Mexico renegotiates ethanol contract it found onerous

MEXICO CITY (AP) — Mexico President Andrés Manuel López Obrador said Wednesday that the government had successfully renegotiated what had been an onerous contract with a subsidiary of Brazilian construction giant Odebrecht.

López Obrador alleges the contract signed in 2010 during the administration of former President Felipe Calderon was the result of corruption.

The original contract called for the state-owned oil company to provide the Braskem Idesa plant in the Gulf coast state of Veracruz wth 66,000 barrels of ethanol daily at discounted prices. It was a volume that Pemex could not realistically meet, said current Pemex director Octavio Romero Oropeza. The contract included hefty penalties for not meeting that volume and over five years Mexico paid nearly $300 million in penalties, Romero said.

Braskem is a subsidiary of Odebrecht, which has been tied to bribery scandals in Mexico and other parts of Latin America. Idesa is its Mexican partner in the plant.

Braskem Idesa said in statement Monday that natural gas began flowing to the plant with the signing of the memorandum of understanding changing the terms of the contract on Feb. 26. Both sides also agreed to collaborate on building an ethanol terminal to guarantee the plant's future supply.

When López Obrador took office in December 2018, he said it should be renegotiated, but Braskem Idesa refused. That changed late last year when the plant’s contract for natural gas transportation from government company CENAGAS was expiring. Mexico told Braskem-Idesa it would not be renewed.

“The plant was left without natural gas. That’s how they became reasonable,” López Obrador said.

The new contract, signed last week, guarantees only 30,000 barrels of ethanol per day at market prices and without such onerous penalties, Romero said. And instead of the previous 20-year commitment, Pemex is only committed for three more years.

López Obrador said the Attorney General’s Office is investigating the origins of the original contract.