Brazil’s Braskem Alagoas disaster claims could rise; Senate issues damning report

SAO PAULO (ICIS)–Six years after the disaster at Braskem’s rock salt mines in Brazil’s state of Alagoas, the polymers major could continue facing legal cases which could dent its cash flow, according to analysts at US credit rating agency Fitch.

Fitch downgraded the company’s credit rating in December 2023 and placed it on what it called ‘Negative Watch’.

This week, following a very damning report issued by Brazil’s Senate following a public enquiry into the Alagoas disaster, the agency’s analysts said that Braskem is likely to face increase costs related to environmental, social, and governance (ESG) challenges.

That would add, they said, to the expected poor spreads for global petrochemicals in general, which would be here to stay for at least the remaining of 2024.

“Increased ESG risks and potential new claims associated with the geological event in Alagoas could worsen the company’s credit profile,” said Marcelo Pappiani, a Fitch analyst covering Braskem.

Fitch said Braskem has since 2019 disbursed approximately Brazilian reais (R) 10.0 billion ($2.0 billion) on relocations, compensation, the closure and monitoring of salt cavities, and environment and other technical matters.

A spokesperson for Braskem said to ICIS on Thursday the company would continue collaborating with the authorities in their enquiries about the Alagoas disaster but did not comment on the specifics of the Senate’s report.

“Braskem reiterates it was always willing to collaborate with the public enquiry, promptly collaborating providing all the information and measures requested,” said the spokesperson.

“The company remains available to collaborate with the authorities, as it has always been.”

NEVER-ENDING DISASTER
Late on Wednesday, the Brazilian Senate published the final report after its public enquiry into the Alagoas disaster in 2018 which caused thousands to be displaced from their homes in Maceio, the capital’s state.

The report is to be voted by the Senate’s plenary on 22 May.

Braskem’s rock salt mining caused the displacement of the subsoil; the company used the rock salt for production of caustic soda and polyvinyl chloride (PVC), among others.

The 765-page report was highly damning for Braskem, with vice president Marcelo Cerqueira and other seven people accused of environmental crimes as the company’s activities resulted in the geological event.

Nearly 15,000 households had to be relocated, and some of Maceio’s neighborhoods evacuated in 2018 remain ghost areas to this day.

The report was not only damning for Braskem but also for Brazil’s authorities, especially the National Mining Agency (ANM) as well as the Ministry of Mines and Energy for failing to implement the controls which are required.

THE GROUND KEEPS MOVING
To make matters worse for Braskem, just last December there were further movements in the subsoil which made residents and authorities fear another geological event, a prospect which in the end did not materialize.

Those recent events, as well as this week’s report, keep bringing back the Alagoas disaster into the spotlight and seem set to keep haunting the company for several quarters to come, said the Fitch analysts.

“We believe the environmental and ecological impacts of the salt mine collapse in the context of sinking land in Alagoas could damage Braskem’s financial position … Uncertainty about current and upcoming lawsuits is high, with negative outcomes potentially pressuring cash flow and adversely impacting the company’s financial results,” they said.

“The company could also face social impacts from new claims and reparation costs to victims and neighboring communities, in addition to the 14,446 families relocated to other areas.”

The Alagoas liabilities are casting such a long shadow for Braskem that Abu Dhabi’s energy major ADNOC, who seemed the strongest candidate to acquire Novonor’s controlling stake in Braskem, walked away earlier in May, reportedly on the back of those liabilities.

“We believe the prospect of Novonor selling its stake in Braskem hit an impasse after the December 2023 salt mine collapse, with ongoing uncertainty regarding the repercussions of the geological event,” said Fitch.

Neither the Senate report nor Fitch’s credit rating warning seemed to dent investors’ interest on Braskem’s stock on Thursday though, with shares trading nearly 1.45% higher on the Sao Paulo stock exchange Bovespa by midday local time.

Following ADNOC’s announcement it was throwing the towel on Braskem, Braskem’s shares opened the next trading session down more than 14%.