brazil or to enforce against us or these other persons judgments obtained in the United States or other jurisdictions outside Brazil. In addition, because a substantial portion of our assets, and all of our directors and officers reside outside the United States, any judgment obtained in the United States against us or any of our directors or officers may not be collectible within the United States. Because judgments of U.S. courts for civil liabilities based upon the U.S. federal securities laws may only be enforced in Brazil if certain conditions are met, holders may face greater difficulties in protecting their interests in the case of actions by us or our directors or executive officers than would shareholders of a U.S. corporation.
Judgments of Brazilian courts enforcing Braskem’s obligations under our equity securities, debt securities or therelated guarantees would be payable only in reais.
If proceedings are brought in the courts of Brazil seeking to enforce our obligations under our shares,equity securities, ADSs, the guarantees under our outstanding senior notesdebt securities or our other indebtedness, we would not be required to discharge our obligations in a currency other thanreais. Any judgment obtained against us in Brazilian courts in respect of any payment obligations under such shares,equity securities, ADSs, guarantees or other indebtedness would be expressed in reais.reais. We cannot assure you that this amount inreais will afford the holders of the shares, ADSs, senior notes or our other indebtedness full compensation of the amount sought in any such litigation.
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Actual or anticipated sales of a substantial number of class A preferred shares could decrease the market prices of our class A preferred shares and the ADSs.
Sales of a substantial number of our class A preferred shares could negatively affect the market prices of our class A preferred shares and the ADSs. If substantial sales of shares are made through the securities markets by our controlling shareholdersshareholder or other class A preferred shares, the market price of our class A preferred shares and, by extension, the ADSs may decrease significantly. As a result, holders of the ADSs may not be able to sell the ADSs at or above the price they paid for them.
Holders of the ADSs or class A preferred shares in the United States may not be entitled to the same preemptive rights as Brazilian shareholders have, pursuant to Brazilian legislation, in the subscription of shares resulting from capital increases made by us.
Under Brazilian law, if we issue new shares in exchange for cash or assets as part of a capital increase, subject to certain exceptions, we must grant our shareholders preemptive rights at the time of the subscription of shares, corresponding to their respective interest in our share capital, allowing them to maintain their existing shareholding
percentage. We may not legally be permitted to allow holders of ADSs or class A preferred shares in the United States to exercise any preemptive rights in any future capital increase unless (1) we file a registration statement for an offering of shares resulting from the capital increase with the U.S. Securities and Exchange Commission, or the SEC, or (2) the offering of shares resulting from the capital increase qualifies for an exemption from the registration requirements of the U.S. Securities Act.Act of 1933, as amended (the “Securities Act”). At the time of any future capital increase, we will evaluate the costs and potential liabilities associated with filing a registration statement for an offering of shares with the SEC and any other factors that we consider important in determining whether to file such a registration statement. We cannot assure the holders of the ADSs or class A preferred shares in the United States that we will file a registration statement with the SEC to allow them to participate in any of our capital increases. As a result, the equity interest of such holders in our companyinto us may be diluted.
Brazilian tax laws may have an adverse impact on the taxes applicable to the disposition of our ADSs and preferred shares.
According to Law No. 10,833, enacted onof December 29, 2003, if a nonresident of Brazil disposes of assets located in Brazil, the transaction will be subject to taxation in Brazil, even if such disposition occurs outside Brazil or if such disposition is made to another nonresident. Dispositions of our ADSs between nonresidents, however, are currently not subject to taxation in Brazil. Nevertheless, in the event that the concept of “disposition of assets” is interpreted to include the disposition between nonresidents of assets located outside Brazil, this tax law could result in the imposition of withholding taxes in the event of a disposition of our ADSs made between nonresidents of Brazil. Due to the fact that asgeneral and broad scope of the date of this annual report Law No. 10,833/2003, has noand the absence of judicial guidance as to its application,precedent, we are unable to predict whether an interpretation applying such tax laws to dispositions of our ADSs between nonresidents could ultimately prevail in Brazilian courts. See “Item 10. Additional Information—Taxation—Brazilian Tax Considerations.”
The relative volatility and liquidity of the Brazilian securities markets may adversely affect holders of our class A preferred shares and the ADSs.
The Brazilian securities markets are substantially smaller, less liquid and more volatile than major securities markets in the United States and other jurisdictions, and may be regulated differently from the manner in which U.S. investors are accustomed. Factors that may specifically affect the Brazilian equity markets may limit the ability of holders of the ADSs to sell class A preferred shares underlying ADSs at a price and at a time when they wish to do so and, as a result, could negatively impact the market price of the ADSs themselves.
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Economic developments and investor perceptions of risk in other countries, including both in developed or emerging market economies, may adversely affect the trading price of Brazilian securities, including our common shares and ADSs, as well as any outstanding debt securities.
The market value of securities of Brazilian issuers is affected in varying degrees by economic and market conditions in other countries, including in developed countries, such as the United States and certain European countries, and in emerging market countries. Although economic conditions in such countries may differ significantly from economic conditions in Brazil, the reaction of investors to developments in these other countries may have an adverse effect on the market value of securities of Brazilian issuers. The price of shares traded in the Brazilian capital markets, for instance,example, has been historically subject to fluctuation of interest rates in the United States and the variation in the main U.S. stock exchanges. Moreover, crisesIn addition, crisis in other emerging countries may diminish investor interest in securities of Brazilian issuers, including our common shares and ADSs and our debt securities. This could adversely affect the market price of our common shares, ADSs and outstanding debt securities and could also make it more difficult for us to access capital markets, affecting our ability to finance our operations on acceptable terms.
Recently, heightened volatility in the Brazilian market was due to, among other factors, uncertainties regarding adjustments to the implication of U.S. elections, U.S. monetary policy, theso-called BREXIT and their consequences on international financial markets, increased aversion to risk in emerging countries, and uncertainties regarding macroeconomic and political conditions. On January 20, 2017, Donald Trump became the President of the United States. We have no control over and cannot predict the effects of Donald Trump’s administration or policies. In addition, we are exposed to disruption and volatility of global financial markets due to their effects on the economic and financial environment, particularly in Brazil, such as economic downturn, increased unemployment rate, decreased purchasing power of consumers and unavailability of credit.
In addition, the persistence of the COVID-19 pandemic could negatively impact the market value of securities of Brazilian issuers, including our shares and ADSs and our debt securities. The extent to which the COVID-19 pandemic impacts our results will depend on future developments, which are highly uncertain and cannot be predicted, including the severity of the COVID-19 pandemic, actions to contain it or treat its impact, among others
These disruptions or volatility in global financial markets may increase even further the negative effects on the Brazilian economic and financial environment, adversely affecting us.
Because Braskem Finance Limited hasand Braskem Netherlands Finance B.V. have no operations of itstheir own, holders of our outstanding senior notesdebt securities issued by Braskem Finance Limited mustor Braskem Netherlands Finance B.V. depend on Braskem to provide Braskem Finance Limited or Braskem Netherlands Finance B.V., respectively, with sufficient funds to make payments on these notesdebt securities when they become due.
Braskem Finance Limited, a wholly-owned subsidiary of Braskem incorporated in the Cayman Islands, hasand Braskem Netherlands Finance B.V., or Braskem Netherlands Finance, an indirect wholly-owned subsidiary of Braskem incorporated under the laws of The Netherlands, have no operations of their own other than the issuing and making of payments on its senior notestheir respective debt securities and other indebtedness, ranking equally with these senior notes, and using the proceeds therefrom as permitted by the documentsagreements governing these issuances, including lending the net proceeds of the senior notesdebt securities and other indebtedness incurred by Braskem Finance Limited and Braskem Netherlands Finance to Braskem and subsidiaries of Braskem. Accordingly, the ability of either Braskem Finance Limited or Braskem Netherlands Finance to pay principal, interest and other amounts due on the outstanding senior notesdebt securities issued by it and other indebtedness will depend upon our financial condition and results of operations and those of our subsidiaries that are creditorsdebtors of Braskem Finance Limited.Limited or Braskem Netherlands Finance, respectively. In the event of an adverse change in our financial condition or results of operations andor those our subsidiaries that are creditorsdebtors of Braskem Finance Limited or Braskem Netherlands Finance, these entities may be unable to service their indebtedness to Braskem Finance Limited or Braskem Netherlands Finance, as the case may be, which would result in the failure of Braskem Finance Limited or Braskem Netherlands Finance, as the case may be, to have sufficient funds to repay all amounts due on or with respect to the respective outstanding senior notes.debt securities.
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Payments on Braskem’s guarantees will beare junior to Braskem’s secured debt obligations and effectively junior to debt obligations of Braskem’s subsidiaries and jointly controlled companies.
The outstanding senior notesdebt securities are fully guaranteed by Braskem on an unsecured basis.Braskem. The Braskem guarantees will constitute senior unsecured obligations of Braskem. The guarantees will rank equal in right of payment with all of Braskem’s other existing and future senior unsecured indebtedness. Although the guarantees will provide the holders of the senior notesdebt securities with a direct, but unsecured claim on Braskem’s assets and property, payment on the guarantees will beis subordinated to secured debt of Braskem to the extent of the assets and property securing such debt.
Upon any liquidation or reorganization of Braskem, any right of the holders of the notes,debt securities, through enforcement of Braskem’s guarantees (i) to participate in the assets of Braskem, including the capital stock of its subsidiaries and jointly controlled entities, will be subject to the prior claims of Braskem’s secured creditors, and (ii) to participate in the assets of Braskem’s subsidiaries and jointly controlled entities and will be subject to the prior claims of the creditors of such subsidiaries and jointly controlled entities. The indentures relating to the outstanding senior notesdebt securities include a covenant limiting the ability of Braskem and its subsidiaries to create or suffer to exist liens, although this limitation is subject to significant exceptions.
The construction of our Mexico Complex was financed under a project finance structure, in which the construction loan must be repaid using exclusively the cash generated by us with shareholders pledging limited guarantees. Accordingly, this financing structure includes guarantees typical to transactions of this kind, such as assets, receivables, cash generation and other rights of Braskem Idesa. In October 2021, Braskem Idesa issued sustainability-linked debt securities in the aggregate amount of US$1.2 billion, maturing in ten years. The coupon of 7.0% can be increased by up to 37.5 basis points in case of non-compliance with the sustainability target. The proceeds obtained from the sale of the bonds, plus a credit line of US$150 million, were used to pay off the Project Finance signed in 2012.
As of December 31, 2016,2021, Braskem had (1) consolidated corporate debt, net of transaction costs, of R$23,331.135,094.2 million (US$7,158.76,288.7 million), and (2) consolidated Braskem Idesa debt related to our Mexico Complex of R$10,437.812,311.5 million (US$3,202.72,206.2 million). Of the consolidated corporate debt, R$4,403.5721.0 million (US$1,351.1129.2 million) was unsecured debt of Braskem S.A., R$2,867.10.3 million (US$879.71.6 million) was secured debt of Braskem S.A., R$16,060.5 34,365.9 million (US$4,927.96,158.2 million) was unsecured debt of Braskem's subsidiaries and special purpose entities (other than Braskem Idesa SAPI) and R$6,938.3 million (US$1,243.3 million) was secured debt of Braskem’s subsidiaries and special purpose entities (other than Braskem Idesa S.A.P.I.). The Braskem Idesa Working Capital Facility in the aggregate amount of R$302.6 million (US$92.8 million) outstanding as of December 31, 2016 was secured by Braskem S.A.,.
Braskem conducts a portion of its business operations through subsidiaries and jointly controlled companies. In servicing payments to be made on its guarantees of the outstanding senior notes,debt securities, Braskem may rely, in part, on cash flows from its subsidiaries and jointly controlled companies, mainly in the form of dividend payments and interest on shareholders’ equity.payments. The ability of these subsidiaries and jointly controlled entities to make dividend payments to Braskem will be affected by, among other factors, the obligations of these entities to their creditors, requirements of Brazilian corporate and other law, and restrictions contained in agreements entered into by or relating to these entities. In the event that these subsidiaries and jointly controlled entities failare unable to make dividend payments to Braskem due to insufficient cash flows, Braskem may be required to utilize its own cash flowflows to service paymentspayments. Further, if these subsidiaries and jointly controlled entities are unable to pay their debt, they may become subject to bankruptcy or insolvency proceedings. Any bankruptcy or insolvency proceedings of these subsidiaries and jointly controlled entities may have an adverse effect on its outstanding senior notes.
Braskem’s obligations under the guarantees underof the outstanding senior notesdebt securities are subordinated to certain statutory preferences.
Under Brazilian law, Braskem’s obligations under the guarantees underof the outstanding senior notesdebt securities are subordinated to certain statutory preferences. In the event of a liquidation, bankruptcy or judicial reorganizationrestructuring of Braskem, such statutory preferences, including post-petition claims, claims for salaries, wages, social security, taxes and court fees and expenses and claims secured by collateral, among others, will have preference over any other claims, including claims by any investor in respect of the guarantees. In such event, enforcement of the guarantees may be unsuccessful, and holders of the outstanding senior notesdebt securities may be unable to collect amounts that they are due under the outstanding senior notes.debt securities.
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Brazilian bankruptcy laws may be less favorable to holders of our shares, ADSs and outstanding senior notesdebt securities than bankruptcy and insolvency laws in other jurisdictions.
If we are unable to pay our indebtedness, including our obligations under the shares, ADSs and guarantees under the outstanding senior notes,debt securities, then we may become subject to bankruptcy proceedings in Brazil. The bankruptcy laws of Brazil currently in effect are significantly different from, and may be less favorable to creditors than, those of certain other jurisdictions. For example, holders of our outstanding debt securities may have limited voting rights at creditors’ meetings in the context of a court reorganization proceeding. In addition, any judgment obtained against us in Brazilian courts in respect of any payment obligations under the guarantees normally would be expressed in therealequivalent of the U.S. dollar amount of such sum at the exchange rate in effect (1) on the date of actual payment, (2) on the date on which such judgment is rendered, or (3) on the date on which collection or enforcement proceedings are started against us. Consequently, in the event of our bankruptcy, all of our debt obligations that are denominated in foreign currency, including the guarantees, will be converted intoreaisat the prevailing exchange rate on the date of declaration of our bankruptcy by the court. We cannot assure you that such rate of exchange will afford full compensation of the amount invested in our outstanding debt securities plus accrued interest.
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Item 4. | Information on the Company |
ITEM 4. INFORMATION ON THE COMPANY
According to IHS weWe are the largest producer of thermoplastic resinsplastics in the Americas, based on the annual production capacity of our 29 plants in Brazil, six plants in the United States two plants in Germany and four plants in Mexico as of December 31, 2016.2021, according to IHS. We are the only integrated petrochemical company producing basic chemicals and polymers in Brazil, and the largest producer of ethylene, polyethylenePE in Mexico and polypropyleneof PP in Brazil. We produce a diversified portfolio of petrochemical and thermoplastic products and have a strategic focus on thermoplastic resins, including polyethylene, polypropylene and PVC. We are also the ninth largest Brazilian company, based on net revenue in 2016, according to the magazineRevista Exame – Maiores e Melhores.We recorded net sales revenue of R$47,664.0 million and a net loss of R$729.2 million during the year ended December 31, 2016.Unites States.
As of December 31, 2016,2021, our business operations were organized into five business units,three segments, which corresponded to our principal production processes, products and services. Our business unitsreportable segments were as follows:
· | our Brazil Segment (former Polyolefins, Chemicals and Vinyls segments), which includes: |
(i) | production and sale of chemicals at the chemical complex located in Camaçari, in the State of Bahia, or the Northeastern Complex, the chemical complex located in Triunfo, in the State of Rio Grande do Sul, or the Southern Complex, the chemical complex located in Capuava, in the State of São Paulo, or the São Paulo Complex and the chemical complex located in Duque de Caxias, in the State of Rio de Janeiro, or the Rio de Janeiro Complex; |
(ii) | supply of electricity and other inputs produced in these complexes to second-generation producers located in the petrochemical complexes; |
(iii) | production and sale of PE, including the production of “green PE” from renewable resources, and PP produced by us in Brazil; and |
(iv) | our production and sale of PVC and caustic soda; |
segments;
· | our USA and Europe Segment, which includes our production, operations and sale of polypropylene in the United States and Germany. This segment accounted for net revenue of R$32,403.6 million, or 29.9% of our consolidated net revenue of all reportable segments; and |
· | our Mexico Segment, which includes our production, operations and sale of ethylene, HDPE (high-density polyethylene) and LDPE (low-density polyethylene) in Mexico. This segment accounted for net revenue of R$6,506.3 million, or 6.0% of our consolidated net revenue of all reportable segments. |
In 2021, 2020 and 2019, 52.9%, 55.3% and 54.5% of our net revenue, respectively, related to sales performed in Brazil, and 47.1%, 44.7% and 45.5% of our net revenue in 2021, 2020 and 2019 was derived from our international operations.
Our Competitive Strengths
Leading Plastics Producer in the Americas
We are the largest producer of plastics in the Americas, based on the annual production capacity of our plants in Brazil, in the United States and Germany. This segment accountedin Mexico as of December 31, 2021, according to IHS. We are the only integrated petrochemical company producing basic chemicals and polymers in Brazil, and the largest producer of PE in Mexico and of PP in the Unites States. Globally, we have a global installed capacity of 21.4 million tons per year.
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We produce a diversified portfolio of petrochemical and thermoplastic products, including polyethylene, green polyethylene (biopolymer), polypropylene, and PVC. Our products are typically used in large volume applications, and we benefit from our world-scale plants to enhance our competitiveness.
Global Leader in Green PE, Pioneer in Renewable Plastics
We are the global leader in green PE production and benefit from our presence in Brazil, which is the world’s largest producer of ethanol from sugarcane, with ample access to bio-ethanol feedstock. Our green PE made from ethanol from sugarcane is the first PE of renewable origin to be produced in industrial scale in the world. We have developed a robust global portfolio of clients, and our green PE has more than 180 customers in over 40 countries.Green PE also has an attractive price point, as demand for net sales revenuesustainable products generally outstrips supply.
We believe that our green PE has distinctive capabilities compared to other alternative solutions. Compared to biodegradable, recycled and fossil-based PE, we believe our renewable product has: (i) negative carbon footprint, (ii) higher feedstock sustainability, (iii) lower risk and better equipment fit as process uses same existing equipment, (iv) proven technology and scale, (v) better applicability with same properties and applications as fossil-PE, and (vi) better recyclability as products as 100% recyclable.
We invested approximately US$290.0 million in 2010 to build a green ethylene plant with capacity to produce 200 kilotons per year. In February 2021, considering the robust demand for our products, we announced a project to expand our green ethylene production capacity to 260 kilotons per year, with an estimated additional investment of R$8,896.1 US$87.0 million. The expansion is expected to be completed in by the end of 2022.
We are also exploring new business opportunities to produce other bio-based chemicals. In addition to green PE production, in 2017 with entered into a bio-mono-ethylene glycol (“MEG”) technology cooperation agreement with Haldor Topsoe, a Denmark-based global leader in supply of catalysts, technology, and services for the chemical and refining industries. MEG is a raw material for PET (polyethylene terephthalate), which has numerous applications and is an essential feedstock in industrial sectors such as textiles and packaging, especially beverage bottles. According to IHS, the global MEG market represented approximately US$26.3 billion in 2021 and is predominantly supplied by fossil-based feedstocks. In 2020, we were able to produce the first-ever demo-scale bio-based MEG through pioneering technology that transforms sugar into renewable MEG.
Benchmark Operator, With World Class Safety Practices and Track Record
We are widely recognized as an experienced and capable operator of petrochemicals plants. Our plants have recorded low accident rates and high utilization levels compared to industry peers.
Between 2012 and 2021, our ethylene plants in Brazil achieved an average utilization rate of 87.7% compared to a global industry average of 88.4%, according to IHS. In addition, our PP plants in the United States and Europe achieved in the same period an average utilization rate of 91.8% compared to global industry average of 86.7% according to IHS.
From 2012 to 2018, the average of recordable and lost-time injury frequency rate stood at 0.95 (events/million or 15.1%hours worked), which is 71% below the industry average of 3.29, according to the American Chemistry Counsel.
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Competitive Asset and Raw Material Base
Our plants are located close to customer demand. In Brazil in particular competitors need to bring in products from locations as far away as the Middle East and face import tariffs which reduces their competitiveness compared to us. Considering freight and import tariffs, Brazilian producers have an advantage with respect to PE, PP and PVC on average 37.6% higher than average international reference prices from IHS for these products in 2021.
We rely on a diversified mix of raw materials, such as naphtha, ethane, propane, propylene and ethanol. We also source our raw materials from a diversified base of suppliers, which we continuously work to expand in the regions where we operate.
Our green PE is made from ethanol from renewable sugarcane in Brazil, the main producer for sugarcane globally. Our other Brazilian businesses operate on naphtha, ethane, propane and propylene sourced from Brazil and several other sources abroad. As a result of our consolidated net sales revenuecontinued efforts to further diversify our feedstock base, only 30.6% of all reportableour naphtha consumption was sourced by local suppliers as of December 31, 2021.
Our businesses in the United States and in Mexico benefit from propylene and ethane availability from producers that are well situated on their respective global cost curves. Our PP plants in the Northeast region of the United States are able to source refinery-grade and chemical-grade propylene from non-U.S. Gulf Coast refineries and steam crackers at an advantaged cost compared to polymer-grade propylene. In the United States Gulf Coast, we have a well-diversified supply base with well- developed pipeline connectivity that allow us to source feedstock at a competitive cost in the region. With over 15 sources of supply in North America, our geographic and logistics diversity allows for redundancy in supply and flexibility at our PP plants.
Global Marketing Platform
We are a client-focused organization, and we have built a deep network of local relationships with over 2,200 clients worldwide. We have a lengthy history of development of long-term and close partnerships with clients, focusing on their needs and individual value creation solutions. Our market orientation and wide network are underpinned by a global platform with commercial offices in the Americas, Europe and Asia. Our global marketing platform combines market-focused teams for key market segments including net salesas well as regional teams for broader coverage. We encourage innovative thinking, an entrepreneurship mindset, a focus on the value chain and on product quality and service level.
Innovation and Technology, and Research and Development Capabilities
We drive innovation to extract value from our existing assets and create new value propositions to our customers. As a result of our innovation efforts, over 16.4% of our current products have been introduced in the last five years. We employ 303 employees globally in innovation and technology, spread across our research and development centers in Pittsburg (United States), Wesseling (Germany), Coatzacoalcos (Mexico), Triunfo, Campinas and São Paulo (Brazil).
Additionally, in November 2021, Braskem and Lummus Technology, a worldwide leader in ethylene, petrochemical, energy transition and other process technologies, executed a memorandum of understanding to jointly license Braskem’s green ethylene technology to two projects in different regions of the world, displaying a global interest in the technology.
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Qualified Management Team with Proven Success
Our senior management team combines deep operational expertise and knowledge of petrochemical global markets developed over long tenures. We have a strong mergers and acquisitions track record that supported our global expansion in the last decade, including into the US and Europe.
We have proven success in executing large, complex projects. Through our subsidiary Braskem Idesa, we built and operated the largest petrochemical complex in Latin America, which started operations in April 2016. In September 2020, we successfully started the production of PP from our Project Delta greenfield in La Porte, Texas, with a production capacity of 450 kilotons per year.
Robust Financial Performance Through the Industry Cycles
We have a track record of robust financial performance through the cycle, based on our scale and competitiveness. Our net cash generated (used) from operating activities was R$14,786.5 million (US$2,649.7 million), for the year ending in December 31, 2021, R$6,293.0 million (US$1,127.6 million) for the year ending in December 31, 2020, R$2,265.3 million (US$405.9 million) for the year ending in December 31, 2019, which represents our ability to generate positive, robust results across the industry cycles and varying macroeconomic circumstances.
Our Strategy
The key pillars of our strategy include:
Grow Renewables and Recycling
We have a long-standing commitment with sustainable development, and a proven track record in the implementation of successful initiatives that reinforce sustainability and mitigation of climate change, as exemplified by the ground-breaking investment in green PE in 2010, or our reduction of GHG emissions intensity by 17% in the period from 2008 to 2020.
We currently see strong demand for sustainable renewable products at attractive prices and intend to grow our capacity to meet this demand. The Company's commitment, approved by the Board of Directors, is to reach 1.0 million tons of Green PE production capacity by 2030, which represents a growth of 5.0x of our current production capacity. Moreover, we are working to accelerate the delivery of such commitment through strategic and financial partnerships.
Besides the expansion of our green PE production capacity, we continue to pursue further opportunities to grow this business units;
Approximately 43.4%, 48.9% and 48.0% of our net sales revenue in 2014, 2015 and 2016, respectively, was derived from our Brazilian operations, and 56.6%, 51.1% and 52.0% of our net sales revenue in 2014, 2015 and 2016 was derived from our international operations (including exports from Brazil). We expect this process of internationalization to continue, especially with the ramp up of our Mexican operations.
Strategy of Our Company
Our strategic objective is to satisfy our customerscommitment, we recently announced that we invested capital in the acquisition of a minority equity stake in Nexus Circular LLC, a Company which operates in advanced recycling that converts landfill-bound plastics value chain andinto circular feedstocks used in the production of sustainable virgin plastic.
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We intend to be among the best companies in the chemical industry in Brazilterms of GHG emissions and a key player in capturing carbon dioxide (“CO2”) emissions through the Americas, while maximizing return onuse of renewable raw materials. We have announced our ambition to be net zero by 2050 in scope 1 and 2 emissions, and to achieve a 15% reduction of current emissions by 2030.
Grow the capital invested by shareholders.
The key elements ofWe intend to continue to invest in our strategy include:
In addition, in ordercurrent business to maintain productivity and competitiveness, focusing on operational efficiency and excellence, commercial and logistics effectiveness, cost leadership, and differentiation through our leadership positionrelationships with clients.
As part of these investments, we are working on further expanding capacity of the “Fast Track” solution in Mexico that involves the industry,incorporation of additional unloading stations, which could enable Braskem Idesa to reach maximum ethane import volume capacity of up to 35,000 barrels per day, with the project’s conclusion expected for the second quarter of 2022.
Additionally, we intend to improveinvest on a new ethane terminal to support our Mexican operations by 2024. In September 2021, Braskem Idesa entered into an agreement with Pemex and other Mexican government entities that establishes the support measures to build this terminal with the capacity to meet all of Braskem Idesa’s raw material requirements.
We continue to evaluate opportunities arising from the reorganization of the global chemical industry, new feedstock availability in Brazil (from pre-salt) and elsewhere, downstream expansion utilizing our large base chemical volumes, and upstream integration into propylene in the United States and Europe.
We continue to implement processes and operations optimization initiatives through our global efficiency program called “Transform for Value,” which was developed to coordinate and accelerate improvement initiatives across different areas including our digital center, capital expenditures, competitiveness and productivity, energy, and competitivenessother continuous improvement efforts
Continue to Innovate
We intend to continue to invest in innovation, in particular in renewables and recycling, but also across our traditional business.
A robust pipeline of sustainable solutions aims to provide step-change process, technology and upgrades for energy efficiency and carbon emission reduction, applications for plastic waste reduction, new renewable chemicals and polymers and more efficient carbon capture and utilization.
In December 2021, the I&T project portfolio included 223 projects for the development of new products, markets and processes, of which 61 projects are already under development. Our pipeline includes projects across the following strategic fronts: (i) improvements in core product & process, (ii) advances in circular plastic economy, (iii) increase in renewable feedstock initiatives; (iv) other.
Strengthen our Governance
Our shares are listed on the Level 1 listing segment of the B3 and on the New York Stock Exchange under the ticker BAK. We also voluntarily follow other high corporate governance standards, such as the implementation of a statutory audit committee in 2021 and the maintenance of at least 20% of independent board members.
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We are committed to strengthening our governance, compliance and people management systems, as well as our reputation with all stakeholders, positioning ourselves as a human-oriented, forward-thinking global company that cultivates strong relationships and generates value for all our stakeholders.
We have adopted a Code of Conduct, a Compliance System Policy and an Anti-corruption Policy, and several internal directives designed to guide our management, employees and counterparties and reinforce our principles and rules for ethical behavior and professional conduct. We maintain an Ethics Line managed by a third party available for employees and non-employees. Every whistleblower complaint is investigated by the compliance team and submitted for evaluation by our Ethics Committee and/or our Compliance and Statutory Audit Committee.
Responsible Capital Allocation and Shareholder Remuneration
We intend to continue to seek a balance in our capital allocation, returning capital to shareholders, while investing in our capital-intensive business and the growth opportunities it presents.
We are a company that consistently presents positive operating cash flow, even in downturns in the petrochemical cycle and our decision-making process aims to maximize the net present value of our current operations, maintain high standards of safety indicatorsfuture cash generation. We also have a strong liquidity position, with most debt maturing in the very long term (beyond 2030), in addition to solid credit metrics. We are considered an investment grade company by S&P Global Ratings and ensure maximum operational performance in terms of reliability, production optimization, cost reduction opportunities, investment disciplineFitch, with a BBB- corporate credit rating on a global scale and improvements in our industrial processes.a stable outlook from both credit rating agencies.
As a result of rising natural gas production and related production of natural gas liquids, several companies have announced plans to build PDH plants, which would produceon-purpose propylene. We have secured an approximately15-year propylene agreementcaptured opportunities through disciplined and profitable growth investments, whether building, acquiring or partnering on assets. We also have a rigorous process to manage our asset footprint, which has led us to selectively shut down plants in the past.
Our biopolymers strategy derives from investments that we expect to be value accretive due to strong expected growth in demand and competitive prices.
We remain focused on meeting our commitments and pursuing a disciplined financial strategy to limit the risks associated with Enterprise Products Partners L.P., or Enterprise Products, whichthe exposure to the cyclical and capital-intensive nature of our business.
Industry Overview and Trends
According to IHS, global demand for PE, PP, and PVC in 2021 is currently building a PDH plant in Texas with an annual capacity of 750,000 tons. We expect this agreement with an established producerestimated to provide us with a competitive, long-term supply of propylene, using shale gasbe 115 million metric tons, 85 million metric tons, and other nontraditional sources as its feedstock. This plant49 million metric tons, respectively. Between 2020 and 2025, global demand for PE, PP, and PVC is expected to commence operationsgrow by 4.2%, 4.7%, and 4.5% per year, respectively, according to IHS. This is driven by strong end market dynamics, global gross domestic product growth, and infrastructure and construction projects spending. Polymers will likely continue to replace traditional materials, such as aluminum, steel, wood, and glass, in applications where they can provide cost advantages and better performances.
Green PE and Green Ethylene could represent a US$10.0 billion addressable market by 2025 and US$15.0 billion by the end of 2017. Under this arrangement,2030, according to IHS. This represents a 18.5% growth per year between 2025 and 2030 for Green PE and Green Ethylene that would together represent approximately 5.0% of the pricingtotal market for PE and ethylene including fossil and bio-based products in 2030.
Latin America and the US are our home markets, but we also very competitive in exports to Asia. Latin America, in particular, has high potential for polyolefin demand growth given its low plastics consumption per capita rates.
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Although market participants have announced a robust pipeline of these contractssupply additions, we believe that many such projects will be based on market prices for propanedelayed and canceled, as has been the case over the last decade, leading to our industry enjoying high operating rates and strong margins.
Our History
Creation of Braskem
In July 2001, in partnership with the Mariani Group, Novonor (former Odebrecht) acquired a controlling interest in Copene (Camaçari Petrochemical Complex) in the state of Bahia. In August 2002, with the merger of Copene with five other market costs.companies, Braskem was created.
With respect toConsolidation of the diversificationBrazilian petrochemical industry
Between 2006 and 2010, we have invested in the consolidation of the petrochemical industry in Brazil. Two relevant steps in this stage of our feedstock profile,growth were conducted in April 2016 we commenced commercial operations of our Mexico Complex, which includes a cracker using ethane as feedstock and three integrated polyethylene plants with annual capacity of 1.05 million tons. Developed through a joint venture with Idesa, Braskem Idesa has entered into a long-term supply contract to purchase ethane from Pemex TRI, under competitive commercial conditions.
In March 2016, our board of directors approved a project with an expected investment of R$380 million to enable the use of up to 15% of ethane as raw material in the Northeastern Complex in Brazil. This project will modernize this industrial unit and improve the port infrastructure. We expect to complete this modernization in the second half of 2017. Furthermore, we entered into a long-term ethane supply agreement with a U.S. company with pricing based on the Mont Belvieu market prices.
During 2016, we progressed studies on a project to build a new polypropylene plant at our site in La Porte, Texas, or the La Porte Project, which was approved by our board of directors on June 21, 2017.With an approved investment of up to US$675 million, the La Porte Project will add 450 kt of annual polypropylene production capacity to our portfolio, with startup expected in 2020.
The La Porte Project is aligned with our strategy to diversify our feedstock profile and expand geographically in the Americas, and it will strengthen our leadership position in polypropylene production in the United States.
History and Development of Our Company
Our business began when the Odebrecht Group (comprised of Odebrecht S.A. and its subsidiaries) and Mariani Group acquired control of Copene, a raw materials petrochemical complex in Camaçari, in July 2001, and then subsequently integrated their assets in the petrochemical sector with Copene. From 2001 to 2004, we underwent a corporate reorganization and merged many recently acquired companies. In addition, we acquired Polialden in 2005 and Politeno in 2006.
Through a partnership with Petrobras, we began consolidatingwhich led to the increase of their stake in the Company: the consolidation of our Southern Complex, in Brazil inwhich was executed between March 2007 with the acquired petrochemical assets from the Ipiranga group. In November 2007, we signed an agreement with Petrobras and Odebrecht, which required them to contribute part of their assets in the petrochemical sector to Braskem. In September 2008, Ipiranga Petroquímica, Petroquímica PaulíniaMay 2009; and thespun-off portion of Ipiranga Química were merged into our company. In May 2009, our merger with Triunfo was approved.
In January 2010, we announced the acquisition of Quattor, which owned significant assets in order to strengthenSão Paulo and Rio de Janeiro, announced in January 2010.
This consolidation strengthened the Brazilian petrochemical sector and establish ourselves amongallowed us to reach a new level of scale to face the five largestchallenges of the international market.
Beginning and most competitive petrochemical companies in the world. consolidation of our internationalization
In February 2010, we announced the acquisition of the polypropylenePP assets of Sunoco Chemicals the fourth largest producer of this resinand in the United States. This acquisition represented an important step towards strengthening our internationalization strategy, which combines our growth in the U.S. market with alternative access to competitive raw materials and main consumer markets. As a result of this acquisition, we became a leader of thermoplastic resins in the Americas, consolidating our position as a major player in the international petrochemical market and the third largest global player in the polypropylene industry. In 2010, Braskem inaugurated its green ethylene plant in Triunfo, Rio Grande do Sul, becoming the world leader in biopolymers and launched the brand I’m greenTM, which identifies Braskem’s products made from renewable sources.
In July 2011, we announced the acquisition of Dow Chemical’s polypropylenePP business, including four plants (two plants in the United States and two plants in Germany). The U.S. assets, located in Freeport and Seadrift, Texas, have a combined annual production capacity of 545,000 tons, which represented a 50% increase in annual capacity polypropylene production in the United States. The German assets, located in the cities of Wesseling and Schkopau, have a combined annual production capacity of 545,000 tons. This acquisition represented an important step in the consolidation of our internationalgrowth strategy positioningin the Americas, consolidating us as the largest producer of polypropylene in the United States.
The following discussion highlightsIn April 2016, our subsidiary Braskem Idesa, our former joint venture with the Mexican Idesa group, reached an important developmentsmilestone with the production of the first batch of PE in the Mexico petrochemical complex, strengthening our business since January 1, 2017.internationalization strategy and ensuring greater access to competitive gas-based feedstocks.
In September 2020, we successfully started the greenfield Project Delta for the production of PP in La Porte, Texas, with a production capacity of 450 kilotons per year. We believe that this investment reinforces our PP leadership position in the region and strengthens our strategy to diversify the raw materials matrix and geographic expansion in the Americas.
Beginning of Operations of Our Mexico Unit
During April 2016, Braskem Idesa commenced commercialour renewables operations of the Mexico Complex. As a result of the commencement of operations of the Mexico Complex, we commenced recording the results of our Mexico Unit as a separate segment in our financial statements as of dates and for periods ended after January 1, 2016. For more information about the Mexico Complex and the Mexico Unit, see “Item 4. Information on the Company—Mexico Unit.”
Global Settlement
In September 2010, Braskem started up its green ethylene plant in Triunfo, in the state of Rio Grande do Sul, Brazil, with a capacity to produce 200 kilotons per year, becoming the world leader producer in biopolymers and products made from renewable sources.
In February 2021, we announced a new project at the Triunfo petrochemical complex in Rio Grande do Sul to expand our current production capacity of green ethylene. With an estimated investment of US$87.0 million, this project is expected to add 60 kilotons per year to the production of green ethylene in the Company’s portfolio and is expected to be completed in December 2016,2022.
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In September 2021, we entered into a global settlementmemorandum of understanding to perform feasibility studies to jointly invest with SCG Chemicals in a new bio-ethanol dehydration plant in Thailand to produce green ethylene. SCG Chemicals is one of the MPF, the DoJ, the SEC,largest integrated petrochemical companies in Thailand and the OAG with regardan industry leader in Asia. The investment is subject to certain matters under investigation, which we refer to as the Global Settlement. The Global Settlement was reached at the conclusion of an independent internal investigation into the allegationsstudies, mutual agreement of improper paymentsBraskem and SCG Chemicals, and approval by competent governance bodies.
Additionally, in connection withNovember 2021, Braskem and Lummus Technology, a worldwide leader in ethylene, petrochemical, energy transition and other process technologies, executed a memorandum of understanding to jointly license Braskem’s green ethylene technology to two projects in different regions of theso-called Operation Car Wash in Brazil. Under the Global Settlement, we agreed to pay to the governmental authorities in these jurisdictions an aggregate amount of approximately US$957 million (equivalent to approximately R$3.1 billion based on the fixed exchange rate of R$3.27 to US$1.00) and to be subject to external monitorship for world, displaying a period of three years. For more information regarding the Global Settlement, see “Item 8. Financial Information—Legal Proceedings—Global Settlement.”
Sale of quantiQ
On January 10, 2017, we entered into an agreement with GTM do Brasil Comércio de Produtos Químicos LTDA under which we sold 100% of our ownershipglobal interest in quantiQ for an aggregate amount of R$550 million. On January 30, 2017, the Administrative Council for Economic Defense (Conselho Administrativo de Defesa Econômica), or CADE, Brazil’s antitrust agency, approved the sale of quantiQ. The transaction was consummated on April 3, 2017.technology.
Our Corporate Structure
The following chart presents our simplified ownership structure and the corporate structure of our principal subsidiaries as of the date of this annual report. The percentages in bold and italics represent the direct andor indirect percentage of the voting share capital owned by each entity, and the percentages not in bold and italics represent the direct andor indirect percentage of the total share capital owned by each entity.
Basic Petrochemicals Unit
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As of December 31, 2016, accordingThe SEC maintains an internet website at www.sec.gov that contains reports, proxy and information statements and other information regarding companies that file or furnish documents electronically to IHS, our Basic Petrochemicals Unit’s facilities had one of the largest annual production capacities of all first generation producers in Latin America. Including net sales to our other business units, our Basic Petrochemicals Unit generated net sales revenue of R$25,062.6 million in 2016, or 42.6% ofSEC, including us. Our internet website is www.braskem.com.br, and the net sales revenue of all reportable segments. Net sales revenue generated by internal sales to our other business units was R$19,490.2 million during 2016, representing 77.8% of the net sales revenueinternet website of our Basic Petrochemicals Unit.investors relations’ department is www.braskem.com.br/ri. The information included on our internet website, the internet website of our investor relations’ department, or the information that might be accessed through such websites is not included in this annual report and is not incorporated into this annual report by reference.
We are a corporation (sociedade por ações) organized under the laws of Brazil. Our registered office is at Rua Eteno, 1561, Pólo Petroquímico, Camaçari, Bahia, CEP 42810-000, Brazil, and our telephone number at this address is +55 71 3413-2102. Our principal executive office is at Rua Lemos Monteiro, 120 – 24° andar, Butantã, São Paulo, SP, CEP 05501-050, Brazil, and our telephone number at this address is +55 11 3576-9000.
Reportable Segments
Chemicals Operations that are Part of our Brazil Segment
Our Basic Petrochemicals Unit ischemicals operations that are part of our Brazil Segment are comprised of the basic petrochemicalschemicals operations conducted by our companyus in the Northeastern Complex, the Southern Complex, the São Paulo Complex and the Rio de Janeiro Complex.
Our Basic Petrochemicals Unit produces:chemicals operations that are part of our Brazil Segment produce:
· | olefins, such as ethylene, polymer and chemical grade propylene, butadiene and butene-1; |
· | BTX products; |
· | fuels, such as automotive gasoline, liquefied petroleum gas, or LPG, ethyl tertiary-butyl ether, or ETBE, and methyl tertiary-butyl ether, or MTBE; |
· | intermediates, such as cumene; |
· | aliphatics, aromatics and hydrogenated solvents; and |
· | specialties such as isoprene, dicyclopentadiene, or DCPD, piperylene, nonene, tetramer, polyisobutylene, or PIB, and hydrocarbon resins. |
The products of our Basic Petrochemicals Unitchemicals operations that are part of our Brazil Segment are used primarily in the manufacture of intermediate second generation petrochemical products, including those manufactured by our Polyolefins Unitpolyolefins and vinyls operations that are part of our Vinyls Unit.Brazil Segment. Our Basic Petrochemicals Unitchemicals operations that are part of our Brazil Segment also suppliessupply other second generation producers in each of the petrochemical complexes in which we operate and other companies located outside of these complexes, and renders services to those producers. In 2016, 78.2% of our Basic Petrochemicals Unit’s net sales revenue (including intra-company sales) was derived from the sale of basic petrochemicals, 7.0% from the sale of fuels, 8.7% from the resale of naphtha and condensate, 2.7% from the sale of intermediates and 3.5% from the sale of utilities and services. In 2016, 43.9% of our Basic Petrochemicals Unit’s net sales revenue from sales of basic petrochemicals was derived from sales made to our Polyolefins and Vinyls Units.
Products of Our Basic Petrochemicals UnitChemicals Operations that are Part of our Brazil Segment
Our other business units and third-party petrochemical producers use ethylene and propylene produced by our Basic Petrochemicals Unitchemicals operations that are part of our Brazil Segment to produce second generation products such as polyethylene, polypropylene and PVC. We also sell butadiene, a variety of aromatics, including BTX products, and intermediates, such as cumene, to third-party petrochemical producers for use as raw materials in the production of a variety of second generation products, including synthetic rubber, elastomers, resins, nylon fibers, ethyl benzene (which is used to make styrene monomer/polystyrene), linear alkyl benzene, purified terephthalic acid, dimethyl terephthalate, bisphenol A, a feedstock for the production of polycarbonate resins, phthalic anhydride, plasticizers and paint.
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The following table sets forth the sales volume of basic petrochemicalspetrochemical products by our Basic Petrochemicals Unitchemicals operations that are part of our Brazil Segment (excluding our intra-company sales) for the periods indicated.
Year Ended December 31, | Year Ended December 31, | ||||||||||||||
2016 | 2015 | 2014 | 2021 | 2020 | 2019 | ||||||||||
(thousands of tons) | (in thousands of tons) | ||||||||||||||
Domestic sales: | |||||||||||||||
Ethylene | 511.9 | 485.8 | 499.6 | 516.8 | 486.3 | 464.1 | |||||||||
Propylene | 291.3 | 246.1 | 208.9 | 370.7 | 282.1 | 341.9 | |||||||||
Cumene | 194.5 | 206.0 | 211.6 | 204.2 | 186.6 | 219.0 | |||||||||
Butadiene | 198.5 | 220.1 | 210.0 | 172.2 | 122.9 | 161.0 | |||||||||
BTX products(1) | 676.9 | 631.5 | 594.9 | ||||||||||||
BTX products(1) | 741.9 | 676.6 | 618.7 | ||||||||||||
Gasoline | 1,058.9 | 953.9 | 1,007.3 | ||||||||||||
Others | 1,214.0 | 956.7 | 942.6 | 439.1 | 430.8 | 443.8 | |||||||||
|
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| |||||||||||||
Total domestic sales of basic petrochemicals | 3,087.1 | 2,746.2 | 2,667.6. | ||||||||||||
Total export sales of basic petrochemicals | 1,318.2 | 1,584.9 | 1,559.8 | ||||||||||||
|
|
| |||||||||||||
Total sales of basic petrochemicals | 4,405.3 | 4,331.1 | 4,227.4 | ||||||||||||
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| |||||||||||||
Total domestic sales of Chemicals | 3,503.7 | 3,139.2 | 3,255.8 | ||||||||||||
Total export sales of Chemicals | 842.0 | 785.1 | 1,060.9 | ||||||||||||
Total sales of chemicals | 4,345.7 | 3,924.3 | 4,316.7 |
(1) | Includes benzene, toluene and para-xylene. |
In addition, we had the following intra-company sales:
Year Ended December 31, | ||||||||||||
2016 | 2015 | 2014 | ||||||||||
(thousands of tons) | ||||||||||||
Ethylene | 2,856.5 | 2,793.5 | 2,704.3 | |||||||||
Propylene | 1,022.0 | 987.3 | 859.5 |
Production Facilities of Our Basic Petrochemicals UnitChemicals Operations that are Part of our Brazil Segment
We believe that the technological processes we use at plants in our basic petrochemicals plantschemicals operations that are part of our Brazil Segment are among the most advanced in the world. Our Basic Petrochemicals Unitchemicals operations that are part of our Brazil Segment currently ownsinclude owning and operates:operating:
· | five major production facilities in the Northeastern Complex (two olefins units, two aromatics units and one utilities unit); |
· | five major production facilities in the Southern Complex (two olefins units, one green ethylene unit, one aromatics unit and one utilities unit); |
· | three production facilities in the São Paulo Complex (one olefins unit, one aromatics unit and one utilities unit); and |
· | two production facilities in the Rio de Janeiro Complex (one olefins unit and one utilities unit). |
We define the term “unit” to mean several production lines that are linked together to produce olefins, aromatics or utilities.
The table below sets forth the primary products of our Basic Petrochemicals Unit,chemicals operations that are part of our Brazil Segment, annual production capacity as of December 31, 20162021 and annual production for the years presented.
Annual Production | Production For the Year Ended December 31, | Annual Production | Production | |||||||||||||||||
Primary Products | Capacity | 2016 | 2015 | 2014 | Capacity | 2021 | 2020 | 2019 | ||||||||||||
(in tons) | (in tons) | |||||||||||||||||||
Olefins: | ||||||||||||||||||||
Ethylene | 3,952,000 | 3,459,861 | 3,357,078 | 3,237,886 | 3,952,000 | 3,026,634 | 3,027,070 | 3,185,203 | ||||||||||||
Propylene | 1,585,000 | 1,400,466 | 1,389,796 | 1,306,636 | 1,585,000 | 1,290,537 | 1,232,053 | 1,310,028 | ||||||||||||
Butadiene | 480,000 | 411,688 | 389,272 | 374,827 | 480,000 | 380,927 | 339,487 | 397,762 | ||||||||||||
Aromatics: | ||||||||||||||||||||
BTX products(1) | 1,367,000 | 1,000,489 | 981,570 | 951,265 | ||||||||||||||||
BTX products(1) | 1,367,000 | 912,907 | 893,097 | 825,253 | ||||||||||||||||
(1) | Consists of benzene, toluene and para-xylene. |
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Raw Materials of Our Basic Petrochemicals UnitChemicals Operations that are Part of our Brazil Segment
The main raw material that we use for chemical production is naphtha, with a total consumption capacity of up to 10 million tons per year. Up to one-and-a-half million tons of naphtha can be substituted by condensate, which in recent years was about one million tons. Natural gasoline is also a feedstock that can be used as a replacement for naphtha. The cracker located in Rio de Janeiro uses ethane and propane, and its consumption is 0.4 million tons of each of these raw materials per year. The São Paulo cracker can also consume refinery off gas in a quantity equivalent to about 15% of the ethylene production capacity.
Naphtha
Naphtha is the main raw material that we use to produce our basic petrochemicalchemical products and represents the principal production and operating cost of our Basic Petrochemicals Unit.chemicals operations that are part of our Brazil Segment. We also use condensate as a raw material in our basic petrochemical units in the Southern Complex.
The price of naphtha that we purchase varies primarily based on changes in the U.S. dollar-based international price of crude oil. Naphtha accounted for 57.0% of the total cost of sales of our Basic Petrochemicals Unit during 2016.
The following table shows the average Amsterdam-Rotterdam-Antwerp, marketor the ARA price, of naphtha for the periods indicated.
2021 | 2020 | 2019 | |||||||||||||||||
2017 | 2016 | 2015 | 2014 | (in US$/t) | |||||||||||||||
Average(1) | US$ | 455.38 | US$ | 385.41 | US$ | 461.89 | US$ | 836.23 | |||||||||||
Average(1) | US$633.87 | US$354.68 | US$505.33 | ||||||||||||||||
Month ended: | |||||||||||||||||||
January | 500.00 | 317.83 | 396.91 | 918.58 | 500.46 | 527.23 | 459.16 | ||||||||||||
February | 498.00 | 293.00 | 502.13 | 913.65 | 555.34 | 465.41 | 499.83 | ||||||||||||
March | 459.00 | 351.07 | 504.86 | 911.40 | 572.95 | 246.70 | 533.15 | ||||||||||||
April | 468.00 | 379.00 | 525.61 | 925.63 | 557.94 | 138.41 | 563.16 | ||||||||||||
May | 435.00 | 403.00 | 550.86 | 937.84 | 592.95 | 228.91 | 544.57 | ||||||||||||
June | 401.00 | 417.00 | 538.07 | 952.45 | 633.61 | 342.23 | 472.94 | ||||||||||||
July | 425.00 | 380.00 | 472.37 | 935.59 | 673.39 | 380.85 | 503.46 | ||||||||||||
August | 457.00 | 369.00 | 403.38 | 865.81 | 646.87 | 381.15 | 446.86 | ||||||||||||
September | — | 396.00 | 411.66 | 841.36 | 678.81 | 366.74 | 479.46 | ||||||||||||
October | — | 441.00 | 430.26 | 711.52 | 763.05 | 375.07 | 491.00 | ||||||||||||
November | — | 416.00 | 419.18 | 628.94 | 733.07 | 370.74 | 529.99 | ||||||||||||
December | — | 462.00 | 387.41 | 491.98 | 698.05 | 432.70 | 540.33 |
(1) | The information in the “Average” row represents the mean average monthly naphtha prices during each respective year. |
Source: IHS.Braskem Global Market Intelligence.
