VENEZUELA - Pequiven & Its Strategy.

Pequiven is an integrated company which operates 13 fully-owned plants, producing basic petrochemicals and fertilisers. It participates in 19 JVs of which one, FertiNitro, went on stream in 2000, and has investments overseas. It has four complexes in Venezuela: El Tablazo, Jos, Paraguana and Moron.

The strategy of Pequiven, adopted in 1999, consists of the following aims: (1) to capture regional opportunities in fertilisers and plastics and hemispheric opportunities in aromatics; (2) to generate the maximum value possible from synergies arising from oil refining (see DT 19) and the chemical sector, "so as to derive the maximum economic benefit from any stage of the market's commercial cycle"; (3) to grow as a result of "wide national and international private sector participation"; (4) to develop the sector's value chain downstream "through the offer of competitive inputs"; and (5) to leverage the chemicals business "by continuing the petrochemical expansion programmes" based on methane and ethane gas and on the oil refining streams' "industrialisation projects now in progress".

Pequiven is responsible for upstream petrochemicals derived from natural gas. It is active in three business units: olefins and plastics, fertilisers, and industrial products. It fully controls the following companies:

Productos Especiales (Proesca), the specialty and industrial chemicals unit - which is involved in downstream plants and is the partner in the aromatics JVs. Founded in 1995, Proesca has since established six JVs.

Desarrollos Quimicos, responsible for maximising synergies with PDVSA's overseas system (see OMT No. 21) and for promoting new business in building-block, secondary and consumer petrochemicals.

Posamerica, a marketing unit formed in early 1999, in charge of sales of ammonia and urea. Its role is to improve Pequiven's market share positions for fertilisers on the American continent.

Set up in the late 1970s, Pequiven has always sought to maximise its natural advantages, namely: guaranteed access to cheap and abundant gas and oil feedstocks, strategic location close to consuming markets in the US and Latin America, and existence of good infrastructure in local areas where the company has expanded. Pequiven has been constrained, however, by state regulations which limit its autonomy for business development.

A privatisation of Pequiven, under a plan to sell a 49% stake, pushed by the previous regime and approved by Congress in May 1998, has been delayed by a Ch vez government still uncertain about the implications. Private Venezuelan companies and foreign firms have had doubts about the viability of buying into Pequiven.

Private investors said in the past three years the proposed sale of 49% was not attractive because of a slump in the business and there were no sufficient fiscal incentives. The current tax structure does not favour the industrialisation of hydrocarbon derivatives. Oil refining is taxed at 67%, municipal taxes can reach 9% on gross income, while draw-back tax benefits on export products are delayed by as much as a year.

In seeking project finance from capital markets, an extremely difficult task for Venezuela's state firms since early 1999, Pequiven executives keep pointing to their expansion programme. Under their plan, production of ethylene, now with a capacity of 600,000 t/y, was set to reach 2.6m t/y by end-2004; but this will not happen. Polyethylene, now with a capacity of 400,000 t/y, has been projected to reach 2m t/y by then - again this is not likely.

Production of methanol and MTBEs has been planned to double from 1.5m t/y. Production of fertilisers, now with a capacity of almost 2m t/y and exports of 700,000 t/y to Latin American markets, has been set to more than double by 2005.

It was said that, for these projects, ethane and methane would be supplied at $0.50/m BTU, a price adjustable to inflation. PDVSA is said to be able to produce the feedstock at only $0.52 per barrel of oil equivalent, compared with an average of $0.95/barrel oe for the gas producers in the US. The proposed plant gas' price, if confirmed by PDVSA, would compares favourably to the $0.75/m BTU rate in Saudi Arabia and other gas-rich countries of the Arabian Peninsula.

Pequiven executives also point to the big industrial ventures planned for the gas-rich Anaco region, where industrial parks are intended to include a number of new ventures to produce fertilisers and chemicals.

The 19 JVs are: Cloro Vinilos del Zulia, Monomeros Colombo Venezolanos, Nitroven, Olefinas del Zulia, Oxidor, Plastilago, Polilago, Resilin, Pralca, Produsal, Produven, Propilven, Quemica Venoco, Metor, Supermetanol, Super Octanos, Tripoliven and Consortium Propilenos de Falcon (Profalca), and FertiNitro-I which went on stream in 2000.

Pequiven executives have said that the company and its partners have been getting considerable savings from a successful 1998 merger of its three polyethylene producing JVs - Plastilago, Polilago and Resilin - which together have a capacity of 400,000 t/y.

Profalca, a $100m propylene plant with a capacity of 130,000 t/y, came on stream in mid-1999 at the Paraguana Refining Centre (PRC). This is a JV owned 35% by Proesca (Pequiven), 35% by Koch Petroleum Corp. of the US which is a major player in the fertilisers business and Pequiven's partner in the FertiNitro ammonia/urea projects (see below), 15% by Inversiones Polar (the domestic food and beverage group which is Pequiven's partner in FertiNitro and the methanol business), and 15% by Inepropil (a unit of the local Inelectra construction firm). Profalca's first propylene shipment to world markets left the Paraguana Refining Centre (PRC) on Oct. 20, 1999. Almost 3,000 tons were loaded onto a tanker, LPG Betagas, from Dock 4 at the Cardon Refinery (part of the PRC in Falcon state). Construction of the plant was started in January 1998 and completed in June 1999 by Inelectra. The plant's capacity is to be expanded eventually to 200,000 t/y. Its feedstocks come from Cardon and Amuay oil refining streams (see DT 19).

FertiNitro-I is the first of two JVs at the north-eastern industrial complex and port centre of Jose to produce fertilisers. FertiNitro-I has been on stream since October 2000. It was built at a cost of about $1.1 bn with a capacity of 1.6m t/y of granular urea and 1.3m t/y of ammonia. This is owned 35% by each of Pequiven and Koch Nitrogen, 20% by SnamProgetti of Italy's ENI group, and 10% by Empresas Polar.

FetriNitro-1 raised a $810m project finance package from the capital markets in April 1998. Technology was licenced from Haldor Topsoe for the ammonia, Snamprogetti for the urea production and Norsk Hydro for the urea granulation. SnamProgetti was the main contractor, under a $760m deal signed in 1997. Gas feedstock is supplied by PDVSA under a long-term contract.

FertiNitro-II, to be on stream by 2005, will have the same ownership structure and will be "a virtual copy or very similar to FertiNitro-I", said Pequiven's top executives at an international petrochemicals conference on Margarita island on Nov. 8, 1999.

FertiNitro-II's capacity will be 1.4m t/y of urea and 1.1m t/y of ammonia. From the two ventures, the 3m t/y output of urea (a base component for fertilisers) will be marketed mainly in Latin America by Posamerica, a Pequiven unit formed in early 1999. The 2.4m t/y of ammonia will be marketed in the US by Koch which will also be in charge of sales of Posamerica surpluses to the rest of the world.