Pemex rumored to consider sale of fertilizer plants

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An affiliate of Bloomberg News in Mexico recently reported that Pemex has hired UBS to “explore strategic alternatives” for its fertilizer subsidiary, including potential asset sales.

Pemex has two ammonia plants in Mexico: a small unit that it recently restarted at Camargo (130,000 mtpy), and a much larger complex with four ammonia plants at Cosoleacaque (total 1.6 million mtpd). Not far from the Cosoleacaque plant, Pemex’s Pajaritos complex upgrades ammonia to nitric acid, ammonium nitrate, and urea (3,000 mtpd).

Petroleos Mexicanos hired UBS AG Group to explore strategic alternatives for its fertilizer subsidiary, including a potential sale, now that the company seeks to raise cash, according to people familiar with the matter.

Pemex is looking for potential buyers only 12 months after expanding its fertilizer business with the purchase of Fertinal Group …

The state oil company is shedding assets as it seeks to improve its operations and strengthen its balance sheet, which has been hit by 12 consecutive years of decline in oil production.
El Financiero (Bloomberg): Pemex could sell its fertilizer subsidiary with help from UBS (translation by Google), 01/12/2017

Another Bloomberg report, the following day, illustrated the scale of Pemex’s plight. “Mexico’s state-run oil company, which has reported 16 consecutive losses and is nearly $100 billion in debt, is auctioning off a little league baseball field and a sports complex used by employees.”

It is not clear that Pemex would be able to complete the sale of these ammonia plants, even if it wanted to. Among other issues that might discourage potential buyers, confusion reigns over the future of NAFTA, and Mexican-US relations in general, given the volatile influence of the USA’s new President Trump.

Also, these rumors reminded some of my readers of earlier attempts to privatize the Mexican fertilizer plants. Those efforts included the questionable auction of the Pajaritos complex in 1992 (see Bloomberg article: Sold! To The Senator’s Brother: A scandal over Fertimex casts doubt on government sell-offs), and the public, private, and government opposition to privatization in 1996, when the president put “limits on foreign petrochemical ownership.”

In any case, it seems unlikely that Pemex would strike any transactions soon.

Last week, the Houston Chronicle published some useful analysis on Pemex’s potential fertilizer asset sales, from the Baker Institute for Public Policy’s Mexico Center:

[In 2014] Pemex appeared to be taking steps toward rebuilding the natural gas (ammonia) urea value chain. That meant revamping the production of ammonia (which had declined sharply up to that year) and nitrogen fertilizers (whose output was close to nonexistent).

Such actions implied an upgrade in ammonia plants at the petrochemical complex of Cosoleacaque, in southern Veracruz; at the same time, it suggested the rehabilitation of a urea plant (Agronitrogenados) that had remained idle since 1999 and that Pemex had bought in January 2014. This strategy was being put into action while Pemex expanded its network of natural gas pipelines …

The numbers on ammonia production not only indicate that Mexican farmers lack access to locally produced affordable fertilizers, but it also highlights the diminishing importance of the fertilizer division for the current management team of Pemex.

That’s most likely why the media on January 12 reported that Pemex hired a Swiss bank to find buyers for its fertilizer subsidiary. But the media did not specify which assets are to be auctioned, and that’s an important detail.
Houston Chronicle: Is Pemex planning to sell its fertilizer subsidiary? 01/24/2017

I recently added Mexico to my list of North American Ammonia Plants, available to download as an excel spreadsheet. The two Pemex plants are currently the only operational ammonia plants in Mexico. Proman AG is, however, planning a world-scale brownfield plant at Topolobampo, in Sinaloa, which it says could start up in 2019, although I note construction is not currently underway.

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