Supply Contracts and Pricing of the Basic Petrochemicals UnitChemicals Operations that are Part of our Brazil Segment
Naphtha and Condensate
The following table shows the distribution of the naphtha plus condensate purchases by our Basic Petrochemicals Unitchemicals operations that are part of our Brazil Segment for the periods indicated by geographic location of the suppliers.
Year Ended December 31, | Year Ended December 31, | ||||||||||||||
2016 | 2015 | 2014 | 2021 | 2020 | 2019 | ||||||||||
Brazil | 62.2 | % | 55.5 | % | 69.8 | % | 31% | 54% | 37% | ||||||
Algeria | 15.6 | % | 19.7 | % | 10.2 | % | |||||||||
United States of America | 1.7 | % | 4.5 | % | — | ||||||||||
Venezuela | 5.3 | % | 9.9 | % | 9.0 | % | |||||||||
Europe | 23% | 14% | 20% | ||||||||||||
South America | 2% | 5% | 10% | ||||||||||||
North America | 30% | 16% | 16% | ||||||||||||
Africa | 15% | 12% | 16% | ||||||||||||
Others | 15.2 | % | 10.4 | % | 11.0 | % | 0% | 1% | |||||||
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Total | 100.0 | % | 100.0 | % | 100.0 | % | 100% | 100% | |||||||
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Supply Contracts with Petrobras
On December 23, 2015, weThroughout 2021, Braskem and Petrobras entered into a4 new five-year Naphtha Purchase Agreement. This contract replaced the naphtha supply contract betweencontracts to provide naphtha for our company and Petrobras forplants in the supply of naphtha to our basic petrochemicals plants located inSouthern Complex, the Northeastern Complex and superseded the naphtha supply contract between our company and Petrobras for the supply of naphtha to our basic petrochemicals plants located in the Southern Complex, Northeastern Complex and São Paulo Complex. The new contract will expire in December 2020.All contracts have a term of 5 years until the end of 2025.
Under the terms of this new agreement:these agreements:
· | Petrobras has agreed to sell and deliver naphtha, for a period of five years, to our chemicals plants in the Northeastern, Southeastern and the Southern Complex exclusively for our use as a feedstock; |
· | we are required to purchase a minimum monthly volume of naphtha for each of our Complexes; |
· | we have the option to purchase additional volume for the São Paulo Complex and Petrobras has an option to sell us additional volume for our Northeastern and Southern Complexes; |
· | we may request volumes of naphtha that exceed a monthly firm commitment order, which Petrobras may supply at its discretion; |
· | the price we pay for naphtha is based on international price references; |
· | the contract could be terminated or amended in the event that unforeseen extraordinary events occur that cause a disruption in the economic-financial equilibrium of the contract; |
· | either party may terminate the contract, without prior notice, in the event of: (1) failure to cure any breach of the contract following a 30-day grace period; (2) a force majeure event that continues for more than 90 days; (3) transfer or offer as a guaranty all or part of either party’s rights and obligations under the contract to a third party without the other party’s consent; (4) an alteration of ownership or corporate purposes that conflicts with the purpose of the contract; (5) dissolution; or (6) failure to comply with the compliance obligations of the contract; and |
· | Petrobras may terminate the contract, without prior notice, in the event of our bankruptcy or liquidation. |
Supply Arrangements with SONATRACH
La Société Nationale pour la Recherche, la Production, le Transport, la Transformation et la Commercialisation des Hydrocarbures, or SONATRACH (the Algerian national oil company), is one of our suppliers of imported naphtha and condensate. We have imported naphtha supplied by SONATRACH since 2002. On an annual basis, we negotiate the minimum and maximum volumes of naphtha and condensate that we will purchase from SONATRACH. In the event that we were unable to renew our supply arrangements with SONATRACH, we believe that we could purchase sufficient quantities of naphtha from other suppliers to meetagreement, the supply needsagreement was assigned to ACELEN, which, as of our basic petrochemicals plants.December 2021, replaced Petrobras as Braskem’s supplier in connection with such refinery.
Other Supply Contracts
As part of our strategy to diversify our sources of supply of naphtha, we are acquiring naphtha under annual supply arrangements with international suppliers.
Spot Market Purchases of Naphtha
In addition to our supplies of naphthafeedstock under the agreements described above, we purchase naphtha on the spot market from time to time from foreign suppliers located in Africa, Europe, North America and Latin America.
Spot Market Purchases of Condensate
In addition to our supplies of feedstock under the agreements described above, we purchase condensate on the spot market from time to time from foreign suppliers.
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Ethane and Propane
Ethane and propane are the principal raw materialsfeedstocks that we use to produce our basic petrochemicalchemical products in the Rio de Janeiro Complex and represent the principal production and operating cost of the basic petrochemical unitchemical operations that are part of our Brazil Segment in the Rio de Janeiro Complex. The price of ethane and propane that we purchase varies primarily based on changes in the U.S. dollar-based international price of these feedstocks.
In December 2020, we and Petrobras agrees to sell and deliverentered into a new ethane and propane supply agreement with a term of five years, from January 1, 2021 to our basic petrochemical plantDecember 31, 2025 as follows:
· | we are required to purchase and Petrobras is required to deliver a minimum annual volume of ethane and/or propane |
· | we agree to provide Petrobras with a firm commitment order for ethane and propane each month, together with an estimate of the volume of ethane and propane that we will purchase over the immediately succeeding four months; |
· | the prices for ethane and propane are based on international price references; and |
· | Petrobras may terminate the contract, without prior notice, in the event of: (1) our failure to cure any breach of the contract following a 60-day grace period; (2) a force majeure event that continues for more than 365 days; (3) we transfer or offer as a guaranty all or part of our rights and obligations under the contract to a third party without Petrobras’ consent; and (4) the dissolution, bankruptcy or liquidation of RioPol. |
Braskem also has an ethane supply contract with Enterprise Products Operating LLC, or Enterprise Products, to supply ethane from the United States to Brazil. This agreement will remain valid until 2027. The price of ethane is based on the Mont Belvieu ethane price plus a Terminal Fee, basis FOB USGC. The logistics to move the ethane to Brazil is managed by Braskem.
Since February 2017, Braskem has had the capability to receive imported ethane at the Rio de Janeiro Complex exclusively.
The imported ethane is marginal to domestic supply and the quantity imported in 2021 was 30.9 ktons, 2020 was 30.9 ktons, and in 2019 it was 35.3 ktons.
Since November 2017, Braskem has the capacity to consume ethane in the cracker in Bahia, partially replacing naphtha. Braskem has invested to create the flexibility to substitute naphtha for useethane in a ratio equivalent to 15% of the ethylene production of the site. 2018 was the first year in which we operated our cracker in Bahia using imported ethane as a raw material;
Refinery Off Gas
In January 2005, we and Petrobras entered into an agreement with Petrobras for the purchase and sale of a steam offrom refinery off gas, from which we separate ethylene and propylene. This agreement provides that wehad validity for 15 years and Petrobras willparties should negotiate the renewal of this agreementextension prior to its expiration in 2020 and that, in2020. In the event that Petrobras does not intendhas no intention to renew this agreement, it mustthey should notify us at least two years prior to the expiration of this agreement and, mustin this case, should perform under the terms and conditions of this agreement for 8 years after original expiration date.
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In December 2017, Petrobras informed us that they would not renew this agreement on the same terms. Therefore, the contract will remain valid and under original conditions until 2028.
The impact of the new terms and conditions of a possible future agreement after 2028 and any failure to successfully negotiate such terms with Petrobras could impair our ability to satisfy our refinery off gas needs.
Under the terms of this agreement, which represents 100% of our light refinery hydrocarbon supply:
supply:
· | we are required to purchase a minimum daily volume of refinery off gas, and Petrobras is required to sell a minimum daily volume to us; |
· | the price for refinery off gas is based on a variety of market references; |
· | the contract will be amended in the event that unforeseen extraordinary events occur that cause a disruption in the economic-financial equilibrium of the contract; |
· | Petrobras may terminate the contract, without prior notice, in the event of: (1) our failure to cure any breach of the contract following a 30-day grace period; (2) a force majeure event that prevents the execution of the contract; (3) a transfer or pledge by us, as a guarantee for indebtedness, of all or part of our rights, obligations and credits under this contract to a third party without Petrobras’ consent, unless the third party is a member of our economic group; (4) the dissolution or bankruptcy of Braskem S.A.; or (5) a change in business structure, merger, sale, spin-off or any other corporate reorganization of Braskem S.A. that conflicts with or impedes the execution of contract’s purpose. |
Electricity
To supply our industrial operations in Brazil, which represents 86%represented 76.7% of theour global Braskem’s electric consumption in 2021, we self-generate approximately 20%self-generated 23.4% of our electrical energy consumption. Approximately 32%28.2% of our demand isin 2021 was supplied by Companhia Hidrelétrica do São Francisco, or CHESF, a Brazilian government-owned electric power generation company, pursuant to a power purchase agreement. Approximately 93% of the 68%agreement that will remain valid until 2037. The remaining energy is supplied primarily under long-term contracts with several suppliers in the free energy market (Mercado(Mercado Livre de Energia) and 7% is supplied by regulated market.Energia).
In the Bahia Complex, we self-generate |
· | In the Alagoas plants, 74.6% of the energy consumption is supplied by CHESF. Therefore, the remaining energy from the Alagoas plants is acquired primarily from several |
· | In the Southern Complex, we self-generate 29.9% of the energy consumption, and the remaining energy is acquired primarily from several suppliers in the free energy market; |
· | In the São Paulo Complex, we self-generate 9.1% of the energy consumption, and the remaining energy is acquired primarily from several suppliers in the free energy market; |
· | In the Rio de Janeiro Complex, the energy consumption is acquired primarily from several suppliers in the free energy market. |
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Table of Contents |
Natural Gas
Natural gas is supplied to our industrial operations in Brazil under long-term contracts in the regulated market by companies that have government licenses and exclusivity to deliver it in each state. The natural gas consumed by our operations in Brazil in 20162021 represented 61%64% of our totalconsolidated consumption.
· | In the Bahia Complex, natural gas is supplied by Companhia de Gás da Bahia, or Bahiagás, which represents 42% of our consumption in Brazil. |
· | In the Alagoas plants, natural gas is supplied by Gás de Alagoas S.A., or Algás, which represents 18% of our consumption in Brazil. |
· | In the Rio Grande do Sul Complex, natural gas is supplied by Companhia de Gás do Estado do Rio Grande do Sul, or Sulgás, which represents 18% of our consumption in Brazil. |
· | In the São Paulo Complex, natural gas is supplied by Companhia de Gás do Estado de São Paulo, or Comgás, which represents 16% of our consumption in Brazil. |
· | In the Rio de Janeiro Complex, natural gas is supplied by Naturgy Brasil, which represents 6% of our consumption in Brazil. |
Others
In the Southern Complex until June 2021 we also buy methanol to produce MTBE and ethanol to produce the “green polyethylene.” After June 2021 we purchased ethanol to produce the “green polyethylene” and ETBE. Methanol is imported and its price is based inon international market quotations. Ethanol is bought in the domestic market from several producers. In the Bahia Complex, we also buy ethanol to produce ETBE.
Sales and Marketing of Our Basic Petrochemicals UnitChemicals Operations that are Part of our Brazil Segment
We sell 70%most of our basic petrochemicalchemical products in Brazil to third-party petrochemical producers. We sell the remainder of our basic petrochemicalchemical products to customers in the United States, Europe, South America and Asia.
As is common with other first generation petrochemical producers, our Basic Petrochemicals Unit has a high concentration of sales to a limited number of customers. Net sales to our Basic Petrochemicals Unit’s 10 largest customers (excluding intra-company sales) accounted for 22.2% of our Basic Petrochemicals Unit’s total net sales revenue during the year ended December 31, 2016.
The following table sets forth our net sales revenue derived from domestic and export sales, excluding inter-company sales, by our Basic Petrochemicals Unit for the years indicated:
For the Year Ended December 31, | ||||||||||||
2016 | 2015 | 2014 | ||||||||||
(in millions ofreais) | ||||||||||||
Net sales revenue: | ||||||||||||
Domestic sales | R$ | 8,201.7 | R$ | 7,523.5 | R$ | 8,459.5 | ||||||
Export sales | 5,572.3 | 4,944.2 | 5,389.8 | |||||||||
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13,744.0 | R$ | 12,467.7 | R$ | 13,849.3 | ||||||||
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Domestic Sales of Basic PetrochemicalsChemicals
As part of our commercial strategy, our Basic Petrochemicals Unitchemicals operations that are part of our Brazil Segment focuses on developing long-term relationships with our customers and entering into long-term supply contracts that provide for minimum and maximum quantities to be purchased andon a monthly deliveries. We determine thebasis. The domestic prices that we charge for ethylene by reference to Western European contract prices. We determine the domestic prices that we charge for propylenemarket pricing is based on a formula under which 50% of the price is determined generally by reference to Northwest Europe prices and the remaining 50% is determined by reference to the North American contract prices. We determine the domestic price of butadiene by reference to the U.S. Gulf contract price. We set the domestic prices of our BTX products, including benzene, para-xylene and toluene by reference to United States, contract or spot market prices. We set the domestic prices of solvents by reference to international market prices, and we determine the domestic prices for our other olefins and aromatics products with reference to several international market indicators.references.
Export Sales of Basic PetrochemicalsChemicals
We export basic petrochemicals mainly to customers in the United States and in Europe and we set the priceInternational market prices are also based on international market references, bases in accordance with which usually vary according to the region or country.to which the product is exported.
We are focused on maintaining our leading position in the Brazilian market, while continuing to use our exports to protectoptimize our operations and adjust the imbalances between demand and production. Export net salesSince we export large volumes of certain products, we also develop long-term relationships with international customers through contracts that minimize our Basic Petrochemicals Unit represented 15% of our Basic Petrochemicals Unit’s net sales revenue during 2016.
Additionally, we have applied our expertise in commodities tradingexposure to increase our resale operations of naphthamarket conditions and oil derivatives in the international markets. In order to meet our crackers’ naphtha requirements (in terms of timing, pricing and quality), we maintain an excess supply of naphtha and resell the surplus on the spot market. During 2016, we recorded average resale operations of R$180 million per month.mitigate risk.
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Competition
Competition |
Our basic petrochemicalchemical customers, which are mostly second generation petrochemical producers with plants located in the Brazilian petrochemical complexes, would have difficulty obtaining their feedstocks from other sources at lower prices due to the high cost of transportation of these products, as well as other logistical difficulties. In addition, because Brazil produces sufficient quantities of olefins to meet domestic demand, imports of these products are generally sporadic and usually related to scheduled plant maintenance shutdowns or to meet unsatisfied domestic demand.
During the past several years, as the relative cost of naphtha and gas as feedstocksfeedstock for petrochemical crackers has diverged, many crackers using gas as a feedstock have becomelow-cost producers in the global markets and have seen their margins improve substantially as compared to naphtha crackers, such as our company. However, as gas crackers are able to produce fewer of theco-products and byproducts that naphtha crackers generate, such as propylene, butadiene and BTX products, and in smaller quantities, the prices of these products in the international
markets have increased. As a result of the increased prices available for theseco-products and byproducts, our net sales revenue from export sales of these products increased, and we believe that this increase in net sales revenue from exports of these products will continue in future periods in which the relative competitiveness of cracker feedstocks is disrupted.crackers. Competition in the international markets for these products is primarily based on the price of delivered products and competition has increased sincemid-2008 as the balance between supply and demand was disrupted due to the impact of the global economic downturn on consumers of these products. In the international markets for our basic petrochemicalChemical products, we compete with a large number of producers, some of which are substantially larger and have substantially greater financial, manufacturing, technological and marketing resources than us.
Polyolefins Operations that are Part of our company.
Polyolefins UnitBrazil Segment
As of December 31, 2016,2021, our polyolefins production facilities had the largest annual production capacity of all second generation producers of polyolefins products in Latin America. Our Polyolefins Unit generated net sales revenue of R$20,307.4 million during 2016, or 34.5%polyolefins operations that are part of our consolidated net sales revenue.
Our Polyolefins UnitBrazil Segment is comprised of the operations conducted by our companyus at nine polyethylene plants and five polypropylene plants located in the Northeastern Complex, the Southern Complex, the São Paulo Complex and the Rio de Janeiro Complex.
Products of Our Polyolefins UnitOperations that are Part of our Brazil Segment
Our Polyolefins Unit produces:polyolefins operations that are part of our Brazil Segment produce:
· | polyethylene, including LDPE, LLDPE, HDPE, UHMWPE, EVA and “green polyethylene” from renewable resources; and |
· | polypropylene. |
We manufacture a broad range of polyolefins for use in consumer and industrial applications, including:
· | plastic films for food, agricultural and industrial packaging; |
· | bottles, shopping bags and other consumer goods containers; |
· | automotive parts; |
· | engineering and infra-structure goods; and |
· | household appliances. |
The following table sets forth a breakdown of the sales volume of our Polyolefins Unitpolyolefins operations that are part of our Brazil Segment by product line and by market for the years indicated.indicated.
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Year Ended December 31, | ||||||||||||
2016 | 2015 | 2014 | ||||||||||
(thousands of tons) | ||||||||||||
Domestic sales*: | ||||||||||||
Polyethylene (1) | 1,705.46 | 1,705.87 | 1,743.0 | |||||||||
Polypropylene | 1,105.68 | 1,126.9 | 1,204.0 | |||||||||
Other | — | — | 20.3 | |||||||||
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Total domestic sales | 2,811.14 | 2,832.8 | 2,967.4 | |||||||||
Total export sales | 1,590.48 | 1,307.1 | 1,112.5 | |||||||||
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Total Polyolefins Unit sales | 4,401.62 | 4,139.9 | 4,079.9 | |||||||||
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Year Ended December 31, | |||
2021 | 2020 | 2019 | |
(in thousands of tons) | |||
Domestic sales: | |||
Polyethylene(1) | 1,789.7 | 1,886.7 | 1,789.7 |
Polypropylene | 1,208.7 | 1,250.3 | 1,142.8 |
Total domestic sales | 2,998.4 | 3,137.0 | 2,932.5 |
Total export sales | 822.0 | 1,051.8 | 1,391.8 |
Total polyolefins sales | 3,820.4 | 4,188.8 | 4,324. 3 |
(1) | Includes EVA |
We provide technical assistance to our customers to meet their specific needs by adapting and modifying our polyethylene and polypropylene products. In particular, we develop customized value-added polypropylene compounds for use by our customers in their specialized applications. We believe that the variety of technological processes at our polyolefins plants provides us with a competitive advantage in meeting our customers’ needs.
Production Facilities of Our Polyolefins UnitOperations that are Part of our Brazil Segment
As of December 31, 2016,2021, our Polyolefins Unitpolyolefins operations that are part of our Brazil Segment owned 14 production facilities.plants. Our Polyolefins Unit operatespolyolefins operations that are part of our Brazil Segment operate five plants located in the Southern Complex, three plants located in the Northeastern Complex, four plants located in the São Paulo Complex and two plants located in the Rio de Janeiro Complex.
The table below sets forth for each of our primary polyolefins products, our annual production capacity as of December 31, 20162021 and annual production for the years presented.
Annual Production | Production For the Year Ended December 31, | Annual Production | Production | |||||||||||||||||
Primary Products | Capacity | 2016 | 2015 | 2014 | Capacity | 2021 | 2020 | 2019 | ||||||||||||
(in tons) | (in tons) | (in tons) | ||||||||||||||||||
Polyethylene: | ||||||||||||||||||||
LDPE/EVA(1) | 970,000 | 720,240 | 645,072 | 616,849 | ||||||||||||||||
HDPE/LLDPE/UHMWPE(2) | 2,085,000 | 1,988,228 | 2,003,747 | 1,890,974 | ||||||||||||||||
Polypropylene(3) | 1,840,000 | 1,592,474 | 1,510,363 | 1,592,491 | ||||||||||||||||
LDPE/EVA(1) | 795,000 | 586,205 | 644,747 | 675,075 | ||||||||||||||||
HDPE/LLDPE/UHMWPE(2) | 2,260,000 | 1,858,824 | 1,927,512 | 1,935,752 | ||||||||||||||||
Polypropylene(3) | 1,850,000 | 1,511,794 | 1,568,723 | 1,638,974 |
(1) | Represents capacity and production at five production |
(2) | Represents capacity and production at |
(3) | Represents capacity and production at five plants. |
In September 2010, we commenced production of ethylene at a new plant located in the Southern Complex that produces “green” ethylene using sugar cane ethanol received through the Santa Clara Terminal as its primary raw material. This plant has an annual production capacity of 200,000 tons of ethylene.
During 2014, we converted and expanded, by 25,000 tons, one of our polyethylene lines in the state of Bahia to produce metallocene-based LLDPE. This project began its operations in January 2015.
Raw Materials of Our Polyolefins UnitOperations that are Part of our Brazil Segment
Ethylene and Propylene
The most significant direct costs associated withfeedstock of our production of polyethylene and polypropylene are the costs of purchasing ethylene and propylene which together accounted for 85%that are produced by our chemicals operations that are part of our Polyolefins Unit’s total variable costBrazil Segment. In 2021, our polyolefins operations that are part of production during 2016. During 2016, our Polyolefins Unit purchasedBrazil Segment consumed all of itsthe ethylene requirements and approximately 63%part of itsthe propylene requirements fromproduced by our Basic Petrochemicals Unit.chemicals operations that are part of our Brazil Segment.
Propylene Contracts with Petrobras and its Subsidiaries
We holdhave entered into multiple propylene contracts with Petrobras refineries,agreements, which in 2016 were responsible for the supply of 36.5% of our propylene demand to produce polypropylene. These supply contracts havehad initial terms expiring at various dates between May 2021, which was automatically renewed for five additional years, and April 2028,December 2029, and are priced based on international references to assure competitiveness of feedstock.
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In 2016, Braskem entered into an agreement with Petrobras for a5-year five-year propylene supply contract with REFAP,Refap S.A., a subsidiary of Petrobras. This supply contract is also priced based on international references. In October 2021, Petrobras and Braskem renewed for one year the propylene supply contract with REFAP. The contract will last between November 2021 and October 2022 and has the same volume and pricing conditions as the previous contract.
In December 2021, Petrobras and Braskem entered into five new propylene contracts, to be supplied by REPLAN, REVAP, REPAR, REDUC and RECAP, which replaced the existing contracts. These contracts expire between 2026 and 2029 and are priced on international references to assure the competitiveness of feedstock.
Petrobras may terminate these contracts, without prior notice, in the event of: (1) our failure to cure any breach of the contract following a30-day grace period; (2) a force majeure event occurs, although some of these contracts require that the force majeure event continues for more than 180 days; (3) we transfer or offer as a guaranty all or part of its rights and obligations under the contract to a third party without Petrobras’ consent; (4) an alteration of Braskem management or corporate purposes that conflicts with the purpose of the contract; (5) the dissolution, bankruptcy or liquidation of Braskem; and (6) a change of entity type, merger, sale,spin-off or any other corporate reconstruction of Braskem that conflicts with or impedes the execution of contract’s purpose.
Ethanol Supply Contracts
We hold multiplebuy ethanol contracts with majorfrom Brazilian producers of ethanol to supply our new facility that produces ethylene (besides ETBE) using sugar cane ethanol. These supplySome agreements expire in 2024 and others have no specific expiration date. We also purchase ethanol on the spot market from time to time to supplement the contracted volumes. Under the contracts we have, initial terms expiring at various dates between May 2017 and July 2018. Under these contracts, we are or will be required to purchase an annual supply of ethanol sufficient to meet approximately 70%at least 90% of the capacity of this ethylene plant. The price that we pay under these contracts is or will be determined by reference to the monthly price of combustible hydrated alcohol as published by the Center for Advanced Studies in Applied Economics of the Superior School of Agriculture (Centro(Centro de Estudos Avançados em Economia Aplicada da Escola Superior de Agricultura–Agricultura– CEPEA/ESALQ).
We also purchase ethanol on the spot market from time to time to supplement the supplies that we obtain under these contracts. The price that we pay for ethanol under most of these contracts is determined by reference to market indexes.
Other Materials and Utilities
Our Polyolefins Unit usespolyolefins operations that are part of our Brazil Segment use butene and hexanen-hexane as raw materials in the production of HDPE and LLDPE. Butene is supplied byconsumed from our Basic Petrochemicals Unit,chemicals operations that are part of our Brazil Segment, and we import hexanen-hexane from suppliers located in South Africa.U.S. Gulf Coast.
Our Unipol® polyethylene plants in the Northeastern Complex and Rio de Janeiro Complex use catalysts supplied by Univation Technologies. Our HDPE plant in the São Paulo Complex uses catalysts supplied by W.R. Grace & Co. The catalysts for our swing line LLDPE/HDPE plants are purchased from Basell Polyolefins Company N.V.,Poliolefine Italia S.R.L. and Equistar Chemicals, L.P, or, collectively, Basell. We produce our own catalysts for our HDPE slurry plants in the Southern and Northeastern Complexes, and we purchase the inputs that we need to produce these catalysts from various suppliers at market prices. Our polypropylene plants use catalysts primarily supplied by Basell, while we import certain catalysts from suppliers in the United States and Europe.
In general, we believe that there are sufficient alternative sources available at reasonable prices for each of these other inputs used in our polyolefins production process such that the loss of any single supplier would not have a material adverse effect on our operations.
Sales and Marketing of Our Polyolefins UnitOperations that are Part of our Brazil Segment
Our Polyolefins Unit sellsThrough our polyolefins operations that are part of our Brazil Segment, we sell polyethylene and polypropylene products to approximately 2,000more than 1,400 customers worldwide. We have a diversified product mix that allows us to serve a broad range of end users in several industries. The customers of our Polyolefins Unitpolyolefins operations that are part of our Brazil Segment generally are third generation petrochemical producers that manufacture a wide variety of plastic-based consumer and industrial goods.
Net sales revenue to the 10 largest customers of our Polyolefins Unit accounted for 20.8% of our Polyolefins Unit’s total net sales revenue during 2016. No customer of our Polyolefins Unit accounted for more than 2.9% of our total net sales revenue in 2016, 2015 or 2014.
The following table sets forth our net sales revenue derived from domestic and export sales by our Polyolefins Unit for the years indicated:
For the Year Ended December 31, | ||||||||||||
2016 | 2015 | 2014 | ||||||||||
(in millions ofreais) | ||||||||||||
Net sales revenue: | ||||||||||||
Domestic sales | R$ | 13,903.1 | R$ | 14,032.1 | R$ | 14,098.6 | ||||||
Export sales: | ||||||||||||
South America (excluding Brazil) | 3,286.5 | 2,806.5 | 2,421.1 | |||||||||
Europe | 1,750.3 | 1,675.4 | 872.1 | |||||||||
North America | 82.4 | 866.5 | 896.4 | |||||||||
Asia | 879.7 | 446.9 | 189.4 | |||||||||
Other | 405.4 | 158.6 | 24.6 | |||||||||
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Total export sales | 6,404.3 | 5,953.9 | 4,403.6 | |||||||||
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R$ | 20,307.4 | R$ | 19,986.2 | R$ | 18,502.2 | |||||||
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Domestic Sales
We are focused on developing long-term relationships with our customers. Given the cyclical nature of the markets for our polyolefins products, we believe that we can strengthen customer loyalty during periods of reduced demand for polyethylene or polypropylene by providing a reliable source of supply to these customers during periods of high demand. We work closely with our customers to determine their needs, to provide technical assistance and to coordinate the production and delivery of our products. Customers submit annual proposals giving their estimatedDespite having a regular client basis in the domestic market, prices in such market are driven by monthly requirements forspot negotiations. Both sales volume per client and the upcoming year for eachtypes of products our polyolefins products, including technical specifications, delivery terms and proposed payment conditions. We evaluate these proposalsclients purchase may vary on a monthly basis to make any required adjustments and to monitor and attempt to ensure adequate supply for each customer.basis.
In addition to direct sales of polyolefins to our customers, through our Polyolefins Unit sellspolyolefins operations that are part of our Brazil Segment we sell products in Brazil through exclusive independent distributors. Our Polyolefins Unitpolyolefins operations that are part of our Brazil Segment is served by five distributors, through which we distribute our products pursuant to formal agreements and spot market transactions.
We have selected our distributors based on their ability to provide full service to their customers, including the ability to prepare our productsand also based on a customized basis.their background. These distributors sell our polyethylene and polypropylene products to manufacturers with lower volume requirements and are able to aggregate multiple orders for delivery to customers that would otherwise be uneconomical for us to serve. delivery. They have a wide coverage network in Brazil and, as a result, expand the Braskem brand.
Furthermore, by providing customized services and serving smaller customers through a network of distributors, our account managers focus their efforts on delivering high quality service to a smaller number of large and medium direct customers.
Export Sales
Our volume of polyolefins export sales has generally varied based upon the level of domestic demand and the total production availability for our products. Our Polyolefins Unitpolyolefins operations that are part of our Brazil Segment has sales office in Argentina, Chile, Peru and Colombia. These offices are used to consolidate our marketing efforts in South America, one of our key markets outside of Brazil for this business unit. Our Polyolefins Unitpolyolefins operations that are part of our Brazil Segment also uses our European, Mexican and U.S. sales force in order to improve the profitability of our sales. In each of these regions, we have specific commercial strategies in connection with exports coming from Brazil, which complements our local product availability.
We have established a strategic position in the polyolefins business in South America, North America, Europe and EuropeAsia through regular direct sales, local distributors and agents who understand their respective markets. Our strategy to increase our presence in these foreign markets is intended, among other things, to reduce our exposure to the cyclicality of the international spot market for polyolefins through the development of long-term relationships with customers in neighboring countries. Our local presence in Europe allows us to further enhance our position in that marketthose markets and sell our Polyolefins Unitpolyolefins operations that are part of our Brazil Segment’s products through our USA and Europe Unit.Segment.
The main focus of our Polyolefins Unitpolyolefins operations that are part of our Brazil Segment is to maintain our leading position in the Brazil and South America reinforcing our commitment to the plastic industry chain in the region, maintaining our position as a leader in polyolefins through a continued local presence and regular product supply.
Prices and Sales Terms
We determine the domestic prices for polyethylene by reference to North American spot pricesof our products in accordance with international pricing references. In addition, we take into account segment, volume, and other information when we set our domestic prices for polypropylene by reference to Southeast Asia spot prices. Our customers in Brazil may pay in full on delivery or elect credit terms that require payment in full within three to 60 days following delivery. We charge interest based on prevailing market rates to our Brazilian customers that elect to pay on credit.
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Over the last few years, some Brazilian states have encouraged imports of polyethylene and polypropylene, as well as final products made from these polymers, by providing state tax benefits on imported goods. However, on January 1, 2013, federal legislation took effect reducing the maximum state-level value-added tax on sales and services (Imposto sobre Circulação de Mercadorias e Serviços), or ICMS, tax that states can charge from a rate of 12% to 4% on interstate sales of imported raw materials and other goods that are not wholly or partially manufactured in Brazil. As a result, Brazilian states are less able to attempt to attract imports at local ports by offering tax benefits in the form of reduced ICMS tax rates. For more information, see “Item 5. Operating and Financial Review and Prospects—Principal Factors Affecting Our Results of Operations—Effects of Brazilian Industrial Policy—Import Tariffs at Local Ports.”
In addition, besides our strategic sales to South America, Europe, Mexico and the United States, our Polyolefins Unitpolyolefins operations that are part of our Brazil Segment generally conducts export sales to buyers in Asia and Africa through the international spot market. Our customer base in these markets consists primarily of trading houses and distributors. Pricing is based on international spot market prices. We make all sales in these markets with letters of credit.
Competition
Competition |
We are the only producer of polyethylene and polypropylene in Brazil. We compete with polyolefins producers worldwide. In 2016,2021, Brazilian polyethylene and polypropylene imports declinedincreased by 0.4%12.4% and represented 27%36.0% of Brazilian polyolefin consumption.
We compete for export sales of our polyolefins products in other countries in Latin America and in the North American, Asian and European markets. We compete withSimilar to Braskem, those competitors also have a variety of resin producers, some of which have greater financial,wide portfolio, ample research and development capabilities and sufficient production and other resources than our company.capacity. Our competitive position in the export markets that we serve is primarily based on customer relationship, extensive product differentiation (mainly on renewable polyethylene), raw material costs, selling prices,portfolio, product quality and customer service and support.
We are the only green polyethylene producer in the world, made by sugar cane that is 100% verified by ASTM D6866.
Vinyls Operations that are Part of our Brazil Segment
We were the leading producer of PVC in Brazil, based on sales volumes and installed capacity in 2021. As of December 31, 2021, our PVC production facilities had the second largest annual production capacity in Latin America.
Our PVC production is integrated through our production of chlorine, ethylene and other raw materials. The main use of PVC is for pipes and fittings and other products related to the civil construction market. Our vinyls operations that are part of our Brazil Segment also manufacture caustic soda, which is mainly used by producers of alumina, pulp and paper, and in the soap industry.
In 2021, we had an approximate 43.2% share of the Brazilian PVC market and 23.3% of market share of the Brazilian caustic soda market (excluding consumption of alumina by companies located in the North and Northeast of Brazil), based on sales volumes of our vinyls operations that are part of our Brazil Segment.
Products of Our Vinyls Operations that are Part of our Brazil Segment
The following table sets forth a breakdown of the sales volume of our vinyls operations that are part of our Brazil Segment by product line for the years indicated.
For the Year Ended December 31, | |||
2021 | 2020 | 2019 | |
(in thousands of tons) | |||
PVC | 495.4 | 525.7 | 491.3 |
Caustic soda | 315.7 | 150.6 | 243.2 |
Other(1) | 22.4 | 34.4 | 72.1 |
Total domestic sales | 833.4 | 710.7 | 806.7 |
Total export sales | 8.9 | 21.7 | 22.2 |
Total vinyls sales | 842.4 | 732.4 | 828.8 |
(1) | Includes chlorine, hydrogen, caustic soda flake and sodium hypochlorite. |
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Production Facilities of Our Vinyls Operations that are Part of our Brazil Segment
We own four vinyls production facilities. One of our facilities is located in the Northeastern Complex, and three others are located in the State of Alagoas.
In January 2020, Braskem announced the permanent shutdown of its chlor-alkali production facility located in Camaçari, in the State of Bahia, whose operations started in 1979 with annual production capacity of 79,000 tons of caustic soda and 64,000 tons of chlorine. The shutdown is explained by the end of the facility’s useful life and started in April 2020, following applicable safety standards and seeking to protect people, local communities and the environment.
The table below sets forth for each of our primary vinyls products, our annual production capacity as of December 31, 2021 and annual production for the years presented.
Annual Production | Production | |||
Primary Products | Capacity | 2021 | 2020 | 2019 |
(in thousands of tons) | ||||
PVC | 710.0 | 465.0 | 448.5 | 461.1 |
Caustic Soda | 460.0 | 187.5 | 9.0 | 123.2 |
Raw Materials of the Vinyls Operations that are Part of our Brazil Segment
Ethylene |
The most significant feedstock associated with the production of PVC is ethylene. Our chemicals operations that are part of our Brazil Segment supply all of the ethylene required by our vinyls operations that are part of our Brazil Segment.
Electricity |
Electric power is a significant cost component in our production of chlorine and caustic soda. Our vinyls operations that are part of our Brazil Segment obtains its electric power requirements from various generators under long-term power purchase agreements (see “Chemicals Operations that are Part of our Brazil Segment—Supply Contracts and Pricing of the Chemicals Operations that are Part of our Brazil Segment—Electricity”).
Salt |
We used 365,732.15 tons of salt during 2021.
However, salt mining operations at our mine were halted in May 2019, as described in “Item 3. Key Information—Risk Factors—Risks Relating to Us and the Petrochemical Industry—Our business and operations are inherently subject to environmental, health and safety hazards. As a result, our business is also subject to stringent environmental and other regulations” and “Item 8. Financial Information—Legal Proceedings—Alagoas – Mining Activities.” Production of caustic soda and ethylene dichloride at our chlor-alkali facility located in the state of Alagoas was also interrupted due to the lack of salt. Ethylene dichloride, or EDC, is consumed in PVC production. Because of the interruption, we needed to import 149,864 tons of caustic soda to supply our customers and 202,819 tons of EDC to supply our PVC facilities located in the state of Alagoas and in the Northeastern Complex.
Seeking to resume our chlor-alkali operations, we launched a project to modify the feedstock base of our chlor-alkali plants by acquiring sea salt from third parties in Brazil or abroad. The product was stocked, dissolved in water to make brine and then treated and sent for processing. After concluding the commissioning process in accordance with applicable safety standards, we started production of chlor-alkali and dichloroethane at our unit located in the Pontal da Barra district of Maceió, in the state of Alagoas, which had been idled since May 2019. The cost of the project was R$67.7 million, of which R$0.9 million was disbursed in 2021, R$43.6 million was disbursed in 2020, R$21.2 million was disbursed in 2019, and the remaining balance will be disbursed in 2022. See “Item 5. Operating and financial review and prospects—Other Investments—Technology change at our chlor-alkali facility in Alagoas.”
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Sales and Marketing of Our Vinyls Operations that are Part of our Brazil Segment
There is a structural link between the PVC and caustic soda markets because caustic soda is a co-product of the production of chlorine required to produce PVC. Most of the time, when demand for PVC is high, greater amounts of caustic soda are produced, leading to an increase in supply and generally lower prices for caustic soda. Conversely, when demand for PVC is low, prices for caustic soda tend to rise.
We make most of our sales of PVC and caustic soda directly to Brazilian customers, but we use third-party distributors to serve smaller caustic soda customers. However, our vinyls operations that are part of our Brazil Segment maintain contractual relationships through five distribution centers that provide logistical support, located in Paulínia and Barueri, both in the State of São Paulo, Joinville, in the State of Santa Catarina, Extrema, in the State of Minas Gerais, and Araucaria, in the State of Paraná. In addition, we operate 12 warehouse facilities for PVC, on a non-exclusive basis, and five terminal tank facilities for caustic soda strategically located along the Brazilian coast to enable us to deliver our products to our customers on a “just-in-time” basis. Our vinyls operations that are part of our Brazil Segment develops its business through close collaboration with its customers, working together to improve existing products as well as to develop new applications for PVC. Our marketing and technical assistance groups also advise current customers and potential customers that are considering the installation of manufacturing equipment for PVC downstream products.
In addition, our vinyls operations that are part of our Brazil Segment supplies the Brazilian market with emulsion PVC and other copolymers with higher value by imports from Colombia under a contract with Mexichem. Our primary customers operate in the laminated, shoe and automobile sectors. These products represented 1.5% of our consolidated sales volume in 2021.
Prices and Sales Terms
The domestic price for PVC resins is based on the import parity of PVC imported by converters in Brazil, which generally reflects the Northeast Asian spot market price, plus exchange rate variation. Delivery time, quality and technical service also affect the levels of sales of PVC resins. We establish our domestic price for caustic soda based on North American spot market prices, plus exchange rate variation.
Competition
PVC
Unipar Indupa (formerly Carbocloro and Solvay), or Unipar, and Braskem are the only two producers of PVC in Brazil. Unipar’s total Brazilian installed annual production capacity is 300,000 tons, compared to our annual production capacity of 710,000 tons. Unipar’s Brazilian production facilities are located in São Paulo, which is closer to the primary PVC market in Brazil than our facilities. However, we believe that our vertically integrated production capabilities, our strong relationship with our customers and our technical assistance programs enable us to make up for any competitive disadvantage due to distance and compete effectively with Unipar.
Braskem also competes with Unipar’s Argentina production facilities and other importers of PVC. Unipar has a PVC plant in Argentina in addition to its plants in Brazil. Imports from all regions accounted for 41% of Brazilian PVC consumption in 2021. Domestically produced PVC is currently competitively priced with imported PVC, considering that our price is based on the international market.
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In addition, Braskem competes with other producers of thermoplastics that manufacture the same PVC products or substitutes for products in our PVC product line. Thermoplastic resins, principally polyethylene and polypropylene, are used in certain applications as substitutes for PVC. Wood, glass and metals also are used in some cases as substitutes for PVC.
Caustic Soda
According to IHS and Abiclor (Associação Brasileira da Indústria de Álcalis, Cloro e Derivados), the three largest Brazilian producers of caustic soda, including Braskem, accounted for 91% of capacity in Brazil in 2021. Most domestic producers operate on a local or regional basis, with the exception of Braskem and another producer located in the Northeast region of Brazil that operate in the whole country through terminal tanks located on the Brazilian coast. Imports accounted for 38% of Brazil’s total caustic soda consumption in 2021, excluding Braskem imports. Due to the mining event in Alagoas, our chlor-alkali plant was idled in 2019 and we have been importing caustic soda from various sources to keep supplying customers in Brazil since then.
Our principal competitors in the caustic soda market elsewhere in South America are other international petrochemical companies operating in Brazil and producers located on the U.S. Gulf Coast.
USA and Europe UnitSegment
Our USA and Europe UnitSegment includes:
the operations of Braskem America, which consist of five polypropylene plants in the United States and one Ultra High Molecular Weight Polyethylene |
· | the operations of two polypropylene plants in Germany. |
As of December 31, 2016,2021, our USA and Europe Unit’sSegment’s facilities had the largest annual polypropylene production capacity in the United States. Our USA and Europe UnitSegment generated net sales revenue of R$8,896.132,403.6 million during 2016,2021, or 15.1%29.9% of the net sales revenue of all reportable segments.
In June 2014, we announced the construction of an UHMWPE production facilityline in our La Porte, Texas site, which began producing UTEC®in the first quarter of 2017. We believe that the production of specialized UHMWPE at this new plantline complements our existing portfolio of products and will enable us to access new markets and to develop close relationships with new and existing clients.
In June, 2017, we announced the construction of a Polypropylene Unit (“Delta”) at our La Porte, Texas site. Aligned with the strategy to diversify the raw materials matrix and geographic expansion in the Americas, this is a new world-class PP production facility with an annual polypropylene production capacity of 450,000 tons. In September, 2020, we announced that after completing the commissioning phase, we have started commercial production of PP at this new plant. We believe that this investment reinforces our PP leadership position in the region, as it will enable us to replace imported PP volumes in the North American domestic market and also scale up our exports supporting structural global demand with existing global clients.
Products of Our USA and Europe UnitSegment
Our USA and Europe UnitSegment produces polypropylene. The sales volume of polypropylene by this unit was approximately 2,008,4732,217.1 tons in 2016, 1,973,2742021, 1,968.2 tons in 20152020 and 1,862,6001,920.4 tons in 2014.2019. For a description of the uses of our polypropylene products, see “—Polyolefins Unit.Operations that are Part of our Brazil Segment.”
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Production Facilities of our USA and Europe UnitSegment
The table below sets forth the annual production capacity as of December 31, 20162021 of the USA and Europe Unit’sSegment’s polypropylene plants in the United States and Germany and the annual production for the years presented.presented.
Annual Production | Production | |||
Plant | Capacity | 2021 | 2020 | 2019 |
(in tons) | ||||
United States | 2,021,000 | 1,728,567 | 1,446,066 | 1,435,298 |
Germany | 625,000 | 570,211 | 493,304 | 494,241 |
Annual Production | Production For the Year Ended December 31, | |||||||||||||||
Plant | Capacity | 2016 | 2015 | 2014 | ||||||||||||
(in tons) | ||||||||||||||||
United States | 1,570,400 | 1,413,607 | 1,434,671 | 1,317,800 | ||||||||||||
Germany | 545,000 | 593,569 | 532,357 | 537,876 |
Raw Materials of Our USA and Europe UnitSegment
Propylene
Propylene |
The most significant direct cost associated with the production of polypropylene by our USA and Europe UnitSegment is the cost of purchasing propylene.
We acquire propylene for our polypropylene plants in the Unites States under a variety of long-term supply agreements and through the spot market. As of December 31, 2016,2021, we had long-term14 supply agreements with multiple suppliers. The pricing formulas for propylene under these supply agreements are generally based on international market prices. A portion of the propylene supplied to our gulf coast plants is provided by a limited partnership that we formed with a leading basic petrochemicals producer, under which we acquire propylene produced by an ethylene facility of that producer in Texas. Under the terms of the partnership agreement, the partnership has agreed to provide us with sufficient propylene to produce up to approximately 25% of our U.S. gulf coast plants’ current annual production capacity into early 2018, at prices calculated based on a cost-based formula that includes a fixed discount that declines until 2018.
As a result of rising natural gas production and related production of natural gas liquids, several companies have announced plans to build propane dehydrogenation, or PDH plants, which would produceon-purpose propylene. We have secured a long-term propylene agreement of approximately 15 years with one such company, Enterprise Products, which is currently buildingcompleted construction of a PDH plant in Texas in 2017 with an annual capacity of 750,000 tons. We expect this agreement with an established producer to provide us with a competitive, long-term supply of propylene, using shale gas and other nontraditional sources as its feedstock. This plant is expected to commencecommenced operations by the end ofin 2017. Under this arrangement, the pricing of these contracts will be based on market prices for propane and other market costs.
In June 2012, we acquired the propylene splitter assets at Sunoco’s Marcus Hook refinery, which we are currently using to convert refinery grade propylene to polymer grade propylene for use at our Marcus Hook polypropylene plant.
We acquire propylene for our polypropylene plants in Germany under long-term supply agreements that provide for the supply of 91%90% of the propylene requirements of these plants. We have two main supply agreements.agreements in Germany. One has a five-year agreement effective since October 1, 2021 with a term until September 30, 2026, and thereafter will automatically be renewable for consecutive one-year terms, unless terminated by one of these supply agreementsthe parties. The other agreement expires in December 2023, and thereafter will expire in September 2021, and isalso be automatically renewable for consecutiveone-year terms, unless cancelledterminated by one of the parties, andparties. We have entered into a third contract that will expire at the otherend of 2022, increasing the supply agreement expires in December 2021.of our plants to 93% of the propylene required. The pricing formula for propylene under these supply agreements is based on market prices. We purchase the propylene used in our Europe plants based on monthly contract price for propylene for Europe (as reported by ICIS-LOR).
Sales and Marketing of Our USA and Europe UnitSegment
Our USA and Europe UnitSegment sells polypropylene products to approximately 375392 customers. We have a diversified product mix that allows us to serve a broad range of end users in several industries. The customers of our USA and Europe UnitSegment generally are third generation petrochemical producers that manufacture a wide variety of plastic-based consumer and industrial goods.
Net sales revenue to the 10 largest customers of our USA and Europe Unit accounted for 37.8% of our USA and Europe Unit’s total net sales revenue in 2016, 33.4% in 2015 and 50.4% in 2014, respectively.
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The following table sets forth our net sales revenue derived from sales of our USA and Europe UnitSegment for the years indicated:
For the Year Ended December 31, | |||
2021 | 2020 | 2019 | |
(in millions of reais) | |||
Net revenue: | |||
USA and Europe | 32,403.6 | 14,638.7 | 10,044.3 |
For the Year Ended December 31, | ||||||||||||
2016 | 2015 | 2014 | ||||||||||
(in millions ofreais) | ||||||||||||
Net sales revenue: | ||||||||||||
USA and Europe | R$ | 8,896.1 | R$ | 8,240.0 | R$ | 7,934.3 |
Approximately 40%51% of the sales of polypropylene by the USA and Europe UnitSegment are made under long-term supply agreements with our customers. These supply contracts generally have an initialtwo-year term and are automatically renewable forone-year periods unless one party notifies the other of its intention not to renew. These contracts also provide for minimum and maximum quantities to be purchased and monthly deliveries.
We market theThe remainder of the polypropylene production of the USA and Europe UnitSegment is sold through (1) our direct sales force that seeks to establish supply relationships with customers,customers; (2) a select number of distributors authorized to represent the Braskem brand in the U.S. and European markets,markets; (3) resellers that trade these products under private labels in the North American and European markets,markets; and (4) traders that resell these products in the export markets.
Competition
The USA and Europe UnitSegment is largely a commodities business and competes with local, regional, national and international companies, some of which have greater financial, research and development, production and other resources than our company.us. Although competitive factors may vary among product lines, our competitive position is primarily based on raw material and production costs, selling prices, product quality, product technology, manufacturing technology, access to new markets, proximity to the market and customer service and support.
Our primary competitors for sales in the polypropylene industry in North America and Europe are other large international petrochemical companies. In general, demand is a function of economic growth in North America, and elsewhere in the world.
Our primary competitors for sales in the polypropylene industry in Europe are other large international petrochemical companies. In general, demand is a function of economic growth in Europe and elsewhere in the world.
Mexico UnitSegment
Braskem and Idesa, one of Mexico’s leading petrochemical groups, formed Braskem Idesa S.A.P.I. in April 2010, with Braskem holding 75% of the total share capital and Idesa holding the remaining 25%, to develop, construct and operate the Mexico Complex, located in the Mexican state of Veracruz. During April 2016, Braskem Idesa commenced commercial operations of the Mexico Complex.
As a resultof December 31, 2021, our Mexico Segment had the largest annual polyethylene production capacity in Mexico. Our Mexico Segment generated net revenue of R$6,506.3 million during 2021, or 6.0% of the commencementnet revenue of operations of the Mexico Complex, we commenced recording the resultsall of our Mexico business unit as a separate segment in our financial statements as of dates and for periods ended after January 1, 2016.reportable segments.
Products of Our Mexico UnitSegment
Our Mexico business unit produces ethylene, HDPE and LDPE at our Mexico Complex. We use all of the ethylene produced by our Mexico Complex as raw material for the production of polyethylene by this complex. The sales volume of polyethylene by this unit was approximately 430,283628,744 tons in 2016. As with our Polyolefins Unit, our2021. Our Mexico Complex manufactures a broad range of polyethylene grades for use in consumer and industrial applications, including plastic films for food and industrial packaging, bottles, shopping bags and other consumer goods containers, automotive parts, and household appliances.
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Technologies selected for the Mexico UniteSegment are proven and considered stated of the art with excellent track records in the petrochemical market and we believe it provides a competitive advantage to provide technical assistance toin serving our customers to meet their specific needs by adapting and modifying our polyethylene products.
Production Facilities of Our Mexico UnitSegment
Our Mexico UnitSegment operates four plants located in the Mexico Complex, consisting of:
· | an ethylene cracker, with an annual production capacity of 1,050,000 tons of ethylene, which commenced operations in March 2016; |
· | two high-density polyethylene plants, with a combined annual production capacity of 750,000 tons, which commenced operations in April 2016; |
· | a low-density polyethylene plant, with an annual production capacity of 300,000 tons, which commenced operations in June 2016; |
· | a 150-megawatt power generation plant consisting of one gas turbine and two steam turbines; and |
· | an effluents treatment plant and a water treatment plant, which return water to the community in a condition that exceeds the applicable regulatory requirements. |
Annual Production | Production | |||
Plant | Capacity | 2021 | 2020 | 2019 |
| (in tons) | |||
Mexico (Polyethylene) | 1,050,000 | 696,142 | 780,176 | 800,783 |
Annual Production | Production For the Year Ended December 31, | |||||||||||||||
Plant | Capacity | 2016 | 2015 | 2014 | ||||||||||||
(in tons) | ||||||||||||||||
Mexico (Polyethylene) | 1,050,000 | 471,109 | 0 | 0 |
Raw Materials of Our Mexico UnitSegment
The principal raw material used in our Mexico Complex is ethane, in addition to other raw materials such as hexane, propylene and polyaldehyde (PAL). Other chemicals, catalyzers, additives and utilities such as natural gas, electricity and nitrogen are used to produce polyethylene in the Mexico Complex.
Ethane
Ethane is the principal raw material that we use to produce ethylene in the Mexico Complex and representrepresents the principal production and operating cost of the Mexico Complex. The price of ethane that we purchase varies based on changes in the U.S. dollar-based internationalU.S. reference price of these feedstocks. We currently source ethane, from two main sources. Approximately 50% to 60% of total ethane needs is sourced under the Ethane Supply Agreement with Pemex TRI, a state-owned Mexican entity, while the remaining is complemented with imported ethane coming from the United States and delivered to our Complex through freight trucks that transport cryogenic isocontainers as part of the Fast Track Solution.
Braskem Idesa also intends to develop the Ethane Import Terminal, a long-term alternative source of imported ethane, and a pipeline that will connect the terminal directly to our Complex. The expected ethane capacity of the Ethane Import Terminal would be enough to fulfill the total ethane needs for the Mexico Complex. This terminal would provide the capacity to import more ethane than we currently require. As a result, our Mexico Segment will be able to source its total needs towards increasing our polyethylene production and taking advantage of the forecasted demand for polyethylene products in North America and globally.
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The estimated cost of the Ethane Import Terminal and related infrastructure investment is approximately US$400.0 million (inclusive of financing costs and VAT). Our Mexico segment expects to subscribe for up to 50% of the shares issued by the company that will develop the Ethane Import Terminal. We intend to fund our investment in the Ethane Import Terminal with a combination of equity and debt, through a joint venture with one or more suitable unaffiliated third parties that will secure equity and debt financing in an unrestricted subsidiary. The Ethane Import Terminal is expected to be completed and to reach full capacity by 2024, but there may be delays. For additional information, see “Item 3. Key Information—Risk Factors— Risks Relating to Us and the Petrochemical Industry—We depend on ethane supplied by Pemex TRI in Mexico,” “Item 3. Key Information—Risk Factors—Risks Relating to Us and the Petrochemical Industry—We rely on limited or sole-source suppliers for our raw materials, inputs and energy, including transportation thereof.”
Ethylene
All of the ethylene produced by our Mexico Complex is used by the polyethylene plants in our Mexico Complex.
Other Materials and Utilities
Our Mexico UnitSegment uses natural gas as the main fuel for its production process, which is supplied mainly private suppliers using the pipelines that are the property of the Centro Nacional de Control del Gas Natural (“Cenagas”).
In early December 2020, Braskem Idesa received a notification from Cenagas (Centro Nacional de Control del Gas Natural), a Mexican state-owned agency responsible for all-natural gas pipelines and transportation in Mexico, related to the unilateral termination of the natural gas transportation service, an essential energy input for the production of PE in our Mexico Segment. As a result, in compliance with safety protocols, Braskem Idesa initiated procedures for the immediate interruption of its operating activities. Later in January 2021, Braskem Idesa partially resumed its using ethane to replace the lack of natural gas in order to continue producing PE. Braskem Idesa took legal measures under the ethane supply agreement entered into with Pemex. Braskem Netherlands B.V, which is Braskem Idesa’s direct shareholder, also took legal measures under applicable international investment protection standards to protect Braskem Idesa’s interests and its parent company concerning their investment in Mexico. Such measures included a negotiation period to attempt to resolve the dispute between the parties.
In the first quarter of 2021, Braskem Idesa entered into the following agreements under a strict reservation of all rights: (i) a memorandum of understanding with Pemex TRI setting out certain understandings regarding potential amendments to the ethane supply agreement and the development of an ethane import terminal, subject to further negotiation, a definitive agreement and approval by Braskem Idesa’s shareholders and creditors; and (ii) a natural gas transport service agreement with Cenagas for a term of 15 years, which is conditioned upon the execution of the definitive agreement referenced in item (i) above. Following the execution of these agreements by Braskem Idesa, it resumed receiving natural gas transportation services from Cenagas. In addition, Braskem Idesa signed the Amended ESA with PEMEX and the Terminal Agreement, complying with the condition of the natural gas transport service agreement mentioned in item (ii) above.
For additional information, see “Item 3. Key Information—Risk Factors— Risks Relating to Us and the Petrochemical Industry—We depend on ethane supplied by Pemex TRI in Mexico,” “Item 3. Key Information—Risk Factors—Risks Relating to Us and the Petrochemical Industry—We rely on limited or sole-source suppliers for our raw materials, inputs and energy, including transportation thereof” and “Item 3. Key Information—Risk Factors—Risks Relating to Us and the Petrochemical Industry—Political and economic conditions and government policies in Mexico, including political interferences in state-owned companies such as Pemex TRI and Cenagas, and elsewhere may have a material impact on our operations.”
Our Mexico Segment uses hexene as raw materials in the production of HDPE. We import hexene for the Mexico Complex from suppliers located in the United States.
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Our Mexico UnitSegment uses catalysts supplied by Ineos Europe Limited.
Supply Contracts of the Mexico UnitSegment
Ethane
The primary feedstock in our polyethylene production process is ethane. Braskem Idesa currently sources ethane from two main sources: (i) locally, pursuant to the Ethane Supply Agreement with Pemex TRI, a state-owned Mexican entity; and (ii) imports from the United States and delivered to our Complex through freight trucks that transport cryogenic isocontainers as part of the Fast Track Solution. As of the year ended December 31, 2020 and 2021, ethane supply from Pemex TRI was 87%, and 65%, respectively and 13%, and 35%, respectively, from the Fast Track Solution.
Ethane Supply Agreement (Pemex TRI).
Braskem Idesa is party to an ethane supply agreement with Pemex TRI, a subsidiary of Petróleos Mexicanos, or Pemex, dated February 19, 2010, pursuant to which Pemex TRI will provide, and Braskem Idesa will purchase, 66,000 barrels per day of ethanebased on commercial conditions (“BI’s Ethane Supply Agreement”)
On September 27, 2021, we signed the third amendment to the Mexico Complex for a period of 20 years at prices based onBI’s Ethane Supply Agreement (the “Amended ESA”). Upon effectiveness, the Mont Belvieu purity ethane. Under this agreement, any daily amount rejected by Braskem Idesa must be purchased in installments in subsequent deliveries until the deficit has been resolved. This contract commenced in June 2015 and will expire in 2035 and is renewable for three five-year periods, with prior notice at least two years prior to the expirationAmended ESA modified certain terms of the agreement that it intends to renew this agreement. BI’s Ethane Supply Agreement, including:
· | Our Mexico Segment agreed to reduce the contractual volume to be purchased on a deliver or pay basis from 66,000 to 30,000 barrels of ethane per day (“Contractual Volume”), until February 2025, provided, that if we suffer delays in obtaining licenses and permits to operate the Ethane Import Terminal attributable to Mexican governmental authorities or Pemex, Pemex TRI will deliver the contractual volume after February 2025 for the time caused by these delays, on a day-by-day basis. In the event of any extension concerning the supply period of the Contractual Volume or non-achievement of the commencement of the Ethane Import Terminal (the “Ethane Import Terminal COD”) commercial operations due to the longstop date under the Amended ESA (the “Contractual Volume Longstop Date”), then Pemex TRI will supply, for an additional period of up to 12 months, 15,000 barrels per day of ethane to Braskem Idesa during the period from the Contractual Volume Longstop Date (or such later date) until the Ethane Import Terminal COD (the “Extended Volume”); |
· | Our Mexico segment has a right of first refusal to acquire ethane that Pemex TRI and its affiliates do not consume for their own processes or for the production of ethylene and derivative products, in a daily volume of up to: (i) for as long as Pemex TRI must supply the Contractual Volume, 1,625,576 cubic meters (approximately 36,000 barrels per day); and (ii) after Pemex TRI no longer should supply the Contractual Volume, 2,980,220 cubic meters (approximately 66,000 barrels per day). |
· | The ethane purchase price under the Amended ESA is based on commercial conditions at prices that reference the Mont Belvieu purity ethane price, a U.S. dollar-based international reference price, plus logistics and other applicable costs. The conditions set out in the Amended ESA will have retroactive effects until February 26, 2021. |
· | If Pemex TRI fails to deliver an average daily volume of ethane below the Contractual Volume during any quarterly period, it will compensate us by providing additional volumes of ethane over the following two quarterly periods; provided that we will not have the obligation to take ethane above the contractual maximum daily volume. If Pemex TRI does not compensate for such supply shortfall during mentioned cure period, it will pay us liquidated damages at a rate equal to 50% of the volume that Pemex TRI failed to deliver and did not compensate. The cap on such liquidated damages is R$1,618.5 million (US$290.0 million) during any given year. We may terminate the Amended ESA and exercise the put option thereunder if Pemex TRI fails to deliver at least 75% of the Contractual Volume for 180 consecutive days. |
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· | If Braskem Idesa fails to take an average daily volume of ethane at least equal to the Contractual Volume during any quarterly period, Braskem Idesa will compensate Pemex TRI by purchasing additional volumes of ethane over the succeeding two quarterly periods (not exceeding the contractual maximum daily volume). If our Mexico Segment does not purchase such additional volumes of ethane during such a cure period, Braskem Idesa will pay Pemex TRI liquidated damages at a rate equal to 50% of the average price of the volume that we failed to purchase and did not compensate. The cap on such liquidated damages is R$1,618.5 million (US$290.0 million) during any given year. |
· | As stated under the Amended ESA, the revised term is 20 years starting from the commencement date of supply under the BI’s Equity Supply Agreement, which occurred in June 2015, with three periods of extension of ten years each, being the first extension period mandatory for Pemex TRI and Braskem Idesa. |
Pemex TRI may terminate the contractAmended ESA in the event of: (1) aof (i) our failure to pay that continues for more than 180 dayssix months after notice,notice; or (2)(ii) an emergency stoppage in operations or force majeure event thatdue to which our insurers consider the complex to be a total loss, or after which we cannot or do not resume operations for 48 months. If Pemex TRI (i) delivers less than an average of 75% of the 30,000 barrels of ethane per day over six months, (ii) reaches the annual limit in respect of liquidated damages owed by Pemex TRI to us and such limit is not waived by Pemex TRI or (iii) materially breaches any of its obligations related to the supply of ethane thereunder and such breach continues for more than 48 months.
Since July 2015,six months after notice, Braskem Idesa has been requiredthe right to purchase, andterminate the Amended ESA, require Pemex TRI has been required to deliver, the minimum daily volumerepay certain of ethane providedour outstanding debt and under termination scenarios provide compensation for equity investments according to an agreed valuation formula.
Ethane Supply Agreement (Fast Track).
On February 25, 2020, Braskem Idesa entered into an open order quantity agreement with Braskem Netherlands for the supply agreement.of liquid ethane with a minimum purity level of 95% in effect until 2021, the BNL Ethane Supply Agreement. (the “BI-BNL Ethane Supply Agreement”).
On October 9, 2021, we entered into an amendment to the BI-BNL Ethane Supply Agreement (the “BI-BNL Ethane Supply Agreement Amendment”) in order to enhance the alternate ethane supply provided to us by the Fast-Track Solution. The purpose of the BI-BNL Ethane Supply Agreement Amendment is the additional acquisition of the volumes supply of liquid ethane above the maximum amount of the BI-BNL Ethane Supply Agreement loaded during February 2021 through January 22, 2022.
Electricity and Water
The Mexico Complex has its own power generation plant consisting of one gas turbine and two steam turbines, which generatescan generate more than 100% of the Mexico Complex’s energy consumption. In addition, the Mexico Complex is also connected to the high-voltage power grid of Comisión Federal de Electricidad (the Mexican government-owned power supplier)electricity company) as aback-upan alternative power source and to sell excess power on the spot market. The Mexico complex generates all of its requirements of steam and its water requirements are supplied by the Comisión Nacional del Agua (the Mexican government-owned water commission) underpursuant to an agreement that expires in 2029 and is subject to renewal.
The main feedstock used for power generation is natural gas, which is mainly supplied by private suppliers and Pemex through Cenagas. In general,December 2020, we believe that there are sufficient alternative sources available at reasonable pricesreceived a notification from Cenagas (Centro Nacional de Control del Gas Natural), a Mexican state-owned agency solely responsible for eachthe natural gas pipelines and transportation in Mexico, related to the unilateral non-renewal of these other inputs usedthe service of natural gas transportation, an essential energy input for the production of PE in our polyethylene production process such thatMexico Segment. As a result, in compliance with safety protocols, Braskem Idesa initiated procedures for the lossimmediate interruption of any single supplier would notits operating activities, which may have a material adverse effect on our operating or financial results, depending on the timing of the stoppage. Later in January 2021, Braskem Idesa partially resumed its operating activities using ethane to replace the lack of natural gas in order to continue producing PE. Braskem Idesa also initiated legal measures to enforce its legal and contractual rights.
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In February 2021, Braskem Idesa entered into a natural gas transport service agreement with Cenagas for a term of 15 years. Following the execution of this agreement by Braskem Idesa, it continued receiving natural gas transportation services from Cenagas. For additional information, see “Risk Factor - Political and economic conditions and government policies in Mexico, including political interferences in state-owned companies such as Pemex TRI and Cenagas, and elsewhere may have a material impact on our operations.”
Sales and Marketing of Our Mexico UnitSegment
Our Mexico UnitSegment sells polyethylene products to approximately 300over 196 customers in the Mexican market. We have a diversified product mix that allows us to serve a broad range of end users in several industries. The customers of our Mexico UnitSegment generally are third generation petrochemical producers that manufacture a wide variety of plastic-based consumer and industrial goods. Net sales revenue to the 10 largest customers of our Mexico Unit accounted for approximately 41.0% of our Mexico Unit’s total net sales revenue in 2016.
Domestic Mexican SalesCaustic Soda
InAccording to IHS and Abiclor (Associação Brasileira da Indústria de Álcalis, Cloro e Derivados), the first full year operationthree largest Brazilian producers of caustic soda, including Braskem, accounted for 91% of capacity in Brazil in 2021. Most domestic producers operate on a local or regional basis, with the exception of Braskem and another producer located in the Northeast region of Brazil that operate in the whole country through terminal tanks located on the Brazilian coast. Imports accounted for 38% of Brazil’s total caustic soda consumption in 2021, excluding Braskem imports. Due to the mining event in Alagoas, our Mexico Complex since its start up,chlor-alkali plant was idled in 2019 and we have been focusedimporting caustic soda from various sources to keep supplying customers in Brazil since then.
Our principal competitors in the caustic soda market elsewhere in South America are other international petrochemical companies operating in Brazil and producers located on penetrating the U.S. Gulf Coast.
USA and Europe Segment
Our USA and Europe Segment includes:
· | the operations of Braskem America, which consist of five polypropylene plants in the United States and one Ultra High Molecular Weight Polyethylene – the UTEC® plant; and |
· | the operations of two polypropylene plants in Germany. |
As of December 31, 2021, our USA and Europe Segment’s facilities had the largest annual polypropylene production capacity in the United States. Our USA and Europe Segment generated net revenue of R$32,403.6 million during 2021, or 29.9% of the net revenue of all reportable segments.
In June 2014, we announced the construction of an UHMWPE production line in our La Porte, Texas site, which began producing UTEC®in the first quarter of 2017. We believe that the production of specialized UHMWPE at this line complements our existing portfolio of products and will enable us to access new markets and to develop close relationships with new and existing clients.
In June, 2017, we announced the construction of a Polypropylene Unit (“Delta”) at our La Porte, Texas site. Aligned with the strategy to diversify the raw materials matrix and geographic expansion in the Americas, this is a new world-class PP production facility with an annual polypropylene production capacity of 450,000 tons. In September, 2020, we announced that after completing the commissioning phase, we have started commercial production of PP at this new plant. We believe that this investment reinforces our PP leadership position in the region, as it will enable us to replace imported PP volumes in the North American domestic market and obtainingalso scale up our exports supporting structural global demand with existing global clients.
Products of Our USA and Europe Segment
Our USA and Europe Segment produces polypropylene. The sales volume of polypropylene by this unit was 2,217.1 tons in 2021, 1,968.2 tons in 2020 and 1,920.4 tons in 2019. For a description of the customer approvaluses of our products. Other priority is to develop long-term relationships withpolypropylene products, see “—Polyolefins Operations that are Part of our customersBrazil Segment.”
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Production Facilities of our USA and givenEurope Segment
The table below sets forth the cyclical natureannual production capacity as of December 31, 2021 of the markets for our polyethylene products, we believe that we can strengthen customer loyalty during periods of reduced demand for polyethylene by providing a reliable source of supply to these customers during periods of high demand. We work closely with our customers to determine their needs, to provide technical assistanceUSA and to coordinate the production and delivery of our products.
Considering our Mexico Complex’s logistical infrastructure and logistics centers by region, we are able to project customer demand by region. Thus, we can anticipate and plan our production and logistics in order to make the products available on time and at the points of shipment. As our products portfolio can adjust to the nature of the demand of the Mexican market, we have greater flexibility to adapt and better serve the market.
In addition to direct sales of polyethylene to our customers, our Mexico Unit sells products in Mexico through independent distributors. Our Mexico Unit is served by five distributors, through which we distribute our products pursuant to formal agreements and spot market transactions.
We have selected our distributors based on their ability to provide full service to their customers, including the ability to prepare our products on a customized basis. These distributors sell our polyethylene products to manufacturers with lower volume requirements and are able to aggregate multiple orders for delivery to customers that would otherwise be uneconomical for us to serve. Furthermore, by serving smaller customers through a network of distributors, our account managers focus their efforts on delivering high quality service to a smaller number of large, direct customers.
Export Sales
The main focus of our Mexico Unit is to maintain our leading position in the Mexico market while continuing to export in order to manage the relationship between our production capacity and domestic demand for our products. We believe that our continued presence in export markets is essential to help manage any overcapacity in the Mexican market. The excess volume is primarily exported to United States, Europe and Central America, using our existing sales force and complementing our portfolio in those regions, together with products exported from Brazil. In order to use the already established Braskem sales channelsSegment’s polypropylene plants in the United States and Germany and the annual production for the years presented.
Annual Production | Production | |||
Plant | Capacity | 2021 | 2020 | 2019 |
(in tons) | ||||
United States | 2,021,000 | 1,728,567 | 1,446,066 | 1,435,298 |
Germany | 625,000 | 570,211 | 493,304 | 494,241 |
Raw Materials of Our USA and Europe Segment
Propylene |
The most significant direct cost associated with the strategyproduction of exportspolypropylene by our USA and Europe Segment is the cost of purchasing propylene.
We acquire propylene for our polypropylene plants in the Unites States under a variety of long-term supply agreements and through the spot market. As of December 31, 2021, we had 14 supply agreements with multiple suppliers. The pricing formulas for propylene under these supply agreements are generally based on international market prices.
As a result of rising natural gas production and related production of natural gas liquids, several companies have announced plans to build propane dehydrogenation, or PDH plants, which would produce on-purpose propylene. We have secured a long-term propylene agreement of 15 years with one such company, Enterprise Products, which completed construction of a PDH plant in Texas in 2017 with an annual capacity of 750,000 tons. We expect this agreement with an established producer to provide us with a competitive, long-term supply of propylene, using shale gas and other nontraditional sources as its feedstock. This plant commenced operations in 2017. Under this arrangement, the pricing of these contracts will be based on market prices for propane and other market costs.
We acquire propylene for our polypropylene plants in Germany under long-term supply agreements that provide for the supply of 90% of the Mexico unit production,propylene requirements of these plants. We have two main supply agreements in Germany. One has a five-year agreement effective since October 1, 2021 with a term until September 30, 2026, and thereafter will automatically be renewable for consecutive one-year terms, unless terminated by one of the parties. The other agreement expires in December 2023, and thereafter will also be automatically renewable for consecutive one-year terms, unless terminated by one of the parties. We have entered into a third contract that will expire at the end of 2022, increasing the supply of our plants to 93% of the propylene required. The pricing formula for propylene under these regions, is to develop and retain customers, in order to seek a greater added value in exports, especially considering the competitive logistics for United States. This new polyethylene complex reinforces our position with polyethylene customers worldwide, which enhances our position in North America.
Prices and Sales Terms
We determine the Mexican domestic prices for polyethylene by reference to North American prices. Our customers in Mexico may pay in full on delivery or elect credit terms that require payment in full within up to 60 days following delivery.
Our Mexico Unit’s export sales consist initially of volumes to Asia, Europe and the United States through traders and distributors. Pricingsupply agreements is based on international spot market prices. We make allpurchase the propylene used in our Europe plants based on monthly contract price for propylene for Europe (as reported by ICIS-LOR).
Sales and Marketing of Our USA and Europe Segment
Our USA and Europe Segment sells polypropylene products to approximately 392 customers. We have a diversified product mix that allows us to serve a broad range of end users in several industries. The customers of our USA and Europe Segment generally are third generation petrochemical producers that manufacture a wide variety of plastic-based consumer and industrial goods.
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The following table sets forth our net revenue derived from sales in these marketsof our USA and Europe Segment for the years indicated:
For the Year Ended December 31, | |||
2021 | 2020 | 2019 | |
(in millions of reais) | |||
Net revenue: | |||
USA and Europe | 32,403.6 | 14,638.7 | 10,044.3 |
51% of the sales of polypropylene by the USA and Europe Segment are made under long-term supply agreements with lettersour customers. These supply contracts generally have an initial two-year term and are automatically renewable for one-year periods unless one party notifies the other of credit. As discussed under “—Export Sales” above, sinceits intention not to renew. These contracts also provide for minimum and maximum quantities to be purchased and monthly deliveries.
The remainder of the beginningpolypropylene production of 2017, the Mexico Unit has been focused on exportUSA and Europe Segment is sold through (1) our direct sales directlyforce that seeks to customersestablish supply relationships with customers; (2) a select number of distributors authorized to represent the Braskem brand in the United StatesU.S. and Europe, soEuropean markets; (3) resellers that trade these products under private labels in the netback price of exports has been increasing.North American and European markets; and (4) traders that resell these products in the export markets.
Competition
We have the largest annual production capacity of polyethylene in Mexico. We compete in Mexico with a subsidiary of PemexThe USA and with importers of polyethylene, primarily producers located in the United States and South America. We compete for export sales of our polyethylene products in other countries in Latin America and in markets in the United States, Asia and Europe. Our export businessEurope Segment is largely a commodities business and we competecompetes with a variety of resin producers,local, regional, national and international companies, some of which have greater financial, research and development, production and other resources than us. Although competitive factors may vary among product lines, our company. Our competitive position in the export markets that we serve is primarily based on raw material and production costs, selling prices, product quality, product technology, manufacturing technology, access to new markets, proximity to the market and customer service and support.
Vinyls UnitOur primary competitors for sales in the polypropylene industry in North America and Europe are other large international petrochemical companies. In general, demand is a function of economic growth in North America, Europe and elsewhere in the world.
We areMexico Segment
Braskem and Idesa, one of Mexico’s leading petrochemical groups, formed Braskem Idesa S.A.P.I. in April 2010, with Braskem holding 75% of the leading producertotal share capital and Idesa holding the remaining 25%, to develop, construct and operate the Mexico Complex, located in the Mexican state of PVC in Brazil, based on sales volumes in 2016. Veracruz. During April 2016, Braskem Idesa commenced commercial operations of the Mexico Complex.
As of December 31, 2016,2021, our PVC production facilitiesMexico Segment had the second largest annual polyethylene production capacity in Latin America.Mexico. Our Vinyls UnitMexico Segment generated net sales revenue of R$3,016.46,506.3 million in 2016,during 2021, or 5.1%6.0% of ourthe net sales revenue of all reportable segments.
Our Vinyls Unit is the only vertically integrated producer of PVC in Brazil. Our PVC production is integrated through our production of chlorine, ethylene and other raw materials. Our Vinyls Unit also manufactures caustic soda, which is used by producers of aluminum, paper and chlorine.
In 2016, we had an approximate 51.6% share of the Brazilian PVC market, based on sales volumes of our Vinyls Unit.reportable segments.
Products of Our Vinyls UnitMexico Segment
The following table sets forth a breakdownOur Mexico business unit produces ethylene, HDPE and LDPE at our Mexico Complex. We use all of the ethylene produced by our Mexico Complex as raw material for the production of polyethylene by this complex. The sales volume of our Vinyls Unitpolyethylene by product linethis unit was 628,744 tons in 2021. Our Mexico Complex manufactures a broad range of polyethylene grades for use in consumer and industrial applications, including plastic films for food and industrial packaging, bottles, shopping bags and other consumer goods containers, automotive parts, and household appliances.
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Technologies selected for the years indicated.Mexico Segment are proven and considered stated of the art with excellent track records in the petrochemical market and we believe it provides a competitive advantage in serving our customers to meet their specific needs by adapting and modifying our polyethylene products.
For the Year Ended December 31, | ||||||||||||
2016* | 2015* | 2014* | ||||||||||
(thousands of tons) | ||||||||||||
PVC | 528.3 | 529.5 | 659.5 | |||||||||
Caustic soda | 442.5 | 435.7 | 478.1 | |||||||||
Other(1) | 112.1 | 114.5 | 126.7 | |||||||||
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Total domestic sales | 1,083.0 | 1,079.7 | 1,252.2 | |||||||||
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Total export sales | 122.7 | 65.4 | 12.1 | |||||||||
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Total Vinyls Unit sales | 1,205.7 | 1,145.1 | 1,264.4 | |||||||||
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Production Facilities of Our Vinyls UnitMexico Segment
We own five vinyls production facilities. Two of our facilities areOur Mexico Segment operates four plants located in the NortheasternMexico Complex, and three others are located in the State of Alagoas.
The table below sets forth for each of our primary vinyls products, our annual production capacity as of December 31, 2016 and annual production for the years presented.
Annual Production | Production For the Year Ended December 31, | |||||||||||||||
Primary Products | Capacity | 2016 | 2015 | 2014 | ||||||||||||
(in tons) | ||||||||||||||||
PVC(1) | 710,000 | 593,914 | 542,297 | 633,942 | ||||||||||||
Caustic Soda(2) | 539,000 | 453,171 | 436,185 | 448,062 |
consisting of:
an ethylene cracker, with an annual production capacity |
two high-density polyethylene plants, with a combined annual production capacity |
· | a low-density polyethylene plant, with an annual production capacity of 300,000 tons, which commenced operations in June 2016; |
· | a 150-megawatt power generation plant consisting of one gas turbine and two steam turbines; and |
· | an effluents treatment plant and a water treatment plant, which return water to the community in a condition that exceeds the applicable regulatory requirements. |
Annual Production | Production | |||
Plant | Capacity | 2021 | 2020 | 2019 |
| (in tons) | |||
Mexico (Polyethylene) | 1,050,000 | 696,142 | 780,176 | 800,783 |
Raw Materials of Our Vinyls UnitMexico Segment
The principal raw material used in our Mexico Complex is ethane, in addition to other raw materials such as hexane, propylene and polyaldehyde (PAL). Other chemicals, catalyzers, additives and utilities such as natural gas, electricity and nitrogen are used to produce polyethylene in the Mexico Complex.
Ethane
Ethane is the principal raw material that we use to produce ethylene in the Mexico Complex and represents the principal production and operating cost of the Mexico Complex. The price of ethane that we purchase varies based on changes in the U.S. dollar-based U.S. reference price of these feedstocks. We currently source ethane, from two main sources. Approximately 50% to 60% of total ethane needs is sourced under the Ethane Supply Agreement with Pemex TRI, a state-owned Mexican entity, while the remaining is complemented with imported ethane coming from the United States and delivered to our Complex through freight trucks that transport cryogenic isocontainers as part of the Fast Track Solution.
Braskem Idesa also intends to develop the Ethane Import Terminal, a long-term alternative source of imported ethane, and a pipeline that will connect the terminal directly to our Complex. The expected ethane capacity of the Ethane Import Terminal would be enough to fulfill the total ethane needs for the Mexico Complex. This terminal would provide the capacity to import more ethane than we currently require. As a result, our Mexico Segment will be able to source its total needs towards increasing our polyethylene production and taking advantage of the forecasted demand for polyethylene products in North America and globally.
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The estimated cost of the Ethane Import Terminal and related infrastructure investment is approximately US$400.0 million (inclusive of financing costs and VAT). Our Mexico segment expects to subscribe for up to 50% of the shares issued by the company that will develop the Ethane Import Terminal. We intend to fund our investment in the Ethane Import Terminal with a combination of equity and debt, through a joint venture with one or more suitable unaffiliated third parties that will secure equity and debt financing in an unrestricted subsidiary. The Ethane Import Terminal is expected to be completed and to reach full capacity by 2024, but there may be delays. For additional information, see “Item 3. Key Information—Risk Factors— Risks Relating to Us and the Petrochemical Industry—We depend on ethane supplied by Pemex TRI in Mexico,” “Item 3. Key Information—Risk Factors—Risks Relating to Us and the Petrochemical Industry—We rely on limited or sole-source suppliers for our raw materials, inputs and energy, including transportation thereof.”
Ethylene
The most significant direct cost associated withAll of the ethylene produced by our Mexico Complex is used by the polyethylene plants in our Mexico Complex.
Other Materials and Utilities
Our Mexico Segment uses natural gas as the main fuel for its production process, which is supplied mainly private suppliers using the pipelines that are the property of the Centro Nacional de Control del Gas Natural (“Cenagas”).
In early December 2020, Braskem Idesa received a notification from Cenagas (Centro Nacional de Control del Gas Natural), a Mexican state-owned agency responsible for all-natural gas pipelines and transportation in Mexico, related to the unilateral termination of the natural gas transportation service, an essential energy input for the production of PVCPE in our Mexico Segment. As a result, in compliance with safety protocols, Braskem Idesa initiated procedures for the immediate interruption of its operating activities. Later in January 2021, Braskem Idesa partially resumed its using ethane to replace the lack of natural gas in order to continue producing PE. Braskem Idesa took legal measures under the ethane supply agreement entered into with Pemex. Braskem Netherlands B.V, which is Braskem Idesa’s direct shareholder, also took legal measures under applicable international investment protection standards to protect Braskem Idesa’s interests and its parent company concerning their investment in Mexico. Such measures included a negotiation period to attempt to resolve the dispute between the parties.
In the first quarter of 2021, Braskem Idesa entered into the following agreements under a strict reservation of all rights: (i) a memorandum of understanding with Pemex TRI setting out certain understandings regarding potential amendments to the ethane supply agreement and the development of an ethane import terminal, subject to further negotiation, a definitive agreement and approval by Braskem Idesa’s shareholders and creditors; and (ii) a natural gas transport service agreement with Cenagas for a term of 15 years, which is conditioned upon the execution of the definitive agreement referenced in item (i) above. Following the execution of these agreements by Braskem Idesa, it resumed receiving natural gas transportation services from Cenagas. In addition, Braskem Idesa signed the Amended ESA with PEMEX and the Terminal Agreement, complying with the condition of the natural gas transport service agreement mentioned in item (ii) above.
For additional information, see “Item 3. Key Information—Risk Factors— Risks Relating to Us and the Petrochemical Industry—We depend on ethane supplied by Pemex TRI in Mexico,” “Item 3. Key Information—Risk Factors—Risks Relating to Us and the Petrochemical Industry—We rely on limited or sole-source suppliers for our raw materials, inputs and energy, including transportation thereof” and “Item 3. Key Information—Risk Factors—Risks Relating to Us and the Petrochemical Industry—Political and economic conditions and government policies in Mexico, including political interferences in state-owned companies such as Pemex TRI and Cenagas, and elsewhere may have a material impact on our operations.”
Our Mexico Segment uses hexene as raw materials in the production of HDPE. We import hexene for the Mexico Complex from suppliers located in the United States.
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Our Mexico Segment uses catalysts supplied by Ineos Europe Limited.
Supply Contracts of the Mexico Segment
Ethane
The primary feedstock in our polyethylene production process is ethane. Braskem Idesa currently sources ethane from two main sources: (i) locally, pursuant to the Ethane Supply Agreement with Pemex TRI, a state-owned Mexican entity; and (ii) imports from the United States and delivered to our Complex through freight trucks that transport cryogenic isocontainers as part of the Fast Track Solution. As of the year ended December 31, 2020 and 2021, ethane supply from Pemex TRI was 87%, and 65%, respectively and 13%, and 35%, respectively, from the Fast Track Solution.
Ethane Supply Agreement (Pemex TRI).
Braskem Idesa is party to an ethane supply agreement with Pemex TRI, a subsidiary of Pemex, dated February 19, 2010, based on commercial conditions (“BI’s Ethane Supply Agreement”)
On September 27, 2021, we signed the third amendment to the BI’s Ethane Supply Agreement (the “Amended ESA”). Upon effectiveness, the Amended ESA modified certain terms of the BI’s Ethane Supply Agreement, including:
· | Our Mexico Segment agreed to reduce the contractual volume to be purchased on a deliver or pay basis from 66,000 to 30,000 barrels of ethane per day (“Contractual Volume”), until February 2025, provided, that if we suffer delays in obtaining licenses and permits to operate the Ethane Import Terminal attributable to Mexican governmental authorities or Pemex, Pemex TRI will deliver the contractual volume after February 2025 for the time caused by these delays, on a day-by-day basis. In the event of any extension concerning the supply period of the Contractual Volume or non-achievement of the commencement of the Ethane Import Terminal (the “Ethane Import Terminal COD”) commercial operations due to the longstop date under the Amended ESA (the “Contractual Volume Longstop Date”), then Pemex TRI will supply, for an additional period of up to 12 months, 15,000 barrels per day of ethane to Braskem Idesa during the period from the Contractual Volume Longstop Date (or such later date) until the Ethane Import Terminal COD (the “Extended Volume”); |
· | Our Mexico segment has a right of first refusal to acquire ethane that Pemex TRI and its affiliates do not consume for their own processes or for the production of ethylene and derivative products, in a daily volume of up to: (i) for as long as Pemex TRI must supply the Contractual Volume, 1,625,576 cubic meters (approximately 36,000 barrels per day); and (ii) after Pemex TRI no longer should supply the Contractual Volume, 2,980,220 cubic meters (approximately 66,000 barrels per day). |
· | The ethane purchase price under the Amended ESA is based on commercial conditions at prices that reference the Mont Belvieu purity ethane price, a U.S. dollar-based international reference price, plus logistics and other applicable costs. The conditions set out in the Amended ESA will have retroactive effects until February 26, 2021. |
· | If Pemex TRI fails to deliver an average daily volume of ethane below the Contractual Volume during any quarterly period, it will compensate us by providing additional volumes of ethane over the following two quarterly periods; provided that we will not have the obligation to take ethane above the contractual maximum daily volume. If Pemex TRI does not compensate for such supply shortfall during mentioned cure period, it will pay us liquidated damages at a rate equal to 50% of the volume that Pemex TRI failed to deliver and did not compensate. The cap on such liquidated damages is R$1,618.5 million (US$290.0 million) during any given year. We may terminate the Amended ESA and exercise the put option thereunder if Pemex TRI fails to deliver at least 75% of the Contractual Volume for 180 consecutive days. |
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· | If Braskem Idesa fails to take an average daily volume of ethane at least equal to the Contractual Volume during any quarterly period, Braskem Idesa will compensate Pemex TRI by purchasing additional volumes of ethane over the succeeding two quarterly periods (not exceeding the contractual maximum daily volume). If our Mexico Segment does not purchase such additional volumes of ethane during such a cure period, Braskem Idesa will pay Pemex TRI liquidated damages at a rate equal to 50% of the average price of the volume that we failed to purchase and did not compensate. The cap on such liquidated damages is R$1,618.5 million (US$290.0 million) during any given year. |
· | As stated under the Amended ESA, the revised term is 20 years starting from the commencement date of supply under the BI’s Equity Supply Agreement, which occurred in June 2015, with three periods of extension of ten years each, being the first extension period mandatory for Pemex TRI and Braskem Idesa. |
Pemex TRI may terminate the Amended ESA in the event of (i) our failure to pay that continues for more than six months after notice; or (ii) an emergency stoppage in operations or force majeure event due to which our insurers consider the complex to be a total loss, or after which we cannot or do not resume operations for 48 months. If Pemex TRI (i) delivers less than an average of 75% of the 30,000 barrels of ethane per day over six months, (ii) reaches the annual limit in respect of liquidated damages owed by Pemex TRI to us and such limit is not waived by Pemex TRI or (iii) materially breaches any of its obligations related to the supply of ethane thereunder and such breach continues for more than six months after notice, Braskem Idesa has the right to terminate the Amended ESA, require Pemex TRI to repay certain of our outstanding debt and under termination scenarios provide compensation for equity investments according to an agreed valuation formula.
Ethane Supply Agreement (Fast Track).
On February 25, 2020, Braskem Idesa entered into an open order quantity agreement with Braskem Netherlands for the supply of liquid ethane with a minimum purity level of 95% in effect until 2021, the BNL Ethane Supply Agreement. (the “BI-BNL Ethane Supply Agreement”).
On October 9, 2021, we entered into an amendment to the BI-BNL Ethane Supply Agreement (the “BI-BNL Ethane Supply Agreement Amendment”) in order to enhance the alternate ethane supply provided to us by the Fast-Track Solution. The purpose of the BI-BNL Ethane Supply Agreement Amendment is the costadditional acquisition of ethylene,the volumes supply of liquid ethane above the maximum amount of the BI-BNL Ethane Supply Agreement loaded during February 2021 through January 22, 2022.
Electricity and Water
The Mexico Complex has its own power generation plant consisting of one gas turbine and two steam turbines, which accounted for 49.9%can generate more than 100% of our Vinyls Unit’s total costthe Mexico Complex’s energy consumption. In addition, the Mexico Complex is also connected to the high-voltage power grid of sales in 2016. Our Basic Petrochemicals Unit suppliesComisión Federal de Electricidad (the Mexican government-owned electricity company) as an alternative power source and to sell excess power on the spot market. The Mexico complex generates all of its requirements of steam and its water requirements are supplied by the ethylene required by our Vinyls Unit.
ElectricityComisión Nacional del Agua
Electric power is a significant cost component in our production of chlorine and caustic soda. Electric power accounted for 17.2% of our Vinyls Unit’s total cost of sales in 2016. Our Vinyls Unit obtains its electric power requirements from various generators under long-term power purchase agreements. Our caustic soda plants at Camaçari and Alagoas and our PVC plant at Camaçari purchase their electric power requirements from CHESF under a long-term contract (the Mexican government-owned water commission) pursuant to an agreement that expires in 2037. Companhia Energética2029 and is subject to renewal.
The main feedstock used for power generation is natural gas, which is mainly supplied by private suppliers and Pemex through Cenagas. In December 2020, we received a notification from Cenagas (Centro Nacional de Alagoas S.A.Control del Gas Natural), a Mexican state-owned agency solely responsible for the natural gas pipelines and transportation in Mexico, related to the unilateral non-renewal of the service of natural gas transportation, an essential energy input for the production of PE in our Mexico Segment. As a result, in compliance with safety protocols, Braskem Idesa initiated procedures for the immediate interruption of its operating activities, which may have a material adverse effect on our operating or CEAL, distributes electric powerfinancial results, depending on the timing of the stoppage. Later in January 2021, Braskem Idesa partially resumed its operating activities using ethane to our PVC plantsreplace the lack of natural gas in Alagoas. The power purchaseorder to continue producing PE. Braskem Idesa also initiated legal measures to enforce its legal and contractual rights.
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In February 2021, Braskem Idesa entered into a natural gas transport service agreement with CEAL is renewable contracts with automatic rollingone-year extensions. These agreements provide us withCenagas for a term of 15 years. Following the option to purchase our total electric power requirements based on an annual estimate. The price termsexecution of this contract are based upon tariffs regulatedagreement by the Brazilian National Electrical Energy Agency (Agência Nacional de Energia Elétrica).
Salt
We used approximately 798,000 tons of salt during 2016. Salt accounted for 0.5% ofBraskem Idesa, it continued receiving natural gas transportation services from Cenagas. For additional information, see “Risk Factor - Political and economic conditions and government policies in Mexico, including political interferences in state-owned companies such as Pemex TRI and Cenagas, and elsewhere may have a material impact on our Vinyls Unit’s total cost of sales in 2016. We have exclusive salt exploration rights at a salt mine located near our Alagoas plant. We estimate that the salt reserves of this mine are sufficient to allow us to produce chlorine at expected rates of production for approximately 35 to 45 years. We enjoy significant cost advantages when compared to certain of our competitors due to the low extraction costs of rock salt (particularly compared to sea salt), and low transportation costs due to the proximity of the salt mine to our production facility.operations.”
Sales and Marketing of Our Vinyls UnitMexico Segment
Net sales revenueOur Mexico Segment sells polyethylene products to our 10 largest Vinyls Unitover 196 customers accounted for 40.8%in the Mexican market. We have a diversified product mix that allows us to serve a broad range of end users in several industries. The customers of our Vinyls Unit’s total net sales revenue during 2016. One customer accounted for 8.6% of our Vinyl Unit’s total sales revenue in 2016, 9.7% in 2015 and 9.4% in 2014.
There is a structural link between the PVC and caustic soda markets because caustic soda is a byproduct of the production of chlorine required to produce PVC. When demand for PVC is high, greater amounts of caustic sodaMexico Segment generally are produced, leading to an increase in supply and generally lower prices for caustic soda. Conversely, when demand for PVC is low, prices for caustic soda tend to rise.
We make most of our sales of PVC and caustic soda directly to Brazilian customers without the use of third-party distributors. However, our Vinyls Unit maintains contractual relationships through five distribution centers, that provide logistical support, located in Paulínia and Barueri, both in the State of São Paulo, Joinville in the State of Santa Catarina, Extrema in the State of Minas Gerais and Araucaria in the State of Paraná. In addition, we operate twelve warehouse facilities for PVC, on anon-exclusive basis, and six terminal tank facilities for caustic soda strategically located along the Brazilian coast to enable us to deliver our products to our customers on a“just-in-time” basis. Our Vinyls Unit develops its business through close collaboration with its customers, working together to improve existing products as well as to develop new applications for PVC. Our marketing and technical assistance groups also advise customers and potential customers that are considering the installation of manufacturing equipment for PVC end products.
In addition, our Vinyls Unit supplies the Brazilian market with emulsion PVC and other copolymers with higher value by imports from Colombia under a long-term contract with Mexichem. Our primary customers operate in the laminated, shoe and automobile sectors. These products represented 3% of our consolidated sales volume in 2016.
Prices and Sales Terms
We determine the domestic prices for our PVC resins with reference principally to the prices paid by third generation petrochemical producers in Brazil for imports of PVC, which generally reflect the Northeast Asian spot market price. Delivery time, quality and technical service also affect the levels of sales of PVC resins. We establish our domestic price for caustic soda based on North American spot market prices. Approximately 70.2% of our caustic soda sales in 2016 were made pursuant to agreements that are generally forone- to three-year terms and may include minimum and maximum prices.
Competition
PVC
We and Unipar (formerly Solvay) are the only two producers of PVC in Brazil. Unipar’s total Brazilian installed annual production capacity is 300,000 tons, compared to our annual production capacity of 710,000 tons. Unipar’s Brazilian production facilities are located in São Paulo, which is closer to the primary PVC market in Brazil than our facilities. However, we believe that our vertically integrated production capabilities, our modern PVC suspension plants, our strong relationship with our customers and our technical assistance programs enable us to make up for any competitive disadvantage due to distance and compete effectively with Unipar.
We also compete with Unipar’s Argentine production facilities and other importers of PVC. Unipar has a PVC plant in Argentina in addition to its plants in Brazil. Imports accounted for approximately 19.8% of Brazilian PVC consumption in 2016. Domestically produced PVC is currently competitively priced with imported PVC, considering that our price is based on international market.
In addition, wfe compete with other producers of thermoplastics that manufacture the same PVC products or substitutes for products in our PVC product line. Thermoplastic resins, principally polyethylenea wide variety of plastic-based consumer and polypropylene, are used in certain applications as substitutes for PVC. Wood, glass and metals also are used in some cases as substitutes for PVC.industrial goods.
Caustic Soda
TheAccording to IHS and Abiclor (Associação Brasileira da Indústria de Álcalis, Cloro e Derivados), the three largest Brazilian producers of caustic soda, including Braskem, accounted for 96.8%91% of Brazilian productioncapacity in 2016. Our company and another international petrochemical company operateBrazil in this market throughout Brazil, while the other2021. Most domestic producers of caustic soda generally operate on a local or regional basis.basis, with the exception of Braskem and another producer located in the Northeast region of Brazil that operate in the whole country through terminal tanks located on the Brazilian coast. Imports accounted for 38.1%38% of Brazil’s total caustic soda consumption in 2016.2021, excluding Braskem imports. Due to the mining event in Alagoas, our chlor-alkali plant was idled in 2019 and we have been importing caustic soda from various sources to keep supplying customers in Brazil since then.
Our principal competitors in the caustic soda market elsewhere in South America are other international petrochemical companies operating in Brazil and producers located on the U.S. Gulf Coast.
Technology, ResearchUSA and DevelopmentEurope Segment
Our USA and Europe Segment includes:
· | the operations of Braskem America, which consist of five polypropylene plants in the United States and one Ultra High Molecular Weight Polyethylene – the UTEC® plant; and |
· | the operations of two polypropylene plants in Germany. |
As of December 31, 2021, our USA and Europe Segment’s facilities had the largest annual polypropylene production capacity in the United States. Our USA and Europe Segment generated net revenue of R$32,403.6 million during 2021, or 29.9% of the net revenue of all reportable segments.
In June 2014, we announced the construction of an UHMWPE production line in our La Porte, Texas site, which began producing UTEC®in the first quarter of 2017. We believe that the production of specialized UHMWPE at this line complements our existing portfolio of products and will enable us to access new markets and to develop close relationships with new and existing clients.
In June, 2017, we announced the construction of a Polypropylene Unit (“Delta”) at our La Porte, Texas site. Aligned with the strategy to diversify the raw materials matrix and geographic expansion in the Americas, this is a new world-class PP production facility with an annual polypropylene production capacity of 450,000 tons. In September, 2020, we announced that after completing the commissioning phase, we have started commercial production of PP at this new plant. We believe that this investment reinforces our PP leadership position in the region, as it will enable us to replace imported PP volumes in the North American domestic market and also scale up our exports supporting structural global demand with existing global clients.
Technology LicensesProducts of Our USA and Europe Segment
Our Basic Petrochemicals Unit uses engineering process technology undernon-exclusive arrangements fromUSA and Europe Segment produces polypropylene. The sales volume of polypropylene by this unit was 2,217.1 tons in 2021, 1,968.2 tons in 2020 and 1,920.4 tons in 2019. For a variety of sources for specific production processes. We have entered into severalnon-exclusive agreements with a number of leading petrochemical companies to use certain technology and catalysts for our Polyolefins Unit. Somedescription of the license agreements used byuses of our polypropylene products, see “—Polyolefins Unit allow us to use the licensed technology in both existing and
future plants. We have entered into severalnon-exclusive agreements with a numberOperations that are Part of leading petrochemical companies to use technology for our Vinyls Unit. We have entered into severalnon-exclusive agreements with a number of leading petrochemical companies to use certain technology and catalysts for the polypropylene productionBrazil Segment.”
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Production Facilities of our USA and Europe Unit. SomeSegment
The table below sets forth the annual production capacity as of December 31, 2021 of the license agreements usedUSA and Europe Segment’s polypropylene plants in the United States and Germany and the annual production for the years presented.
Annual Production | Production | |||
Plant | Capacity | 2021 | 2020 | 2019 |
(in tons) | ||||
United States | 2,021,000 | 1,728,567 | 1,446,066 | 1,435,298 |
Germany | 625,000 | 570,211 | 493,304 | 494,241 |
Raw Materials of Our USA and Europe Segment
Propylene |
The most significant direct cost associated with the production of polypropylene by our USA and Europe Unit allowSegment is the cost of purchasing propylene.
We acquire propylene for our polypropylene plants in the Unites States under a variety of long-term supply agreements and through the spot market. As of December 31, 2021, we had 14 supply agreements with multiple suppliers. The pricing formulas for propylene under these supply agreements are generally based on international market prices.
As a result of rising natural gas production and related production of natural gas liquids, several companies have announced plans to build propane dehydrogenation, or PDH plants, which would produce on-purpose propylene. We have secured a long-term propylene agreement of 15 years with one such company, Enterprise Products, which completed construction of a PDH plant in Texas in 2017 with an annual capacity of 750,000 tons. We expect this agreement with an established producer to provide us with a competitive, long-term supply of propylene, using shale gas and other nontraditional sources as its feedstock. This plant commenced operations in 2017. Under this arrangement, the pricing of these contracts will be based on market prices for propane and other market costs.
We acquire propylene for our polypropylene plants in Germany under long-term supply agreements that provide for the supply of 90% of the propylene requirements of these plants. We have two main supply agreements in Germany. One has a five-year agreement effective since October 1, 2021 with a term until September 30, 2026, and thereafter will automatically be renewable for consecutive one-year terms, unless terminated by one of the parties. The other agreement expires in December 2023, and thereafter will also be automatically renewable for consecutive one-year terms, unless terminated by one of the parties. We have entered into a third contract that will expire at the end of 2022, increasing the supply of our plants to 93% of the propylene required. The pricing formula for propylene under these supply agreements is based on market prices. We purchase the propylene used in our Europe plants based on monthly contract price for propylene for Europe (as reported by ICIS-LOR).
Sales and Marketing of Our USA and Europe Segment
Our USA and Europe Segment sells polypropylene products to approximately 392 customers. We have a diversified product mix that allows us to serve a broad range of end users in several industries. The customers of our USA and Europe Segment generally are third generation petrochemical producers that manufacture a wide variety of plastic-based consumer and industrial goods.
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The following table sets forth our net revenue derived from sales of our USA and Europe Segment for the years indicated:
For the Year Ended December 31, | |||
2021 | 2020 | 2019 | |
(in millions of reais) | |||
Net revenue: | |||
USA and Europe | 32,403.6 | 14,638.7 | 10,044.3 |
51% of the sales of polypropylene by the USA and Europe Segment are made under long-term supply agreements with our customers. These supply contracts generally have an initial two-year term and are automatically renewable for one-year periods unless one party notifies the other of its intention not to renew. These contracts also provide for minimum and maximum quantities to be purchased and monthly deliveries.
The remainder of the polypropylene production of the USA and Europe Segment is sold through (1) our direct sales force that seeks to establish supply relationships with customers; (2) a select number of distributors authorized to represent the Braskem brand in the U.S. and European markets; (3) resellers that trade these products under private labels in the North American and European markets; and (4) traders that resell these products in the export markets.
Competition
The USA and Europe Segment is largely a commodities business and competes with local, regional, national and international companies, some of which have greater financial, research and development, production and other resources than us. Although competitive factors may vary among product lines, our competitive position is primarily based on raw material and production costs, selling prices, product quality, product technology, manufacturing technology, access to new markets, proximity to the market and customer service and support.
Our primary competitors for sales in the polypropylene industry in North America and Europe are other large international petrochemical companies. In general, demand is a function of economic growth in North America, Europe and elsewhere in the world.
Mexico Segment
Braskem and Idesa, one of Mexico’s leading petrochemical groups, formed Braskem Idesa S.A.P.I. in April 2010, with Braskem holding 75% of the total share capital and Idesa holding the remaining 25%, to develop, construct and operate the Mexico Complex, located in the Mexican state of Veracruz. During April 2016, Braskem Idesa commenced commercial operations of the Mexico Complex.
As of December 31, 2021, our Mexico Segment had the largest annual polyethylene production capacity in Mexico. Our Mexico Segment generated net revenue of R$6,506.3 million during 2021, or 6.0% of the net revenue of all of our reportable segments.
Products of Our Mexico Segment
Our Mexico business unit produces ethylene, HDPE and LDPE at our Mexico Complex. We use all of the licensed technologyethylene produced by our Mexico Complex as raw material for the production of polyethylene by this complex. The sales volume of polyethylene by this unit was 628,744 tons in both existing2021. Our Mexico Complex manufactures a broad range of polyethylene grades for use in consumer and future plants. industrial applications, including plastic films for food and industrial packaging, bottles, shopping bags and other consumer goods containers, automotive parts, and household appliances.
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Technologies selected for the Mexico Segment are proven and considered stated of the art with excellent track records in the petrochemical market and we believe it provides a competitive advantage in serving our customers to meet their specific needs by adapting and modifying our polyethylene products.
Production Facilities of Our Mexico Segment
Our Mexico Segment operates four plants located in the Mexico Complex, consisting of:
· | an ethylene cracker, with an annual production capacity of 1,050,000 tons of ethylene, which commenced operations in March 2016; |
· | two high-density polyethylene plants, with a combined annual production capacity of 750,000 tons, which commenced operations in April 2016; |
· | a low-density polyethylene plant, with an annual production capacity of 300,000 tons, which commenced operations in June 2016; |
· | a 150-megawatt power generation plant consisting of one gas turbine and two steam turbines; and |
· | an effluents treatment plant and a water treatment plant, which return water to the community in a condition that exceeds the applicable regulatory requirements. |
Annual Production | Production | |||
Plant | Capacity | 2021 | 2020 | 2019 |
| (in tons) | |||
Mexico (Polyethylene) | 1,050,000 | 696,142 | 780,176 | 800,783 |
Raw Materials of Our Mexico Segment
The principal raw material used in our Mexico Complex is ethane, in addition to other raw materials such as hexane, propylene and polyaldehyde (PAL). Other chemicals, catalyzers, additives and utilities such as natural gas, electricity and nitrogen are used to produce polyethylene in the Mexico Complex.
Ethane
Ethane is the principal raw material that we use to produce ethylene in the Mexico Complex and represents the principal production and operating cost of the Mexico Complex. The price of ethane that we purchase varies based on changes in the U.S. dollar-based U.S. reference price of these feedstocks. We currently source ethane, from two main sources. Approximately 50% to 60% of total ethane needs is sourced under the Ethane Supply Agreement with Pemex TRI, a state-owned Mexican entity, while the remaining is complemented with imported ethane coming from the United States and delivered to our Complex through freight trucks that transport cryogenic isocontainers as part of the Fast Track Solution.
Braskem Idesa also intends to develop the Ethane Import Terminal, a long-term alternative source of imported ethane, and a pipeline that will connect the terminal directly to our Complex. The expected ethane capacity of the Ethane Import Terminal would be enough to fulfill the total ethane needs for the Mexico Complex. This terminal would provide the capacity to import more ethane than we currently require. As a result, our Mexico Segment will be able to source its total needs towards increasing our polyethylene production and taking advantage of the forecasted demand for polyethylene products in North America and globally.
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The estimated cost of the Ethane Import Terminal and related infrastructure investment is approximately US$400.0 million (inclusive of financing costs and VAT). Our Mexico segment expects to subscribe for up to 50% of the shares issued by the company that will develop the Ethane Import Terminal. We intend to fund our investment in the Ethane Import Terminal with a combination of equity and debt, through a joint venture with one or more suitable unaffiliated third parties that will secure equity and debt financing in an unrestricted subsidiary. The Ethane Import Terminal is expected to be completed and to reach full capacity by 2024, but there may be delays. For additional information, see “Item 3. Key Information—Risk Factors— Risks Relating to Us and the Petrochemical Industry—We depend on ethane supplied by Pemex TRI in Mexico,” “Item 3. Key Information—Risk Factors—Risks Relating to Us and the Petrochemical Industry—We rely on limited or sole-source suppliers for our raw materials, inputs and energy, including transportation thereof.”
Ethylene
All of the ethylene produced by our Mexico Complex is used by the polyethylene plants in our Mexico Complex.
Other Materials and Utilities
Our Mexico Segment uses natural gas as the main fuel for its production process, which is supplied mainly private suppliers using the pipelines that are the property of the Centro Nacional de Control del Gas Natural (“Cenagas”).
In early December 2020, Braskem Idesa received a notification from Cenagas (Centro Nacional de Control del Gas Natural), a Mexican state-owned agency responsible for all-natural gas pipelines and transportation in Mexico, related to the unilateral termination of the natural gas transportation service, an essential energy input for the production of PE in our Mexico Segment. As a result, in compliance with safety protocols, Braskem Idesa initiated procedures for the immediate interruption of its operating activities. Later in January 2021, Braskem Idesa partially resumed its using ethane to replace the lack of natural gas in order to continue producing PE. Braskem Idesa took legal measures under the ethane supply agreement entered into with Pemex. Braskem Netherlands B.V, which is Braskem Idesa’s direct shareholder, also took legal measures under applicable international investment protection standards to protect Braskem Idesa’s interests and its parent company concerning their investment in Mexico. Such measures included a negotiation period to attempt to resolve the dispute between the parties.
In the first quarter of 2021, Braskem Idesa entered into the following agreements under a strict reservation of all rights: (i) a memorandum of understanding with Pemex TRI setting out certain understandings regarding potential amendments to the ethane supply agreement and the development of an ethane import terminal, subject to further negotiation, a definitive agreement and approval by Braskem Idesa’s shareholders and creditors; and (ii) a natural gas transport service agreement with Cenagas for a term of 15 years, which is conditioned upon the execution of the definitive agreement referenced in item (i) above. Following the execution of these agreements by Braskem Idesa, it resumed receiving natural gas transportation services from Cenagas. In addition, Braskem Idesa signed the Amended ESA with PEMEX and the Terminal Agreement, complying with the condition of the natural gas transport service agreement mentioned in item (ii) above.
For additional information, see “Item 3. Key Information—Risk Factors— Risks Relating to Us and the Petrochemical Industry—We depend on ethane supplied by Pemex TRI in Mexico,” “Item 3. Key Information—Risk Factors—Risks Relating to Us and the Petrochemical Industry—We rely on limited or sole-source suppliers for our raw materials, inputs and energy, including transportation thereof” and “Item 3. Key Information—Risk Factors—Risks Relating to Us and the Petrochemical Industry—Political and economic conditions and government policies in Mexico, including political interferences in state-owned companies such as Pemex TRI and Cenagas, and elsewhere may have a material impact on our operations.”
Our Mexico Segment uses hexene as raw materials in the production of HDPE. We import hexene for the Mexico Complex from suppliers located in the United States.
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Our Mexico Segment uses catalysts supplied by Ineos Europe Limited.
Supply Contracts of the Mexico Segment
Ethane
The primary feedstock in our polyethylene production process is ethane. Braskem Idesa currently sources ethane from two main sources: (i) locally, pursuant to the Ethane Supply Agreement with Pemex TRI, a state-owned Mexican entity; and (ii) imports from the United States and delivered to our Complex through freight trucks that transport cryogenic isocontainers as part of the Fast Track Solution. As of the year ended December 31, 2020 and 2021, ethane supply from Pemex TRI was 87%, and 65%, respectively and 13%, and 35%, respectively, from the Fast Track Solution.
Ethane Supply Agreement (Pemex TRI).
Braskem Idesa is party to an ethane supply agreement with Pemex TRI, a subsidiary of Pemex, dated February 19, 2010, based on commercial conditions (“BI’s Ethane Supply Agreement”)
On September 27, 2021, we signed the third amendment to the BI’s Ethane Supply Agreement (the “Amended ESA”). Upon effectiveness, the Amended ESA modified certain terms of the BI’s Ethane Supply Agreement, including:
· | Our Mexico Segment agreed to reduce the contractual volume to be purchased on a deliver or pay basis from 66,000 to 30,000 barrels of ethane per day (“Contractual Volume”), until February 2025, provided, that if we suffer delays in obtaining licenses and permits to operate the Ethane Import Terminal attributable to Mexican governmental authorities or Pemex, Pemex TRI will deliver the contractual volume after February 2025 for the time caused by these delays, on a day-by-day basis. In the event of any extension concerning the supply period of the Contractual Volume or non-achievement of the commencement of the Ethane Import Terminal (the “Ethane Import Terminal COD”) commercial operations due to the longstop date under the Amended ESA (the “Contractual Volume Longstop Date”), then Pemex TRI will supply, for an additional period of up to 12 months, 15,000 barrels per day of ethane to Braskem Idesa during the period from the Contractual Volume Longstop Date (or such later date) until the Ethane Import Terminal COD (the “Extended Volume”); |
· | Our Mexico segment has a right of first refusal to acquire ethane that Pemex TRI and its affiliates do not consume for their own processes or for the production of ethylene and derivative products, in a daily volume of up to: (i) for as long as Pemex TRI must supply the Contractual Volume, 1,625,576 cubic meters (approximately 36,000 barrels per day); and (ii) after Pemex TRI no longer should supply the Contractual Volume, 2,980,220 cubic meters (approximately 66,000 barrels per day). |
· | The ethane purchase price under the Amended ESA is based on commercial conditions at prices that reference the Mont Belvieu purity ethane price, a U.S. dollar-based international reference price, plus logistics and other applicable costs. The conditions set out in the Amended ESA will have retroactive effects until February 26, 2021. |
· | If Pemex TRI fails to deliver an average daily volume of ethane below the Contractual Volume during any quarterly period, it will compensate us by providing additional volumes of ethane over the following two quarterly periods; provided that we will not have the obligation to take ethane above the contractual maximum daily volume. If Pemex TRI does not compensate for such supply shortfall during mentioned cure period, it will pay us liquidated damages at a rate equal to 50% of the volume that Pemex TRI failed to deliver and did not compensate. The cap on such liquidated damages is R$1,618.5 million (US$290.0 million) during any given year. We may terminate the Amended ESA and exercise the put option thereunder if Pemex TRI fails to deliver at least 75% of the Contractual Volume for 180 consecutive days. |
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· | If Braskem Idesa fails to take an average daily volume of ethane at least equal to the Contractual Volume during any quarterly period, Braskem Idesa will compensate Pemex TRI by purchasing additional volumes of ethane over the succeeding two quarterly periods (not exceeding the contractual maximum daily volume). If our Mexico Segment does not purchase such additional volumes of ethane during such a cure period, Braskem Idesa will pay Pemex TRI liquidated damages at a rate equal to 50% of the average price of the volume that we failed to purchase and did not compensate. The cap on such liquidated damages is R$1,618.5 million (US$290.0 million) during any given year. |
· | As stated under the Amended ESA, the revised term is 20 years starting from the commencement date of supply under the BI’s Equity Supply Agreement, which occurred in June 2015, with three periods of extension of ten years each, being the first extension period mandatory for Pemex TRI and Braskem Idesa. |
Pemex TRI may terminate the Amended ESA in the event of (i) our failure to pay that continues for more than six months after notice; or (ii) an emergency stoppage in operations or force majeure event due to which our insurers consider the complex to be a total loss, or after which we cannot or do not resume operations for 48 months. If Pemex TRI (i) delivers less than an average of 75% of the 30,000 barrels of ethane per day over six months, (ii) reaches the annual limit in respect of liquidated damages owed by Pemex TRI to us and such limit is not waived by Pemex TRI or (iii) materially breaches any of its obligations related to the arrangements or licensessupply of ethane thereunder and such breach continues for more than six months after notice, Braskem Idesa has the right to terminate the Amended ESA, require Pemex TRI to repay certain of our outstanding debt and under whichtermination scenarios provide compensation for equity investments according to an agreed valuation formula.
Ethane Supply Agreement (Fast Track).
On February 25, 2020, Braskem Idesa entered into an open order quantity agreement with Braskem Netherlands for the supply of liquid ethane with a minimum purity level of 95% in effect until 2021, the BNL Ethane Supply Agreement. (the “BI-BNL Ethane Supply Agreement”).
On October 9, 2021, we use third-party technology were terminated or are no longer availableentered into an amendment to the BI-BNL Ethane Supply Agreement (the “BI-BNL Ethane Supply Agreement Amendment”) in order to enhance the alternate ethane supply provided to us by the Fast-Track Solution. The purpose of the BI-BNL Ethane Supply Agreement Amendment is the additional acquisition of the volumes supply of liquid ethane above the maximum amount of the BI-BNL Ethane Supply Agreement loaded during February 2021 through January 22, 2022.
Electricity and Water
The Mexico Complex has its own power generation plant consisting of one gas turbine and two steam turbines, which can generate more than 100% of the Mexico Complex’s energy consumption. In addition, the Mexico Complex is also connected to the high-voltage power grid of Comisión Federal de Electricidad (the Mexican government-owned electricity company) as an alternative power source and to sell excess power on the spot market. The Mexico complex generates all of its requirements of steam and its water requirements are supplied by the Comisión Nacional del Agua (the Mexican government-owned water commission) pursuant to an agreement that expires in 2029 and is subject to renewal.
The main feedstock used for power generation is natural gas, which is mainly supplied by private suppliers and Pemex through Cenagas. In December 2020, we received a notification from Cenagas (Centro Nacional de Control del Gas Natural), a Mexican state-owned agency solely responsible for the natural gas pipelines and transportation in Mexico, related to the unilateral non-renewal of the service of natural gas transportation, an essential energy input for the production of PE in our Mexico Segment. As a result, in compliance with safety protocols, Braskem Idesa initiated procedures for the immediate interruption of its operating activities, which may have a material adverse effect on our operating or financial results, depending on the timing of the stoppage. Later in January 2021, Braskem Idesa partially resumed its operating activities using ethane to replace the lack of natural gas in order to continue producing PE. Braskem Idesa also initiated legal measures to enforce its legal and contractual rights.
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In February 2021, Braskem Idesa entered into a natural gas transport service agreement with Cenagas for a term of 15 years. Following the execution of this agreement by Braskem Idesa, it continued receiving natural gas transportation services from Cenagas. For additional information, see “Risk Factor - Political and economic conditions and government policies in Mexico, including political interferences in state-owned companies such as Pemex TRI and Cenagas, and elsewhere may have a material impact on our operations.”
Sales and Marketing of Our Mexico Segment
Our Mexico Segment sells polyethylene products to over 196 customers in the Mexican market. We have a diversified product mix that allows us to serve a broad range of end users in several industries. The customers of our Mexico Segment generally are third generation petrochemical producers that manufacture a wide variety of plastic-based consumer and industrial goods.
Domestic Mexican Sales
One of our priorities has been to develop long-term relationships with our customers and, given the cyclical nature of the markets for our polyethylene products, we believe that we would becan strengthen customer loyalty during periods of reduced demand for polyethylene by providing a reliable source of supply to these customers during periods of high demand. We work closely with our customers to determine their needs, to provide technical assistance and to coordinate the production and delivery of our products.
Considering our Mexico Complex’s logistical infrastructure and logistics centers in different regions, we are able to replace this technologyproject and being able to respond faster to customer demand by region. Thus, we can anticipate and plan our production and logistics in order to make the products available on time and at the points of shipment. As our products portfolio can adjust to the nature of the demand of the Mexican market, we have greater flexibility to adapt and better serve the market.
In addition to direct sales of polyethylene to our customers, our Mexico Segment sells products in Mexico through independent distributors. Our Mexico Segment is served by distributors through which we distribute our products pursuant to formal agreements and spot market transactions.
We have selected our distributors based on their ability to provide full service to their customers, including the ability to prepare our products on a customized basis. These distributors sell our polyethylene products to manufacturers with comparablelower volume requirements and are able to aggregate multiple orders for delivery to customers that would otherwise be uneconomical for us to serve. Furthermore, by serving smaller customers through a network of distributors, our account managers focus their efforts on delivering high quality service to a smaller number of large, direct customers.
Export Sales
The main focus of our Mexico Segment is to maintain our leading position in the Mexican market while continuing to export in order to manage the relationship between our production capacity and domestic demand for our products. We believe that our continued presence in export markets is essential to help manage any overcapacity in the Mexican market. The excess volume is exported to several regions such North and South America, Asia, and Europe, using our existing sales force and complementing our portfolio in those regions, in order to use the already established Braskem sales channels in the United States and Europe, the strategy of exports of the Mexico Segment production, for these regions, is to develop and retain customers, in order to seek a greater added value in exports, especially considering the competitive logistics for serving the United States. This new polyethylene complex reinforces our position with polyethylene customers worldwide, which enhances our position in North America.
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Prices and Sales Terms
We determine the Mexican domestic prices for polyethylene by reference to North American export prices. Our customers in Mexico may pay in full on delivery or better technology from other sources.elect credit terms that require payment in full within 60 days, on average, following delivery for most customers.
Our Mexico Unit has improvementsSegment’s export sales consist of volumes to South America, Europe and technical service agreements with its licensors for technology updatesthe United States through traders and to supportdistributors. Pricing is based on international market price references. As discussed under “—Export Sales” above, since the beginning of 2017, the Mexico Unit’s operations. Over next 10 years, we will pay will pay royalties correspondingSegment has been focused on export sales directly to customers in the license fee value for HDPE units, while we paid aone-time license fee for our LDPE units.United States, Europe, Central America and the Caribbean and South America, so the price in the local of the sale, excluding the logistics costs to move the product until that place and the other variable costs, ex-raw material, of exports has been increasing.
Competition
We do not pay any continuing royalties under anyhave the largest annual production capacity of polyethylene in Mexico. We compete in Mexico with a subsidiary of Pemex and with importers of polyethylene, primarily producers located in the arrangements or licenses used byUnited States and Canada. We compete for export sales of our Basic Petrochemicals Unit or our Vinyls Unit. Mostpolyethylene products with producers from other countries in Latin America and in markets in the United States, Latin America and Europe. Our export business is a commodity business and we compete with a variety of resin producers, some of which have greater financial, research and development, production and other resources than us. Our competitive position in the license agreements used by our Polyolefins Unit or our USA and Europe Unit do not require us to pay any continuing royalties. Under the license agreementsexport markets that require continuing royalty payments, we pay royalties on a quarterly basisserve is primarily based on the volume of the products produced using the licensed technology.raw material costs, selling prices, product quality and customer service and support.
Technology, Research and Development
Research and Development
Our abilityR&D is key to competedeveloping differentiated offers for our priority markets and enabling growth through product portfolio upgrade and the development of new technologies in catalysis and process. One of our priorities is to support the markets that we serve depends onrecently announced goals towards carbon neutrality and plastic waste reduction by delivering sustainable solutions. To ensure business perpetuity, the Innovation & Technology area also works to leverage disruptive technologies. A close relationship with customers and market amplifies our ability to integrate new production processes developed by our companyunderstand the current needs and third parties in order to lower our costs and offer new thermoplastic products. In addition, our relationships with our customers are enhanced by our ability to develop new products and customize existing products to meet their needs.anticipate future opportunities.
We develop projects throughtechnology at our research and/orand development centers: (1) Innovation and Technology Center in Triunfo, Rio Grande do Sul, Brazil; (2) Innovation and Technology Center in Pittsburgh, Pennsylvania, United States; (3) Renewable Chemicals Research Center in Campinas, São Paulo, Brazil; (4) Process Technology Development Center in Mauá, São Paulo, Brazil; (5) European Technical Center in Wessling, Bavaria,Wesseling, North Rhein Westphalia, Germany; and (6) Mexican Technical Center in Nanchital, Vera Cruz, Mexico, whichwhere we develop new processes, products and applications for many industrial sectors and which, asmarket segments. As of December 31, 2016, collectively2021, we had 302 employees.303 employees dedicated to R&D. Through these centers, we coordinate and maintainconduct our research and development programs, whichactivities that include the operation of (1) pilotscale-up (pilot plants (2) catalysis, polymerizationoperation), analytical testing, catalyst development and polymer sciences laboratories, and (3)testing, advanced materials characterization, process engineeringtechnology development and research capabilities on renewable sources and biotechnology.
We are advancing in the expansion of the Technology and Innovation Centers in Rio Grande do Sul/Brazil, with total investments of around US$10 million (US$4.8 million just in 2021). These new laboratories will support research focused on both chemicals and specialties and polyolefins businesses and will support the development of catalysis projects, polymer science and will support the analytical team of the Technological Centers.
A number of recent updates have been made to the new product portfolio, including the development of high performance film grades for renewable sources. Our investments in researchpackaging, resins to provide soft touch on personal care high-end applications, high performance grades for agrochemicals packaging, new specialty grades with differentiated sealing performance applied to high-speed packaging, new proprietary catalysts for polyolefin production and development, which are classified as expenses, totaled R$162.0 million in 2016, R$169.6 million in 2015 and R$128.1 million in 2014.several process technology upgrades.
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Braskem continues its efforts in Additive Manufacturing evolved towards the consolidation of a new area for the Company, highlighting the expansion of the product portfolio with the new and innovative carbon fiber reinforced polypropylene filament and also by launching new channels to developmarket, such as the Amazon e-commerce store to make our products also accessible to consumers.
Two important components of the Open Innovation strategy are Technology Scouting and Competitive Funding:
By leveraging our internal R&D resources with collaborative projects with R&D institutions, universities and other companies, we are able to explore new technology routes and scale-up processes. In 2021 several projects were approved by funding agencies, including the multinational “InRep: An integrated approach towards recycling of plastics” in Europe, the Engineering Research Center for Plasticulture in Brazil, and the DOE-funded “Dynamic crosslinking for EVA recycling” in the US.
Technology Scouting has been built up to identify startups and technology providers, capture early-stage technologies, and manage an idea pipeline, evaluating the strategic alignment and the feasibility of hundreds of ideas. This resulted in the launch of more than ten I&T projects, dealing with such relevant subjects as plastic waste recycling, CO2 capture and utilization, graphene, material substitution, and new bio-based materials.
Furthermore, we continue to invest in Sustainable Innovation. We ended 2021 with 81% of Innovation and Technology Projects (I&T) in the sustainability index. The index covers the following topics: water savings, energy savings, chemical safety (process/product), greenhouse gas emissions and circularity.
As for practical actions in sustainable solutions, for products from renewable raw materials throughwe are advancing in internal projects and collaborations and partnerships with Amyrisseveral third parties, as follows: (i) advance in biotechnology research with a focus on proof of concept of routes to produce solvents and Michelinplastics of renewable origin; (ii) a partnership between the Company and the Danish-based Haldor-Topsoe, which is a world leader in catalysis and surface science; in 2021, continued advancing the technology to produce bio-based monoethylene glycol (bio-MEG) moving towards the final steps of technology development, reinforcing our commitment to expand our portfolio of renewable products.
We increased our efforts with respect to recycling solutions to provide sustainable pathways for isoprene productionplastic waste reduction and strengthen our reputation as a sustainability leader. The portfolio of recycled resins has been upgraded with Genomaticathe launches new PP and PE post-consumer resin (PCR) grades. A dedicated team which we call the recycling platform coordinates all efforts relating to advanced recycling and mechanical recycling of plastic waste and aims to convert post-consumer plastic into high-quality recycled resins. Our focus is to increase the share of certified recycled resins in our portfolio. In this regard, several partnerships have been established last year, for butadiene production.
In September 2016, we partnered with Made In Space, a leading developerexample: (i) Nexus Circular LLC (“Nexus”) and Lummus, companies specializing in advanced plastics recycling; and (ii) Fábrica Carioca de Catalisadores – FCC, SENAI/ CETIQT and UFRJ/ EngePol for the development of 3D printerscatalysts for operation in zero gravity and an accredited NASA supplier. Made In Space developedadvanced recycling, seeking to increase the Additive Manufacturing Facility, the first commercial 3D printer permanently located outsideenergy efficiency of Earth. Currently installed in the International Space Station, this equipment uses biobased polyethylene resin produced at our plant in Triunfo, Rio Grande do Sul to fabricate various parts.pyrolysis processes.
Maintenance
Most of our maintenance is performed by third-party service providers. For example, we have contracts with Construtora NorbertoNovonor (),formerly called Odebrecht or CNO,S.A., a subsidiary of our controlling shareholder Odebrecht, OSP Investimentos S.A., or OSP Inv),Asea Brown Boveri Ltd., Cegelec Ltda., Rip Serviços Industriais S.A., Cl EngenhariaSulzer Ltda. and other service providers to perform maintenance for our basic petrochemical plants in the Northeastern Complex and in the Southern Complex. We also perform some of our ordinary course maintenance with our small team of maintenance technicians, which also coordinate the planning and execution of maintenance services performed by third parties.
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Basic PetrochemicalsChemicals Plants
Regular basic petrochemicalschemicals plant maintenance requires complete plant shutdowns from time to time, and these shutdowns usually take approximately 30 to 45 days to complete. We occasionally undertake brief shutdowns of the basic petrochemicalchemical operations at our basic petrochemical plants that do not materially affect our production output, primarily for maintenance purposes, catalyst regeneration and equipment cleaning. In addition, because we have two independent olefins units and two independent aromatics units at the Northeastern Complex and two independent olefins units at the Southern Complex, we may continue production of basic petrochemicalschemicals at these complexes without interruption, even while we perform certain maintenance services.
The next scheduled general maintenance shutdown of:
· | the Southern Complex’s aromatics and olefins units is schedule to take place in 2022; |
· | the Northeastern Complex’s olefins 2 and aromatics 2 units is scheduled to take place in 2023; and |
· | the Rio de Janeiro Complex’s olefins unit is scheduled to take place in 2025. |
Plants of Our Polyolefins, VinylsBrazil, and USA and Europe UnitsSegment
We have a regular maintenance program for each of our polyolefinspolyolefin plants. Production at each of our polyolefinspolyolefin plants generally is shut down for seven15 to 20 days every two3 to three4 years to allow for regular inspection and maintenance. In addition, we undertake other brief shutdowns for maintenance purposes that do not materially affect our production of polyolefins. We coordinate the maintenance cycles of our polyolefinspolyolefin plants with those of our basic petrochemicals plants. While our basic petrochemicalschemicals facilities must be shut down for up to 3045 days every 6 to 8 years for maintenance, our polyolefins facilities may be shut down for shorter periods because these facilities are less complex to operate and maintain than our basic petrochemicalschemicals plants. Similarly, plants of our USA and Europe UnitSegment attempt to coordinate their maintenance cycles with the routines of their largest suppliers.
We have a regular maintenance program for each of our vinyls plants. Our Camaçari and AlagoasNortheast PVC plants are generally shut down for 15 to 2035 days every two or three years to allow for regular inspection and maintenance. Our caustic soda and chlorine plant in Alagoas shuts down once a year for threetwenty days of maintenance in different parts of the plant. Our caustic soda and chlorine plant in Camaçari does not require prolonged maintenance shutdowns and is shut down for two or three days each year.
Environmental Regulation
In each of the countries in which we operate, our operationsWe, like other petrochemical producers, are subject to stringent federal, state and local environmental laws and regulations governing the discharge of effluents and emissions into the environment andconcerning human health, the handling and disposal of industrial wastesolid and otherwise relatinghazardous wastes and discharges of pollutants into the air, water and soil, among others. Petrochemical producers are sometimes subject to the protectionunfavorable market perceptions as a result of the environment.environmental impact of their business, which can have an adverse effect on their results of operations.
Our consolidated annual expenditures on environmental control were R$325.3857.3 million in 2016,2021, R$221.9537.9 million in 20152020 and R$190.0369.8 million in 2014. Our consolidated2019, which included investments, waste and wastewater treatment, emissions management, environment licenses, environmental expenses relateliabilities and other environmental expenditures.
Costs and capital expenditures relating to our continuous controlenvironmental, health or safety matters are subject to evolving regulatory requirements and monitoring policies, and we do not expect to have any material future environmental liabilities. However, our environmental compliance costs are likely to increase as a resultwill depend on the timing of the projected increase in our production capacitypromulgation and projected increases in unit costs for treatment and disposalenforcement of industrial waste, as well asspecific standards which impose the cost of compliance with future environmental regulations.requirements.
We had established a provision for recovery of potential environmental liabilities in the amount of R$254.0 million as of December 31, 2016.
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Compliance with Environmental Laws in Brazil
The Brazilian government enacted an Environmental Crimes Law in 1998 that imposes criminal penalties on corporations and individuals causing environmental damage. Corporations found to be polluting can be fined up to R$50.0 million, have their operations suspended, be prohibited from government contracting, be required to repair damage that they cause and lose certain tax benefits and incentives. Executive officers, directors and other individuals may be imprisoned for up to five years for environmental violations.
OurWe make all reasonable efforts to ensure that our operations are in compliance in all material respects with applicable Brazilian environmental laws and regulations currently in effect. Our internal audit processes and our management system in place aim to ensure that the permits that will expire be renewed in a timely manner. However, changes to applicable laws and regulations may require us to revise our standards, which may take time to implement. Some environmental studies that we have commissioned have indicated instances of environmental contamination at certain of our plants. In addition, we and certain executive officers of our company and of our subsidiariesexecutive officers have received notices from time to time ofrelated to minor environmental violations and are or have been subject to investigations or legal proceedings with respect to certain alleged environmental violations. These environmental issues, and any future environmental issues that may arise, could subject us to fines or other civil or criminal penalties imposed by Brazilian authorities. We are addressing all environmental issues of which we are aware, and we believe that none of these issues will have a material adverse effect on our business, financial condition or results of operations.
Operating Permits
Under Brazilian federal and state environmental laws and regulations, we are required to obtain operating permits for our manufacturing facilities. If any of our environmental licenses and permits lapse or are not renewed or if we fail to obtain any required environmental licenses and permits, we may be subject to fines ranging from R$500 to R$50.0 million, and the Brazilian government may partially or totally suspend our activities and impose civil and criminal sanctions on our company or both.us.
Each State in which we operate has its own environmental standards and state authorities in each state have issued operating permits that must be renewed periodically. Additionally, all projects for the installation and operation of industrial facilities in the Northeastern Complex, Southern Complex, São Paulo Complex, and Rio de Janeiro Complex and Alagoas plants are subject to approval by various environmental protection agencies, which must approve installed projects prior to their commencement of operations and must renew such approval periodically thereafter. State authorities have issued operating permits for all of our plants, as follows: the Northeastern Complex (State of Bahia); Southern Complex (State of Rio Grande do Sul), São Paulo Complex and Cubatão, Santo André, Mauá and Paulínia plants (State of São Paulo), Rio de Janeiro Complex (State of Rio de Janeiro) and our Alagoas plants (State of Alagoas). We make all reasonable efforts to ensure that our operations in Brazil are in possession ofcompliance in all necessarymaterial respects with applicable Brazilian federal, state and local environmental laws and regulations currently in effect, and we have an internal audit process and a management system in place assuring that the permits and do not expect to have difficultythat will expire be renewed in renewing any of them.a timely manner.
Industrial Waste
Companhia Riograndense de Saneamento, or Corsan, a state-owned sanitation company, operates an integrated system for liquid effluents treatment, or Sitel, in the Southern Complex. Sitel treats wastewater generated by our companyus and the other petrochemical producers at the Southern Complex at a liquid effluents treatment station located in the Southern Complex. This treatment station also includes a system for the collection of contaminated wastewater and disposal after treatment. We treat wastewater generated by our companyus at the Rio de Janeiro Complex at a liquid effluents treatment station located in the Rio de Janeiro Complex. This treatment station also includes a system for the collection and disposal of contaminated wastewater. Hazardous solid waste isco-processed in cement kilns or incinerated and other kinds of solid waste are disposed of in landfills at facilities approved by our company.us.
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We treat wastewater generated by our companyus at the São Paulo Complex at a liquid effluents treatment station located in the São Paulo Complex. This treatment station also includes a system for the collection and disposal of contaminated wastewater. Hazardous waste generated at the São Paulo Complex is incinerated in cement kilns and other kinds of solid waste are disposed of in landfills.
In our Bahia facilities, all wastewater is transported to Cetrel, aour wastewater treatment facility. Solidfacility at Cetrel. Hazardous liquid and solid waste are incinerated at high temperatures and non-hazardous solid waste is incineratedcoprocessed and sent to cement customers to be used as energy in cement kilns or incinerators and the remaining waste is disposed of in landfills.
Additionally, we have a series of recycling programs that includerecycling of solid waste and wastewater. We recycle or reuse 26.2% of the solid waste generated by our facilities and 22.9% of the water used in our production processes.kilns.
In our Alagoas Complex,plants, organochlorines waste is incinerated, producing steam and wastewater. All wastewater is treated at a treatment station located in the complex. Solid waste is separated and disposed of in landfills.
Additionally, we have a series of recycling programs that include recycling of solid waste and wastewater. We recycle or reuse 59.1% of the solid waste generated by our facilities and 22.4% of the water used in our production processes.
AsbestosMercury
Our largestAs of December 31, 2019, Braskem had a chlor-alkali plant located in Alagoas previously used asbestosBahia based on mercury cell technology to produce chlorinetechnology. On April 8, 2020, our chlor-alkali plant in Bahia shut down following the end of the facility’s useful life, and caustic soda. Such technology can no longer be used in new petrochemical production facilities under Brazilian legislationit has been decommissioned. The decommissioning strategy involves equipment’s decontamination/dismantling, and the global trend has been to ban this technology. As a result, in November 2016, we concluded our shift to newer diaphragm technologymost appropriate waste destination.
Currently, the Company is dismantling the entire Unit (except the areas of demercurization of effluents and banned asbestos technology from our plants.solid waste), disposing of its properly decontaminated waste, as well as planning the most appropriate strategies for diagnosis and remediation of potentially contaminated areas, which should be implemented as soon as the disassembly of the Unit and demolition of the Cell House shed are completed.
Compliance with Environmental Laws in the United States
Our operations in the United States are subject to U.S. federal, state and local laws and regulations governing the discharge of effluents and emissions into the environment; the generation, storage, handling, management, transportation and disposal of hazardous waste, industrial waste and other types of waste; the use, storage, and handling of various types of products and materials; and the protection of human health, safety and the environment. In many instances, specific permits must be obtained for particular types of operations, emissions or discharges. For example, our facilities in Texas, Pennsylvania, and West Virginia are required to maintain various permits relating to air quality and treatment of industrial wastewater, and to comply with regulatory requirements relating to waste management. We are in possession of necessary permits to operate our facilities. We believemake all reasonable efforts to ensure that our operations in the United States are in compliance in all material respectscomply with applicable U.S. federal, state and local environmental laws and regulations currently in effect.regulations.
As with the U.S. petrochemical industry generally, compliance with existing and anticipated laws and regulations increases the overall cost of operating our U.S. plants, including operating costs and capital costs to construct, maintain and upgrade equipment and facilities. These laws and regulations have required, and are expected to continue to require us to make, expenditures of both a capital and an expense nature.
The Clean Air Act, which was last amended in 1990, requires the United States Environmental Protection Agency, or the EPA, to set National Ambient Air Quality Standards, or the NAAQS, for pollutants considered harmful to public health and the environment. The Clean Air Act requires periodic review of the science upon which the standards are based and the standards themselves. NAAQS for ozone and fine particulate matter (referred to as PM2.5), promulgated by the EPA have resulted in identification of nonattainment areas throughout the country, including certain areas within Texas, Pennsylvania, and West Virginia, where Braskem America operates facilities. As a result of these nonattainment designations by the EPA, state or local air pollution control agencies are required to apply permitting and/or control requirements intended to reduce emissions of ozone precursors (nitrogen oxides and volatile organic compounds), and fine particles (including PM2.5 precursors), in order to demonstrate attainment with the applicable NAAQS. Such requirements may include imposition of offset requirements and could result in enhanced emission control standards. In addition, in 2015on August 24, 2016, the EPA reevaluated the sufficiency offinalized requirements for state and local agencies charged with the current PM2.5 NAAQS. This reevaluation could result in more stringent ambient standards, whichThese requirements could in turn translate into additional state-specific requirements to further reduce allowable emission rates for PM2.5 or its precursor pollutants. In October 2016,2015, the EPA lowered the primary and secondary NAAQS for ozone from 0.075 ppm to 0.070 ppm. Such state-specific requirements would become applicable, if at all, following a multi-year process. Regulations implementing this change will likely not be promulgated for several years.
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In addition to permitting and/or control requirements that may result from the implementation of the NAAQS at the state or local level, the EPA may promulgate new or revised federal New Source Performance Standards or National Emission Standards for Hazardous Air Pollutants that would apply directly to certain facility operations and may require the installation or upgrade of control equipment in order to satisfy applicable emission limits and/or operating standards under these regulatory programs. The EPA’s currently-proposedproposed regulations in this area would not specifically apply to Braskem America’s operations.
Additionally, there are various legislative and regulatory measures to address greenhouse gasGHG emissions which are in various stages of review, discussion or implementation by Congress and the EPA. In October 2015, the EPA finalized new regulations (known as the Clean Power Plan) aimed at lowering greenhouse gasGHG emissions from existing, new and reconstructed electric generating units. In February 2016, the Supreme Court stayed implementation of the Clean Power Plan pending judicial review. On October 16, 2017, the EPA proposed repealing the Clean Power Plan, but this proposal has not been finalized. On August 21, 2018, the EPA proposed a replacement to the Clean Power Plan, the Affordable Clean Energy Rule. While it is currently not possible to predict the final impact, if any, that these regulations may have on Braskem America or the U.S. petrochemical industry in general, they could result in increased utility costs to operate our facilities in the United States. In addition, future regulations limiting greenhouse gasGHG emissions of carbon content of products, which target specific industries such as petrochemical manufacturing could adversely affect our ability to conduct Braskem America’s business and also may reduce demand for its products. The EPA’s currently-proposedproposed regulations in this area would not specifically apply to Braskem America’s operations.
Compliance with Environmental Laws in Mexico
Braskem Idesa in Mexico is subject to federal, state and local laws and regulations that govern the discharge of effluents and emissions to the environment; the generation, storage, handling, management, transportation and disposal of hazardous waste, industrial waste and other types of waste; the use, storage and handling of various types of products and materials; and the protection of human health, safety and the environment. Specific permits may be required for certain types of operations.
Ethylene and Aromatic Hydrocarbons Mixture production require permission of the Secretary of Energy and Federal Commission for Sanitary Risks (COFEPRIS) related to risk management and public health, The Mexican legislation regulates the emission of particles, ozone, fixed sources and everything related to GHGs. There are regulations on water, effluent treatments and specific conditions for discharge of the effluent. We make all reasonable efforts to ensure that our operations in Mexico are in compliance in all material respects with applicable Mexican federal, state and local environmental laws and regulations currently in effect.
In Mexico, the Federal Attorney’s Office for Federal Environmental Protection (PROFEPA) verifies compliance with the Mexican Regulation and Permits through audits.
Failure to comply with Mexican regulations may lead to economic and administrative penalties, including Operations shutdown in certain cases.
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Compliance with Environmental Laws in Germany and the European Union
Our operations in Germany are subject to German federal, state and local laws and regulations governing the discharge of effluents and emissions into the environment and the handling and disposal of industrial waste and otherwise relating to the protection of the environment and waste management. Our operations in Germany are in compliance in all material respects with applicable German federal, state and local environmental laws and regulations currently in effect.
As with the petrochemical industry in the European Union generally, compliance with existing and anticipated German laws and regulations increases the overall cost of operating our European business, including operating costs and capital costs to construct, maintain and upgrade equipment and facilities. These laws and regulations have required, and are expected to continue to require us to make expenditures of both a capital and an expense nature.
At our Schkopau and Wesseling facilities in Germany, facilities, we are required to maintain air, radiation, waste water and waste management permits from the German government and local agreements relating to the treatment of industrial wastewaters.permits. We are in possession of all necessary permits.
Furthermore, our Wesseling and Schkopau facilities in Germany facility isare subject to existing European greenhouse gasGHG regulations and a cap and trade program relating to emissions. We have purchased sufficient carbon dioxide emissions permits for itsour operations until 2018,2022, provided it operates under normal business conditions. We will purchase any additional permits that may be required on the emission trade market. We are not aware of any new environmental regulations that would materially affect our European operations. Accordingly, we cannot estimate the potential financial impact of any future European Union or German environmental regulations.
Sustainability
In April 2018, our board of directors approved our policy on global sustainable development. Its objective is to encourage economic growth, environmental preservation and social justice by developing sustainable solutions related to chemical and plastic production. In connection with these goals, we have developed a three-pronged approach: (1) seek and develop sustainable sources and operations, (2) develop and deliver a portfolio of sustainable products and services, and (3) work with our clients to offer sustainable solutions that benefit society as a whole.
Environmental RegulationCircular Economy
Consistent with our purpose of contributing to the transition from a linear economy into a circular economy, effectively demonstrating our commitment to sustainable development, we announced in Mexico2018 our global positioning statement titled “Braskem’s Positioning in the Circular Economy.”
Our operationsIn the statement, we announced eight key global initiatives, which are: (i) partnerships with clients and value chain to develop new products that increase efficiency, recycling and reuse; (ii) more investments in Mexico are subjectrenewable products; (iii) development and support of new technologies and the recycling chain; (iv) programs to several environmental lawsengage consumers in conscientious consumerism, proper disposal and regulations concerning human health,recycling; (v) use of science tools to select the handlingmost sustainable options; (vi) adoption of recycling indicators for plastic packaging; (vii) partnerships to understand, prevent and disposalsolve the problem of marine debris; and (viii) incentives for policies to improve solid and hazardous wastes and discharges of pollutants into the air, soil and water. Under Mexican law, Braskem Idesa is required to obtain environmental and operating permits for the operation of its Mexico Complex. We believe that our operations in Mexico are in compliance in all material respects with applicable Mexican federal, state and local environmental laws and regulations currently in effect.waste management.
Property, Plant and Equipment
Our properties consist primarily of petrochemical production facilities in:
· | Camaçari, in the State of Bahia; |
· | Triunfo, in the State of Rio Grande do Sul; |
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· | Duque de Caxias, in the State of Rio de Janeiro; |
· | São Paulo, Paulínia, Cubatão, Santo André and Mauá, in the State of São Paulo; |
· | Maceió and Marechal Deodoro, in the State of Alagoas; |
· | the United States, in La Porte, Freeport and Seadrift, Texas; Marcus Hook, in Pennsylvania; Neal and West Virginia; |
· | Germany, in Schkopau and Wesseling; and |
· | Coatzacoalcos, in Mexico. |
For more information, see note 1312 to our audited consolidated financial statements included elsewhere in this annual report.
Our principal executive offices are located in São Paulo, in the State of São Paulo, and we have an administrative support office in the City of Salvador, in the State of Bahia. We also have equity interests in investments located in other parts of the country. We own all our production facilities, but we generally rent our administrative offices.
The following table sets forth our properties as of December 31, 20162021 by location of facilities, products produced and size of plant.
Type of Product or Service | Location of Facilities | Size of Plant | ||||
(in hectares)(1) | ||||||
| Triunfo | 152.8 | ||||
| Santo André | 74.1 | ||||
| Camaçari | 65.5 | ||||
| Duque de Caxias | 53.0 | ||||
| Mexico | 23.6 | ||||
Polypropylene | Paulínia | 39.7 | ||||
Polyethylene | Triunfo | 30.5 | ||||
Polyethylene | Camaçari | 24.5 | ||||
Polyethylene | Cubatão | 17.6 | ||||
Polyethylene | Santo André | 15.8 | ||||
Polyethylene | Duque de Caxias | 15.0 | ||||
Polyethylene | Mexico | 14.9 | ||||
Polypropylene | La Porte, Texas | 87.0 | ||||
Polypropylene | Neal, West Virginia | 27.1 | ||||
Polypropylene | Mauá | 15.8 | ||||
Polypropylene | Duque de Caxias | 15.0 | ||||
Polypropylene | Camaçari | 13.2 | ||||
Polypropylene | Triunfo | 10.0 | ||||
Polypropylene | Marcus Hook, Pennsylvania | 6.9 | ||||
Polypropylene | Freeport, Texas | 8.9 | ||||
Polypropylene | Seadrift, Texas | 2.5 | ||||
Polypropylene | Schkopau, Germany | 3.7 | ||||
Polypropylene | Wesseling, Germany | 26.0 | ||||
Caustic soda/chlorine | Maceió | 15.0 | ||||
PVC/caustic | Camaçari | 12.6 | ||||
PVC | Marechal Deodoro | 186.7 | ||||
Distribution Center | Vila Prudente/Capuava | 3.2 |
(1) | One hectare equals 10,000 square meters. |
(2) | In January 2020, Braskem announced the permanent shutdown of its chlor-alkali production facility located in Camaçari, in the State of Bahia. The shutdown is explained by the end of the facility’s useful life and started in April 2020, following the applicable safety standards and seeking to protect people, local communities and the environment. |
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We believe that all of our productionoperating facilities are in good operating condition. As of December 31, 2016,2021, the consolidated net book value of our property, plant and equipment was R$29,336.737,225.1 million.
The following properties are mortgaged or pledged to secure certain of our financial transactions: (1) our basic petrochemicalschemicals plant, our polypropylene plant and our polyethylene plant located in the Southern Complex; (2) our chlor-alkali plant and PVC plant located in the Northeastern Complex; (3) our basic petrochemicalschemicals plant, polypropylene plant and our polyethylene plant located in the State of São Paulo Complex;Paulo; (4) our chlor-alkali plant and PVC plant located in the State of Alagoas; (5) our basic petrochemicalschemicals plant, our polyethylene plant and our polypropylene plant located in the Rio de Janeiro Complex; and (6) our basic petrochemicalchemical plant and our polyethylene plants located in Mexico.
Insurance
In addition to the policies described below for our Brazilian and international operations, we maintain other insurance policies for specific risks, including general and product liability, directors and officers liability, coverage, workers’ compensation, employers practice liability, automotive, marine cargo and charterer’s liability insurance, among others.
We do not anticipate having any difficulties in renewing any of our insurance policies and believe that our insurance coverage is reasonable in amount and consistent with industry standards applicable to chemical companies operating globally.
Operations in Brazil, Mexico, the United States and Germany
We carry insurance for all our plants against material damage and consequent business interruption through comprehensive “all risk” insurance policies.
The “all risks” insurance program for our plants provides for a total replacement value of US$27.8 billion for property damage. This insurance program is underwritten through separate policies in Brazil, Mexico, the United States and Germany by large insurance companies. The leading insurers are Mapfre (rating S&P A-), Inbursa (rating S&P AAA). These policies are in placevalid until October 2018.April 2023.
Set forth is a table with additional information related to our all risk insurance policies.
Policy / Region | Value at risk — | Indemnity Limit PD + BI(1) |
Brazil | 24.4 | 3.25 |
Mexico(2) | 5.2 | 2.4 |
USA and Germany(2) | 3.9 | 0.63 |
Policy / Region US$ bn | Value at risk - Property Damage | Combined Damage and Interruption Limit | Property Business | Comments | ||||||||||
Brazil | 21.7 | 3.375 | Limit increased from US$ 2 bn to US$ 3.375 bn. | |||||||||||
Mexico | 4.4 | 3.153 | Natural Hazard Limit increased from US$ 1.5 bn to US$ 2bn. | |||||||||||
USA and Germany | 1.7 | 0.33 | Limit increased from US$ 250 million to US$ 330 million; Limit for flood and wind and named storm of US$ 300 million in the aggregate and US$ 200 million per event. |
(1) | PD = Property Damage; BI = Business Interruption. | |
(2) | Includes coverage for acts of terrorism. |
Our policies provide coverage for losses that arise from accidents relating tocaused by or resulting from fire, explosion and machinery breakdown, among others, and consequential business interruption, with maximum indemnity periods ranging from 12 to 3334 months, depending on the plant and/or coverage.
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As part of our program, we also contract other insurance policies to cover specific risks, including general civil liability, the civil liability of directors and offices (“D&O”), environmental risks, domestic and international charter operations, charter's liability, etc.
New projects can be covered for construction/erection all risks under the existing Property policies or through a standalone project-specific policy.
We have third-party liabilityrelevant exposure to operational risks, and our insurance policy requires coverage to be contracted through a complex insurance program involving multiple insurers and reinsurers in the commercial market, which have limited and variable capacity to offer insurance policies over time. In order to seek alternatives for our operations, which cover losses for damages caused to third parties from our operationsthe composition of hedges, the possibility of transferring operational risks through the mutual insurer “OIL” was identified. OIL is the global leader in the energy sector, including oil and products, including environmental damage caused by pollution. These policies havegas, refining, chemical and petrochemicals, electric power and mining, and holds a maximum aggregate limittotal of US$300 million for Brazil, the United States3 trillion in insured assets and Germany.
The material damage insurance for our plants provides coverage for losses due to accidents resulting from fire, explosion and machinery breakdown, among others. This coverage has a maximum indemnification limitportfolio of US$2 billion per event (combined material damage and business interruption coverage) for the Brazilian plants and US$250 million (combined material damage and business interruption coverage, excluding flood and earthquake damages, which have an indemnity limit of US$200 million per event) for our plants in the United States and Germany. Our policies have deductibles ranging from US$250,000selected participants. In addition to US$20 million, depending on the plant and/or coverage.
The business interruption coverage under our policies provides coverage for losses resulting from interruptions dueproviding a stable capacity to any material damage covered by the property policy. The losses are covered with maximum indemnity periods ranging from 12 to 24 months and deductibles ranging from 45 to 90 days, depending on the plant and/or coverage.
As a part of our insurance program, we also have a third-party liability policy for our operations, which covers losses for damages caused to third parties from our operations and products, including sudden environmental pollution. This policyBraskem, OIL has a maximum indemnification limit of US$300 million per occurrence subjectstructure in which there is reciprocal cooperation among the insured companies participating in a known risk environment, in addition to a US$250,000 deductible.lower administrative cost compared to the commercial insurance market, providing less volatile and potentially more competitive premiums.
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Compliance
Operations in Mexico
We have an insurance program in force for our operation in Mexico, which is comparable to existing programs for large companies in the industry throughout the world. This program includes: (1) property and business interruption coverage up to an aggregate amount of US$3,153 million, (2) terrorism coverage up to a limit of US$1,212 million, (3) marine cargo coverage up to a limit per shipment of US$6 million, (4) general liability with indemnity limit of US$210 million per event and (5) pollution liability with a maximum indemnification limit of US$50 million.
Compliance
We have adopted a Code of Conduct, a Compliance System Policy on Compliance in Acting Ethically with Integrity and Transparency,an Anti-corruption Policy, and several internal policiesdirectives designed to guide our management, employees and counterparties and reinforce our principles and rules for ethical behavior and professional conduct. We maintain an Ethics Line managed by a third party available for employees andnon-employees. Every whistleblower complaint is impartially investigated by an independent team. The Ethics Committee and submitted for evaluation by our Ethics Committee.the Statutory Compliance and Audit Committee are notified on the results and outcoming plans.
Following our discovery of vulnerabilitiesIn addition to the above, the company has normative documents in ourplace that rule and/or establish standards concerning, among others, risk management, purchases, sales, internal controls, internal audit, corporate credit card, delegation of authority, due diligence, conflicts of interest, business courtesies, investigations, sponsorships and donations, travels, interactions with public agents, transactions with related parties.
We have also put into practice specific compliance goals for our leadership and formal engagement with certain initiatives, such as the UN Global Compact and the Business Pact for Integrity and Against Corruption established by the Ethos Institute in connectionBrazil.
In March 2020, based on the certification report issued by the independent monitors who have monitored us for the past three years, Brazil’s Federal Prosecutor’s Office (Ministério Público Federal), or the MPF confirmed the monitoring conclusion, the effectiveness of our compliance program and compliance with the Investigation, we have designed and implemented remediation efforts to improve and evolve our Global Governance and Compliance system, including a series of efforts designed to ensure that every vulnerability that permitted the occurrenceobligations of the material weaknesses in our internal control over financial reporting described in “Item 15. ControlsMPF Agreement. Later, on May 13, 2020, the DoJ and Procedures” is mitigated. We expect such measures to be implemented and producing the desired effects bySEC confirmed the end of 2017. We have taken the following measures, among others: (a) established the Compliance Committee (as defined below), (b) hired a Chief Compliance Officer (as defined below) and increased staffing and resourcesmonitoring provided for our Internal Controls, Risk Management, Compliance and Internal Audit departments, (c) created an Internal Audit department, (d) incorporated anti-corruption clauses in our contracts with third-parties, (e)��adopted the Policy on Compliance in Acting Ethically with Integrity and Transparency, (f) developed and implemented training programs for our directors, senior management and other employees, (g) enhanced vendor data, due diligence, procurement and payment procedures and associated controls, and (h) redesigned our process for monitoringin-transit inventory of raw materials, including naphtha. Furthermore, we implemented a new set of controls in the fourth quarter of 2016agreements with such authorities.
In 2021, the Company was granted ISO 37001 - anti-bribery management systems published by International Organization for Standardization (ISO) attesting that improved the processes in connectionBraskem’s anti-bribery management system complies with manual journal entries, monitoring of payments of commissions and ledger accounts. We have also taken actions to implement controls within the process of posting entries in the inventory and trade payable balance accounts for naphtha imports processedrule’s standards developed by Braskem Netherlands. Finally, we have improved the internal controls of monitoring of debits obligations in Braskem Idesa. We believe that these steps, taken together, will provide additional supervision, approval and review of accounting transactions and will enable us to better prevent and detect potential issues in our internal controls. For more information, see “Item 6. Directors, Senior Management and Employees—Directors and Senior Management” and “Item 15. Controls and Procedures.”
ITEM 4A. UNRESOLVED STAFF COMMENTS
Item 4A. | Unresolved Staff Comments |
Not Applicable.
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
Item 5. | Operating And Financial Review and Prospects |
The following discussion of our financial condition and results of operations should be read in conjunction with our audited consolidated financial statements as of December 31, 20162021 and 20152020 and for the three years ended December 31, 2016,2021, included in this annual report, as well as with the information presented under “Presentation of Financial and Other Information” and “Item 3. Key Information—Selected Financial and Other Information.”
The following discussion contains forward-looking statements that involve risks and uncertainties.uncertainties, in particular with respect to the COVID-19 pandemic and related impacts on our historical and future results of operations and financial condition. Our actual results may differ materially from those discussed in the forward-looking statements as a result of various factors, including those set forth in “Cautionary Statement with Respect to Forward-Looking Statements” and “Item 3. Key Information—Risk Factors.”
Overview
Our results of operations for the years ended December 31, 2016, 20152021, 2020 and 20142019 have been influenced, and our results of operations will continue to be influenced, by a variety of factors, including:
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Table of Contents |
· | GDP growth in the regions where we operate, including as follows: |
o | Brazil’s GDP, which grew 4.6% in 2021, as compared to a 4.1% contraction in 2020 and a 1.1% expansion in 2019, which affected the demand for our products and, consequently, our sales volume; |
o | the U.S. GDP, which grew 7.0% in 2021, as estimated in a report released by BEA on February 24, 2022, as compared to a 3.4% contraction in 2020 and a 2.3% expansion in 2019, which affected the demand for our products and, consequently, our sales volume; |
o | Europe’s GDP, which grew 5.3% in 2021, as estimated in a report released by Eurostat on March 8, 2022, as compared to a 7.2% contraction in 2020 and a 1.2% expansion in 2019, which affected the demand for our products and, consequently, our sales volume; |
o | Mexico’s GDP, which grew 5.0% in 2021, as estimated in a report released by INEGI on February 25, 2022,as compared to a 8.5% contraction in 2020 and a 0.1% contraction in 2019, which affected the demand for our products and, consequently, our sales volume; and |
o | according to the IMF, despite the adverse effects of the COVID-19 pandemic on the economy of several countries in 2020 and 2021, which led to a global GDP contraction of 3.1%, in 2020 the world’s GDP expanded 5.9% in 2021 and is expected to expand 4.4% in 2022, leading to a global economic recovery; |
· | the expansion or contraction of global production capacity for the products that we sell and the growth rate of the global economy; |
· | the international market price of propylene in the Unites States, one of our main raw materials, expressed in U.S. dollars, which has a significant impact on the cost of producing our products and which experienced a high level of volatility during the year ended December 31, 2021, fluctuating in a range between US$1,235 and US$1,951 per ton during such period, compared to fluctuation in a range between US$573 and US$1,069 per ton during 2020; |
· | the international market price of naphtha, one of our main raw materials, expressed in U.S. dollars, which has a significant impact on the cost of producing our products and which experienced a high level of volatility during the year ended December 31, 2021, fluctuating in a range between US$501 and US$764 per ton during such period, compared to fluctuation in a range between US$140 and US$528 per ton during 2020; |
· | the average Brazilian prices of resins expressed in U.S. dollars, which fluctuate to a significant extent based on international prices for these products and which also have a high correlation to our raw material costs; |
· | our crackers’ capacity utilization rates was stable in the year ended December 31, 2021, compared to the corresponding period of 2020, as a result of: the scheduled general maintenance shutdown at the petrochemical complex in ABC, São Paulo, which lasted for 63 days, and also through operational restrictions during restarting after the scheduled general maintenance shutdown and the implementation of the energy efficiency project due to technical faults in one of the four engines replacing the steam turbines of the petrochemical complex. Normal capacity conditions were reestablished in December 2021 by adopting a temporary solution, with the permanent solution currently under construction with the equipment supplier. |
· | government industrial policies in the countries and regions in which we operate; |
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· | changes in the |
the level of our outstanding indebtedness and fluctuations in benchmark interest rates in Brazil, which affect our interest expenses on our |
the inflation rate in Brazil, which was |
· | tax policies and tax obligations. |
Our financial condition and liquidity isare influenced by various factors, including:
· | our ability to generate cash flows from our operations; |
· | prevailing Brazilian and international interest rates and movements in exchange rates, which affect our debt service requirements; |
· | our ability to continue to be able to borrow funds from international and Brazilian financial institutions and to sell our debt securities in the international and Brazilian securities markets, which is influenced by a number of factors discussed below, including the adverse effect of the COVID-19 pandemic on the world economy and our business, financial condition and results of operations; |
· | our capital expenditure requirements, which consist primarily of maintenance of our operating facilities, expansion of our production capacity and research and development activities; and |
· | the requirement under Brazilian law and our by-laws that we pay dividends on an annual basis in an amount equal to at least 25% of our adjusted net income (calculated as net income for the financial year, after absorption of accumulated losses and for reserves, including legal reserves, pursuant to applicable law), unless our board of directors, in accordance with applicable law, reports to our annual shareholders’ meeting that the distribution would be incompatible with our financial condition at that time, provided that payment of any minimum preferred dividends is not affected. Our fiscal council must opine on any suspension of the mandatory distribution. |
Recent Developments
Impact of the Novel Coronavirus (COVID-19) on our Business and Results of Operations
We have been monitoring the impacts from the COVID-19 pandemic on our business and surrounding communities.
In the first and second quarters of 2021, most of our petrochemical plants operated at a capacity utilization rate above 70%. Isolated cases of lower capacity utilization rates were identified in Mexico due to the instability of ethane supply by Pemex, but they were not directly related to the effects of the COVID-19 pandemic on our operations.
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During the year ended December 31, 2021, our petrochemical plants in Brazil operated at a capacity utilization rate of 81%, in line with the same period of 2020, due to the scheduled maintenance turnaround of our petrochemical complex in São Paulo, which was postponed in 2020 as a consequence of the COVID-19 pandemic restrictions. During the year ended December 31, 2021 our PP plants in the United States operated at a capacity utilization rate of 86%, down compared to the same period of 2020, due to the impacts from the winter storm Uri in the U.S. gulf coast. During the year ended December 31, 2021, in Europe, our PP plants operated at a capacity utilization rate of 91%, up compared to the same period of 2020, due to the normalization of operations after the effects of the COVID-19 pandemic impacted demand in 2020. During the year ended December 31, 2021, the capacity utilization rate of our PE plants in Mexico was 66%, down compared to same period of 2020, reflecting the lower supply of ethane supplied by Pemex, which was partially offset by higher imports from the United States under the “Fast Track” import solution.
Pursuant to applicable rules and regulations, our management reviewed the accounting estimates for the realization of assets, including the estimates for losses on trade accounts receivables, inventory impairment loss, deferred tax assets and other assets, or those related to the provision for accrual of liabilities in financial information for interim periods given the significant changes to the risks to which we are exposed. The review considered events after the reporting period that occurred up to the reporting date of our audited consolidated financial statements for the year ended December 31, 2021, and no significant effects were identified that should be reflected in the audited consolidated financial statements for the year ended December 31, 2021.
Due to the uncertainties arising from the COVID-19 pandemic with regard to the global economy, we are unable to accurately predict the adverse impacts on our equity and financial position and those of our subsidiaries after the reporting date. Because the demand for resins has increased, we do not expect we will need to constitute a provision for impairment of assets in the near future arising from a scenario of demand constraints.
For further information regarding the effects of the COVID-19 pandemic on our financial condition and results of operations, see “Item 3. Key Information—Risk Factors—Risks Relating to us and the Petrochemical Industry—Global or regional health pandemics or epidemics, including that related to COVID-19 pandemic, may adversely affect our debt service requirements;
CRA Issuance
On January 5, 2022, Eco Securitizadora de Direitos Creditórios do Agronegócio S.A. issued Agribusiness Receivables Certificates (“CRA”) in the internationalBrazilian capital markets backed by debentures issued by Braskem S.A., in two series, maturing in seven years and Brazilian securities markets,in 10 years, in the aggregate amount of R$721.0 million. The CRA accrue interest at a rate equal to the IPCA inflation index plus 5.5386% per year and IPCA plus 5.5684% per year for the series maturing in seven and 10 years, respectively.
Adhesion to the Social Environmental Reparation Agreement
On February 25, 2022, the Municipality of Maceió, in the State of Alagoas, signed the partial Term of Adhesion to the Socio-Environmental Reparation Agreement, which is influenced by a numberaddresses the allocation of factors discussed below;
Approval of the Distribution of Dividends
At the general and extraordinary meeting of shareholders held on April 19, 2022, our shareholders approved the distribution of additional dividends, in the aggregate amount of R$1,350.0 million, corresponding to R$1.696348838321 per common share and R$1.696348838321 per class A preferred share. Such additional dividend distribution will be made in addition to the aggregate amount of R$6.0 billion of interim dividends paid to our shareholders on an annual basis in an amount equal to at least 25% of our adjusted net income, unless ourDecember 20, 2021, as approved by the Company's board of directors deems it inconsistent withon December 2, 2021.
Voluntary Conversion of Class B Preferred Shares
At the general and extraordinary meeting of shareholders held on April 19, 2022, our financial position andshareholders approved the decisionnew share capital of our boardthe Company amended as a result of directors is ratified by our shareholders.
Financial Presentation and Accounting Policies
Presentation of Financial Statements
We have prepared our audited consolidated financial statements as of December 31, 20162021 and 20152020 and for each of the years ended December 31, 2016, 20152021, 2020 and 2014 in accordance with IFRS.
Our consolidated financial statements have been prepared2019 in accordance with IFRS, 10 (Consolidated Financial Statements).as issued by the IASB.
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Operating Segments and Presentation of Segment Financial Data
We believe that our organizational structure asAs of December 31, 2016 reflected2021, our business activities andoperations were organized into three segments, which corresponded to our principal production processes, products and production processes. As of December 31, 2016, we had six production business units and reported our results by six correspondingservices. Our reportable segments to reflect this organizational structure:
were as follows:
our Brazil Segment (former Polyolefins, Chemicals and Vinyls segments), which includes: |
production and sale of |
(ii) | supply of |
We have included a reconciliationThe Brazil Segment accounted for net revenue of the results of operationsR$69,494.9 million, including exports from Brazil, or 64.1% of our segments, as they existed asconsolidated net revenue of December 31, 2016, to our consolidated results of operations under “—Results of Operations” below.all reportable segments;
· | our USA and Europe Segment, which includes our production, operations and sale of polypropylene in the United States and Germany. This segment accounted for net revenue of R$32,403.6 million, or 29.9% of our consolidated net revenue of all reportable segments; and |
· | our Mexico Segment, which includes our production, operations and sale of ethylene, HDPE (high-density polyethylene) and LDPE (low-density polyethylene) in Mexico. This segment accounted for net revenue of R$ 6,506.3 million, or 6.0% of our consolidated net revenue of all reportable segments. |
Significant accounting policies
The presentationIn 2021, 2020 and 2019, 52.9%, 55.3% and 54.5% of our financial conditionnet revenue, respectively, related to sales performed in Brazil, and results47.1%, 44.7% and 45.5% of operationsour net revenue in conformity with2021, 2020 and 2019 was derived from our international operations.
New or revised pronouncements
New standards and pronouncements adopted in the current fiscal year:
· | Leases affected by COVID-19 (amendment to IFRS 16). This amendment did not have a significant impact on these financial statements. |
· | Interest Rate Benchmark Reform: Phase 2 (amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16). |
The amendments to Pronouncements IAS 39 and IFRS requires us to make certain judgments and estimates regarding9 provide temporary exceptions that address the effects of matters that are inherently uncertain and that impact the carrying valuefinancial statements when an interbank certificate of our assets and liabilities. Actual results could differ from these estimates. In order to providedeposit rate is replaced by an understanding about how we form our judgments and estimates about certain future events, including the variables and assumptions underlying the estimates, and the sensitivity of those judgments to different variables and conditions, we have included comments related toalternative with a nearly risk-free rate. The amendments include the following significant accounting policies under IFRS:
practical expedients:
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· | When a hedged item in a cash flow hedge is amended to reflect the changes that are required by the |
· | When a group of items is designated as a hedged item and an item in the |
· | If an entity reasonably expects that an alternative benchmark rate will be separately identifiable within a period of |
At the end of 2016, Braskem conducted this test using the value in use method (discounted cash flow) and didThese amendments to standards do not identify any loss, as shown in the table below:
Allocated goodwill | Cash flow (CF) | Book value (i) | CF/Book value | |||||||||||||
CGU and operating segments | ||||||||||||||||
CGU - UNIB - South | 926,854 | 7,312,051 | 1,991,908 | 3.7 | ||||||||||||
Operating segment - Polyolefins | 939,667 | 26,858,040 | 5,144,650 | 5.2 | ||||||||||||
Operating segment - Vinyls | 192,353 | 3,282,147 | 2,979,167 | 1.1 |
The assumptions adopted to determine the discounted cash flow are described in note 3.4(b) to our audited consolidatedimpact these financial statements. We used a WACC of 13.08% per annum for our Basic Petrochemicals UnitThe Company is monitoring the subject and our Polyolefins Unitthe impacts are being measured (see Note 4.1). The Company intends to use the practical expedients in future periods if they become applicable.
New standards and an adjusted WACC of 14.4% per annum forinterpretations not yet in force
The main standards issued by the Vinyls Unit, which was adopted for the 5 years of the projectionIASB that have not yet come into force and to reflect the tax incentive described in note 29(a). To calculate the perpetuity of this business unit, the same discount ratehave not been adopted by the other business units was used. The WACC adopted for 2015 was 13.91% per annum. The inflation rate adopted for perpetuity was 4.7%.
Given the potentialCompany are listed below. These new or amended standards are not expected to have a significant impact on cash flows of the “discount rate” and “perpetuity”, Braskem conducted a sensitivity analysis based on changes in these variables, with cash flows shown in the table below:Company’s financial statements:
CGU and operating segments CGU - UNIB - South Operating segment - Polyolefins Operating segment - Vinyls +0.5% on
discount rate -0.5% on
perpetuity 6,978,365 6,951,557 25,752,618 25,663,810 3,160,037 3,167,252
The main assumptions used for projecting cash flows are
· | Onerous Contracts: costs of fulfilling a contract (amendments to IAS 37). |
· | Annual improvements of IFRS Standards 2018-2020. |
· | Property, Plant and Equipment: proceeds before intended use (amendments to IAS 16). |
· | Reference to Conceptual Framework (amendments to IFRS 3). |
· | Classification of Liabilities as Current or Non-Current (amendments to IAS 1). |
· | Definition of accounting estimates (amendment to IAS 8). |
· | Definition of materiality for disclosure of accounting policies (amendments to IAS1 and IFRS Practice Statement 2). |
· | Deferredtaxes related to
Principal Factors Affecting Our Results of Operations
Our sales in Brazil and exports from Brazil represented
The following table shows
The following table sets forth domestic apparent consumption variation (year over year) for PE, PP and PVC in Brazil for the periods presented.
Source: Brazilian government and Braskem. Brazilian GDP growth has fluctuated significantly, and we believe that it will likely continue to do so. Our management believes that the impact on growth in Brazil will affect our future net revenue and results of operations, and a continued recession or low growth in Brazil would likely reduce our future net revenue and have a negative effect on our results of operations. According to the IMF, despite the adverse effects of the COVID-19 pandemic on the economy of several countries in 2020 and 2021, which led to a global GDP contraction of 3.1% in 2020, the world’s GDP is expected to have expanded 5.9% in 2021 and is expected to expand 4.4% in 2022, leading to a global economic recovery. Effects of Fluctuations in Exchange Rates between theRealand the U.S. Dollar Our results of operations and financial condition have been, and will continue to be, affected by the rate of depreciation or appreciation of thereal against the U.S. dollar because:
Virtually all of our sales are of petrochemical products for which there are international market prices expressed in U.S. dollars. We generally attempt to set prices that take into account (1) the international market prices for our petrochemical products, and (2) in Brazil, variations in thereal/U.S. dollar exchange rate. As a result, although a significant portion of our net Fluctuations in thereal will affect the cost of naphtha and other U.S. dollar-linked or imported raw materials. The price of naphtha The depreciation of thereal against the U.S. dollar generally increases the production cost for our products and we generally attempt to increase the Brazilian prices for our products inreais (to the extent possible in light of then-prevailing market conditions in Brazil), which may result in reduced sales volumes of our products. To the extent that our price increases are not sufficient to cover the increased costs for raw materials, our operating margin decreases. Conversely, the appreciation of thereal against the U.S. dollar generally decreases the production cost for our products and we generally decrease the Brazilian prices for our products inreais, which may result in increased sales volumes of our products. In periods when thereal/U.S. dollar exchange rate is highly volatile, there is usually a lag between the time when the U.S. dollar appreciates or depreciates and the time when we are able to pass on increased costs, or are required to pass on reduced costs, inreais to our customers in Brazil. These pricing discrepancies decrease when thereal/U.S. dollar exchange rate is less volatile. Braskem can enter into financial derivatives transactions to mitigate exchange rate risk associated with exposure to costs inreais. Those operations can include call and put options and related strategies. For example, Braskem may apply a hedging strategy referred to as collar, which is composed of the purchase of a put option associated with the simultaneous sale of a call option, where both options having the same maturity. In this case, if thereal depreciates and the strike price of the call exceeds the exchange rate of the option’s exercise date, we may incur significant financial losses. However, since those strategies will be implemented only fornon-speculative purposes (in accordance with our financial policy), potential losses on derivatives transactions Our consolidated U.S. dollar-denominated indebtedness represented As a result, when thereal depreciates against the U.S. dollar:
Appreciation of thereal against the U.S. dollar has the converse effects. Export sales and sales by our USA and Europe The real depreciated against the U.S. dollar from mid-2011 to early 2016, and again from early 2018 to 2020. In particular, during 2015, due to the poor economic conditions in Brazil, including as a result of political instability, the real depreciated at a rate that was much higher than in previous years, and a similar trend occurred during 2018 and 2019. In 2021, the dollar appreciated 7.47% against the real.Overall, in 2016, the real fluctuated significantly, primarily as a result of Brazil’s political instability, appreciating 16.5%, to R$3.2591 per US$1.00 on December 31, 2016. In 2017, the real depreciated 1.5% against the U.S. dollar, ending the year at an exchange rate of R$3.3080 per US$1.00. In 2018, the real depreciated 14.6 % against the U.S. dollar, ending the year at an exchange rate of R$3.8748 per US$1.00, primarily as a result of lower interest rates in Brazil, which reduced the volume of foreign currency deposited in Brazil in the “carry trade,” as well as uncertainty regarding the Brazilian presidential elections held in October 2018. As of December 31, 2019, the real/U.S. dollar exchange rate reported by the Central Bank was R$4.0307 per US$1.00, as of December 31, 2020, the real/U.S. dollar exchange rate reported by the Central Bank was R$5.1967 per US$1.00, and as of December 31, 2021, the real/U.S. dollar exchange rate reported by the Central Bank was R$5.5805 to US$1.00. There can be no assurance that the real will not depreciate or appreciate further against the U.S. dollar. Effects of Brazilian Inflation Brazilian inflation affects our financial performance by increasing some of our operating expenses denominated inreais (and not linked to the U.S. dollar). A significant portion of our Effect of Sales We have significant production capacity located outside of Brazil from our plants located in the United States, Germany and Mexico. During the year ended December 31, During the year ended December 31, Sales outside Brazil are important to us for diversification purposes in relation to regional supply and demand balance, macroeconomic factors and the political environment. In line with our strategy, sales outside Brazil affect our financial performance by hedging our operations against risks linked to Brazil.
According to the IMF, because of the adverse effects of the COVID-19 pandemic on the economy of several countries, the world’s GDP and the GDP of the United States, Europe and Mexico shrank significantly in 2020, leading to an economic contraction and a recession in these countries or regions. As a result, our sales outside
Petrochemical Cycles and Disruptive Scenarios Historically, the global petrochemical
Sales of petrochemicals and chemical products are linked to the global demand and production levels (supply x demand), which may be affected by macroeconomic factors, such as interest rates, oil prices, shifts to alternative products, innovation, consumer trends, regulatory and legislative oversight requirements, trade agreements, as well as disruptions, pandemics, or other global events. Therefore, our results are influenced not only by our activities but also by the industry and macroeconomic scenario as a whole, which we have no control and may adversely affect our operating results. The highlight here is that sometimes new opportunities emerge from these externalities, such as the COVID-19 pandemic by forcing workers to move to a home-office environment, a trend that, as a consequence, increased the demand for several segments, such as packaging, healthcare, construction. We believe that this outcome resulted in a less pronounced downward movement in the petrochemical industry. We expect that these cyclical trends in international selling prices and operating margins relating to global capacity shortfalls and additions will likely persist, principally due to the continuing impact of four general factors:
In the long-term, the trend is for the down cycle to soften and eventually revert into an upcycle again, as the industry waits to make decisions on new investments while global trade rebalances and the world absorbs new capacity. Additionally, projects that are announced to start up further into the future have a greater chance of being postponed or cancelled, as the scenario may change, feedstocks may become more or less advantaged, and cash cost curves may shift.
During the first months of 2021, demand started to slow down in markets previously boosted by the global effects of the
In the USA winter storms in the first quarter of
Part of the economic effects mentioned above is expected to be dragged into the first months of 2022 until there is a clearer picture towards when (and if) the pandemic will end vis-à-vis timing on when new capacities will start being implemented to tackle and rebalance the The
In 2019, the world economy slowed to its slowest pace since the financial crisis of 2008. During the year, the impact from the trade war between the United States and China; the slowdown in the Chinese economy; the contraction in Europe’s automotive industry, especially in Germany; the uncertainties associated with Brexit; and the political instability in key emerging markets, such as Brazil and Mexico, adversely affected investment and demand for consumer goods, leading to slower growth in the industrial sector and in international trade. In this scenario, the growth in global demand for chemicals and thermoplastic resins in 2019 was below the initial expectations of petrochemical industry players and external consulting firms, such as IHS. Combined with this weaker demand, new shale gas-based integrated polyethylene capacities in the United States and new refineries in Asia expanded the global supply of polyolefins and chemicals, pressuring the international spreads of these products. The exception was the PP market in the United States, which Effects of Fluctuations in Naphtha, Ethane, Propane and Propylene Prices Fluctuations in the international market price of naphtha have significant effects on our costs of goods sold and the prices that we are able to charge our customers for our first and second generation products. Political instability in the Middle East or similar events that may occur,
The price of ethane and propane in the Mont Belvieu region in Texas and Henry Hub in the United States is used as a reference for our costs of Effects on Cost of Naphtha is the principal raw material used by our The cost of naphtha varies in accordance with international market prices, which fluctuate depending upon the supply and demand for oil and other refined petroleum products. We purchase naphtha under a long-term supply contract with Petrobras, and we import naphtha from other suppliers through our terminal at Aratú, in the State of Bahia and Petrobras’ terminal at Osório, in the State of Rio Grande do Sul. The prices that we pay for naphtha under these arrangements, other than our supply contract with Petrobras, are based on the Amsterdam-Rotterdam-Antwerp (ARA) market price for naphtha. As a result, fluctuations in the Our contracts with Petrobras provide for naphtha prices based on The international price of naphtha has fluctuated significantly in the past, and we expect that it will continue to do so in the future. Significant increases in the price of naphtha and, consequently, the cost of producing our products, generally reduce our gross margins and our results of operations to the extent that we are unable to pass all of these increased costs on to our customers, and may result in reduced sales volumes of our products. Conversely, significant decreases in the price of naphtha and, consequently, the cost of producing our products, generally increase our gross margins and our results of operations and may result in increased sales volumes if this lower cost leads us to lower our prices. In periods of high volatility in the U.S. dollar price of naphtha, there is usually a lag between the time that the U.S. dollar price increases or decreases and the time that we are able to pass on increased, or required to pass on reduced, costs to our customers in Brazil. These pricing discrepancies decrease when the U.S. dollar price of naphtha is less volatile. We do not currently hedge our exposure to changes in the prices of naphtha because a portion of our sales are exports payable in foreign currencies and linked to the international market prices of naphtha and also because the prices of our polyethylene, polypropylene and PVC products sold in Brazil generally reflect changes in the international market prices of these products. Effects on Prices of Our Products The prices that we charge for many of our basic petrochemical products are determined by reference to the European contract prices for these products. Because European producers of basic petrochemical products primarily use naphtha as a raw material, changes in the European contract prices are strongly influenced by fluctuations in international market prices for naphtha. To the extent that our prices are based on the European contract prices for our products, the prices that we charge for these products are significantly influenced by international market prices for naphtha.
We negotiate the prices inreais for part of our products, principally polyethylene, polypropylene and PVC, on a monthly basis with our domestic customers. We attempt to revise our prices to reflect (1) changes in the international market prices of these products, which tend to fluctuate in tandem with naphtha prices, especially for polyethylene, and (2) the appreciation or depreciation of therealagainst the U.S. dollar. However, during periods of high volatility in international market prices or exchange rates, we are sometimes unable to fully reflect these changes in our prices in a prompt manner. The international market prices of our petrochemical products have fluctuated significantly, and we believe that they will continue to do so. Volatility of the price of naphtha and the Significant increases in the international market prices of our petrochemical products and, consequently, the prices that we are able to charge, generally increase our net Capacity Utilization Our operations are The table below sets forth capacity utilization rates with respect to the production facilities for some of our principal products for the periods presented.
In In 2020, average ethylene capacity utilization was mainly affected by: (i) lower utilization rate of our cracker in Rio Grande do Sul due to unscheduled turnaround at the PE integrated unit in the first quarter of 2020; and (ii) weaker demand for resins and main chemicals as a result of the COVID-19 pandemic significantly impacting economic activity and markets around the world.
In 2019, average ethylene capacity utilization was mainly affected by: (i) lower ethylene utilization rate of our cracker in Bahia resulting from the shutdown of the chlor-alkali and dichloroethane plants in Alagoas; (ii) scheduled
Effects of Brazilian Industrial Policy The Brazilian government has a significant influence in some sectors of the domestic economy, including the petrochemical sector in which we operate. The Brazilian government has adopted, or is considering adopting, measures to boost the competitiveness of domestic companies, as described below. SUDENE – Income Tax Reduction Since 2015, Braskem obtained favorable decisions in administrative proceedings and lawsuits claiming the reduction of 75% of CIT on income from the following industrial units: (i) PVC and chlor-alkali (cloro soda) units, established in the state of Alagoas; and (ii) Chemicals, PE, PVC and chlor-alkali units, established in the city of Camaçari (BA). It benefits legal entities with projects for the implementation, modernization or expansion of industrial enterprises. The realization period is 10 years. In 2021, the operations in Brazil recorded tax profit, therefore it was possible to obtain a deduction in the amount of R$125.0 million in tax incentives. PRODESIN – ICMS Tax Incentive Braskem has ICMS tax incentives in the state of Alagoas, through the state of Alagoas Integrated Development Program, or PRODESIN, which aimed at implementing and expanding a plant in that state. This incentive is considered an offsetting entry to sales taxes. In 2021, the amount was R$176.3 million (R$68.9 million in 2020). As PRODESIN is considered an investment subsidy, it was allocated to our tax incentive reserve, pursuant to the Brazilian Corporate Law. REIQ – PIS/COFINS Tax Incentive The Brazilian chemical and petrochemical sector enjoyed an important achievement in 2013. The government, in response to one of the proposals elaborated by the Chemical Industry Competitiveness Council, approved the PIS and COFINS tax rates relief on raw material purchases by first and second generation producers, which serve various sectors of the economy. The measure aimed to restore some of the industry’s competitiveness, which was weakened by factors related to infrastructure, productivity, feedstock and energy costs and the exchange rate that pressured the chemical industry’s trade deficit, according to ABIQUIM, which ended 2021 at R$199.8 billion (US$37.0 billion). In March 2021, the Brazilian federal government edited a Bill of Law that would extinguish the REIQ by August. However, with the mobilization of the sector, in July of the same year, the Brazilian federal government, when the bill was converted into Law No. 14,183/21, approved the gradual reduction of the REIQ until 2025. In this sense, as of July, the credit on the PIS/COFINS rates concerning the purchase of petrochemical raw materials had a rebate of 2.92%, reducing annually until 2025. Additionally, on December 31, 2021, the Federal Government issued Bill of Law No. 1,095, which again aims to end the REIQ, as of April 1, 2022. Pursuant to Brazilian laws, such provisional measure must be approved by the Chamber of Deputies and by the Federal Senate by June 1, 2022 to continue to produce effects. Reintegra In December 2011, the Brazilian government implemented the “Reintegra” program, which is designed to improve the competitiveness of Brazilian manufacturers in the export markets by refunding the federal taxes levied on their export sales. As a result of this incentive, exports of third generation products by Brazilian companies have
Pricing and Tariffs We set prices for ethylene, the principal first generation petrochemical product that we sell to third-party second generation producers, by reference to international market prices. See
The Brazilian government has used import tariffs to implement economic policies. As a result, import tariffs imposed on petrochemical products have varied in the past and may vary in the future. Before that, in December 2020, the Brazilian federal government temporarily reduced to 4%, for an initial period of three months, and a quota of 160,000 tons, the import tariffs levied on imports of PVC resins from countries that do not benefit from preferential import rates in Brazil. This reduction was later extended in April 2021 for an additional three-month period and an additional quota of 160,000 tons. In that same month, the Brazilian federal government temporarily reduced to 0% during a three-month period and applied a quota of 77,000 tons of the import tariffs levied on imports of PP resins. Imports and exports within the free trade area in South America (Mercado Comum do Sul), or Mercosur, which is composed of Argentina, Brazil, Paraguay and Uruguay, have not been subject to tariffs since December 2001. Imports of suspension PVC from Bolivia, Chile, Colombia, Cuba,
Additionally, in December 2010, CAMEX imposed an anti-dumping duty of 10.6% on polypropylene imports from the United In In 2020, 32% of Brazilian polyethylene, polypropylene and PVC resins were imported In 2021, 36% of Brazilian
Effect of Level of Indebtedness and Interest Rates As of December 31, Effect of Taxes on Our Income We are subject to a variety of generally applicable federal and state taxes in multiple jurisdictions on our operations and results. We are generally subject to Brazilian federal income tax We have available certain federal tax exemptions based upon federal law that offers tax incentives to companies that locate their manufacturing operations in the Brazilian states of Bahia and Alagoas. These exemptions
The exemption of 75% of income tax rate combined with CSLL at
The consolidated amount includes the impact from the different tax rates in countries where foreign subsidiaries are located, as follows:
Our export sales are currently exempt from (1) PIS - Contribution to the Social Integration Plan, (2) COFINS - Contribution for Social Security Financing, a federal value-added tax, (3)
The discussion of the results of our The discussion summarizing the significant factors affecting the results of operations for the year ended December 31, 2019, can be found in Part I, “Item 5. Operating and Financial Review and Prospects” of our Annual Report on Form 20-F for the year ended December 31, 2020, which was filed with the Securities and Exchange Commission on May 14, 2021, of which Item 5 is incorporated herein by reference.
Basic Petrochemicals Polyolefins Vinyls USA and Europe Mexico (2) Total segments Other segment(3) Corporate unit(4) Reclassifications and eliminations(5) Consolidated
In the following discussion, references to increases or declines in any period are made by comparison with the corresponding prior period, except as the context otherwise indicates. Year Ended December 31, The following table sets forth our audited consolidated financial information for the years ended December 31,
n.m.: Not Net Net Net Revenue of Brazil Segment Net revenue of our
The table below sets forth information regarding the weighted average international prices of main chemicals and resins that are generally used as a reference for our
(3) PE US (54%), PP Asia (33%) and
Net
Net
(1) Source: External consulting (spot price). (2) Average prices weighted based on Braskem’s capacity production: PP USA (72%) and PP Europe (28%). Net Revenue of Mexico Segment Net revenue of our Mexico segment increased by
(1) Source: External consulting (spot price). Cost of Products Sold and Gross Profit Cost of products sold
Gross margin (gross profit as a percentage of net
Cost of Products Sold of Cost of products sold of
Gross profit of Gross margin (gross profit as a percentage of net revenue) of our Brazil segment increased to
Cost of Products Sold of USA and Europe Cost of products sold of
(1) Source: External consulting (spot price). (2) Average prices weighted based on Braskem’s capacity production: Propylene USA (72%) and
Cost of Products Sold Cost of products sold of
Gross profit of
Gross margin (gross profit as a percentage of net revenue) of our
Selling and Distribution Expenses Selling and distribution expenses Loss for Impairment of Trade Accounts Receivable and Others from Clients Impairment of trade accounts receivable and others from clients decreased by R$46.4 million, or 83.9%, to an impairment expense of R$8.9 million in 2021, from an impairment expense of R$55.3 million in 2020, mainly due to General and Administrative Expenses General and administrative expenses increased by Research and Development Expenses Research and development expenses increased by Results from Results from equity investments Other Other
Other Expenses Other expenses, which are comprised mainly of
As a result of the foregoing:
As a result of the above, operating profit before financial income (expenses) on a consolidated basis increased by operating profit of higher operating profit all segments.Financial Results
Financial Expenses Financial expenses increased by Financial Income Financial income increased by R$1,227.2 million, or 204.5%, to R$1,827.4 million in 2021, from R$600.2 million in 2020, primarily due to (i) higher returns on financial investments in Brazilian real currency given the higher interest rates in the period; (ii) higher recognition of interest on tax assets related to overpayments of PIS and COFINS tax liabilities in prior periods.
Exchange Variations, Net Exchange rate variations, net decreased by R$1,295.9 million, or 24.5%, to an expense of R$4,002.8 million in 2021, from an expense of R$5,298.7 million in 2020, primarily as a result of: (i) the effects of Current and deferred Income Tax and Social Contribution
2020. The Profit (Loss) For the
As a result of the Liquidity and Capital Resources Our principal cash requirements for
Our principal sources of liquidity have traditionally consisted of the following:
As of December 31,
Projected Sources and Uses of Cash
due, and (3) interest payment in the total amount of R$1,092.0 million (excluding Braskem Idesa) and R$536.8 million of Braskem Idesa. We have commitments from several financial institutions to provide us with financing in the future,
In Cash Flows The following table sets forth certain consolidated cash flow information for the periods indicated:
Cash Flows Net cash provided by operating activities was R$ 2019. Net cash provided by operating activities
Net cash provided by operating activities increased by R$
Cash Flows Used in Investing Activities
During During Cash Flows Used in Financing Activities
During 2021:
During 2021, we used cash to pay:
During 2020:
During 2020, we used cash to pay:
During 2019:
During cash to pay:
In addition, in 2019 we used cash to pay dividends in the aggregate amount of R$
Unless our board of directors deems it inconsistent with our financial position and the decision of our board of directors is ratified by our shareholders, payment of dividends is mandatory under Brazilian
Contractual Commitments The following table summarizes significant contractual obligations and commitments as of December 31,
We
In line with our commitment to maintaining our financial liquidity, in December 2021 we renewed the revolving credit facility in the amount of R$ The Company's liabilities, including the amounts due under the Leniency Agreement, are shown in the table below. These
Indebtedness and Financing Strategy As of December 31, Our short-term indebtedness outstanding as of December 31, 2021 was R$1,489.3 million, including the current portion of Our long-term indebtedness outstanding as of December 31, 2021 was R$45,916.4 million (96.9% of our total indebtedness),
On a consolidated basis, ourreal-denominated indebtedness as of December 31,
Short-Term Indebtedness
of Braskem Idesa. We
Long-Term Indebtedness As of December 31, 2021, the outstanding amount of our long-term borrowings and debentures, net of transaction costs was R$45,916.4 million, of which R$12,224.8 million related to Braskem Idesa. Our principal sources of long-term debt are:
As of December 31, 2021, (i) R$7,221.0 million of our long-term borrowings and debentures denominated in Brazilian reais was secured, and (ii) none of our long-term indebtedness denominated in foreign currencies was secured. We have secured such portion of our long-term indebtedness through the pledge of certain of our property and equipment and certain of our accounts receivable. The security arrangements for our secured indebtedness vary by transaction. For a summary of the terms of our material outstanding indebtedness as of December 31, 2021, see “Item 5. Operating and Financial Review and Prospects—Liquidity and Capital Resources—Indebtedness and Financing Strategy—Long-Term Indebtedness.”
As of December 31, 2021, all of our indebtedness under the financing agreement for our Mexico complex was secured. In order to secure this debt, we have pledged our shares in Braskem Idesa, certain of our rights to repayment under subordinated loans that Braskem has made to Braskem Idesa, and all of the As of December 31, 2021, R$539.7 million of our long-term indebtedness was denominated in Brazilian reais, and R$33.147,5 million of our indebtedness was denominated in foreign currencies. Some of As of December 31,
We have issued The table below sets forth our outstanding Security Outstanding Principal plus Interest Amount as of December 31, 2021 Final Maturity
(*) | The U.S. dollar amounts have been translated into Brazilian real amounts at the December 31, 2021 selling rate of R$5.5805 per US$1.00, as reported by the Brazilian Central Bank. The Brazilian real equivalent information presented is provided solely for the convenience of the reader and should not be construed as implying that the amounts in Brazilian reais represent, or could have been or could be converted into, |
Credit Facilities with
In July 2018, Braskem America entered into a credit In November 2018, we entered into a credit In December 2019, we entered into a credit facility secured by SACE, in an aggregate principal amount of US$150.0 million. This facility bears interest at a rate equivalent to LIBOR plus 0.90% per year, payable semi-annually to maturity in December 2029. The principal amount is payable in 20 successive semi-annual installments beginning in June 2020. As of December 31, 2021, the outstanding principal plus interest amount under this facility was R$670.1 million (US$120.1 million). In August 2020, we entered into a credit facility secured by NEXI, a Japanese export credit agency, in an aggregate principal amount of R$1,169.3 million (US$225.0 million). This facility bears interest at a rate equivalent to LIBOR plus 1.70% per year and payable semi-annually to maturity in February 2031. The principal amount is amortized semi-annually from August 4, 2021. As of December 31, 2021, the outstanding amount under this facility was R$1,202 million (US$215.4 million). In October 2021, Braskem Idesa entered into a term loan in the aggregate amount of US$150.0 million. This facility bears interest at a rate equivalent to LIBOR plus 4.00% per year and payable quarterly to maturity in February 2029. As of December 31, 2021, the outstanding amount under this facility was R$1,849.9 million (US$152.3 million).
Credit Facilities with Governmental Agencies Denominated in Brazilian Reais In June 2014, we entered into a credit facility with FINEP, in the aggregate principal amount of R$1.2 million, maturing in July 2024, with proceeds used to finance In July 2014, we entered into an indirect credit facility with Fundo de Desenvolvimento do Nordeste (FDNE), in the capital expenditures in Brazil. This facility bears interest at a rate equivalent to 6.5% per year, payable together with the In December 2018, we entered into a new credit facility with BNDES, in the aggregate principal amount of R$476.0 million, maturing in January 2031, with proceeds used to finance our capital expenditures in Brazil. On January 30, 2019, we drew the afterwards monthly to maturity until January 2031. The principal amount is payable in 120 successive monthly installments beginning in February 2021. As of December 31, 2021, the outstanding principal plus interest amount under this facility was R$435.8 million (US$78.9 million). The table below sets forth selected information with respect to our BNDES
Revolving Credit Facility In
Credit Facilities with Banks Denominated in Dollars On April 8, 2019, we entered into a credit facility with international institutions in the aggregate principal amount of R$417.8 million (US$80.4 million) with a term of seven years. To consummate this facility, certain assets of the Company’s plants were transferred to the financial In October 2019, we In January
Issue Date Outstanding Principal plus Interest Amount Interest Rate Amortization Final
On November 25, 2019, Braskem Idesa issued R$4,667.0 million (US$900.0 million) in aggregate principal amount of 7.450% senior secured notes due 2029.The 2029 notes are senior secured obligations of Braskem Idesa and rank pari passu with the existing Braskem Idesa senior secured obligations due 2032 and the credit facility. After the full amortization of the outstanding amount of the Braskem Idesa 2032 notes and the credit facility, Braskem Idesa’s 2029 notes will convert into senior unsecured notes. Interest on the notes is payable semi-annually, and the principal amount becomes due at maturity. The proceeds of the notes were used to partially refinance Braskem Idesa’s existing secured project finance indebtedness incurred in 2012 to construct a Complex in Mexico. Excess proceeds of the issuance were used to prepay certain other indebtedness of Braskem Idesa.
On October 11, 2021, Braskem Idesa entered into a senior secured syndicated term loan facility of up to R$3,338.3 million (US$600 million) with Morgan Stanley Senior Funding, Inc., Credit Agricole Corporate and Investment Bank, Deutsche Bank AG, London Branch and Itaú Unibanco S.A., Miami Branch, as lenders. The credit facility is secured by first priority security interest in favor of the lenders and all lenders share the collateral equally with the holders of the 2029 and 2032 notes and potential additional secured parties as permitted under the credit facility and the indenture governing the notes. The credit facility has a five-year term and will bear interest at a rate equal to three-month LIBOR plus an applicable margin ranging from 2.25% to 4.25% (depending on Braskem Idesa credit rating), to be paid quarterly. The principal amount will be repaid in semi-annual installments commencing 24 months after the closing date. The loan under the credit facility was partially drawn, R$837.1 million (US$ 150 million) on October 20, 2021 in order to fully prepaid the project finance indebtedness incurred in 2012. On October 20, 2021, Braskem Idesa issued R$6,696.6 million (US$1,200 million) in aggregate principal amount of 6.990% senior secured sustainability linked notes due 2032. The notes are senior secured obligations of Braskem Idesa and rank pari passu with the existing Braskem Idesa senior secured notes due 2029 and the credit facility. Interest on the notes is payable semi-annually, and the principal amount becomes due at maturity. The 2032 notes accrue an interest step-up by 37.5 basis points to 7.365% per annum if Braskem Idesa does not satisfy the sustainability performance target to reduce absolute GHG emissions by 15% from a 2017 baseline by year-end 2028. The proceeds of the notes were used (jointly with the credit facility) to fully refinance Braskem Idesa’s existing secured project finance indebtedness incurred in 2012 to construct a Complex in Mexico. With this financing, Braskem Idesa concluded its debt refinancing plan, replacing the remaining balance of US$1,350.0 million from its project finance facility with new debt instruments with a longer maturity, which extended its average debt maturity term from five to nine years. With the repayment of the project finance facility, the financial guarantees granted by Braskem for the benefit of Braskem Idesa, in the total amount of US$358.0 million, were extinguished.
Capital Expenditures
Strategic investments expenditures were allocated mainly as
Capital Expenditure Budget We plan to invest Of The investment projected to be made during 2022 by Braskem Idesa is of R$1,179.5 million (US$215.0 million). Operating investments will be allocated mainly to projects related to operating efficiency, such as expanding the ethane import capacity of the Fast Track solution, maintenance, productivity and HES. The strategic investment refers to the strategic project to build an Joint Venture Mexico Complex Braskem and Idesa formed Braskem Idesa in April 2010 to develop, construct and operate the Mexico Complex, located in the Mexican state of Veracruz. The Mexico Complex includes an ethylene cracker that produces 1.05 million tons of ethylene per year from ethane based on technology licensed from Technip Italy S.p.A, or Technip, Braskem Idesa is a party to an ethane supply agreement with Pemex TRI, a subsidiary of Pemex, dated February 19, 2010 (“BI’s Ethane Supply Agreement”). As per the terms and conditions provided in BI’s Ethane Supply Agreement, ethane supply is assured through a 20-year contract with Pemex TRI at a price pegged to the U.S. gas price. In early December 2020, Braskem Idesa received a notification from Cenagas (Centro Nacional de Control del Gas Natural), a Mexican state-owned agency responsible for all natural gas pipelines and transportation in Mexico, related to the unilateral termination of the service of natural gas transportation, an essential energy input for the production of PE in our Mexico Segment. As a result, in compliance with safety protocols, Braskem Idesa initiated procedures for the immediate interruption of its operating activities. Later in January 2021, Braskem Idesa manage to partially resume its operations using ethane to replace the lack of natural gas in order to continue producing PE. Braskem Idesa took legal measures pursuant to the ethane supply agreement entered into with Pemex. Braskem Netherlands B.V, which is Braskem Idesa’s direct shareholder, also took legal measures under applicable international investment protection standards to protect Braskem Idesa’s interests and its parent company concerning their investment in Mexico. Such measures included a negotiation period to attempt to resolve the dispute between the parties. In the first quarter of 2021, Braskem entered into the following agreements under a strict reservation of all rights: (i) a memorandum of understanding with Pemex TRI
On September 27, 2021, Braskem Idesa signed the following documents: (i) Amended ESA with PEMEX, with settlement of any pending contractual amounts; and (ii) Terminal Agreement. The Amended ESA changes the minimum contractual volume commitment to 30,000 barrels/day until the limit date of February 2025 (subject to extensions in the event of delay in obtaining the licenses for the terminal's construction), with the terminal's startup expected in the second half of 2024. The Amended ESA further establishes first-refusal rights, which consists of a preemptive right for Braskem Idesa in the acquisition of all ethane In February 2010, we and Idesa entered into the Braskem Idesa shareholders’ agreement to govern our relationship with respect to Braskem Idesa, which was amended in November 2012, December 2012, April 2015, April 2017 and
The Braskem Idesa shareholders’ agreement also contains rights of first refusal, tag along rights and drag along rights in connection with the disposition of Braskem Idesa shares. The original estimated total cost of the Mexico Complex of
We and Idesa contributed an aggregate of Construction of the Mexico Complex began in 2012 and it commenced operations with the production of the first batch of polyethylene in April 2016. Our Mexico Complex is operational and Braskem Idesa satisfied its debt service requirements and all other payment obligations under its project finance debt. However, in October 2019, a waiver and consent package was approved by the intercreditor agent on behalf of the lenders, effective until December 31, 2020. On November 25, 2019, Braskem Idesa issued R$4,667.0 million (US$900.0 million) in aggregate principal amount of 7.450% senior secured notes due 2029. The notes are senior secured obligations of Braskem Idesa and rank pari passu with the existing Braskem Idesa senior secured notes due 2032 and the credit facility. After the full amortization of the outstanding amount of Braskem Idesa’s debt, Braskem Idesa’s 2029 notes will convert into senior unsecured notes. The notes proceeds were used to partially refinance Braskem Idesa’s existing secured project finance indebtedness incurred in 2012 to construct the Mexico Complex. As of December 31, 2020, the waivers and consent package granted in October 2019 were no longer effective, then the non-current portion of the project finance debt obligations was reclassified as current liabilities, which caused an excess of current liabilities over current assets. In accordance with the aforementioned accounting standards, reclassification is required in situations in which the breach of certain contractual obligations entitles creditors to accelerate indebtedness. None of the project finance lenders requested said prepayment of obligations. On October 2021, in anticipation of issuing the 2032 notes, the intercreditor agent on behalf of the lenders approved consent and waiver conditions, in which the lenders agreed to waive certain events of default not related to payments obligations, thus the current liabilities related to the project finance debt were reclassified from current liabilities to non-current liabilities. On October 11, 2021, Braskem Idesa entered into a new credit facility, senior secured syndicated term loan facility of up to R$3,348.3 million (US$600 million) with Morgan Stanley Senior Funding, Inc., Credit Agricole Corporate and Investment Bank, Deutsche Bank AG, London Branch and Itaú Unibanco S.A., Miami Branch, as lenders. The credit facility is secured by first priority security interest in favor of the lenders and all lenders share the collateral equally with the holders of the 2029 and 2032 notes and potential additional secured parties as permitted under the credit facility and the indenture governing the notes. The credit facility has a five-year term and will bear interest at a rate equal to three-month LIBOR plus an applicable margin ranging from 2.25% to 4.25% (depending on Braskem Idesa credit rating), to be paid quarterly. The principal amount will be repaid in semi-annual installments commencing 24 months after the closing date. The loan under the credit facility was partially drawn, R$837.1 million (US$ 150 million) on October 20, 2021, in order to fully prepaid the project finance indebtedness incurred in 2012. On October 20, 2021, Braskem Idesa issued R$6,696.6 million (US$1,200 million) in aggregate principal amount of 6.990% senior secured sustainability linked notes due 2032. The notes are senior secured obligations of Braskem Idesa and rank pari passu with the existing Braskem Idesa senior secured notes due 2029 and the credit facility. Interest on the notes is payable semi-annually, and the principal amount becomes due at maturity. The 2032 notes accrue an interest step-up by 37.5 basis points to 7.365% per annum if Braskem Idesa does not satisfy the sustainability performance target to reduce absolute GHG emissions by 15% from a 2017 baseline by year-end 2028. The proceeds of the notes were used (jointly with the credit facility) to fully refinance Braskem Idesa’s existing secured project finance indebtedness incurred in 2012 to construct a Complex in Mexico.
As of December 31, 2021 Braskem Idesa has satisfied and continues to satisfy its debt service requirements and all other payment obligations in the aggregate amount of R$12,556.1 million (US$ 2,250.0 million) under its: (i) R$5,022.5 million (US$ 900 million) 2029 senior secured notes; (ii) R$ 6,696.6 million (US$ 1,200 million) 2032 sustainability linked senior secured notes; and (iii) R$837.1 million (US$ 150 million) credit facility agreement. Equity Support Agreement Relating to the Mexico Complex In December 2012, we, Braskem Idesa, Etileno XXI, S.A. de C.V., and Idesa entered into an equity support agreement pursuant to which Braskem Idesa’s shareholders agreed to make and guarantee payment of certain equity contributions to Braskem Idesa. This contract was amended and restated in April 2015. Pursuant to the amended and restated equity support agreement, the parties assumed a base equity commitment of US$2.0 billion in proportion to their percentage ownership, direct or indirect, in Braskem Idesa (Braskem 75% and Idesa 25%), which has been fully contributed into Braskem Idesa. The shareholders have also assumed the obligation of making certain contingent equity contributions to cover any additional amounts necessary to complete the project. To develop our Mexico Complex, Braskem Idesa required significant capital expenditure and incurred significant debt. The ability of Braskem Idesa’s shareholders to comply with the obligation to make certain contingent equity contributions to cover additional amounts necessary to complete the project, as agreed in the equity support agreement in connection with the project finance facility, could affect the operation of the Mexican Complex. See “Risk Factors—Risks Relating to Us and the Petrochemical Industry—We may face unforeseen challenges in the operation of our Mexico Complex, which could result in this business unit failing to provide expected benefits to us.” Amendments to Braskem Idesa Shareholders’ Agreement Relating to Project Ethylene XXI In February 2010, Braskem and Idesa entered into a shareholders’ agreement, which we refer to as the Braskem Idesa shareholders’ agreement, to govern our relationship with respect to Braskem Idesa. In November 2012, Braskem and Idesa entered into the first amendment to the Braskem Idesa shareholders’ agreement, under which our ownership interest in Braskem Idesa was increased to 75% minus one share of the equity interest in Braskem Idesa and Idesa’s ownership interest in Braskem Idesa was reduced to 25% plus one share of the equity interest. In December 2012, we and Idesa entered into the second amendment to the Braskem Idesa shareholders’ agreement to include the commitment of both Sponsors to fund certain primary and secondary contingent equity to the project. In April 2015, we and Idesa entered into the third amendment to the Braskem Idesa shareholders’ agreement to include additional base equity contribution and reaffirm the new
Other Investments New PP plant in the United States Aligned with the strategy to diversify the raw materials matrix and geographic expansion in the Americas, reinforcing the leadership in the PP production in the United States, our Board of Directors approved, on June 21, 2017, the project to build a new PP plant of 450,000 tons at the La Porte site, in the American state of Texas. After completing the commissioning phase in accordance with the applicable safety standards, we have started the commercial production of PP at our new plant in the United States in September 2020. In 2021, the plant completed its first full year of operation with 95.6% of the approved US$758.0 million investment paid or accrued. The Company is working with Linde Group (EPC Contractor) to close out remaining open invoices. In July 2018, Braskem America entered into a credit facility secured by Euler Hermes, a German export credit agency, in the aggregate principal amount of up to US$206.0 million to finance a portion of the investments in our new PP plant in the United States. The facility, which matures on December 2028, bears interest at a rate equivalent to LIBOR plus 0.65% per year, payable semi-annually to maturity. The principal amount is amortized semi-annually as from December 30, 2020. As of December 31, 2021, US$206.0 million had been disbursed in principal amount, and the principal outstanding amount plus interest under the credit facility was R$947.9 million (US$169.9 million). Energy efficiency project in our cracker at the São Paulo Complex To improve energy efficiency and competitiveness of the cracker at the São Paulo Complex, Braskem Siemens will invest approximately R$600.0 million to improve the thermoelectric system of the unit at the complex by replacing some of the steam-powered turbines with high-efficiency electric engines supported by a new co-generation plant that will consume the residual gas from the unit’s own production process. To enable the investment by Siemens in the new co-generation plant, Braskem signed an agreement with Siemens for a term of 15 years under a build, own and operate model. With startup in 2021, the project will not only reduce the site’s energy consumption, but also reduces the cracker’s water consumption by 11.4% and its GHG emissions by 6.3%. As of December 31, 2021, R$266.8 million (US$49.4 million) was already invested and the project was approximately 99% complete. Project to expand biopolymers production capacity in the Triunfo Petrochemical Complex in Rio Grande do Sul Expansion of current green ethylene production capacity from 200,000 tons per year to 260,000 tons per year using feedstock made from sugarcane ethanol that is used to make I’m greenTM biobased resins, with startup expected at the end of 2022 and investments estimated at R$485.5 million (US$87 million). The project is aligned with the Company’s goal of reaching net zero carbon by 2050, while also reinforcing its position as the global leader in biopolymers production. As of December 31, 2021, the Company had disbursed R$73.4 million (US$13.6 million), with the investment reaching physical progress of 25.6%. Project to produce high-quality recycled resin In partnership with Valoren, a company specializing in developing and operating technologies for transforming solid waste, Braskem will invest R$67 million in the construction of a recycling line with capacity to transform some 250 million pieces of packaging into 14,000 tons of high-quality, post-consumer resin per year. The project is installed in Indaiatuba, in the Brazilian state of Sao Paulo, and started operating in December 2021.
As of December 31, 2021, the Company had disbursed R$58.0 million, representing physical progress of 97% of the investment. Technology change at our chlor-alkali facility in Alagoas We are investing R$67.7 million in a project at our chlor-alkali facility located in the district of Pontal da Barra, in Maceió, in the state of Alagoas, which aims to change the raw material processing from brine to sea salt. With this project, we were able to resume operations of our chlor-alkali and dichloroethane plants in the region that have been suspended since May 2019 following the developments stemming from the publication of Report no. 1 by the Brazilian Geological Service (CPRM). See “Item 3. Key Information—Risk Factors—Our business and operations are inherently subject to environmental, health and safety hazards. As a result, our business is also subject to stringent environmental and other regulations.” The new technology consists of sourcing salt from third parties. Salt could be sourced from the Northeast region of Brazil by road or imported from other regions using the port of Maceió, which is located near the chlor-alkali facility. Salt sourced from third parties will be initially stored, dissolved into water to produce brine, treated and then sent to be processed in the chlor-alkali facility. CS 1 AL unit has been operating using the new raw material since December 2020. In 2021, the project activities were performed to close-out the project and to conclude project facilities infrastructure. As of December 31, 2021, R$65.1 million (US$11.7 million) had already been invested. Solution to import ethane for the Braskem Idesa facility in Mexico Braskem Idesa has been investing in logistics infrastructure to import ethane from the United States to maintain and increase the capacity utilization rate of its cracker. Concerning to ethane supply, Braskem Idesa has entered into a long-term agreement to acquire ethane and could also import in the sport market. To ensure the Fast-Track Solution’s feasibility, Braskem Idesa executed agreements with Smart Pass, a logistics operator, and with Enestas, a company specialized in cryogenic gas transportation. Smart Pass will be responsible for receiving liquefied ethane at the Port of Coatzacoalcos docks and unloading it from the vessels in cryogenic tanks. Enestas will transport the ethane by truck to the Braskem Idesa petrochemical complex, where the ethane will be stored in existing tanks and regasified for use in the production process. With an approximate investment of R$49.9 million (US$9.6 million), this complementary solution for acquiring feedstock had made it possible to import up to 12,800 barrels per day of ethane to the Petrochemical Complex in Mexico, which represents 19% of its ethane needs. In February 2020, Braskem Idesa started its operation to import ethane, the "Fast Track" solution, and imported its first shipment of ethane. The total investment of the Fast Track, considering expansion, is an approximate total investment of R$67.5 million (US$12.1 million), with approximately R$55.2 million (US$9.9 million) spent by the end of 2020. The expansion of this complementary solution for acquiring feedstock will make it possible to import up to 25,000 barrels per day of ethane to the Petrochemical Complex in Mexico, which represents 40% of its ethane needs. In December 2020, Braskem Idesa concluded the first phase of expansion of the "Fast-Track" to 18 kbpd and, in April 2021 we concluded the second phase of expansion to a total capacity of 25 kbpd. By 2022 Braskem Idesa expects to increase the total capacity up to 35 kbpd as a result of additional investment of approximately R$86.5 million (US$15.5 million).
By 2021, our petrochemical complex had an operating rate of approximately 75% primarily due to the shortfall in ethane supplied under the ESA, which was partially offset by imported ethane supplied by the Fast Track Solution. We diversified our sources of feedstock supply with the Fast-Track Solution and we are planning to further increase its import capacity in the future by adding additional discharge stations, both at the port and at our plant. Once the Ethane Import Terminal is operational, we expect to rely less on the Fast-Track Solution. In addition, to implement the Fast-Track Solution, we executed the BNL Ethane Supply Agreement, a contract for the purchase of a target volume of ethane per year with Braskem Netherlands in February 2020, which has a term of twenty-four months, extendable for one optional period of six months. The price of ethane is determined by a contractual formula, and penalties would apply for delivery delays or if incorrect quantities are delivered. In addition, we have purchased additional volumes of ethane from Braskem Netherlands by entering into the BNL Ethane Supply Agreement Amendment. Besides, Braskem Idesa continues to assess a complementary solution for larger-scale ethane imports whose scope consists of building a terminal for importing ethane and a pipeline to transport it to its petrochemical complex. For additional information, particularly relating to the risks associated with this project, please see "Item 3. Key Information—Risk Factors—Risks Relating to Mexico—We source part of our ethane feedstock from Pemex TRI in Mexico, which we expect to be our primary source of ethane until the Ethane Import Terminal is operational.” Braskem Idesa also intends to develop the Ethane Import Terminal, a long-term alternative source of imported ethane and a pipeline that will connect the terminal directly to our Complex. The expected ethane capacity of the Ethane Import Terminal would be enough to fulfill the total ethane needs for the Mexico Complex. This terminal would provide the capacity to import more ethane than we currently require. With this, our Mexico Segment will be able to source the total needs of our Mexico Complex to increase our polyethylene production and take advantage of the forecasted increase in demand for polyethylene products in North America and around the world. On The estimated cost of the Ethane Import Terminal and related infrastructure investment is approximately US$400.0 million (inclusive of financing costs and VAT). Our Mexico segment expects to
Ethane Import Terminal is operational.”
Directors and Senior Management Our board of directors
Board of Directors of Braskem Ourby-laws provide for a board of directors of eleven members and The members of our board of directors are elected at general meetings of shareholders for a two-year Our board of directors ordinarily meets The following table sets forth certain information with respect to the current members of our board of directors and their alternates as of the date of this annual report:
The following is a summary of the business experience, areas of expertise and principal outside business interests of our current directors and their alternates. Directors
Eduardo Bacellar Leal Ferreira. Mr. Eduardo Bacellar Leal Ferreira has been appointed as an effective member of the Company's Board of Directors by shareholder Petróleo Brasileiro S.A. - Petrobras. Mr. Eduardo Bacellar Leal Ferreira was Chairman of the Board of Directors of Petrobras from 2019 to April 2022. In addition to the Petrobras Board, he participated in the Admiralty (Navy High Command) from 2013 to 2019, having chaired it from 2015 to 2019; the Navy's Financial and Administrative Council, from 2015 to 2019; the Interministerial Commission for the Resources of the Sea (coordinator), from 2015 to 2019; the Management Councils in the various Military Organizations he directed or commanded; and the Officer Promotion Commission, in 2007. He served in the Brazilian Navy from 1971 to 2019, in the positions of Director of Ports and Coasts, from 2010 to 2011; Commander-in-Chief of the Fleet, in 2012; Commander of the War College, from 2013 to 2015; and Commander of the Navy, from 2015 to 2019. Before 2010, he served in numerous positions and functions inherent to his career, including a total of 13 years in command and direction of ships and land-based organizations, including the Port Captaincy of Rio de Janeiro, the Admiral Alexandrino Training Center, the Naval School and the Seventh Naval District Command (Brasilia, Goiás and Tocantins). He was an astronomical navigation instructor at the American Naval Academy, in Annapolis (Maryland), for two years. He also served in the Chilean Navy, taking a General Staff course. He is a graduate of the Officer's Graduation Course and of Operations Engineering, mechanical modality, by the Naval School, from 1971 to 1975. He has an Electronics Improvement Course for Officers, at the Admiral Wandenkolk Training Center, from 1976 to 1977; Command and General Staff Course, in 1990, Superior Course, in 1991, Maritime Policy and Strategy Course, in 2000, at the Naval War College; General Staff Course at the Chilean Navy, in 1992; Module of Economic Sciences, from the Faculty of Economic and Administrative Sciences of the Universidad Marítima de Chile, in 1992; Professional Master of Naval Sciences, from the Naval War College, in 1992; and Professional Doctorate in Naval Sciences, Maritime Policy and Strategy at the EGN, in 2000. José Luis Bringel Vidal (independent member). Mr. José Luis Bringel Vidal has been appointed as an effective member of the Company's Board of Directors by shareholder Petróleo Brasileiro S.A. - Petrobras. Mr. José Luis Bringel Vidal has been a founding member and coordinator of the Infrastructure and Logistics Committee, of RGB - Rede de Governança do Brasil, since April 2021; Senior Government Relations Consultant of Norsk Hydro do Brasil, since February 2021; Member of the Board of Directors of Santos Brasil S.A., since May 2018, and of BEMISA - Brasil Exploração Mineral S.A., since March 2011. He is a Shareholder and Member of the Board of Directors of WV Logistics, since January 2020, and was Founding Partner and C&O from November 2003 until January 2020. He was Director of the Logistics and Transportation Division of the Infrastructure Department of FIESP - Federation of Industries of the State of São Paulo, from February 2020 to January 2022; Member of the Advisory Board of the Port of Angra dos Reis, from March 2020 to May 2021; Member of the Advisory Board of ABPM - Brazilian Association of Mineral Research Companies, from March 2017 until September 2020; Senior Consultant at Rio Tinto Alvan, from December 2017 until July 2018; Founding Partner at TACV - Transport System Development, from August 2013 until July 2017; Senior Consultant at Piaui State Government - BR, from March 2015 until March 2016; Senior Consultant at Zamin Resources Limited, from November 2015 until January 2016; Senior Consultant at Warburg Pincus LLC, from January 2015 until May 2015; Senior Consultant at Itochu Corp & JFE Steel & Posco Group & China Steel, from March 2014 until October 2014; Senior Consultant at Hatch - CODELCO, from July 2014 until September 2014; Senior Consultant at Rio Tinto Alcan, from May 2011 until March 2013; Senior Consultant at SNC - LAVALIN, from February 2012 until May 2012; Senior Consultant at Itochu Corporation & JFE Steel & Nippon Steel & Posco Group & China Steel, from March 2008 until November 2008; Logistics Director at BEMISA - Brasil Exploração Mineral S. A., from June 2007 until September 2008; Senior Advisor of Bahia Mineração S.A. - BAMIN, from March 2005 until April 2006; National Coordinator of the Logistics Council of FECOMÉRCIO - Federação do Comércio do Estado de São Paulo, from June 2001 until March 2005; General Manager of Pasha Brasil, of The Pasha Group - Rio Doce Pasha Terminais L.P., from July 2001 to October 2003; Manager of the São Paulo Business Unit of Ferrovia CentroAtlântica S.A. - FCA, from January 1997 to June 2001. He is an Electrical Engineer from Escola de Engenharia de Mauá, in 1992. He holds a Post-Graduate degree in Market-Oriented Business Administration from Escola Superior de Propaganda e Marketing, in 1994; Board of Directors Program, from Instituto Brasileiro de Governança Corporativa, in 2012; Certification as Experienced Board Member (CCA+), from Instituto Brasileiro de Governança Corporativa, in 2019; Update for Certified Board Members, from Instituto Brasileiro de Governança Corporativa, in 2020; Corporate Risk Management 1st Edition, by the Brazilian Institute of Corporate Governance, in 2020; Advanced Course for Board Members 14th Edition, by the Brazilian Institute of Corporate Governance, in 2020; Professional Education Specialization Leadership in Innovation, by MIT - Massachusetts Institute of Technology, in 2021; Specialization Risk Management and Financial Decision Making, by the University of Chicago, in 2021.
Gesner José de Oliveira Filho (independent member). Mr. Gesner José de Oliveira Filho has been appointed as an independent director of the Company's Board of Directors by Novonor S.A as of June, 2017. He is certified by IBGC as independent director and as member of Audit Committee CCoAud+; he is member of the Board of Directors of TIM, where he coordinates the Statutory Audit Committee and is also a member of the “ESG” Committee; he is president of the Board of Directors of Estre Ambiental and member of the Self-Regulation Board of FEBRABAN. He was member of the Global Consultive Board of UBER and of the Board of Directors of Iguá, Usiminas, Sabesp, CESP, Banco Nossa Caixa and Varig. He currently participates, as a volunteer, at the Instituto Iguá de Sustentabilidade, Instituto Brasileiro de Ética Concorrencial (ETCO), Centro de Integração Empresa-Escola (CIEE), as a member of the Consultive Council of GRAPE ESG and as a member of the Consultive Council of Climatic Actions and Politics at Secretaria Executiva de Mudanças Climáticas (SECLIMA), of the São Paulo Municipal’s Secretary. He is partner at GO Associados, Professor at FGV, where he coordinates the Infrastructure and Environmental Solutions Study Centre. From 2007 to 2011 he was president of Sabesp – Companhia de Saneamento do Estado de São Paulo. From 1996 to 2000 he was president of CADE. He has a PhD degree from California University (Berkeley), a Master’s degree from Unicamp and a bachelor’s degree from FEA-USP, always in Economics area. João Pinheiro Nogueira Batista (independent member). Mr. João Pinheiro Nogueira Batista has been appointed as an effective member of the Company's Board of Directors by the shareholder Novonor S.A. - In Judicial Recovery. Mr. João Pinheiro Nogueira Batista has served for more than 10 years on the Board of Directors of companies in Brazil and abroad. Until January 2022 Mr. João Nogueira was CEO of Evoltz Participações S.A. Mr. João Nogueira has been an independent board member at Wiz Soluções e Corretagem de Seguros S.A. since April 2020, as well as at two third sector organizations: Associação Maria Helen Drexel and Instituto de Reciclagem do Adolescente-Recicla. In the Novonor Group, he was an independent member of the Boards of Directors of Odebrecht Engenharia e Construção since June 2017 and of Ocyan since April 2018, in which he remained until January 2019, when he joined the Board of Directors of Novonor S.A. - In Judicial Recovery and remained until April 2021. In his broad executive career built in the public and private sectors, he was CEO of Swiss Re, Bertin S.A. and Suzano Petroquímica, as well as held directorships in companies such as Petrobras, Dresdner Bank, Citibank, Radiobras and Siderbras. Mr. João Nogueira Batista holds a degree in economics from PUC - RJ and an MBA in Economic Engineering from Universidade Gama Filho, Rio de Janeiro. Roberto Lopes Pontes Simões. Mr. Roberto Simões is the current Chief Executive Officer of the Company, and has been appointed as of January 01, 2020, and has been a sitting member of the Company's Board of Directors since May 29, 2019, as appointed by shareholder Novonor S.A. - under Judicial Reorganization. Mr. Roberto Simões has served on Boards of Directors as Chairman or member in large companies or institutions, such as: IBP (Brazilian Petroleum Institute), ABIQUIM, Odebrecht Engenharia e Construção, Consorcio Baia de Sepetiba, Itaguaí Construções Navais, Petroquímica Paulínia, Ipiranga Química, Ipiranga Petroquímica, Refinaria Ipiranga, COPESUL, Petroflex and CETREL. He was CEO of Ocyan S.A. (2012-2019), of Odebrecht Defesa e Tecnologia (2010-2012), President of Santo Antônio Energia (2008-2010) and Executive Vice President of Braskem (2004-2008). At iG-Internet Group, he was COO and CEO from 2000 to 2004. He was President of Opportrans Concessão Metroviária - Metro Rio from 1999 to 2000. He began working for the Odebrecht Group in 1994 as Contract Director for Tenenge and CNO until 1999. He graduated in Mechanical Engineering from the Federal University of Bahia in 1978 and also took Cemant - Petrochemical Projects and Maintenance Engineering Course (Petrobras/UFBA agreement). He is a member of the Assembly of the Social Works of Sister Dulce.
Juliana Sá Vieira Baiardi. Ms. Juliana Sá Vieira Baiardi has being appointed as an effective member of Braskem's Board of Directors by shareholder Novonor S.A.. Ms. Juliana Baiardi joined Odebrecht in August 2011 Since April 2021 she has been an advisor to Novonor's CEO and is currently also Vice Chairman of the Board of Odebrecht Engenharia e Construção (and a board member of OTP Before being an advisor, Juliana was President of Atvos from May 2019 to February 2021 CEO of OTP from May 2017 to May 2019 CEO of Odebrecht Ambiental from September 2016 to April 2017 CFO of Odebrecht Ambiental from February 2016 to September 2016 and Director of Logistics of OTP from August 2011 to February 2016 Before joining Odebrecht, Juliana worked 10 years at J P Morgan in the Investment Banking and Private Equity areas She also worked at Dresdner Bank in Brazil in the Project Finance sector from 1997 to 1999 Juliana has a degree in Civil Engineering from UFBA Universidade Federal da Bahia and an MBA from Columbia University in New York. Héctor Nuñez. Mr. Héctor Nuñez has been appointed as an effective member of the Company's Board of Directors by its shareholder Novonor S.A. as of November, 2021. Mr. Héctor Nuñez is a senior executive, customer-focused, international business strategist with over 25 years of success managing growth, re-engineering troubled operations and starting up startups throughout the United States and South America. He holds a BA and MBA from Florida International University in Business Administration. He served as CEO of Ri Happy Brinquedos S.A. for 9 years, leading transactions to acquire the largest specialty retailers in Brazil. He also served as CEO of Walmart Stores, Inc. and various leadership positions at The Coca-Cola Company and its group companies. Since March 2022, he holds the position of CEO of Novonor S.A. - In Judicial Recovery, a company where he also held the position of Chairman of the Board of Directors from April 2021 to March 2022. He has also served, since January 2011, as an Independent Board Member of Vulcabrás and, since April 2017, as Chairman of the Board of Directors of Marisa S.A. He is also a board member of the NGO Amigos do Bem. Roberto Faldini. Mr. Roberto Faldini has being appointed as an effective member of the Company's Board of Directors by the shareholder Novonor S.A.. He is President and partner of Faldini Participações Administração e Investimentos Ltda. and CEO of MBF Administração e Serviços. Besides the Board of Braskem SA, he is currently a member of the Boards of Irani Papel e Embalagens SA, Cia. Habitasul de Participações and Novonor S.A. - In Judicial Recovery. He voluntarily participates as a member of the Board of Trustees of the Dorina Nowill Foundation for the Blind, the Crespi Prado Foundation and the Norberto Odebrecht Foundation. He is the director of Fundação Cultural Ema Gordon Klabin. Mr. Roberto Faldini is a guest professor at Fundação Dom Cabral and an arbitrator at CAM - Câmara de Arbitragem do Mercado of B3. He has participated as a member of the Board of Directors and Advisory Board of several companies in Brazil and abroad, among them BOVESPA, Metal Leve, Maraú, Livrarias Siciliano, CPFL, Inpar, Klicknet, Sadia, BRF, Bco. BMG, Vulcabrás and Marfrig. He was a co-founder of IBGC - Brazilian Institute of Corporate Governance in 1995 and is still active in several of its committees. He is an associate member of IBEF - Brazilian Institute of Financial Executives and of FBN - Family Business Network. For over 20 years he was an executive officer, shareholder and member of the Board of Directors of Metal Leve S.A., he was President Professional Experience / Independence Criteria of CVM in 1992. He was coordinator for 5 years (2002 - 2007) in São Paulo of the Núcleo da Empresa Familiar - PDA, of the Dom Cabral Foundation. He graduated in Business Administration from Fundação Getúlio Vargas (1972), and has specialization in (i) Advanced Management from Fundação Dom Cabral and INSEAD (1991); (ii) Entrepreneurship from Babson College (2004) and (iii) Corporate Governance (IFC and IBGC - 2009, 2011, 2013 and 2016). From 2016 to the present he continued and continues to participate in several courses and seminars in Brazil and abroad, as well as, events related to Business Strategy, Business Administration, Corporate and Family Governance aiming his continuous learning. Charles Lenzi. Mr. Charles Lenzi has being appointed as an effective member of the Company's Board of Directors by shareholder Petróleo Brasileiro S.A. - Petrobras. Mr. Charles Lenzi is Executive Chairman of ABRAGEL, since 2019; Independent Member of the Board of Directors and Member of the Audit Committee of AES Brasil, since 2019; and Independent Member of the Board of Directors, Member of the Audit Committee and Member of the People and Sustainability Committee of BEVAP - Bioenergética Vale do Paracatu, since 2020. He was CEO of Eletropaulo, from 2016 to 2018; COO of AES Brasil, CEO of Eletropaulo and CEO of AES Sul from 2016 to 2017; Executive President of ABMGEL from 2010 to 2016; Managing Director of Grupo Stefani, from 2008 to 2010; Vice-President of Distribution AES Brasil, Eletropaulo and AES Sul, from 2006 to 2008; General Director of AES Sul, from 2004 to 2006; Vice-President of Operations of Eletropaulo, from 2002 to 2003; Regional Director of AES EDC - La Eletricidad de Caracas, from 2001 to 2002; President Director of AES CESCO - India, from 2000 to 2001; Business Unit Manager of AES Sul, from 1998 to 1999; General Manager of Gazola S/À from 1988 to 1998; Sales Engineer of lntral S/A from 1982 to 1986. He is an Electrical Engineer from PUCRS, from 1977 to 1981. He holds a Specialization Degree in Industrial Automation from UNICAMP, from 1986 to 1988; MBA in Finance from UCS§, from 1996 to 1998; MBA in Strategic Planning and Business Management from FGV, in 1999; Leadership Development Program from Darden Business School, Universis of Virginia, in 2006; PGA Advanced Management Program, from Dom Cabrale INSEAD Foundation, in 2007; Master in Business Administration and Business from PUCRS, in 2015; Board Member Course from IBGC, in 2016; and Global Executive Leadership Retreat, from Georgetown University, in 2017.
Marcelo Klujsza. Mr. Marcelo Klujsza has been appointed as an effective member of the Company’s Board of Directors as of August 24, 2020 by shareholder Petróleo Brasileiro - Petrobras and is a member of its Support Committee - Finance and Investment Committee. Mr. Marcelo Klujsza has served in senior management positions in consulting companies - CEO of Metal Data S.A. and Vice President of Alexander Proudfoot Consultoria - in addition to acting as a consultant through his own company - Metakarp Value Consulting, offering support to the management and board of directors of
Alternate Directors André Amaro da Silveira.Mr. Rodrigo Tiradentes Montecchiari. Mr. Rodrigo Tirandentes Montecchiari is being nominated as an alternate member of the Company's Board of Directors by the shareholder Petróleo Brasileiro S.A. - Petrobras. Mr. Rodrigo Montecchiari is Fiscal Director of Refinarias de Mucuripe S.A., Manaus S.A., Canoas S.A. and Paraná Xisto S.A. Additionally, he is Alternate Fiscal Director of Logum Logística S.A., since April 2018 and was Chief Financial Officer (CFO) of PB-LOG between April 2017 and December 2021. He was Fiscal Director of PQS and MSGÁS, from April 2013 to March 2018; Alternate Fiscal Director of Petros, from April 2013 to March 2018; Corporate Finance at Petrobras, from December 2012 to March 2017; Chief Financial and Administrative Officer at Petrobras Namibia, from March 2012 to November 2012; Chief Financial and Administrative Officer at Petrobras Angola, from March 2010 until February 2012; Chief Financial and Administrative Officer at Petrobras Nigeria, from May 2007 until February 2010; and Coordinator of Audit and Joint Ventures at Petrobras, from 2003 until April 2007. He holds a degree in economics from Universidade Federal Fluminense, an Executive MBA from Fundação Dom Cabral and a Master's degree in Corporate Finance from the University of Liverpool.
Daniel Pereira de Albuquerque Ennes. Mr. Daniel Pereira de Albuquerque Ennes is an alternate member of the Company's Board of Directors as a nominee of Laura Maniero Gadelho. Ms. Laura Maniero Gadelho has
Marco Antonio Zacarias. Mr.
Board of Executive Officers of Braskem Our board of executive officers is our executive management body. Our executive officers are our legal representatives and are responsible for our internal organization, Ourby-laws require that the board of executive officers consist of a chief executive officer and between three and nine additional members, each responsible for business areas that our board of directors assigns to them. The members of our board of executive officers, The members of our board of executive officers are elected by our board of directors for a three-year terms unified terms and are eligible for reelection. The current term of all of our executive officers ends at the first board of directors meeting held immediately after our annual shareholders’ meeting to be held in The following table lists the current members of our board of executive
Summarized below is information regarding the business experience, areas of expertise and principal outside business interests of our current executive
Pedro Van Langendonck Teixeira de
Edison Terra Filho. Mr. Edison Terra Filho has been elected as a member of the Company’s Executive Management as of April 14, 2021 and he is currently
Marcelo de Oliveira Cerqueira. Mr. Marcelo de Oliveira Cerqueira has been appointed as a member of the Company’s Executive Management as of April 14, 2021 and he is currently the Marcelo Arantes de Carvalho. Mr. Marcelo Arantes de Carvalho has been elected as a member of the Company’s Executive Management as of April 14, 2021 and he is currently the Responsible Person for People, Communication, Marketing and Press Relation of the Company, with 34 years of professional experience. He has acted in various large-sized companies and in several offices related to Human Resources. He started his career as an intern in Fiat Group in 1988, and then he worked at Celite S.A. from 1989 to 1991, in the Remuneration and Union Relations area. From 1991 to 1998, he worked as Human Resources Manager at Asea Brown Boveri Ltda., and then he joined Unilever to work as Human Resources Development Manager. In 2000 he became Human and Organizational Development Officer of Intelig Telecomunicações. Later, in 2005, he joined Reckitt Benckiser, where he remained until 2008 as Human Resources Officer. Between 2008 and 2010 he was the Human Resources Officer for Latin America at Fiat Group, after which he came to Braskem. Mr. Marcelo Arantes holds a degree in Business Administration from Faculdade de Ciências Gerenciais (UNA) and an Executive MBA from Dom Cabral Foundation (Fundação Dom Cabral), and he has attended the Global Leadership Program at Wharton Business School - University of Pennsylvania. Daniel Sales Corrêa. Mr. Daniel Sales Corrêa has been elected as a member of the Company’s Executive Management as of April 14, 2021 and he is currently responsible for Investments and Digital Technologies. During the 26 years he worked for Petrobras in various refineries, and held offices in Engineering, Production, Process Optimization and Commercialization. At the company's headquarters, he has been operational efficiency general manager, including all refineries, and more recently he was the general manager of the company's refining, transport, and commercialization business restructuring programs, where he leaded initiatives to reposition Petrobras in the “Downstream,” focused on the carve out of the refineries and terminals to be disinvested. During the period from 2019 to July 2020, he was also a member of the board of directors of Refinaria de Petróleo Riogranense S.A. – RPR. Mr. Daniel Corrêa holds a graduate degree in Electrical Engineering from Universidade Federal do Amazonas (UFAM), a postgraduate degree in Equipment Engineering and in Oil Refining Engineering from Universidade Petrobras, and in Quality and Productivity Management from FUCAPI/UFRGS, and an Executive MBA in Strategic Business Management from FIA/USP. Board Committees On August 8, 2018 our board of directors approved its internal operating rules (which has been recently updated on September 22, 2021), as well as the board committees’ internal rules (which have been recently updated on September 22, 2021 and November 09, 2021). An English translation of the internal operating rules of our board of directors and its committees is available on our investor relations website at www.braskem.com.br/ri.. Under these rules, our bylaws and the shareholders’ agreement, our board of directors has established four permanent committees and has the power to establish ad-hoc committees. Permanent committees must have at least three and no more than five members. Ad-hoc committees may be convened for a limited period to consider temporary issues and are dissolved when their purpose has been achieved or when the term established upon the creation of such committees expires. The number of members of the ad-hoc committees is defined upon the creation of such committees.
We currently have the following four permanent committees: (1) the Finance and Investment Committee, (2) the Personnel and Organization Committee, (3) the Strategy, Communication and “ESG” Committee and (4) the Statutory Compliance and Audit Committee. The duties of each permanent committee are established in their respective bylaws, all approved by our board of directors. The members of each permanent committee, including external members of the Compliance and Audit Committee, are appointed by the chairman of the board of directors, solely from among its members and alternate members, being the committee’s coordinators appointed by the chairman of the board of directors. Our board of directors does not delegate the power to take actions on behalf of our Company to the permanent committees; rather the role of the permanent committees is to examine certain matters to assist in deliberations under the board of directors’ responsibility, except the Statutory Compliance and Audit Committee which has certain specific duties. Finance and Investment Committee Our Finance and Investment Committee meets at least quarterly and has its duties fixed at its Internal Rule, such as: (1) to analyze existing policies relating to financial management, investments and guarantees, (2) analyze the constant risks in the Corporate Risk Matrix and the respective mitigation plans related to the topics within its competence, (3) to analyze opportunities related to financing and investment transactions that may improve our capital structure, (4) to analyze guidelines and protocols for our business planning execution cycle. Our Finance and Investment Committee is currently composed of Mr. João Pinheiro Nogueira Batista (coordinator), Mr. Héctor Nuñez, Mr. Marcelo Klujsza, Mr. Rodrigo Montecchiari. Personnel and Organization Committee Our Personnel and Organization Committee conducts work meetings at least six times per year and has the following duties: (1) to evaluate new policies and review existing policies relating to personnel matters and organizational issues, (2) to analyze processes relating to identification, training, development and succession of executives for or in strategic positions, (3) to analyze processes relating to the determination of fixed and variable compensation for executives in strategic positions, and (4) to evaluate new policies and review existing policies relating the maintenance and strengthening of our corporate culture. Our Personnel and Organization Committee is currently composed of Mr. Eduardo Leal Ferreira (coordinator), Mr. Guilherme Abreu and Mr. Roberto Faldini. Strategy, Communication and “ESG” Committee Our Strategy, Communication and “ESG” Committee conducts work meetings at least five times per year and has the following duties: (1) to evaluate determinations relating to the foundation of our business plan, (2) to evaluate the business direction being pursued to achieve objectives defined by our board of directors, (3) to evaluate new policies and review existing policies relating to the capital markets and social responsibility, (4) to evaluate our image projected to and perceived in the market and make recommendations to our board of directors to maintain or to redefine our social communications programs, and (5) to analyze guidelines and protocols for our business planning and execution cycle. Our Strategy, Communication and “ESG” Committee is currently composed of Mr. José Mauro da Cunha (coordinator), Mr. José Luis Vidal, Mrs. Juliana Baiardi and Mr. Roberto Lopes Pontes Simões.
Statutory Compliance and Audit Committee On July 30, 2021, our shareholders approved, at the Extraordinary General Meeting, the transformation of the Compliance Committee into the Statutory Compliance and Audit Committee, with the consequent amendment of the Bylaws to include this provision. On November 9, 2021, our board of directors approved the formation of Braskem’s Statutory Compliance and Audit Committee (Comitê de Compliance e Auditoria Estatutário, the “CCAE”), a permanent advisory body to our board of directors, in compliance with CVM Resolution No. 23/21 and the U.S. Sarbanes-Oxley Act of 2002 (the “SOX”), pursuant to Article 30, XXIX, of CVM Instruction No. 480/09, and accordingly, allows us to rely on the exemption from the audit committee requirements of the SEC contained in paragraph (c)(3) of Rule 10A-3 under the Securities Exchange Act of 1934, as amended, in accordance with our strategy to follow the best corporate governance practices. See “Item 16D. Exemptions from the Listing Standards for Audit Committees.” The Statutory Compliance and Audit Committee is a statutory committee which meets monthly and has five members, chosen by the Board itself pursuant to the nomination made by the chairman of the Board (observed the specificities about external members highlighted below), being one of the nominees indicated as the coordinator of the Statutory Compliance and Audit Committee. The committee must have in its composition (i) three (3) independent members of the Company's Board of Directors, as defined in the Company's policies; and (ii) two (2) members that are not part of the Board of Directors (external members), which are independent members, pursuant to CVM Resolution No. 23 of 2021, and shall be chosen by said body among those indicated in a list to be submitted by the Chairman of the Board of Directors, prepared by a specialized company, with evidenced experience, provided that the indication of names by the shareholders not being allowed. The main duties and objectives are to (1) evaluate internal controls, risk exposure and compliance with applicable laws and regulations, (2) monitor investigations related to ethics complaints, (3) analyze and periodically update the Compliance System Policy, the Anticorruption Policy and the Related Party Transactions Policy, (4) opine about the selection and dismissal of the our independent external auditors, (5) monitor the quality and integrity of the quarterly information, interim statements, and financial statements, (6) develop training programs for board members, senior managers and certain employees, and (7) evaluate, prior to the appreciation by the Board of Directors, the appropriateness of transactions subject to the approval of the Board of Directors between the Company and its related parties, as provided for in the Company's Bylaws and in the Policy of Transactions with Related Parties of the Company, as well as to carry out the monitoring, including the respective evidences, jointly with the Management and the internal audit area. The detailing of the competencies of the Statutory Compliance and Audit Committee can be found in its Internal Rules. Our Statutory Compliance and Audit Committee is currently composed of Mr. Gesner Oliveira (coordinator), Mr. André Amaro, Mr. Charles Lenzi, Mr. José Écio Pereira da Costa Júnior (external member) and Mrs. Maria Helena Pettersson (external member). NYSE rules require that listed companies have an audit committee that (i) is composed of a minimum of three independent directors who are all financially literate, (ii) meets the SEC rules regarding audit committees for listed companies, (iii) has at least one member who has accounting or financial management expertise and (iv) is governed by a written charter addressing the committee’s required purpose and detailing its required responsibilities. However, as a foreign private issuer, we only need to comply with the requirement that our CCAE meet the SEC rules regarding audit committees for listed companies. The SEC has recognized that, for foreign private issuers, local legislation may delegate some of the functions of the audit committee to other advisory bodies. We have established a CCAE as approved at the board of directors meeting held on November 9, 2021. Our CCAE meets the requirements for the exemption available to foreign private issuers under paragraph (c)(3) of Rule 10A-3 under the Exchange Act. The CCAE is not the equivalent of, or wholly comparable to, a U.S. audit committee. Among other differences, it is not required to meet the standards of “independence” established in Rule 10A-3 and is not fully empowered to act on all the matters that are required by Rule 10A-3 to be within the scope of an audit committee’s authority.
External Members José Écio Pereira da Costa Junior. Mr. José Écio Pereira da Costa Junior is member of the Company’s Compliance and Audit Statutory Committee since November 09, 2021. He holds a graduate degree in Business Administration and Accounting Sciences. He entered the auditing career in 1974 at Arthur Andersen & Co and was promoted to International Partner in 1986 and later, in June 2002, became a partner at Deloitte Touche Tohmatsu in Brazil, remaining there until May 2007, when he retired. From October 1993 until May 2004 he was the managing partner responsible for the Curitiba office of these auditing and consulting firms. Founding partner of JEPereira Consultoria em Gestão de Negócios S/S, in January 2008, acting with emphasis on consultancies related to: strategic management, consultancy in the preparation of companies and their shareholders to act in the New Capital Market, besides acting as adviser in Audit Committees with the Boards of Public Companies. He was a member of the Board of Directors of GAFISA S.A. from June 2008 to April 2018 and Coordinator of the Audit Committee from June 2008 to April 2016, becoming a member of this Committee from then until April 2018. He also served as a Member of the Statutory Audit Committee of FIBRIA S.A. from April 2013 to March 2018, and was also Chairman of the Fiscal Council from December 2009 to March 2013. He served as Coordinator of the Audit Committee of VOTORANTIM INDUSTRIAL S.A - VID from June 2012 to June 2014 and served as Coordinator of the Audit Committee of VOTORANTIM METAIS S.A (currently NEXA S.A) from June 2014 to December 2017. He served as Member of the Audit Committee of CESP S.A from April 2019 to April 2021. He also served as a member of the Board of Directors of Ouro Verde Locação e Serviço S.A in the period from October 2018 to June 2019. He also served as a member of the Board of Directors of BRMALLS S.A. (shopping center management company registered with the CVM - Novo Mercado) from April 2010 to April 2014. He also served as a member of the Board of Directors of Grupo NOSTER (privately-held company in the area of public transportation in Curitiba, resale of automobiles and power generation) from January 2011 to September 2013. He serves as Coordinator of the Audit Committee of VOTORANTIM CIMENTOS S.A since October 2013. He has served as Coordinator of the Audit Committees of CITROSUCO S.A since December 2014 and at CBA - Companhia Brasileira de Aluminio and VE Votorantim Energia since June 2017. He also serves as a member of the Board of Directors of Princecampos Participações S.A., elected in April 2010 and as Chairman of the Fiscal Council at Demercado Investimentos S.A., elected in November 2020. Maria Helena Pettersson. Mrs. Maria Helena Pettersson is member of the Company’s Compliance and Audit Statutory Committee since November 09, 2021. Mrs. Maria Helena Pettersson has a bachelor's degree in Accounting and Business Administration with several improvement courses in finance, business management, internal controls, business and asset valuation etc. Board member and senior consultant with 40 years of experience in accounting, financial statements, corporate governance, internal and external financial reporting, internal controls, internal policy compliance, compliance with laws and regulations, risk governance and international accounting. She has served as an audit and consulting partner, coordinating services to large multinational companies, large Brazilian business groups, publicly traded companies in Brazil and SEC-listed companies, in various industries, such as media and entertainment, airlines, telecommunications, manufacturing, retail and trade, services, healthcare, among others. She is currently a member of the Advisory Board of CARLAB at Rutgers University, member of the Audit Committee of Tecnisa S.A. and member of the Fiscal Council of Omega Energia S.A. She provides independent consulting services in the areas of corporate governance and compliance for large companies, committee structuring at the Board level, preparation for M&A and IPO due diligence, and professionalization of the management of family-owned companies. She worked for nearly 30 years in independent auditing, led audits of financial statements for local and international purposes, and conducted large and complex consulting engagements, including IPOs, mergers, acquisitions and post-transaction integration, debt restructurings and judicial restructurings. She has experience in the areas of accounting and financial statements, corporate financial reporting, compliance with capital markets laws and regulations, financial planning, business valuation, risk management, internal and external auditing, and masters the Brazilian and international regulatory framework of the auditing profession, in addition to familiarity with global best practices in corporate governance. She has excellent interpersonal relations, leadership, and change management skills. She has an outstanding ability to lead teams and interact with people and multidisciplinary work groups, creating a collaborative and results-oriented work environment with an extensive record of accomplishments, results achieved, meeting deadlines with proven and high client satisfaction.
Our chief compliance officer, or CCO, has a full-line report directly to the Statutory Compliance and Audit Committee, and dotted-line report to the CEO of the company. Our CCO exercises independent judgment and acts in an impartial manner. Our CCO is responsible for developing a compliance system, assist the CEO in implementing the compliance system and continually monitor developments in this respect. Our CCO is also responsible the global activities: Internal Audit, Corporate Risk Management, Internal Controls, Compliance and Data Protection. Everson Bassinello. Mr. Bassinello has served as our CCO since August 2016 and has led our global initiatives related to risk management, internal controls, compliance, data protection and internal audit. He served in leadership positions at Companies of the Votorantim Group, including VCP and Fibria between June 2000 and July 2016. Mr. Bassinello holds a degree in mechanical engineering from Universidade Federal de Itajubá (UNIFEI), a graduate degree in business administration from Fundação Getúlio Vargas (FGV), an MBA degree from the Business School São Paulo (BSP) and a specialization degree in corporate governance from the Kellogg School of Management. Ethics Committee Our Ethics Committee supports our Statutory Compliance and Audit Committee with the enforcement of compliance rules and with matters involving the violation of the commitment to ethics, integrity and transparency. Our Ethics Committee is formed by our Chief Compliance Officer, who is also its coordinator, and three additional members: vice-presidents in our Legal, People & Organization and Finance areas. The main objectives of our Ethics Committee are to (1) evaluate the results of internal investigations of ethics complaints, (2) submit to the Statutory Compliance and Audit Committee proposed revisions to the Company’s orientation materials, including the Code of Conduct, and (3) provide guidance on questions of ethical conduct and ensure consistent evaluation and treatment of ethical matters. Fiscal Council The Brazilian The members of our fiscal council and theirs alternate members are elected by our shareholders at the annual general shareholders’ meeting forone-year terms and are eligible for reelection. The terms of the members of our fiscal council expire at the next annual general shareholders’
The responsibilities of a fiscal council are established by the Brazilian
The following table lists the current members of our fiscal council and their alternates:
The following is a summary of the business experience, areas of expertise and principal outside business interests of the current members of our fiscal council and their alternates. Members of Fiscal Council
Ismael Campos
Our Ethics Committee supports our Statutory Compliance and Audit Committee with the enforcement of compliance rules and with matters involving the violation of the commitment to ethics, integrity and transparency. Our Ethics Committee is formed by our Chief Compliance Officer, who is also its coordinator, and three additional members: vice-presidents in our Legal, People & Organization and Finance areas. The main objectives of our Ethics Committee are to (1) evaluate the results of internal investigations of ethics complaints, (2) submit to the Statutory Compliance and Audit Committee proposed revisions to the Company’s orientation materials, including the Code of Conduct, and (3) provide guidance on questions of ethical conduct and ensure consistent evaluation and treatment of ethical matters. Fiscal Council The Brazilian Corporate Law requires us to establish a The members of our fiscal council and theirs alternate members are elected by
The responsibilities of a fiscal council are established by the
The following table lists the current members of our
The following is a summary of the business experience, areas of expertise and principal outside business interests of the current members of our Members of Fiscal Council Ismael Campos de Abreu. Mr. Ismael Campos de Abreu has been elected as an effective member of the Company’s Fiscal Council as of April 13, 2021 by shareholder Novonor S.A. Mr. Ismael Campos served as an Officer at Kieppe Participações e Administração Ltda. - under Judicial Reorganization from April 2011 to May 2017. Between 1995 and March 2011 he served as Controller of Novonor S.A. - under Judicial Recovery (former Odebrecht S.A.), a company that indirectly holds more than 5% of the same type or class of securities of the Company. He was Manager of the tax consulting division of PricewaterhouseCoopers (1978/1985) and of Arthur Andersen (1989/1991). He was a partner at Performance Auditoria e Consultoria Empresarial (1992/1995). He was a member of the Board of Directors of Hospital Cardio Pulmonar and member of the Fiscal Council of several companies operating in the petrochemical sector. Mr. Ismael holds a degree in Accounting from Fundação Visconde de Cairú and a post-graduate degree in Economic Engineering from the Inter-American Development Center. Mr. Ismael Campos de Abreu does not hold a management position in any third sector organization. Everson Bassinello. Mr. Bassinello has served as our CCO since August 2016 and has led our global initiatives related to risk management, internal controls, compliance, data protection and internal audit. He served in leadership positions at Companies of the Votorantim Group, including VCP and Fibria between June 2000 and July 2016. Mr. Bassinello holds a degree in mechanical engineering from Universidade Federal de Itajubá (UNIFEI), a graduate degree in business administration from Fundação Getúlio Vargas (FGV), an MBA degree from the Business School São Paulo (BSP) and a specialization degree in corporate governance from the Kellogg School of Management. Ethics Committee Our Ethics Committee supports our Statutory Compliance and Audit Committee with the enforcement of compliance rules and with matters involving the violation of the commitment to Fiscal Council The Brazilian Corporate Law requires us to establish a permanent or non-permanent fiscal council (“conselho fiscal”), with a minimum of 3 and up to 5 members, with alternate members. Our by-laws provide for a permanent fiscal council composed of up to five members and their respective alternate members. The fiscal council is a separate corporate body, independent of our management and our independent directors. The members of our fiscal council and theirs alternate members are elected by our shareholders at the annual general shareholders’ meeting for one-year terms and are eligible for reelection. The terms of the members of our fiscal council expire at the next annual general shareholders’ meeting, which will be held in 2021. Under the Brazilian Corporate Law, the fiscal council may not contain members who are members of our board of directors or of our board of executive officers or be employees of the Company or of its controlled companies or of companies from the same group, or spouses or relatives, up to third degree of relatives, of any member of our management. To be eligible to serve on our fiscal council, a person must be a resident of Brazil and either be a university graduate or have been an officer or fiscal council member of another Brazilian Company for at least three years prior to election to our fiscal council. Holders of (1) preferred shares without voting rights, or with restricted vote, and (2) non-controlling common shareholders that together hold at least 10.0% of our voting share capital are each entitled to elect , in a separate voting, one member and his or her respective alternate to the fiscal council.
The responsibilities of a fiscal council are established by the Brazilian Corporate Law. In accordance with the Brazilian Corporate Law, our fiscal council has the right and obligation to, among other things:
The following table lists the current members of our fiscal council and their alternates:
The following is a summary of the business experience, areas of expertise and principal outside business interests of the current members of our fiscal council and their alternates. Members of Fiscal Council Ismael Campos de Abreu. Mr. Ismael Campos de Abreu has been elected as an effective member of the Company’s Fiscal Council as of April 13, 2021 by shareholder Novonor S.A. Mr. Ismael Campos served as an Officer at Kieppe Participações e Administração Ltda. - under Judicial Reorganization from April 2011 to May 2017. Between 1995 and March 2011 he served as Controller of Novonor S.A. - under Judicial Recovery (former Odebrecht S.A.), a company that indirectly holds more than 5% of the same type or class of securities of the Company. He was Manager of the tax consulting division of PricewaterhouseCoopers (1978/1985) and of Arthur Andersen (1989/1991). He was a partner at Performance Auditoria e Consultoria Empresarial (1992/1995). He was a member of the Board of Directors of Hospital Cardio Pulmonar and member of the Fiscal Council of several companies operating in the petrochemical sector. Mr. Ismael holds a degree in Accounting from Fundação Visconde de Cairú and a post-graduate degree in Economic Engineering from the Inter-American Development Center. Mr. Ismael Campos de Abreu does not hold a management position in any third sector organization. Gilberto Braga. Mr. Gilberto Braga has been appointed as an effective member of the Company’s Fiscal Council as of April 13, 2021 by shareholder Novonor S.A.. Mr. Gilberto is a business consultant in the areas of finance, capital markets, corporate, tax, forensics and forensic assistance, besides acting as fiscal, management and audit committee member for publicly-held companies and professional associations. He was a member of the CVM's Investment Funds Accounting Standards Advisory Committee, is a university and post-graduation professor of corporate governance at Fundação Dom Cabral, IBMEC, PUC and FGV, a commentator for Radio CBN, FM 94 in Rio de Janeiro, and an article writer for the newspaper O Dia. He has a degree in Economics from UCAM Ipanema and Accounting from UGF, a post-graduate degree in Financial Administration from IAG-PUC Rio and a Master in Administration (Finance and Capital Markets) from IBMEC-Rio. He is a member of IBGC. Marcílio José Ribeiro Júnior. Mr. Ribeiro has been appointed as an effective member of the Company’s Fiscal Council as of April 13, 2021 by shareholder Petróleo Brasileiro S.A. – Petrobras. Mr. Marcílio is currently a Senior Accountant at PETROBRAS, having previously held other positions at the same company (since October 2, 2006). He is currently a Fiscal Director at METANOR - Metanol do Nordeste S.A. and Alternate Fiscal Director at IBIRITERMO S/A, having previously served as Fiscal Director at Stratura Asfaltos S.A. He has also previously worked at Queiroz Galvão Óleo e Gás S/A, as Controller; at Starfish Oil & Gas S.A., as Accounting Manager; at Gaspart Gás Participações Ltda. (currently MITSUI Gás do Brasil), as an Accountant; at ALTM S.A. Tecnologia e Serviços de Manutenção (Alstom Group), as Accounting Manager; at Terminal Garagem Menezes Côrtes S.A., as Accountant; and at Erco Engenharia S.A., as Accounting Analyst. He holds a Bachelor's degree in Accounting Sciences from Universidade Federal do Rio de Janeiro (February/1993 - August/1997); an MBA in Economic and Financial Engineering from Universidade Federal Fluminense (September/2000 - November/2001); and an LL.M. in Corporate Law from IBMEC (March/2014 - February/2016). Marcilio Jose Ribeiro Jr. does not hold a management position in any third-sector organization.
Carlos Henrique. Mr. Carlos Henrique has being appointed as an effective member of the Company's Fiscal Council by the shareholder Petróleo Brasileiro S.A. - Petrobras. Mr. Carlos Henrique has held the position of General Manager of Accounting Operations since 2020 at Petrobras, where he joined in 1990 as an accountant, having held various leadership and management positions in the technical accounting area. Also, since 2020 he has held the position of member of the Fiscal Council of Ibiritermo S.A., and was a member of the Fiscal Council of Petrobras Logística de Exploração e Produção S.A. (2018-2020); Metanol do Nordeste S.A. (2014-2018); Companhia de Gás do Rio de Janeiro S.A. (2010 -2014), Companhia Paranaense de Gás (2006 - 2010) and Gás de Alagoas S.A. (2003-2006). He holds a bachelor's degree in accounting and a specialization degree in accounting, both from Universidade Federal do Rio de Janeiro, in addition to an Executive MBA in Business Management from PDG - Educational Programs for Executives. Marcos Aurélio Pamplona da Silva. Mr. Marcos Aurélio Pamplona da Silva has being appointed as an effective member of the Company's Fiscal Council by the minority shareholders. Mr. Marcos Aurélio Pamplona da Silva graduated in Law from UNIVALI (University of Vale do Itajaí) on December, 2004. He was approved in the examination of the Santa Catarina Bar Association (OAB/SC) on January, 2005 and he holds a postgraduate degree in Management Development from ESAG – 1997. He also holds a postgraduate degree in Labor and Social Security Law from the University of the South of Santa Catarina (UNISUL) on December, 2008; a specialization course in Commercial Law from the University of Vale do Itajaí (UNIVALI) – (2010); certificate course for Administrators for Public Companies and Mixed Economy Societies of the State of Santa Catarina, by Fundação Escola de Governo SC – ENA (2021-2022). Mr. Marcos Aurélio Pamplona da Silva was also a regional commercial manager Florianópolis of the distributor Polipetro Comércio de Combustíveis Ltda (currently Alesat) (2003-2006); a director of Citizen Security of the Public Security Department of Santa Catarina (2007-2010); a general coordinator of the First State Conference on Public Security in the State of Santa Catarina – April, 2009 and a natural member of the First National Conference on Public Security (June, 2009). Mr. Marcos Aurélio was the personnel training and management officer at the Santa Catarina Public Security Department from April, 2010 to December, 2010. Mr. Marcos Aurélio Pamplona da Silva also worked as a manager of administrative litigation of the Social Security Institute of the State of Santa Catarina (2011-2018); a substitute legal director of the Social Security Institute of the State of Santa Catarina (2011-2018); a legal advisor of the Social Security Institute of the State of Santa Catarina (2019-2021); a legal consultant of Gaspart S/A; a legal consultant of Grupo TKW Transportes Ltda.. Mr. Marcos Aurélio is the CEO of the Kuerten e Pamplona Consultoria Empresarial Ltda since 1995 and has served as a consultant to several companies in the legal area. Mr. Marcos Aurélio Pamplona da Silva is the CEO of Gaspart Participações S/A, and a board member of Gaspart Participações S/A. Alternate Members of Fiscal Council Ivan Duarte. Mr. Ivan Duarte is an alternate member of the Company’s Fiscal Council as a nominee of shareholder Novonor S.A. - under Judicial Restructuring Proceedings. Mr. Ivan is being nominated as an alternate member of the Company's Fiscal Council by the shareholder Novonor S.A. - In Judicial Recovery. Mr. Ivan was an officer of Kieppe Participações e Administração Ltda. - under Judicial Reorganization from January 2016 until May 2019, which is part of the same economic group as the issuer and indirectly holds interest exceeding 5% of the capital stock. Previously, Mr. Ivan worked as a manager at KPMG - Auditores Independentes from 1995 to 2001, when he then started to work as a senior manager at PricewaterhouseCoopers Auditores Independentes until 2008. Between 2008 and 2015 Mr. Ivan was an officer at EAO Empreendimentos Agropecuários e Obras S.A., a company belonging to the Novonor Group (formerly Odebrecht Group), which operates in the Agriculture, Food and Beverage segments. Mr. Ivan has a degree in Accounting Sciences from Universidade de Salvador (UNIFACS), and an MBA in Corporate Finance from Fundação Getúlio Vargas and an MBA in Entrepreneurship from Babson College (Boston/USA).
Tatiana Macedo Costa Rego. Mrs. Tatiana Macedo Costa Rego is an alternate member of the Company’s Fiscal Council as a nominee of shareholder Novonor S.A. - under Judicial Restructuring Proceedings. Ms. Tatiana is currently responsible for the controller at OEC (Odebrecht Engenharia e Construção). Previously, Ms. Tatiana worked as Responsible for Tax Planning at Construtora Norberto Odebrecht S.A. ("CNO"). From 2000 to April 2007, Ms. Tatiana worked at the tax area of VIVO S/A, in the telephony sector, as Manager of the Tax Planning Division. Previously, she worked for 2 years at Arthur Andersen. Tatiana has a degree in Public and Private Business Administration from Universidade Federal da Bahia and an MBA in Management from IBMEC. Alexis Kneip Ward. Mr. Alexis Kneip is an alternate member of the Company’s Fiscal Council as a nominee of shareholder Petróleo Brasileiro S.A. - Petrobras. Since August 2020, Mr. Alexis has been working in the finance area supporting the financial processes at Petrobras. Mr. Alexis Kneip has held several positions at Petrobras in different areas: he has worked in the governance area in the scope of corporate optimization (2019 to 2020); Mr. Alexis Kneip was coordinator of the financial area responsible for managing equity investments (2015-2017), Mr. Alexis Kneip has worked in the financial area, in the scope of debt portfolio management (2011-2014) and coordinated the project finance area (2002-2011). From October 1998 to September 2002, Mr. Alexis Kneip Ward worked as a production engineer at the Brazilian Post and Telegraph Company. Mr. Alexis Kneip has a degree in production engineering from Universidade Federal do Rio de Janeiro (UFRJ), a master's degree in business administration with specialization in finance from Instituto Brasileiro de Mercado de Capitais (IBMEC), and a master's degree in clean energy engineering from the University of British Columbia, Canada. Cristiano Gadelha. Mr. Cristiano Gadelha is an alternate member of the Company’s Fiscal Council as a nominee of shareholder Petróleo Brasileiro S.A. - Petrobras. Mr. Cristiano Gadelha holds a Law degree from Fundação Mineira de Educação e Cultura, a post-graduate degree with an MBA in Business Management from Fundação Dom Cabral, and is specialized in Tax Law. Before joining Petrobras, he worked at a law firm focused on tax litigation and consulting. In 2006, Mr. Cristiano Gadelha joined the staff of the Legal Department of Petrobras, where Mr. Cristiano Gadelha participated in several M&A transactions, especially the acquisition of the companies of the Ipiranga Group and Suzano Petroquímica, as well as the consolidation of national petrochemical companies into Braskem S.A. Ten years ago Mr. Cristiano Gadelha joined the tax area of Petrobras, linked to the Financial Board, where Mr. Cristiano Gadelha became the External Relations Manager for the South, Southeast and Midwest regions. Since 2020 Mr. Cristiano Gadelha has been the General Manager of Representation and Negotiation, whose main duties are to promote technical representation and external relations in matters of taxes and government participation, at the strategic level, covering all spheres of government, including engagement with associations and class entities in which the Company participates. Between 2014 and 2015 he was a full member of the Fiscal Council of Companhia Maranhense de Gás - GASMAR, and between 2016 and 2018 he was Chairman of the Fiscal Council of Braskem S.A. Since 2019 he has been Chairman of the Fiscal Council of Transportadora Brasileira Gasoduto Bolívia-Brasil S/A (TBG). Fabrício Santos Debortoli. Mr. Fabrício Santos Debortoli is an alternate member of the Company’s Fiscal Council as a nominee by minority shareholders. Mr. Fabrício Debortoli has graduated as na accountant and has a postgraduate degree in Tax Management from Univali. Mr. Fabrício Debortoli was Director of Administration and Finance of SCPAR Porto de Imbituba (2021/2022), today Mr. Fabrício Debortoli is a Member of the Fiscal Council of USIMINAS (2019/2020/2021), Member of the Board of Directors of Celesc S.A. (2019/2020/2021), Member of the Board of Directors of Casan S.A. (2020). Mr. Fabrício Debortoli acted as Financial Controller of Videolar Innova S.A. (2012 to 2017), Mr. Fabrício Debortoli was a member of the Fiscal and Management Board of Celesc S.A. (2016-2018), and Member of the Fiscal Council of Eternit from (2018 to 2019).
Compensation According to ourby-laws, our shareholders are responsible for establishing the aggregate compensation we pay to the members of our board of directors, our board of executive officers and our fiscal council. Our shareholders determine this aggregate compensation at the general shareholders’ meeting each year. Once aggregate compensation is established, the members of the board of directors are responsible for distributing such aggregate compensation individually to the members of our board of directors, our board of executive officers and our fiscal council in compliance with ourby-laws. Compensation and Benefits The aggregate compensation 2022 in the aggregate amount of R$85.5 million. The members of the board of directors receive a fixed monthly compensation, which is not affected by the numbers of meetings that take place each month. The coordinators and members of the committees, according to the responsibilities and participation in each committee receive differentiates monthly fees. The members of the fiscal council receive a fixed monthly compensation, which is not affected by the numbers of meetings that take place each month. The alternate members of the board of directors and of the fiscal council do not receive any compensation. Our executive officers receive a fixed monthly, an annual variable compensation and the same benefits generally provided to our employees, such as medical (including dental) assistance, private pension plan and meal Members of our board of directors, board of executive officers and fiscal council are not parties to contracts providing for benefits upon the termination of employment other than, in the case of executive officers, the benefits described above. Long-Term Incentive Plan
Eligibility Persons who are legally employed by us or the
Administration Our board of directors administers the Incentive Plan. Our board of directors has, subject to the general conditions of the Incentive Plan and the yearly programs that may be created, approved and / or cancelled by our board of directors and by the governing bodies of the companies controlled by us, as applicable, in observance of the terms and conditions of the Incentive Plan (such programs, the “Programs”), and the guidelines fixed by the March 21 Meeting, and to the extent fully permitted by law and under our by-laws, full powers to take all measures required and convenient for management of the Incentive Plan and such Programs, including (i) approving the eligible persons, and authorizing the grant of Restricted Shares on Restricted Shares The grant of Restricted Shares will be made upon and subject to the execution of award agreements pursuant to the Incentive Plan. Participants may receive shares and/or depositary receipts representing shares issued by us negotiated abroad, representing at most one and a half percent (1.5%) of our entire share capital on the date of the Incentive Plan, subject to adjustment as set forth in the Incentive Plan. The grant of Restricted Shares is contingent upon the (i) voluntary acquisition by the participants of shares or depositary receipts issued by us (the “Owned Shares”) at the participants’ own expense, from the stock exchanges where such shares are traded within a period of time set out in the applicable award agreements for the acquisition of such Owned Shares and (ii) participants’ continuous employment with us for three years and maintaining uninterrupted ownership of Owned Shares during such time (such three year period, the “Waiting Period”). The minimum investment amount is 10% of the planned gross amount of participants’ short-term income pursuant to our annual profit sharing program, and the maximum investment amount is 20% of such amount. The target of the Incentive Plan is to award for each one (1) Owned Share two (2) Restricted Shares. However, our board of directors may define, in an exceptional and justified manner as set forth in the Incentive Plan and pursuant to the terms and conditions of the applicable award agreements, for each Program, a different number of Restricted Shares to be delivered for each Owned Share, in compliance with the minimum of one (1) Restricted Share and the maximum of three (3) Restricted Shares for each one (1) Owned Share, based on an analysis by our board of directors in its sole discretion. Change of Control In the event of (i) a Change of Control of our Company (as defined in the Incentive Plan), (ii) a holding of a public offer of closing of our capital (i.e., a “going private” transaction), or (iii) a corporate restructuring that results in a significant decrease of the liquidity of the Restricted Shares, in comparison with the average price and volume traded over the six (6) months prior to the corporate restructuring, the participants will be entitled to receive within sixty (60) days from the occurrence of any of the events set forth in clauses (i) through (iii): (a) all vested Restricted Shares whose rights have vested in the participants, even if the Restricted Shares have not been effectively transferred by us or companies controlled by us; and (b) all unvested Restricted Shares which will become fully vested as a result of automatic vesting acceleration.
Vesting Under the Incentive Plan, full vesting of the Restricted Shares is contingent upon participants continuously remaining employed by us and maintaining uninterrupted ownership of Owned Shares, in each case, during the Waiting Period. Termination from the Company In the event of a termination of a participant for (i) dismissal by us and / or by the companies controlled by us without cause, (ii) removal from the manager position without violation of their duties and responsibilities, or (iii) transfer of the participant to occupy a position in a company in the same group as ours, which is not a participant in the Incentive Plan, the participant will be entitled to receive (a) the vested Restricted Shares, and (b) a pro rata number of unvested Restricted Shares, calculated based on the number of complete months in which such participant worked for us or a company controlled thereby relative to the number of months in the Waiting Period, with the remaining Restricted Shares being automatically terminated on such participant’s termination date, by operation of law, regardless of prior notice or warning, and with no right whatsoever of indemnification to such participant. The delivery of the Restricted Shares to such participant will be made on the original delivery dates (unless delivered earlier in our exclusive direction to the extent permitted under the applicable award agreement). In the event of a termination of a participant (i) upon dismissal for cause or removal from office due to a violation of the duties and responsibilities of a manager, (ii) upon request from such participant (including redundancy / voluntary solicitation or resignation) or (iii) any event of retirement that is not a mutually agreed retirement, such participant will lose any and all rights connected to the Restricted Shares under the Incentive Plan or under any program or award agreement in connection therewith, which will be automatically terminated on the termination date of such participant. In the event of a termination of a participant by reason of a retirement mutually agreed by such participant and us or companies controlled by us, such participant will be entitled to receive (a) the vested Restricted Shares; and (b) the entirety of the unvested Restricted Shares. The delivery of the Restricted Shares to such participant will be made on the original delivery dates (unless delivered earlier in our exclusive direction to the extent permitted under the applicable award agreement). In the event of a termination of a participant due to (i) death or (ii) permanent disability, the legal heirs or successors or the legal representative will be entitled to receive, within sixty (60) days from such event: (a) the vested Restricted Shares of such participant; and (b) all unvested Restricted Shares. Adjustments of Awards In the event of change to the number, nature or class of our shares as a result of bonus, splitting, reverse split, or conversion of shares into other nature or class, or conversion of other securities issued by us into shares, our board of directors will assess the need to make adjustments to the Incentive Plan, the applicable and the award agreements in connection therewith, so that the relationship between the parties remains balanced without any material windfall or detriment to the participants. Amendments and Termination Our board of directors may propose any amendments to the Incentive Plan and, in case necessary, submit such amendments for approval in an extraordinary general meeting. The Incentive Plan will remain in force until the delivery of the Restricted Shares granted pursuant to award agreements executed in the fifth year of the - Plan.
The right to receive the Restricted Shares under the Incentive Plan and applicable program and award agreement in connection therewith will automatically terminate with no right to indemnification, ceasing all effects, if we are wound up, liquidated or adjudicated bankrupt. Corporate Governance Practices The significant differences between our corporate governance practices and the standards of the NYSE are described in “Item 16G. Corporate Governance.” Share Ownership of Directors and Officers As of Employees The following table sets forth the number of our employees by geographic location at the
We do not employ a material number of temporary employees. In 2021, as a result of the extension of the Covid-19 pandemic, we continued to promote actions inside and outside Braskem. We carried out awareness campaigns among team members about the importance of vaccination and we also maintained constant monitoring of Covid-19 cases among our teams. Sanitization and control measures, such as changes of office layouts, remote work and lower occupancy rates on our transportation also remained in 2021. Employees in Brazil In Brazil, both employees and employers have the right to organize into unions. Employees
Braskem maintains a good Post-Employment Benefits
The majority of our employees
Other Benefits in Brazil Our employees in Brazil and their dependents receive medical and dental assistance through a network of accredited Employees in the United States The employees of Braskem America are not represented by any union, other than employees of Braskem Post-Employment Benefits in the United States Braskem America administers a closed defined benefit pension plan
Other Benefits in the United States Braskem America offers its employees the ability to participate in a variety of health and welfare benefit plans, including medical, dental vision, life and disability coverage. Employees in Germany Employees of Braskem Europe GmbH in Germany are not represented by any union. However, they are represented by local works councils (Betriebsrat).
Post-Employment Benefits in Germany Pension Plan Germany In October 2011, the obligations of Dow under German pension plans were assumed by Braskem Europe as a result of the Dow Polypropylene In 2013, Braskem Europe implemented a new defined contribution pension plan. As of Other Benefits in Germany Braskem Pension plan Netherlands In the Netherlands, Braskem started a pension plan in 2009 with Delta Lloyd in a defined contribution scheme. Participation is mandatory for locals that reside in NL. As of the date of this annual report, we have 116 active participants in the plan. In additional, Braskem BV also has 9 participants of pension plans from Germany. Other Benefits in the Netherlands Braskem BV offers its employees the ability to participate in benefit plans, including pension, life and disability coverage, health insurance (by reimbursement). Employees in Mexico Post-Employment Benefits in Mexico Braskem Idesa employees are granted a government retirement benefit plan when they retire or reach retirement age. On December 31, Mexican Labor Law Reform On April 23, 2021, amendments to the Mexican Federal Labor Law and other Mexican statutes were published in the Official Gazette of the Federation (Diario Oficial de la Federación) (the “Subcontracting Amendments”). The Subcontracting Amendments sets a new general rule that prohibits the subcontracting of employees or personnel; that is, for a company (the “operating company”) to contract or engage another company (the “service company”) to provide or make available employees of the service company for the benefit of the operating company. On July 22, 2021, Braskem Idesa undertook an employer replacement (sustitución patronal) permitted by the Subcontracting Amendments, which requires the mere delivery of individual notices to each of the employees by the Braskem Idesa. Other Benefits in Mexico Braskem
Performance-Based Employee Compensation Plan We have adopted and applied a personnel management philosophy which emphasizes a performance related pay structure and a decentralized management structure. Employees in each of our business units participate in setting and achieving their business unit’s annual objectives. As a result, employees in those business units that meet or exceed their goals share in our financial performance through performance-based employee compensation plans. During
Major Shareholders As of Generally, only our common shares have voting rights. Our preferred shares have voting rights only in exceptional circumstances. As permitted by the Brazilian Pursuant to our by-laws, all of In addition, in
Our shareholders have Pursuant to the Brazilian Corporate Law, neither our by-laws nor actions taken at a shareholders’ meeting may deprive a shareholder of: (i) the right to participate in the distribution of net income; (ii) the right to participate equally and proportionally in any residual assets in the event of liquidation of the Company; (iii) preemptive rights in the event of issuance of new shares, convertible debentures or subscription warrants, as per Brazilian Corporate Law, except as described in the preceding paragraph; (iv) the right to hold management accountable in accordance with the provisions of the Brazilian Corporate Law; and (v) the right to withdraw from us in the cases specified in the Brazilian Corporate Law, including merger with another company or consolidation in a transaction in which our Company is not
The following table sets forth information concerning the ownership of our common shares and class A preferred shares as of
We currently have no management or employee option plans or management or employee options On December 15, 2021, our shareholders Novonor S.A. – Em Recuperação Judicial (Under Judicial Reorganization) and Petrobras sent us a joint communication, which we made public the following day, on December 16, 2021, regarding the progress of discussions for the potential sale of their equity interest in Braskem. In such communication, they informed us that they entered into an agreement on December 15, 2021 formalizing their commitment to take the measures necessary to: (i) sell the class A preferred shares of Braskem that they hold, directly or indirectly, in a secondary public offering; (ii) migrate the listing of our common shares to the Novo Mercado segment of the B3, including necessary corporate governance changes, which are subject to applicable corporate approvals at the appropriate time and the negotiation of a new shareholders’ agreement to conform rights and obligations set forth therein to such amended governance structure; and (iii) sell the remaining common shares that they hold, directly or indirectly, in a subsequent secondary public offering once the migration to the Novo Mercado segment is completed. On January 14, 2022, we launched an offering of up to 154,886,547 class A preferred shares of Braskem S.A. to be sold by NSP Investimentos S.A. – Em Recuperação Judicial (Under Judicial Reorganization) and Petróleo Brasileiro S.A. – Petrobras, in a global offering that consisted of an international offering outside Brazil and a concurrent public offering in Brazil. On January 27, 2022, the global offering was suspended. Despite the suspension of the offering, our shareholders Novonor and Petrobras ratified their interest in resuming the offering in the future and taking all necessary measures to enable the migration of Braskem’s common shares to the Novo Mercado segment of the B3. Shareholders’ Agreements Braskem S.A. Shareholders’ Agreement
Under the Braskem S.A. Shareholders’ Agreement, for so long as Petrobras owns a direct or indirect stake in us:
In any of the abovementioned events, for so long as Grupo Novonor owns, directly or indirectly, an aggregate of 50.1% of our voting share capital, the designation of at least the absolute majority of members of our board of directors shall always be secured. Under the Braskem S.A. Shareholders’ Agreement,
Under the Braskem S.A. Shareholders’ Agreement, Under the Braskem S.A. Shareholders’ Agreement,
Under the Braskem S.A. Shareholders’ Agreement, we have agreed that investments that we make to increase our capacity in petrochemical inputs, resins and other products must be supported by an evaluation demonstrating profitability under standards such as net present value or internal rate of return. On December 15, 2021, Novonor, NSP Inv. and Petrobras entered into a second amendment to the Braskem S.A. Shareholders’ Agreement and agreed that, if Braskem’s migration to the Novo Mercado segment of the B3 is not implemented, the rights and obligations provided for in the Braskem S.A. Shareholders’ Agreement related to the right of first refusal granted to us with respect to the development of any petrochemical project shall lapse by October 31, 2024. The execution of such second amendment by Braskem, as an intervening party, is still subject to the appropriate governance approvals. Under the Braskem S.A. Shareholders’ Agreement, Under the Braskem S.A. Shareholders’ Agreement, each of the parties to it has agreed:
Related Party Transactions
Prior to the appreciation by the board of directors, our Statutory Compliance and Audit Committee is responsible to assess the appropriateness of transactions subject to the approval of the board of directors between the Company and its related parties. Pursuant to the Brazilian Corporate Law, officers and directors are prohibited from: (i) entering into any transaction using the company’s assets and in its detriment; (ii) intervening in any operations in which these officers and directors have a conflict of interest with the company or in resolutions in which they participate; and (iii) receiving, based on their position, any type of personal advantage from third parties, directly or indirectly, without first obtaining an authorization pursuant to our bylaws or at a shareholders’ meeting. As part of our controls to identify related parties, we require key personnel to annually inform whether they, or their close relatives, hold full or shared control of any company. Under the Brazilian Corporate Law, each of our directors, their alternates and our executive officers cannot vote on any matter in which they have a conflict of interest and such transactions can only be approved on reasonable and fair terms and conditions that We have engaged in extensive transactions with our principal shareholders and their affiliates and we expect to continue to do so in the future. We also have commercial relationships with some of our affiliates and, as a result, record trade accounts receivable and current and long-term liabilities mainly from purchases and sales of goods and services at prices and on terms equivalent to the average terms and prices of transactions that we enter into with third parties. In addition, we have entered into financial and other transactions with our principal shareholders and their affiliates, including, among others, as a party to three shareholders’ agreements or memoranda of
The Novonor Group (formerly called Odebrecht Alliance Agreement In May 2014, we entered into an alliance agreement with CNO, or the Alliance Agreement, In 2021, we had no services provided under the Alliance Agreement. The aggregate amount of services we purchased under
The Alliance Agreement was terminated in Industrial Maintenance, Operation and
In
The aggregate amount of services
In The aggregate amount of services purchased under this agreement was R$221.5 million in 2021 and R$45.4 million in 2020, an Acquisition of Cetrel In October 2012, we entered into an agreement with Cetrel for the purchase of 4 million cubic meters per year of recycled water by sites located in the Industrial Pole of Camaçari. The agreement expires in April 2028 and has a total value of R$120.0 million. In July 2016, we entered into a services agreement with Cetrel under which we appointed Cetrel as an exclusive service provider for the treatment of liquid effluents produced in our industrial units located at the Camaçari petrochemical complex. In December On January 27, 2017, our board of directors authorized the execution of a purchase agreement with Odebrecht Utilities S.A., through which Braskem undertook to purchase all shares held by the seller in Cetrel S.A., which
Petrobras Commercial Transactions with Petrobras We have entered into the following supply contracts with Petrobras:
Braskem
Other Related Party Transactions Our Jointly Controlled Company Refinaria de PetróleoRio-grandense S.A. (“RPR”)
On August 1, 2019, Braskem Our Borealis Brasil S.A. We sell polypropylene and polyethylene to Borealis, in which we have a 20.0% interest. We recorded Non-controlling shareholders of As of December 31,
In December 2018, we adopted a related party transactions policy, or the Related Party Transactions Policy, which lays out the procedures for approving transactions with our controlling shareholder and shareholder that has Material Influence over Braskem, controlled entities and certain other parties. Pursuant to our bylaws and the Related Party Transactions Policy, (i) our Board of Directors is responsible for approving certain related party transactions and revisions to the Related Party Transactions Policy, (ii) our Compliance Committee is responsible for evaluating related party transactions prior to submission for approval to our Board of Directors, if applicable, as well as ensuring that the provisions contained in the Related Party Transactions Policy are observed by our other areas, and (iii) our Ethics Committee is responsible for evaluating related party transactions that do not require approval by our Board of Directors. Pursuant to this policy, we have, and may in the future, engage in transactions with our controlling shareholder and shareholder that has Material Influence over Braskem or controlled entities with respect to our services or products, or other related party transactions, as defined in our Related Party Transactions Policy.
Consolidated Statements and Other Financial Information Reference is made to Item 19 for a list of all financial statements filed as part of this annual report. Legal We are, and may be in the future, involved in numerous tax, civil and labor disputes, among others, involving monetary claims. If any of these legal proceedings were decided adversely to us, we do not believe that our results of operations or financial condition would be materially and adversely affected.
For some of these lawsuits, we have not established any provision on our balance sheet nor have we established provisions only for part of the amounts claimed, based on our judgments as to the outcomes of these lawsuits. Tax Proceedings We are engaged in several legal proceedings with IR/CSLL Tax Assessment Notices In
In In
In December 2017 and in December 2020, we received tax assessment notices from the Federal Brazilian Revenue Service claiming unpaid income tax and social contribution in connection with exchange variation losses recorded by Braskem in the elapsed time between the due date of naphtha import invoices and their payments. The Federal Brazilian Revenue Service considered that these losses, recorded in 2012 and in 2015, respectively, were not deductible for purposes of calculating income tax and social contribution. In relation to the calendar-year of 2012, the assessment resulted in the recalculation of our tax losses and social contribution negative tax
We are In July 2020, we received a tax assessment notice from the Federal Brazilian Revenue Service for failing to offer taxation the profit earned abroad by the subsidiary Braskem America Inc. for the year 2015, due to the disregard of tax credits collected by this subsidiary abroad. The assessment also involves the allegation of undue compensation for tax loss from the negative CSLL tax base for 2016, due to the lack of balances, due to disallowances arising from tax assessments and uses in special installments. We challenged this assessment notice in Administrative Court due to the following reasons: (i) there was enough payment to deduct the tax payable on profits obtained abroad; and (ii) the reported lack of tax loss balances arises from other administrative proceedings that are still under In November 2020, we received a notice from the Federal Revenue Service of Brazil related to the disagreement in the application of the Agreement to avoid double taxation signed between Brazil and the Netherlands, which establishes that profits of Dutch companies are not
ICMS Tax Assessment Notice From 1999 to In 2009, tax assessment notices were issued by the internal revenue department of the State of São Paulo against Braskem Qpar claiming unpaid ICMS taxes and related fines in connection with several alleged violations of certain provisions of the ICMS tax legislation, including: (1) (2)the fine for the abovementioned tax offense corresponds to 100% of the principal value recorded, as per Article 527, item II, sub-item “j” jointly with paragraphs 1 and 10 of RICMS/SP; (3)fine in the amount of 30% on R$
The
We believe that a PIS and COFINSNon-Cumulative Tax Assessment Notice We received assessment notices from the federal internal revenue department alleging that we had inappropriately claimed certain PIS and COFINS credits in relation to: (1) The Federal Brazilian Revenue Service did not recognize the compensation of PIS and COFINS
A loss
PIS and COFINS Tax Assessment Notice Braskem is involved in several judicial and administrative proceedings related to the payment of PIS and COFINS, including (1) unpaid COFINS from March 1999 to December 2000, February 2001 to March 2002, May 2002 to July 2002 and during September 2002, (2) inappropriately claimed credits due to the additional 1% in the COFINS
In 2014, we received a tax assessment notice from the Federal Brazilian Revenue Service claiming that the We and our affiliates are involved in several other judicial and administrative proceedings related to the alleged undue compensation of PIS and COFINS debts with the following credits: (1) Corporate Income tax; (2) FINSOCIAL; (3)
We
Social Security Contributions – Harmful Agents We are involved in several judicial and administrative proceedings related to the payment of social security contributions in which the following issues are discussed: (i) the collection through tax assessments of the additional Occupational Accident Risk (“RAT”) for the costing of special retirement, due to the alleged exposure of workers to harmful agents, in addition to a fine for non-disclosure of this information in GFIP (in the period from April 1999 to February 2006); (ii) the collection through tax assessments of the additional RAT due to the exposure of workers to harmful agents (noise and carcinogens) in the period from January 2016 to July 2018; and (iii) the requirement, in terms of tax enforcement, of additional RAT (in the period from November 2000 to January 2001, and from November 2001 to June 2002). The aggregate amount of these claims, as of December 31, 2021, was approximately R$186.9 million. We believe that a loss of these claims is possible and our external legal counsel expects that the discussions at the administrative level will be concluded in 2024 and in 2028 at the judicial level. There is no deposit or other type of guarantee for the proceedings that are still under administrative discussion and the only one that is under judicial discussion is guaranteed in the entire amount.
Contingent Assets Contingent assets are potential assets whose existence will be confirmed by the occurrence or non-occurrence of uncertain future events that are not wholly within the Company’s control. Contingent assets are not recognized, but are disclosed when it is more likely than not that an inflow of benefits from such assets will occur. However, when the inflow of benefits is virtually certain, an asset is recognized in the financial position statement because that asset is no longer considered contingent. Exemption of IR/CSL on inflation adjustment of undue tax payments by using economy basic interest rate. In July 2010, Braskem and the merged companies in previous years, filed lawsuits claiming exception from the levying of IR/CSL on amounts they received as interest on late payment, since they do not represent any equity increase. In view of the decision of the Federal Supreme Court (“STF”), on September 24, 2021, regarding Special Appeal 1.603.187, which states that “the levying of IR/CSL on amounts updated by the Selic rate, received due to repetition of undue tax payments, is unconstitutional”, Braskem recorded tax credits of R$501 million (R$489 million in other operating income and R$12 million in the financial result) for the calendar years as from 2005. The recognition of this amount in 2021 resulted in an increase of R$153 million in the balance of income tax recoverable and a decrease of R$43 million and R$305 million in the balances of current income tax payable and deferred tax liability, respectively. For the periods marked by a rebuilding of tax losses, Braskem recognized R$68 million in deferred tax assets. Exclusion of ICMS from PIS and COFINS calculation base Our main federal tax liability refers to the exclusion of ICMS from the PIS/COFINS calculation base. We and our merged companies filed various lawsuits claiming recognition of the right to exclude ICMS from the calculation base for PIS and COFINS and the consequent repetition of undue payment. The oldest period of the lawsuit dates back to 1991. In 2021, actions originally by merged companies had final and unappealable decisions, and the amount of R$2,022.0 million was recognized, referring to the PIS and COFINS contributions calculated in excess, of which R$1,032.1 million was recorded under other operating income (expenses) and R$990.9 million under financial revenue Since 2019, R$4,302.4 million has been offset of the total liability recorded by the Company concerning this matter, and as of December 31, 2021, R$789.4 million was accounted for as per our financial statements, of which R$787.7 million was recorded under current liabilities and R$1.7 million under non-current liabilities. With regard to the lawsuits with final and unappealable decisions, certain decisions involve expressly the credit calculation criteria, while others were more generic, only determining the exclusion of this tax. The Company, assisted by specialized third party consulting firm, proceeded with the measurement of these tax liabilities, basically considering the amount of ICMS stipulated on the sales invoices and other tax information on the accessory obligations to ensure the consistency of the calculations, grounded in the legal opinion. The Company has other lawsuits about the same topic that are still pending a final and unappealable decision. The oldest period of these lawsuits pending decisions dates back to 2001, On December 31 of 2021, the amount involved in this lawsuit is R$ 1.7 billion, which has been already recognized in non-current assets. Exclusion of ICMS Tax Incentives and Benefits Applicable to Operations In October 2021, the Company obtained a temporary injunction in a lawsuit authorizing it to exclude ICMS tax incentives and benefits applicable to its operations, granted by Brazilian states and the Federal District, from the corporate income tax, or IRPJ, and CSLL calculation basis as of 2021, which will result in a reduction in cash disbursement in 2021 of R$1.1 billion. This decision considers the Company’s claim that incentives and benefits are investment subsidies, under article 30 of Law No. 12,973/2014 and Complementary Law No. 160/2017, and, consequently, are not subject to IRPJ and CSLL. The lawsuit is pending a court decision. Given the initial stage of the lawsuit and the diversity of tax incentives and benefits granted by Brazilian states and the Federal District, based on the assessment of our external legal advisors, the Company considered the matter an uncertain tax treatment and, therefore, the amount of R$1.1 billion will continue to be recorded in our annual financial statements as taxes payable.
Compulsory loans to Eletrobrás – Centrais Elétricas Brasileiras S.A. The compulsory loan in favor of Eletrobrás was established by Federal Law No. 4,156/62, to finance the energy industry and remained effective until 1993. It was collected through the energy bills of industrial consumers with monthly consumption equal to or higher than 2000kwh and, after successive amendments to the law, the reimbursement, plus compensatory interest of 6% per year, was extended to 20 years, which can be anticipated through conversion of credits into shares issued by Eletrobrás. Between 2001 and 2009, the companies that merged into Braskem S.A. filed proceedings seeking the recovery of amounts related to differences in the inflation adjustment of the compulsory loan, interest on arrears and compensatory interest and other related payments. The Company obtained a favorable final and unappealable decision in the cases of the merged companies Alclor Química de Alagoas Ltda., Companhia Alagoas Industrial – Cinal, Companhia Petroquímica do Sul S.A. – Copesul and Trikem S. A., which are in the execution phase, discussing the amounts to be effectively returned. The cases of the merged companies Ipiranga Petroquímica S.A., Petroquímica Triunfo Ltda. and Quattor Química S.A are in the initial phase. The term, form and amount to be realized are still uncertain, so it is not possible to determine the amount to be received and, for such reason, the asset does not meet the conditions to be recorded in the financial statements. Class Action Proceedings In July 2015, two putative class action lawsuits were filed against us and certain of our then-current and former officers and directors, or the Defendants, in the United States District Court for the Southern District of New York. The lawsuits were subsequently consolidated under the caption In re Braskem, S.A. Securities Litigation, No. 15-cv-5132. In November 2015, Boilermaker-Blacksmith National Pension Trust, or the Lead Plaintiff, filed a consolidated class action complaint, which asserted claims under Section 10(b) and Section 20(a) of the Exchange Act, on behalf of a putative class of purchasers of our ADSs, from June 1, 2010 to March 11, 2015. In the operative complaint, the Lead Plaintiff alleges that the Defendants made misrepresentations or omissions that inflated the price of our stock in violation of U.S. securities laws. We filed a motion to dismiss on July 6, 2016. On March 31, 2017, the court ruled on the motion to dismiss, granting it in part and denying it in part. The parties have signed a proposed settlement agreement on September 14, 2017 and the U.S. court granted final approval to the settlement and entered a judgment to dismiss the action and discharge the claims of the class members on February 21, 2018. Under the terms of the settlement, we paid US$10 million (R$31.7 million) to resolve all claims of the settlement class consisting of purchasers of our ADSs during the period from July 15, 2010 through March 11, 2015, that arise out of or relate to the subject matter of the class action. We paid the settlement amount into an Escrow Account (which is subject to the jurisdiction of the Court) on October 2, 2017 and the Claims Administrator shall arrange its distribution after the entry by the court of a class distribution order. We have made no admission of any wrongdoing or liability as part of the settlement. On August 25, 2020, a class action was filed against us and some of our current and former executives in the U.S. District Court for the District of New Jersey, in the United States, on behalf of an alleged class of investors who acquired Braskem’s shares. The action is grounded in the U.S. Securities Exchange Act of 1934 and its rules, based on allegations that the defendants made false statements or incurred in omissions related to the geological event in Alagoas. On January 15, 2021, the Court named two plaintiffs to act as lead plaintiffs in the action. On April 28, 2021, one of appointed lead plaintiffs filed a consolidated amended complaint asserting claims on behalf of a putative class of purchasers of the Company’s American Depositary Shares from March 21, 2019 to July 8, 2020. We engaged a U.S. law firm to represent us in the class action and filed a motion to dismiss, which is pending analysis by the Court.
Our management, based on its assessment and that of its external legal advisors, and given the initial phase of the potential class action mentioned above, considers that it is not possible at the moment to reliably estimate the potential amount involved. Braskem cannot reliably predict the future developments of this matter or the expenses arising from it, including rates and costs in solving the dispute. The Company may be named as a defendant in other legal actions. Global Settlement In the context of allegations of improper payments in connection with the so-called Operation Car Wash (Operação Lava Jato) in Brazil, we engaged independent expert firms to conduct an investigation into such allegations (the “Investigation”) and report their findings. On December, 2016, Company entered into a leniency agreement with the MPF (“MPF Agreement) and the authorities of the United States and Switzerland (“Global Agreement”), in the approximate amount of US$957 million (approximately R$3,1 billion at the time), which were duly approved. Furthermore, the Company engaged in a process of cooperation and negotiation with the Ministry of Transparency and Controllership (“CGU”) and the Attorney General (“AGU”), which culminated in the signing of a leniency agreement with said authorities on May 31, 2019 (“CGU/AGU Agreement” and, together with the Global Agreement, simply “Agreements”), which deals with the same facts object of the Global Agreement and provides for an additional disbursement of R$409,877, due to calculations and parameters used by CGU and AGU. Additionally, in 2019, the Public Ministry of Bahia and the Public Ministry of Rio Grande do Sul joined the MPF Agreement, although there is no provision for additional payments by the Company. AGU, CGU and MPF agreed to allocate most of the amounts received based on the Agreements for the reparation of victims of illicit acts, including other authorities and public entities, and to undertake actions with those third parties with which Braskem will start negotiations in relation to the facts object of the Agreements to avoid double reimbursement. As of December 31, 2021, we had paid R$2.7 billion of the total fine established in the Global Settlement, in the following manner:
As of December 31, 2021, the outstanding amount of R$1.1 billion was due under the MPF Agreement and CGU/AGU Agreement, in four annual installments adjusted by the variation in the SELIC rate and due by January 30, 2025. To guarantee payment of these upcoming installments, Braskem gave as collateral assets from its property, plant and equipment corresponding to one annual installment.
The Global Settlement does not prevent us from responding to any legitimate third party, which may seek indemnification against us from damages for the facts subject to the Global Settlement. Other authorities with jurisdiction over us may seek to impose monetary sanctions or fines on, or to initiate investigative proceedings against the Company. We do not anticipate the requirement to make additional disbursements but cannot assure that the aggregate amount disbursed as a requirement pursuant to the agreement will be sufficient to cover indemnification claims of all of the victims. We continue to cooperating with the governmental authorities and improving our governance and anti-corruption compliance practices. During three years, we were subject to external monitorship. The monitor assessed compliance with the Global Settlement, including the effectiveness of our internal controls, policies and procedures to reduce the risk of any anti-corruption violations. On March, 2020, based on the certification emitted by the independent monitors who assessed us by three years, MPF had confirmed the effectiveness of the compliance program and the conclusion of the independent monitorship. On May 13, 2020, the MPF, the DoJ and the SEC confirmed the conclusion of the independent compliance monitorship at Braskem, which had been established in the settlement agreements entered into by Braskem. We remain under external monitoring with the AGU/CGU until the end of 2022. All compliance obligations are being met as recommended by the authorities. We are in compliance with all obligations arising from the agreements mentioned above and we Labor Proceedings
Employment and Occupational Health and Safety Proceedings
Social Security The Company withdrew its sponsorship of the pension plans Petros Copesul and Petros PQU in 2012 and in 2009 of Petros Copene, all of them managed by the pension fund Petros. Due to this procedure, it was assumed an outstanding obligation under the sponsorship withdrawal instrument which was to pay the mathematical reserves of beneficiaries pursuant to Complementary Law No. 109/2001, this obligation was met in 2015. However, after the payment, several beneficiaries filed individual and collective lawsuits regarding various claims relating to: (i) differences of the individual withdrawal fund; (ii) change of the base date; (iii) age limit; (iv) 90% supplement; (vi) return of contributions; (vii) difference in savings account reserve; (viii) objection against legality of sponsorship withdrawal. Currently, this portfolio is comprised of 783 active cases that, based on the opinion of our external legal counsel, have a chance of loss classified as possible, representing as of December 31, 2021, an estimated aggregated disbursement of R$332.4 million.
Civil Proceedings Resale of solvents In January 2017, we became the defendant in a civil lawsuit filed by a former reseller of solvents, claiming alleged breach of a distribution agreement. As of December 31, Redress proceeding A compensatory lawsuit was filed by the insurer of one of our customers. The insurer seeks the reimbursement of the amount paid to a customer pursuant to an insurance agreement entered into with the customer. As of December 31, 2021, the amount involved in
As of December 31, We are also currently subject to the liquidation of an award related to a lawsuit filed in 1988, which ordered Polialden Petroquímica S.A., which merged into Braskem on May 31, 2006, to pay to its non-controlling preferred shareholders certain remaining profits. The Based on the opinion of our external legal counsel, as of December 31, Hashimoto Civil Action A civil class action was filed in June 2018 by the Public Prosecutor’s Office of the State of São Paulo against us and other companies that operate in the Capuava Petrochemical Complex, seeking the reparation and/or remediation of environmental damages supposedly arising from the emission of air pollutants, as well as a joint judgement against companies that comprise such complex, seeking environmental moral damages in in the inflation-adjusted amount of R$175.0 million. Braskem filed its defense in December 2020. The defense of the other defendants and the subsequent decision of the judge is pending. Our management, based on its assessment and of that of our outside legal counsel, believes that the lawsuit possibly will be dismissed within a period of eight years.
Environmental A public interest civil action was filed in September 2011 by the municipality of Ulianópolis, in the State of Pará, against Braskem and other companies, claiming reparation and/or remediation of environmental damages allegedly resulting from the delivery of waste to the company CBB, which were allegedly not disposed of properly, polluting an area of the municipality Ulianópolis, as well as joint and several liability of these companies for the payment of indemnification for environmental damage in the adjusted amount of R$325.5 million. The companies filed their reply and a decision is pending. Our management, based on the opinion of our outside legal counsel, believes that the lawsuit will be dismissed within a period of eight years. Alagoas – Mining Activities On April 2, 2019, we became aware that the Alagoas State Prosecutors’ Office (Ministério Público do Estado de Alagoas) and the State of Alagoas Public Defenders’ Office (Defensoria Pública do Estado de Alagoas) filed a lawsuit (public-interest civil action or civil public action or ação civil pública) claiming the payment of compensation for property and personal damages caused to buildings and residents of areas affected in the Pinheiro district and surroundings (“ACP of Residents”), in the minimum amount of R$ 6,7 billion, with an initial request for provisional measures to freeze Company’s assets in the same amount. The case was sent to the Federal Court, when the Federal Prosecutors’ Office (Ministério Público Federal) and the Federal Public Defenders’ Office (Defensoria Pública da União) joined as plaintiffs. Parties to the ACP of Residents entered into a first agreement on January 3, 2020, to establish cooperative actions to vacate properties in risk areas, defined by the Civil Defense of Maceió, State of Alagoas, (“Civil Defense Map”), providing the necessary support to relocate people from those areas and provide financial compensation for them under the Financial Compensation and Support for Relocation Program (“PCF”) implemented by Braskem. After updates of the Civil Defense Map, two legal instruments were signed by parties, in July and October 2020, to include properties in the PCF. On December 30, 2020, a second amendment to the agreement was signed to terminate the public-interest civil action (“Agreement for Compensation of Residents”), including the area currently affected by the geological event, according to the Civil Defense, and the areas with potential future impacts indicated in the independent technical and specialized studies engaged by the Company on the potential impact of the geological event on the surface of the region (as of December 31, 2021, the risk area encompasses a total of approximately 15,000 properties). To implement the Agreement for Compensation of Residents, the Company assumed the obligation to deposit a total of R$2,7 billion in a checking account, with minimum working capital of R$100 million, whose transactions will be verified by an external audit company and also agreed to create a technical group to monitor the geological event and study the areas adjacent to the Civil Defense Map for a period of five years and maintain a surety bond in the amount of R$1.8 billion. The Agreement for Compensation of Residents was ratified by Court on January 6, 2021 which resulted in the termination of ACP of Residents. On May 8, 2019, we became aware of the Report No. 1, prepared by the Mineral Resources Research Company (Companhia de Pesquisa de Recursos Minerais), or CPRM, an entity of the Brazilian Energy and Mining Ministry (Ministério de Minas e Energia), indicating that the geological phenomenon observed in the region, could be related to the rock salt exploration activities developed by Braskem. In this context, due to the developments from the report’s publication and in accordance with applicable safety standards, on May 9, 2019, we suspended all salt extraction and, consequently, the operations of the chlor-alkali and dichloroethane plants located in the district of Pontal da Barra in Maceió, state of Alagoas, and also reducing production in the Camaçari Petrochemical Complex in the state of Bahia, since they are
On July 25, 2019, we On July 29, 2019, the Company was notified of an individual claim filed by Construtora Humberto Lobo, a construction company, seeking the payment of approximately R$151 million for damages related to the termination of a property purchase contract celebrated with Braskem and allegedly due to the geological event. A previous decision, on July 4, 2019, had issued a freeze order of R$4.8 million from Braskem’s assets. On October 15, 2019, the Court partially decided the claim to determine the immediate payment of R$4.5 million to the plaintiff. Braskem’s appeal against such decisions awaits ruling by the Court of Appeal. The remaining part of the claim proceeds before Court to evidentiary stage (on December 31, 2021, it amounts to R$264 million). On August 19, 2019, we became aware of the filing of another public-interest civil action by the Federal Prosecutors’ Office (Ministério Público Federal) against us and other parties, requesting indemnification for socio-environmental damages and other collectives damages, as well as the adoption of corrective and environmental compliance measures, with preliminary injunction requiring the freezing of assets and profits not yet distributed, the set-up of a fund of R$3,1 billion for the benefit of social and environmental programs and emergency measures to be carried out, the posting of bonds in the amount of R$20,5 billion, the suspension of government financings and government incentives, as well as acceleration of existing indebtedness with BNDES (a federal development bank), among other obligations (“ACP Socio-environmental”). Parties reached an agreement to terminate the claim against Braskem on December 30, 2020 ("Agreement for Socio-environmental Remediation"). According to the Agreement for Socio-environmental Remediation, the Company commits, primarily, to (i) adopt the necessary measures to stabilize the cavities and monitor the soil; (ii) repair, mitigate or compensate potential environmental impacts and damages resulting from the mining activities (salt extraction) in the city of Maceió, defined after the conclusion of the Environmental Diagnosis, to be conducted by a specialized and independent company; and (iii) repair, mitigate or compensate for potential socio-urbanistic impacts and damages resulting from mining activities (salt extraction) in the city of Maceió, as detailed below. Under the Agreement for Socio-environmental Remediation, the Company undertook the following measures:
Additionally, the Company agreed under the Agreement for Socio-environmental Remediation: (i) to allocate the additional amount of R$300 million for social damages and collective moral damages indemnification and for eventual contingencies related to actions in the vacated areas and urban mobility actions; (ii) with the constitution of a secured interest on certain of the Company's assets in the amount of R$2.8 billion to replace the surety bond previously presented by Braskem to the Court in the amount of R$1 billion, as Material Fact disclosed on January 3, 2020; and (iii) to engage specialized consultants to support the definition of the measures established in the Agreement for Socio-environmental Remediation and to update the socio-environmental compliance program of the Company. Furthermore, the Agreement for Socio-environmental Remediation sets forth the potential adherence by other parties, including the municipality of Maceió, which is On November 14, 2019, as informed to the market, we submitted to the Brazilian National Mining Agency (Agência Nacional de Mineração, or ANM) a plan with measures to permanently end salt extraction activities in
On February 2, 2021 the Company was notified of a preliminary injunction requested by the Brazilian Company of Urban Trains (Companhia Brasileira de Trens – CBTU) to On February 12, 2021, ANM granted our motion requesting that ANM reconsider its order directing the implementation of additional measures for the mine closure plan proposed by the Company. ANM’s decision maintained the implementation of the measures contemplated in the mine closure plan originally proposed by the Company, for which the amount of R$1.7 billion had already been provisioned. Lastly, considering that the mine closure plan is a dynamic process with complex execution, ANM will continue to oversee the results of the measures that are being taken by the Company for closing and monitoring the mine and, accordingly, further evaluations, requirements and provisions may be necessary in the future.
On November 9, 2021 the Company was notified of a Public-interest Civil Action filed by Federal Public Defenders’ Office (Defensoria Pública da União) against insurers linked to SFH, financial agents, the regulatory agency and Braskem, questioning the denial of necessary insurance for contracts under the SFH to acquire properties located within a radius of 1 km outside the risk area defined by the version 4 map of Civil Defense authorities, which is the subject matter of the Residents PCA agreement. The main claim is only against the insurers, financial agents and the regulatory agency on the grounds that the refusal to contract the insurance is abusive and has no technical or legal grounds. There is a secondary and eventual claim to sentence Braskem to pay indemnification in an amount to be settled in the future, if the judge understands that the refusal somehow has grounds due to in the subsidence phenomenon. It is not possible to estimate the indemnification amount, which will depend on the evidence of damages submitted by people whose insurance was denied. As of December 31, 2021, Braskem was a defendant in several individual claims, that, in aggregate, involve the amount of approximately R$895 million (2020: R$573 million), filed by individuals in Brazil and Dividends and Dividend Policy Payment of Dividends
Our Finance and Investments Committee will review, prior to the review by our board of directors, any management proposal regarding the distribution of dividends or interest on capital stock. Our board of directors may declare interim dividends based on the accrued profits recorded or the realized profits in our annual or The following table sets forth the dividends and/or interest attributable to shareholders’ equity paid to holders of our common shares, class “A” preferred shares and “class B” preferred shares since January 1,
Dividends are allocated to preferred shares as follows: (i) class A and class B preferred shares have the same priority in the distribution, in each fiscal year, of non-cumulative dividends corresponding to 6% of their unit value (as defined below); (ii) common shares are entitled to dividends only after payment of the priority dividend referred to in item (i) above; (iii) only common shares and class A preferred shares participate in the distribution of shares resulting from the incorporation of reserves into capital; and (iv) the “unit value” of shares is calculated by dividing the capital by the total outstanding shares (considering, for such effect, the total shares issued by the Company, including shares held in treasury). The value of the priority dividend is calculated for the purposes of the mandatory dividend, but it is not limited by it, in accordance with Article 203 of Brazilian Corporate Law. Therefore, the priority dividend must be paid in full even if it is greater than the mandatory dividend, being limited only by the amount of net profit eligible for distribution. After payment of the priority dividend, if there is any remaining dividend to be distributed (mandatory and/or complementary), the remaining amount of the dividend will be allocated successively as follows: (i) upon payment to the common shares of a dividend up to the limit of the priority dividend, i.e., upon payment to each common share of up to 6% of the unit value (as defined above) of the shares; and (ii) if there is still an amount remaining, upon payment to the common shares and class A preferred shares, under equal condition, so that each common share or class A preferred share receives the same dividend. Class B preferred shares do not participate in the distribution of remaining amounts after payment of the priority dividend. The annual shareholders meeting is responsible for considering and voting on the allocation of the Company’s net profit for the year, determined annually based on the audited financial statements, which must be held within the four months following the end of the fiscal year, based on proposal of our management. The Company may, as decided by the board of directors, declare interim dividends, as described above, subject to certain conditions established in section 5.2 of our dividend policy, as referred to above, including the requirement that a proposal for complementary dividend distribution must take into account the impact of such distribution on the Net Debt/EBITDA ratio of the Company measured in U.S. dollars and that such ratio, after any distribution, may not be greater than 2.5 times in the year of the distribution and in the two subsequent years, based on long- term projections of the Company, considering the risks of theses projection being lower. Without prejudice to the aforementioned, the Net Debt/EBITDA ratio may remain temporarily above 2.5 times during a period in which the Company is making strategic investments that create value for shareholders and there is an expectation of generating future cash flow that contributes to this leverage ratio returning to a level not greater than 2.5 times. In this scenario, the management of the Company will not make a proposal for complementary distributions. The Company also may, by decision of the board of directors, pay interest Unless decided otherwise at the shareholders’
Pursuant to the Brazilian Corporate Law, dividend entitlements lapse after three years from the date their payment was due. Calculation of Adjusted Net At each annual shareholders’ meeting, our board of directors is required to recommend how to allocate our net profits for the preceding fiscal year, which recommendation our board of executive officers initially submits to our board of directors for approval. This allocation is subject to approval by our common shareholders. The Brazilian
Dividend Preference of Preferred Shares Under ourby-laws, our preferred shareholders are entitled to a Minimum Preferred Dividend, equal to 6% of the
Our class B preferred shareholders are not entitled to receive any additional dividend amounts after they have received the Mandatory Distributions As permitted by the Brazilian Under the Brazilian is the amount by which our net income exceeds the sum of (1) our net positive results, if any, from the equity method of accounting for earnings and losses of our subsidiaries and certain associated companies, and (2) the profits, gains or income obtained on transactions maturing after the end of the following fiscal year. As amounts allocated to the unrealized profit reserve are realized in subsequent years, and if not absorbed by subsequent losses, such amounts must be added to the dividend payment relating to the year of realization. The Brazilian
Interest Attributable to Shareholders’ Equity Brazilian companies, including
Any payment of interest attributable to shareholders’ equity to holders of common shares, preferred shares or ADSs, whether or not they are Brazilian residents, is subject to Brazilian withholding tax at the rate of 15%, except that a 25% withholding tax rate applies if the recipient is a resident of a tax haven jurisdiction. A tax haven jurisdiction is a country Public Tender Offer upon Sale of Control Pursuant to our by-laws, all of our shares are entitled to tag along rights equivalent to 100% of the price paid in the event of a change of control, subject to certain exceptions set forth in article 12 of our by-laws. Notwithstanding the provisions of our by-laws, pursuant to the Brazilian Corporate Law, our common shares are entitled to tag along rights equivalent to at least 80% of the price paid for such common shares in the event of a change of control. Significant Changes Other than as disclosed in this annual report, no significant change has occurred since the date of the audited consolidated financial statements included in this annual report. Markets for Our Equity Securities The principal trading market for our common shares, class A preferred shares and class B preferred shares is the On December 21, 1998, ADSs representing our class A preferred shares began trading on the NYSE. Our ADSs are traded under the symbol “BAK.”
On October 8, 2003, we listed our class A preferred shares on the LATIBEX, a stock market for Latin American issuers that is quoted in
Most Recent Six Months March 2017 April 2017 May 2017 June 2017 July 2017 August 2017 September 2017 (through September 21)
Regulation of Brazilian Securities Markets The Brazilian securities markets are regulated by the CVM, which has regulatory authority over the stock exchanges and the securities markets generally, the National Monetary Council and the Central Bank, which has, among other powers, licensing authority over brokerage firms and which regulates foreign investment and foreign exchange transactions. The Brazilian securities markets are governed by (1) Law No. 6,385, as amended and supplemented, which is the principal law governing the Brazilian securities markets and which we refer to as the Brazilian Securities Law; (2) the Brazilian Trading on the Overview of the In 2000, theBolsa de Valores de São Paulo S.A. – BVSP (the São Paulo Stock Exchange), or In August 2007, the BOVESPA underwent a corporate restructuring that resulted in the creation of BOVESPA Holding S.A., a public corporation, whose wholly owned subsidiaries were (1) the BOVESPA, which is responsible for the operations of the stock exchange and the organized over-the-counter markets, and (2) the Brazilian Settlement and Custodial Company (Companhia Brasileira de Liquidação e Custódia), or CBLC, which is responsible for settlement, clearing and depositary services. In the corporate restructuring, all holders of membership certificates of the BOVESPA and of shares of CBLC became shareholders of BOVESPA Holding S.A. As a result of the corporate restructuring, access to the trading and other services rendered by the BOVESPA is not conditioned on stock ownership in BOVESPA Holding S.A. In May 2008, the BOVESPA merged with the Commodities and Futures Exchange (Bolsa de Mercadorias & Futuros) to form the BM&FBOVESPA. In November 2008, the CBLC merged with the BM&FBOVESPA. As a result, the BM&FBOVESPA performed its own settlement, clearing and depositary services. On March 30, 2017, the BM&FBOVESPA merged with CETIP, a provider of financial services for the organized over-the-counter market, to form the B3 – Brasil Bolsa Balcão S.A., or B3. Regulation of Foreign Investments Trading on the
Description of Our The following is a summary of the material provisions of ourby-laws and of the Brazilian Corporate Purposes Article 2 of ourby-laws establishes our corporate purposes to include:
Board of Directors Under the Brazilian
Compliance Our by-laws provide for a Compliance Committee comprised of at least three independent members of our board of directors, which members are appointed by our board of directors. In addition, our compliance department, led by our Chief Compliance Officer, has a full-line report directly to the Compliance Committee and a dotted-line report to the CEO of our Company. See “Item 6—Directors, Senior Management and Employees—Directors and Senior Management—Board Committees—Compliance Committee.” Share Capital Under the Brazilian Shareholders’ Meetings Under the Brazilian
In addition to the annual shareholders’ meetings, holders of our common shares have the power to determine any matters related to changes in our corporate purposes and to pass any resolutions they deem necessary to protect and enhance our development whenever our interests so require, by means of extraordinary shareholders’ meetings. Under the Brazilian
We convene our shareholders’ meetings, including our annual shareholders’ meeting, by publishing a notice in the Official Gazette of the State of Bahia, or Diário Oficial do Estado da Bahia, in at least one additional newspaper designated by our shareholders with general circulation in Bahia, where we maintain our registered office. In order for a valid action to be taken at a shareholders’ meeting, shareholders representing at least 25% of our issued and outstanding voting share capital must be present on first call. However, shareholders representing at leasttwo-thirds of our issued and outstanding voting share capital must be present at a shareholders’ meeting called to amend ourby-laws. If a quorum is not present, our board of directors may issue a second call by publishing a notice as described above at least eight calendar days prior to the scheduled meeting. The quorum requirements do not apply to a meeting held on the second call, and the shareholders’ meetings may be convened with the presence of shareholders representing any number of shares (subject to the voting requirements for certain matters described below). A shareholder without a right to vote may attend a shareholders’ meeting and take part in the discussion of matters submitted for consideration. Voting Rights Under the Brazilian Holders of our preferred shares are not entitled to vote on any matter, except (i) with respect to the election of one member of our board of directors by (1) preferred shareholders holding at least 10% of our total share capital, or, (2) if no group of common or preferred shareholders meets the thresholds described above, shareholders holding at least 10% of our total share capital, and (ii) in the limited circumstances described above and as provided below. Preferred shareholders are also entitled to appoint one member of the fiscal council and the respective alternate. The Brazilian Corporate Law and our by-laws provide that our preferred shares will acquire unrestricted voting rights after the third consecutive fiscal year that we fail to pay the minimum dividends to which our preferred shares are entitled. This voting right will continue until the Minimum Preferred Dividend is paid in full. Our preferred shareholders will also obtain unrestricted voting rights if we enter into a liquidation process. Liquidation We may be liquidated in accordance with the provisions of Brazilian law. In the event of our extrajudicial liquidation, a shareholders’ meeting will determine the manner of our liquidation, appoint our liquidator and our fiscal council that will function during the liquidation period. Upon our liquidation, our preferred shares have a liquidation preference over our common shares in respect of the distribution of our net assets. In the event of our liquidation, the assets available for distribution to our shareholders would be distributed first to our preferred shareholders in an amount equal to their pro rata share of our legal capital, prior to making any distributions to our common shareholders. If the assets to be so distributed are insufficient to fully compensate our preferred shareholders for their legal capital, each of our preferred shareholders would receive a pro rata amount (based on their pro rata share of our legal capital, excluding our common shares in such calculation) of any assets available for distribution.
Preemptive Rights Under the Brazilian Under ourby-laws, except when issuing voting shares or securities convertible into voting shares, our board of directors or our shareholders, as the case may be, may decide to reduce the term of preemptive rights or not to extend preemptive rights to our shareholders with respect to any issuance of ournon-voting shares, debentures convertible into our shares or warrants made in connection with a public exchange made to acquire control of another company or in connection with a public offering or through a stock exchange. The preemptive rights are transferable and must be exercised within a period of at least 30 days following the publication of notice of the issuance of shares or securities convertible into our shares. Holders of Redemption, Amortization and Tender Offers Ourby-laws or our shareholders at a shareholders’ meeting may authorize us to use our profits or reserves to redeem or amortize our shares in accordance with conditions and procedures established for such redemption or amortization. The Brazilian The Brazilian Rights of Withdrawal The Brazilian
This right of withdrawal may be exercised by the holders of the adversely affected common or preferred shares if we decide:
In addition, holders of our common and preferred shares may exercise their right of withdrawal if we decide to undertake any of the following actions:
Only shareholders who own shares on the date of publication of the first notice convening the relevant shareholders’ meeting or the press release concerning the relevant shareholders’ meeting is published, whichever is earlier, will be entitled to withdrawal rights. Shareholders will not be entitled to this right of withdrawal if the shares of the entity resulting from a merger, incorporation, consolidation of our The redemption of shares arising out of the exercise of any withdrawal rights would be made at book value per share, determined on the basis of their most recent audited balance sheet approved by our dissenting shareholders. However, if the shareholders’ meeting approving the action that gave rise to withdrawal rights occurred more than 60 days after the date of the most recent approved audited balance sheet, a shareholder may demand that its shares be valued on the basis of a balance sheet prepared specifically for this purpose. The right of withdrawal lapses 30 days after the date of publication of the minutes of the shareholders’ meeting that approved one of the matters described above. Our shareholders may reconsider any resolution giving rise to withdrawal rights within 10 days following the expiration date for such rights if we believe that the withdrawal of shares of dissenting shareholders would jeopardize our financial stability.
Disclosures of Share Ownership Brazilian regulations require that Form and Transfer Our preferred shares and common shares are held in book-entry form, registered in the name of each shareholder or its nominee. The transfer of our shares is governed by Article 35 of the Brazilian The Material Contracts We have not entered into any material contracts, other than those described elsewhere in this annual report or entered into in the ordinary course of business. For additional information about material agreements that we have recently entered into, please see “Item 5. Operating and Financial Review and Prospects––Recent Developments” and “Item 5. Operating and Financial Review and Prospects—Liquidity and Capital Resources.” Exchange Controls There are no restrictions on ownership or voting of our capital stock by individuals or legal entities domiciled outside Brazil. However, the right to convert dividend payments, interest on shareholders’ equity payments and proceeds from the sale of our share capital into foreign currency and to remit such amounts outside Brazil is subject to Investments in our class A preferred shares by
Depositary Receipts (Annex II of Resolution No. Annex II of Resolution No. 4,373 of the National Monetary Council, as amended, provides for the issuance of depositary receipts in foreign markets in respect of shares of Brazilian issuers. We pay dividends and other cash distributions with respect to our class A preferred shares in reais. We have obtained an electronic certificate of foreign capital registration from the Central Bank in the name of the depositary with respect to our ADSs to be maintained by the Foreign Direct Investment and Portfolio Investment Investors (individuals, legal entities, mutual funds and other collective investment entities) domiciled, residing or headquartered outside Brazil may register their investments in our capital stock as foreign portfolio investments under Annex I of Resolution No. 4,373 (described below) or as foreign direct investments under Law No. 4,131 (described below). Registration under Annex I of Resolution No. Registration under Annex I of Resolution No. 4,373 affords favorable tax treatment tonon-Brazilian portfolio investors who are not resident in
All investments made by a non-Brazilian investor under Annex I of Resolution No. 4,373 are subject to electronic registration with the Brazilian Central Bank. Such registration permits the conversion of dividend payments, payments of interest on shareholders’ equity and proceeds from the sale of our capital stock into foreign currency and the remission of such amounts outside Brazil. Under Annex I of Resolution No. 4,373, non-Brazilian investors registered with the CVM may invest in almost all financial assets and engage in almost all transactions available to Brazilian investors in the Brazilian financial and capital markets without obtaining a separate Central Bank registration for each transaction, provided that certain requirements are fulfilled. Under Annex I of Resolution No. Pursuant to Annex I of Resolution No.
The securities and other financial assets held by anon-Brazilian investor pursuant to Annex I of Resolution No. The offshore transfer or assignment of the securities or other financial assets held by non-Brazilian investors pursuant to Annex I of Resolution No. 4,373 are prohibited, except for transfers (1) resulting from consolidation, spin-off, merger or merger of shares or occurring upon the death of an investor by operation of law or will; (2) resulting from a corporate reorganization effected abroad, as long as the final beneficiaries and the amount of the assets remain the same, or (3) authorized by the CVM. Law No. 4,131 Foreign direct investors under Law No. 4,131 may sell their shares in both private and open market transactions, but these investors will generally be subject to less favorable tax treatment on gains with respect to our class A preferred shares. See “—Taxation—Brazilian Tax Considerations.” To obtain a certificate of foreign capital registration from the Brazilian Central Bank under Law No. 4,131, a foreign direct investor must:
Foreign investors must be registered with the Federal Brazilian
Taxation The following summary contains a description of
Brazilian Tax Considerations The following Pursuant to Brazilian law, a non-resident holder may invest in class A preferred under Resolution No. 4,373, of September 2014, of the National Monetary Council (a “4,373 Holder”). Acquisition of ADSs or Class A Preferred Shares The acquisition of ADSs or class A preferred shares by Taxation of Dividends Dividends paid by a Brazilian corporation with respect to profits generated as of January 1, 1996, including dividends paid in kind to the depositary in respect of our class A preferred shares underlying the ADSs or to a Dividends paid from profits generated before January 1, 1996 may be subject to Brazilian withholding income tax at variable rates, according to the tax legislation applicable to each corresponding year. In this context, it should be noted that Law No. 11,638, dated December 28, 2007, significantly altered the Brazilian corporate law in order to align the generally accepted Brazilian accounting standards to the International Financial Reporting Standards (“IFRS”). Nonetheless, Law No. 11,941, dated May 27, 2009, introduced the Transitory Tax Regime (“RTT”) in order to render neutral, from a tax perspective, all of the changes provided by Law No. 11,638. Under the RTT, for tax purposes, legal entities should observe the accounting methods and criteria as in force on December 31, 2007. Profits determined pursuant to Law No. 11,638 (“IFRS Profits”) may differ from the profits calculated pursuant to the accounting methods and criteria as in force on December 31, 2007 (“2007 Profits”).
While it was a general market practice to distribute exempted dividends with reference to the IFRS Profits, Normative Ruling No. 1,397, issued by the Brazilian tax authorities on September 16, 2013, has established that legal entities should observe the 2007 Profits, in order to determine the amount of profits that could be distributed as exempted income to their beneficiaries. Any profits paid in excess of said 2007 Profits (“Excess Dividends”) should, in the tax authorities’ view and in the specific case of non-resident beneficiaries, be subject to the following rules of taxation: (i) 15% withholding tax, in case of case of beneficiaries domiciled abroad, but not in a Low or Nil Tax Jurisdiction (as defined below), and (ii) 25% withholding tax, in case of beneficiaries domiciled in a Low or Nil Tax Jurisdiction (as defined below). In order to mitigate potential disputes on the subject, Law No. 12,973, dated May 13, 2014, in addition to revoking the RTT, introduced a new set of tax rules, or the New Tax Regime, including new provisions with respect to Excess Dividends. Under these new provisions: (i) Excess Dividends related to profits assessed from 2008 to 2013 will be exempt; (ii) potential disputes remain concerning the Excess Dividends related to 2014 profits, unless a company voluntarily elected to apply the New Tax Regime in 2014; and (iii) as of 2015, once the New Tax Regime became mandatory and completely replaced the RTT, dividends calculated based on IFRS standards should be considered fully exempt. There are proposed bills currently under discussion by the Brazilian federal government regarding a potential amendment to the tax legislation aiming at taxing dividends. Therefore, the mentioned dividend exemption may be revoked with prospective effects. Interest on Shareholders’ Equity Law No. 9,249/95, as amended, allows a Brazilian corporation to make distributions to shareholders characterized as distributions of interest on shareholders’ equity on top of or as an alternative to dividend distributions. Such interest is calculated by multiplying the long-term interest rate (TJLP), as determined by the Brazilian Central Bank from time to time, by the sum of determined Brazilian company’s net equity accounts. Distributions of interest on Interest on shareholders’ equity is
Payments of interest on shareholders’ equity may be included, at their net value, as part of any mandatory dividend. To the extent payment of interest on shareholders’ equity is so included, the corporation is required to distribute to shareholders an additional amount to ensure that the net amount received by them, after payment of the applicable withholding income tax plus the amount of declared dividends, is at least equal to the mandatory dividend.
No assurance can be given that our board of directors will not recommend that future distributions of income should be made by means of interest on shareholders’ equity instead of dividends. Distributions of interest on shareholders’ equity to a non-resident holder may be converted into U.S. dollars and remitted outside Brazil, subject to applicable exchange controls, to the extent that the investment is registered with the Central Bank. Taxation of Gains According to Brazilian Law No. 10,833/03, gains realized on the disposition or sale of assets located in Brazil are subject to income tax in Brazil, regardless of whether the sale or the disposition is made by thenon-resident holder to a Brazilian resident or to anothernon-resident of Holders of the ADSs outside of Brazil may have grounds to assert that Brazilian Law No. 10,833/03 does not apply to sales or other dispositions of ADSs as ADSs are not assets located in As a result, in case the ADSs are deemed to be assets located in Brazil, gains recognized by a non-resident holder from their sale or other disposition to either a non-resident of Brazil or a resident of Brazil may be subject to income tax in Brazil at progressive rates as follows: (1) 15% for the portion of the gain that does not exceed R$5 million, (2) 17.5% for the portion of the gain that exceeds R$5 million but does not exceed R$10 million, (3) 20% for the portion of the gain that exceeds R$10 million but does not exceed R$30 million, and (4) 22.5% for the portion of the gain that exceeds R$30 million, or at a flat tax rate of 25% if such non-resident holder is located in a Low or Nil Tax Jurisdiction (as defined below), unless, in each case, a lower rate is provided for in an applicable tax treaty between Brazil and the country where the non-resident holder has its domicile. In the event of any such income tax, the person responsible for the withholding and collection of the income tax will be: (i) the ADSs acquirer (if resident in Brazil); or (ii) the attorney in fact or legal representative of the non-resident acquirer, according to Section 26 of Law No. 10,833/03. Under certain circumstances, if income tax is not paid, the amount of tax charged could be subject to an upward adjustment, as if the amount received by the non-resident holder were net of taxes in Brazil (gross-up). Taxation of Gains with Respect to Class A Preferred Shares The sale or other disposition of class A preferred shares or the receipt of the underlying class A preferred shares in exchange for ADSs abroad may be subject to the provisions of Brazilian Law No. 10,833/03.
Under Brazilian law, income tax rules on such gains can vary depending on the domicile of
Gains realized by a
Any other gains realized on a disposition of class A preferred shares that is not carried out on Brazilian stock The deposit of class A preferred shares in exchange for ADSs is not subject to Brazilian tax, provided that these shares are held by thenon-resident holder as a foreign portfolio investment under Resolution No. The current preferential treatment fornon-resident holders of ADSs andnon-resident holders of class A preferred shares under Resolution No. Any exercise of preemptive rights relating to our class A preferred shares will not be subject to Brazilian taxation. Gains realized by a non-resident holder on the sale or assignment of preemptive rights relating to our class A preferred shares Discussion on Low or Nil Tax Jurisdictions The concept of Low or Nil Tax Jurisdiction encompasses those countries that do not tax income or tax it at a maximum rate lower than 20%, or where the local legislation does not allow access to information related to the shareholding composition of legal entities, to their ownership or to the identity of the effective beneficiary of the income attributed to non-residents (“Low or Nil Tax Jurisdictions”). The statutory definition of a Low or Nil Tax Jurisdiction for the purpose of income taxation on gains should differ depending on whether or not the holder is a 4,373 Holder. In the case of a 4,373 Holder, the definition of Low or Nil Tax Jurisdiction should not comprise jurisdictions where the local legislation imposes restrictions on disclosing the shareholding composition or ownership of the investment. However, the list provided for in Normative Ruling No. 1,037/10 does not seem to differ the Low or Nil Tax Jurisdiction definition for the purposes of 4,373 Holders. On June 23, 2008, Law No. 11,727 introduced the concept of “Privileged Tax Regime,” which encompasses the countries and jurisdictions that (i) do not tax income or tax income at a maximum rate lower than 20%, or 17% in certain cases as detailed below; (ii) grant tax advantages to a non-resident entity or individual (a) with no requirement to carry out a substantial economic activity within the country or dependency, or (b) on the
In addition, on June 4, 2010, the Brazilian tax authorities enacted Normative Ruling No. 1,037, as amended, listing (i) the countries and jurisdictions considered as Low or Nil Tax Jurisdictions, and (ii) the Privileged Tax Regimes. On its turn, Ordinance No. 488, of November 28, 2014, issued by the Brazilian Ministry of Finance, reduced the rate for purposes of the definition of Low or Nil Tax Jurisdiction and Privileged Tax Regime from 20% to 17%, but only to countries and regimes aligned with international standards of fiscal transparency, in accordance with the rules established by Normative Ruling n. 1,530, issued on December 19, 2014. Under Brazilian law, the aforementioned commitment is present if the relevant jurisdiction (i) has entered into (or concluded the negotiation of) an agreement or convention authorizing the exchange of information for tax purposes with Brazil and (ii) is committed to the actions discussed in international forums on tax evasion in which Brazil has been participating, such as the Global Forum on Transparency and Exchange of Information. In the past, it was not clear whether the concept of Privileged Tax Regime was also applicable to interest payments made to residents outside Brazil. Notwithstanding, in December 2017, the Brazilian Federal Revenue Service (“RFB”) published Answer to Tax Ruling Cosit Ruling No. 575/2017, stating that only payments to countries deemed as a Low or Nil Tax Jurisdiction by Normative Ruling No. 1,037 would be subject to withholding tax at a 25% rate. Therefore, under the RFB’s current interpretation, we believe that the best interpretation of the current tax legislation leads to the conclusion that the concept of Privileged Tax Regime should apply solely for purposes of Brazilian transfer pricing and thin capitalization/cross-border interest deductibility rules. Nevertheless, we cannot assure you that subsequent legislation or interpretations by the Brazilian tax authorities regarding the definition of a Privileged Tax Regime provided by Law No. 11,727, will not also apply to a non-resident holder on payments of interest on shareholders’ equity. Regardless of the above, potential investors should consult with their own tax advisors regarding the consequences of the implementation of Law No. Other Brazilian Taxes There are no Brazilian inheritance, gift or succession taxes applicable to the ownership, transfer or disposition of class A preferred shares or ADSs by anon-resident holder except for gift and inheritance taxes imposed by some states of Brazil on gifts made or inheritances bestowed by individuals or entities not resident or domiciled in Brazil or domiciled within the state to individuals or entities resident or domiciled within such state in Brazil. There are no Brazilian stamp, issue, registration or similar taxes or duties payable by holders of class A preferred shares or ADSs.
Tax on Foreign Exchange and on Bonds and Securities Transactions Foreign Exchange Transactions IOF/Exchange Tax Pursuant to Decree The IOF/Exchange
The Brazilian government may increase the rate of the IOF/Exchange IOF/Bonds Tax Pursuant to Decree No 6,306/07, the “IOF/Bonds” tax may be imposed on any transactions involving bonds and securities, including those carried out on Brazilian stock, futures and commodities exchanges. The rate of IOF/ Bonds applicable to most transactions involving common or preferred shares is currently zero percent, including transactions related to transfers of shares traded on the stock exchange with the purpose of enabling the issuance of ADSs to be traded outside Brazil. The Brazilian government may increase the rate of the IOF/Bonds up to 1.5% per day, but only in respect of future transactions. Registered Capital The amount of an investment in class A preferred shares held by anon-Brazilian holder as a foreign direct investment under Law No. 4,131/ Anon-Brazilian holder of class A preferred shares may experience delays in effecting the registration of registered capital, which may delay remittances abroad. Such a delay may adversely affect the amount, in U.S. dollars, received by thenon-Brazilian holder. See “—Exchange Controls” and “Item 3. Key Information—Risk Factors—Risks Relating to Our
U.S. Federal Income Tax Considerations The following is a discussion of the material U.S. federal income tax consequences that may be relevant with respect to the acquisition, ownership and disposition of our class A preferred shares or the ADSs, which are evidenced by ADRs. This This discussion does not contain a detailed description of all the U.S. federal income tax consequences to U.S. holders in light of their particular circumstances and does not address any state, local ornon-U.S. tax consequences of the acquisition, ownership and disposition of our class A preferred shares or the ADSs. As used below, a “U.S. holder” is a beneficial owner of If a partnership (or any other entity or arrangement treated as a partnership for U.S. federal income tax purposes) holds our class A preferred shares or the ADSs, the tax treatment of a partner in such partnership will generally depend on the status of the partner and the activities of the partnership. This discussion is not intended to constitute a complete analysis of all tax consequences relating to the acquisition, ownership and disposition of our class A preferred shares or the ADSs. You should consult your own tax advisors concerning the particular U.S. federal income tax consequences to you of the acquisition, ownership and disposition of our class A preferred shares or the ADSs, as well as the consequences to Except as specifically noted below under “—Passive Foreign Investment Company Rules,” the following discussion assumes we are not, and will not be, a passive foreign investment company (“PFIC”) for U.S. federal income tax purposes.
Class A Preferred Shares The class A preferred shares will be treated as equity for U.S. federal income tax purposes. ADSs In general, for U.S. federal income tax purposes, a holder of Taxation of Dividends
Subject to applicable limitations (including a minimum holding period requirement), non-corporate U.S. holders may be taxed on dividends from a qualified foreign corporation at the lower rates applicable to long-term capital gains A dividend paid inreais will be includible in the income of a U.S. holder at its value in U.S. dollars calculated by reference to the prevailing spot market exchange rate in effect on the day it is received by the U.S. holder in the case of our class A preferred shares or, in the case of a dividend received in respect of ADSs, on the date the dividend is received by the depositary, whether or not the dividend is converted into U.S. dollars. Assuming the payment is not converted at that time, the U.S. holder will have a tax basis inreais equal to that U.S. dollar amount, which will be used to measure gain or loss from subsequent changes in exchange rates. Any gain or loss realized by a U.S. holder that subsequently sells or otherwise disposes ofreais, which gain or loss is attributable to currency fluctuations after the date of receipt of the dividend, will be U.S. source ordinary gain or loss. The amount of any distribution of property other than cash will be the fair market value of such property on the date of distribution. The gross amount of any dividend paid (which will include any amounts withheld in respect of Brazilian taxes) with respect to a class A preferred share or ADS will be subject to U.S. federal income taxation as foreign source dividend income, which may be relevant in calculating a U.S. holder’s foreign tax credit limitation. Subject to limitations under U.S. federal income tax law concerning credits or deductions for foreign taxes and certain exceptions for short-term and hedged positions, any Brazilian withholding tax will be treated as a foreign income tax eligible for credit against a U.S. holder’s U.S. federal income tax liability (or at a U.S. holder’s election, may be deducted in computing taxable income if the U.S. holder has elected to deduct all foreign income taxes for the taxable year). The limitation on foreign taxes eligible for the U.S. foreign tax credit is calculated separately with respect to specific “baskets” of income. For this purpose, the dividends should generally constitute “passive category income,” or in the case of certain U.S. holders, “general category income.” The rules with respect to foreign tax credits are complex, and U.S. holders are urged to consult their own tax advisors regarding the availability of the foreign tax credit under their particular circumstances.
Sale, Exchange or Other Disposition of Class A Preferred Shares or ADSs A deposit or withdrawal of class A preferred shares by a holder in exchange for an ADS that represents such shares will not result in the realization of gain or loss for U.S. federal income tax purposes. A U.S. holder generally will recognize capital gain or loss upon a sale, exchange or other disposition of a class A preferred share or ADS The initial tax basis of class A preferred shares With respect to the sale, exchange or
Passive Foreign Investment Company Rules
In general, we will be a PFIC for any taxable year in which
The determination of
If we
Although the determination of whether we are a
If we are a PFIC for any taxable year during which a U.S. holder holds our class A preferred shares or the ADSs and any of our non-U.S. subsidiaries is also a PFIC, such holder will be treated as owning a proportionate amount (by value) of the shares of the lower-tier PFIC for purposes of the application of the PFIC rules. U.S. holders are urged to consult their tax advisor about the application of the PFIC rules to any of our subsidiaries.
A U.S. holder will generally be required to file U.S. Internal Revenue Service Form 8621 if such holder holds our class A preferred shares or the ADSs in any year in which we are classified as a PFIC. U.S. holders are urged to consult their tax advisor concerning
Foreign Asset Reporting
Information Reporting and Backup Withholding
The backup withholding tax rate is Backup withholding is not an additional tax. Holders generally will be entitled to a credit for any amounts withheld under the backup withholding rules against their U.S. federal income tax liability or a refund of the amounts withheld, provided the required information is furnished to the
Documents on Display Statements contained in this annual report regarding the contents of any contract or other document filed as an exhibit to this annual report summarize their material terms, but are not necessarily complete, and each of these statements is qualified in all respects by reference to the full text of such contract or other document. We are subject to the periodic reporting and other informational requirements of the Exchange Act applicable to a foreign private issuer. Accordingly, we are required to file with or furnish to the SEC, reports and other information, including annual reports on Form20-F and reports on Form6-K. As a foreign private issuer, we are exempt under the Exchange Act from, among other things, the rules prescribing the furnishing and content of proxy statements, and members of our board of directors and board of executive officers and our principal shareholders are exempt from reporting and short-swing profit recovery provisions contained in Section 16 of the Exchange Act. In addition, as a foreign private issuer, we will not be required under the Exchange Act to file periodic reports and financial statements with the SEC as frequently or as promptly as U.S. companies whose securities are registered under the Exchange Act. You may inspect and copy reports and other information that we file with or furnish to the SEC at the SEC’s Public Reference Room located at 100 F Street, N.E., Washington D.C. 20549. Copies of these materials may be obtained by mail from the SEC’s Public Reference Room at prescribed rates. The public may obtain information on the operation of the SEC’s Public Reference Room by calling the SEC in the United States at1-800-SEC-0330. In addition, the SEC maintains an internet website at www.sec.gov from which you can electronically access these materials.
We also file financial statements and other periodic reports with the CVM, which are available for investor inspection at the CVM’s offices located at Rua Sete de Setembro, 111, 2nd floor, Rio de Janeiro, RJ, and Rua Cincinato Braga, 340, 2nd, 3rd and 4th floors, São Paulo, SP. The telephone numbers of the CVM in Rio de Janeiro and São Paulo are Copies of our annual report on Form20-F and documents referred to in this annual report and ourby-laws, as well as certain other documents that we are required to file with, or make available to, the SEC and the CVM, are available for inspection upon request at our headquarters at Rua Lemos Monteiro, 120 – 24° andar, Butantã—São Paulo—SP, CEP05501-050, Brazil. Our filings are also available to the public through the internet
Market risk is the potential loss arising from adverse changes in market rates and prices. We In order to mitigate the market risks to which we are exposed, we have used, and we may use, foreign currency, interest rate and commodity derivative instruments, as well as cash and receivables. As of December 31, We assess the potential and consolidated impact of market risks and seek to mitigate
We do not enter into derivative transactions As of December 31, Interest Rate Risk Our variable interest rate exposure is primarily subject to the variations of the LIBOR rate and, forreal-denominated borrowings and short-term cash investments, variations of the With respect to Brazilian interest rates:
The table below provides information about our significant interest-rate sensitive instruments:
In the event that the average interest rate applicable to our financial assets and debt in Foreign Currency Exchange Rate Risk Our liabilities
The table below provides information about our significant foreign currency exposures:
Our foreign currency exposures give rise to market risks associated with exchange rate movements of thereal against the U.S. dollar. Foreign currency-denominated liabilities as of December 31, Our cash and funds available in U.S. dollars partially protect us against exposure arising from the U.S. dollar-denominated debt. Similarly, In the event that thereal
Commodity Prices We do not
The Bank of New York Mellon, which was designated our depositary in December 2016, collects its fees for the delivery and surrender of ADSs directly from investors depositing shares or surrendering ADSs or from intermediaries acting for them. The depositary also collects fees for making distributions to investors by deducting those fees from the amounts distributed or by selling a portion of distributable property to pay the fees. The depositary may collect its annual fee for depositary services by deductions from cash distributions or by directly billing investors or by charging the book-entry system accounts of participants acting for them. The depositary may generally refuse to provide
During the year ended December 31,
Not applicable.
Not applicable.
Disclosure Controls and Procedures Our management, including our Chief Executive Officer and our Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) as of December 31,
Because of its inherent limitations, internal control over financial reporting may not Our management, with the participation of the CEO and CFO, under the oversight of the Board of Directors, assessed the effectiveness of our
As part of the Internal Control over Financial Reporting assessment, we identified ineffective controls over the realization of the hedged items for certain debt at Braskem Idesa, a Mexican subsidiary. The ineffective controls were due to (i) failure over the hedge accounting control execution that was not executed with the proper precision to capture the failure and There was a misstatement identified that was not material as of December 31, 2021 and was corrected in the current consolidated financial statements but resulted in more than a remote chance of a material misstatement and as such was determined to be a material weakness. Our Remediation Actions Addressing Material Weakness Reported in 2021 Our management is taking several actions to improve controls and continues to monitor the maturity and operating effectiveness of controls designed and implemented. In order to remediate the material weakness described above, we, led by our Chief Executive Officer and the The Braskem Idesa financial team has revised the review attributes that surround the accounting
Remediation Actions Addressing Material Weakness Reported in 2020 As part of management commitment to improve its internal control environment, diligent actions were taken to remediate the Information technology controls (GITCs) over the scale systems The IT team, in partnership with the logistics team, have worked on
The European Logistics team has also improved the internal control environment over polymers shipping to ensure that the quantities shipped are in accordance with the quantities invoiced to our clients. New controls were adopted and were part of the management assessment of internal control over financial reporting. Management was able to evaluate the remediation actions and the controls implemented during 2021 and conclude that this material weakness was remediated for the 2021 annual report. Changes in Internal Control over Financial Reporting
Our
We have adopted a code of conduct that applies to members of our board of directors, fiscal council and board of executive officers, as well as to our other employees.
Audit andNon-Audit Fees The following table sets forth the fees billed to us by our independent registered public accounting firm
Pre-Approval Policies and Procedures
Policy.
equivalent of, or wholly comparable to, a U.S. audit committee. Among other differences, it is not required to meet the standards of “independence” established in Rule 10A-3 and is not fully empowered to act on all the matters that are required by Rule 10A-3 to be within the scope of an audit committee’s authority. Nonetheless, with the attributes provided to the CCAE under our bylaws and CCAE’s chart to the extent permitted by Brazilian law, we
We also have a permanent fiscal council. However, as of November 9, 2021, we no longer rely on the fiscal council to
On August 13, 2012, our board of directors authorized a share repurchase program under which we are authorized to repurchase up to 13,376,161 “class A” preferred shares at market prices over the On February 11, 2015, our board of directors approved the fifth program for the repurchase of shares effective for the period between February 19, 2015 and February
Not applicable.
On November 4, 2003, the SEC approved the final corporate governance rules established by the NYSE. According to these rules, foreign private issuers that are listed on the NYSE, such as Braskem, are subject to a more limited set of corporate governance requirements than those imposed on U.S. domestic issuers. As a foreign private issuer, Braskem must comply with the following four requirements imposed by the NYSE:
Significant Differences The significant differences between Braskem’s corporate governance practices and the NYSE’s corporate governance standards are mainly due to the differences between the U.S. and Brazilian legal systems. Braskem must comply with the corporate governance standards set forth under the Brazilian The significant differences between Braskem’s corporate governance practices and the NYSE’s corporate governance standards are set forth below. Independence of Directors and Independence Tests In general, the NYSE corporate governance standards require listed companies to have a majority of independent directors and set forth the principles by which a listed company can determine whether a director is independent. However, under the NYSE corporate governance standards, a listed company (whether
Because a majority of the voting power of Braskem’s capital stock is directly controlled by Novonor S.A (former Odebrecht S.A.), Braskem is a controlled company, and would therefore not be required to have a majority of independent Although Brazilian Executive Sessions The NYSE corporate governance standards requirenon-management directors of a listed company to meet at regularly scheduled executive sessions without management. According to the Brazilian Nominating/Corporate Governance and Compensation Committees The NYSE corporate governance standards require that a listed company have a nomination/corporate governance committee and a compensation committee, each composed entirely of independent directors and each with a written Braskem is not required under Brazilian
Under Brazilian
Audit Committee and Audit Committee Additional Requirements The NYSE corporate governance standards require that a listed company have an audit committee with a written As a foreign private issuer that qualifies for the general exemption from the listing standards relating to audit committees set forth inSection 10A-3(c)(3) under the Exchange Act, Braskem is not subject to the independence requirements of the NYSE corporate governance standards. See “Item 16D. Exemptions From the Listing Standards for Audit Committees.” The SEC has recognized that, for foreign private issuers, local legislation may delegate some of the functions of the audit committee to other bodies. We established the CCAE upon approval at the board of directors meeting held on November 9, 2021. Our CCAE meets the requirements for the exemption available to foreign private issuers under paragraph (c)(3) of Rule 10A-3 under the Exchange Act. The CCAE is not the equivalent of, or wholly comparable to, a U.S. audit committee. Among other differences, it is not required to meet the standards of “independence” established in Rule 10A-3 and is not fully empowered to act on all the matters that are required by Rule 10A-3 to be within the scope of an audit committee’s authority. Shareholder Approval of Equity Compensation Plans The NYSE corporate governance standards require that shareholders of a listed company must be given the opportunity to vote on all equity compensation plans and material revisions thereto, subject to certain exceptions. Under the Instruction No. 567/2009 of the Brazilian Corporate Governance Guidelines The NYSE corporate governance standards require that a listed company must adopt and disclose corporate governance guidelines that address certain minimum specified standards which include: (1) director qualification standards; (2) director responsibilities; (3) director access to management and independent advisors; (4) director compensation; (5) director orientation and continuing education; (6) management succession; and (7) annual performance evaluation of the board of directors. Braskem has adopted the Code of The NYSE corporate governance standards require that a listed company must adopt and disclose a code of business conduct and ethics for directors, officers and employees and promptly disclose any waivers of the code for directors or officers. Each code of business conduct and ethics should address the following matters:
(1) conflicts of interest; (2) corporate opportunities; (3) confidentiality; (4) fair dealing; (5) protection and proper use of company assets; (6) compliance with laws, rules and regulations (including insider trading laws); and (7) encouraging the reporting of any illegal or unethical behavior. Braskem has adopted a The main purpose of Braskem’s Code of Conduct is to establish the principles, values and standards that guide the business conduct of Team Members in their internal and external relations. Braskem also has a Code of Conduct for Contractors, which focuses on its relations with suppliers and partners.
The information concerning mine safety violations or other regulatory matters required by Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and this Item is included in exhibit
We have responded to Item 18 in lieu of responding to this item.
Reference is made to Item 19 for a list of all financial statements filed as part of this annual report.
(a) Financial Statements (b) List of Exhibits
4Note to draft: Exhibits to be updated.
SIGNATURES The registrant hereby certifies that it meets all of the requirements for filing on Form20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.
KPMG Auditores Independentes Rua Arquiteto Olavo Redig de Campos, 105, 6º andar - Torre A 04711-904 - São Paulo/SP - Brasil Caixa Postal 79518 - CEP 04707-970 - São Paulo/SP - Brasil Telefone +55 (11) 3940-1500 kpmg.com.br Report of Independent Registered Public Accounting Firm To the Shareholders and Board of Directors
We have
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the
Basis for Opinion The Company’s management is responsible We conducted our
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
KPMG Auditores Independentes Ltda.
Report of Independent Registered Public Accounting Firm To the Shareholders and Board of Directors Braskem S.A.: Opinion on the Consolidated Financial Statements We have audited the accompanying consolidated statement of financial position of Braskem S.A. and subsidiaries (the Company) as of December 31, 2021 and 2020, the related consolidated statements of profit or loss, comprehensive income (loss), changes in equity, and cash flows for each of the years in the three-year period ended December 31, 2021, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2021, in conformity with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB). We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated April 27, 2022, expressed an adverse opinion on the effectiveness of the Company’s internal control over financial reporting. Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which they relate. Evaluation of the provision and disclosures related to geological phenomenon in Alagoas State As discussed in note 26 to the consolidated financial statements, the Company has recorded a provision related to the geological phenomenon in the vicinity of the Company’s salt mining wells in the state of Alagoas of R$ 7,661,259 thousand as of December 31, 2021. The provision is for the estimated future outflows of resources required to settle the Company’s commitments under an agreement signed with the Brazilian government authorities following the occurrence of the geological phenomenon. These commitments include taking measures to close and stabilize the salt mines, relocating and compensating residents and businesses in the region and adopting actions and measures in vacated areas, urban mobility and social compensation. We identified the evaluation of the provision and disclosures related to the salt mining activities in Alagoas as a critical audit matter. The evaluation of the estimates and assumptions used by the Company to determine the provision amount required challenging auditor judgment and the use of professionals with specialized skills and knowledge. The key estimates and assumptions related to the extent and cost of the remediation actions required to stabilize and close the wells, the market value of the properties of residents and businesses in the region, the other costs to relocate and compensate the residents and business owners, and the costs of the social and urban actions. The primary procedures we performed to address this critical audit matter included the following: We evaluated the design and tested the operating effectiveness of certain internal controls over the Company’s estimation process, including controls related to assumptions used in the estimation process and evaluation of information from external and internal experts, as well as controls over the financial statement disclosures. We involved infrastructure valuation professionals, with specialized skills and knowledge, who assisted in:
We assessed the adequacy of the disclosures related to the geological phenomenon in Alagoas State. KPMG Auditores Independentes Ltda. We have served as the Company’s auditor since 2018. São Paulo, Brazil
Statement of consolidated financial position at December 31 All amounts in thousands of
Braskem S.A.
Statement of consolidated financial position at December 31
All amounts in thousands of
Braskem S.A. Statement of Years ended December 31 All amounts in thousands of
Braskem S.A. Statement of Years ended December 31 All amounts in thousands of
Braskem S.A. Statement of consolidated changes in equity
Years ended December 31 All amounts in thousands of
Braskem S.A. Statement of
All amounts in thousands of Reais
Braskem S.A. Statement of consolidated cash flow Years ended December 31 All amounts in thousands of Reais
Summary of Notes
Braskem S.A. Notes to the consolidated financial statements at December 31, 2021 All amounts in thousands of Reais, except as otherwise stated 1 Operations Braskem S.A. is a public The Braskem’s shares are traded on B3 S.A. Brasil, Bolsa, Balcão (“B3”), under the tickers BRKM3, BRKM5 and BRKM6, and on the New York Stock Exchange (“NYSE”) under the ticker BAK. Braskem is engaged in the
The Company Operations of
On December In January 2021, BI partially resumed operations of In addition, BI has taken legal measures as established in the Ethane Supply Agreement entered into between BI and PEMEX Transformación Industrial and PEMEX Exploración y Producción (“PEMEX”). Braskem Netherlands B.V., the direct parent company of BI, also has taken legal actions based on the applicable international rules to protect the rights and to ensure the performance of all legal obligations On February 26, 2021, BI signed the following documents to enable the continuity of its operations: (i) Memorandum of understanding with terms and conditions for discussing potential amendments to the ethane supply agreement with PEMEX, as well as for building an ethane import terminal, subject to negotiation and approval of creditors and shareholders of BI, and with rights reserved; and (ii) Natural gas transportation service agreement with Cenagas, with term On September 27, 2021, BI signed the
(ii) Agreement with Petróleos Mexicanos, PEMEX Logística and other Mexican government entities, establishing administrative support measures, especially to obtain of licenses, permits and rights of way for the project to build an ethane import terminal with the
The Amendment changes the minimum contractual volume commitment to 30,000 barrels/day until the limit date of February 2025 (subject to extensions in the event of delay in obtaining the licenses for the terminal's construction). The terminal's startup is expected to the second half of 2024. The terminal project is designed to supplement ethane supply in Mexico by gaining access to new feedstock sources. The Amendment further establishes first-refusal rights, which consists of a preemptive right for BI in the acquisition of all ethane that PEMEX has available and does not consume in its own production process through 2045, at prices based on international references. The Amendment and the Terminal Agreement were conditioned upon the applicable corporate approvals, including final approval by the shareholders and creditors of BI ("Conditions Precedent"). The Amendment produced effects retroactive to February 26, 2021, the execution date of the
The consolidated financial statements were prepared and presented in accordance with the International Financial Reporting Standards
2.2 Basis of presentation The Company’s consolidated financial statements (“financial statements”) were prepared under the historical cost convention, unless stated otherwise in the accounting policies. These financial statements were prepared considering the continuity of its operating activities. The significant accounting policies applied in the preparation of these financial statements The issue of these financial statements was authorized by the
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