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dow_chemicals_bid_in_argentina1.pdf
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________________________________________________________________________________________________________________ Professor Mihir A. Desai and Alexandra de Royere, Senior Researcher at the HBS Latin America Research Center in Buenos Aires, prepared this case with assistance from Gustavo Herrero, Executive Director of the LARC, and Mark Veblen and Kathleen Luchs, Research Associates. HBS cases are developed solely as the basis for class discussion. Cases are not intended to serve as endorsements, sources of primary data, or illustrations of effective or ineffective management. Selected data have been disguised to protect confidentiality. Copyright © 2003 President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1-800-545-7685, write Harvard Business School Publishing, Boston, MA 02163, or go to http://www.hbsp.harvard.edu. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means—electronic, mechanical, photocopying, recording, or otherwise—without the permission of Harvard Business School.
M I H I R A . D E S A I
Dow Chemical's Bid for the Privatization of PBB in Argentina
On November 10, 1995, Oscar Vignart, vice president of business development for Latin America for Dow Chemical Company (Dow), and Luis Marcer, CFO of Dow Química Argentina, considered the bidding price on Petroquímica Bahia Blanca S.A. (PBB), which was being privatized by the Argentine government. PBB produced both ethylene and polyethylene. It was part of a petrochemical complex located in Bahia Blanca, 700 kilometers south of the Argentine capital, Buenos Aires.1 Vignart believed that the acquisition of PBB offered Dow a once-in-a-lifetime opportunity to become the leading polyethylene player in Latin America.
Vignart and Marcer had reviewed Dow headquarters’ projection of polyethylene consumption in Latin America and had built cash flow projections for the project. They now had to incorporate Argentina’s country risk into their model. While Vignart thought that Argentina’s current political and economic conditions favored the investment, he also recognized that there were many uncertainties about the project which he had to address to justify the investment to the parent company. With the offer price for the privatization due in 10 days, there was little time left to finalize the valuation and make a decision on the project.
Overview of the Ethylene and Polyethylene Industries in 1995
Ethylene, produced from oil or natural gas, was used to produce polyethylene, the world’s most widely used plastic. Polyethylene accounted for approximately three-quarters of ethylene demand. Polyethylene plastic’s principal application was in packaging, from trash bags to milk jugs.
Ethylene
Ethylene plants, known as hydrocarbon “crackers,” separated either naphtha molecules (derived from crude oil) or ethane molecules (derived from natural gas).2 The ethylene derived from this process was used to produce polyethylene (Figure A).
1 In the case, PBB refers to a set of assets that included PPB’s stake in Indupa, S.A.
2 “Cracking” described a refining process whereby large, complex molecules were broken down into smaller molecules with a lower boiling point and then formed into new, lighter, higher-value compounds.
204-021 Dow Chemical's Bid for the Privatization of PBB in Argentina
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Figure A Production of Ethylene and Polyethylene
Other s (e.g., Ethylene oxide, Ethylene dichlor ide,
Ethylbenzene)
Ethylene
Alpha- Olefins
Polyethylene
Various Cracker Models
Crude oil " heavies” Naphtha
Natural gas liquids
" lights" (NGL)
Ethane
or
Other s (e.g., Ethylene oxide, Ethylene dichlor ide,
Ethylbenzene)
Ethylene
Alpha- Olefins
Polyethylene
Various Cracker Models
Crude oil " heavies”
Natural gas liquids
" lights" (NGL)
Ethane
Natural gas liquids
" lights" (NGL)
Ethane Other s (e.g., Ethylene oxide,
Ethylene dichlor ide, Ethylbenzene)
Ethylene
Alpha- Olefins
Polyethylene
Various Cracker Models
Crude oil " heavies”
Natural gas liquids
" lights" (NGL)
Ethane
or
Other s (e.g., Ethylene oxide, Ethylene dichlor ide,
Ethylbenzene)
Ethylene
Alpha- Olefins
Polyethylene
Various Cracker Models
Crude oil " heavies”
Natural gas liquids
" lights" (NGL)
Ethane
Natural gas liquids
" lights" (NGL)
Ethane Other s (e.g., Ethylene oxide,
Ethylene dichlor ide, Ethylbenzene)
Ethylene
Alpha- Olefins
Polyethylene
Various Cracker Models
Crude oil " heavies” Naphtha
Natural gas liquids
" lights" (NGL)
Ethane
or
Other s (e.g., Ethylene oxide, Ethylene dichlor ide,
Ethylbenzene)
Ethylene
Alpha- Olefins
Polyethylene
Various Cracker Models
Crude oil " heavies”
Natural gas liquids
" lights" (NGL)
Ethane
Natural gas liquids
" lights" (NGL)
Ethane Other s (e.g., Ethylene oxide,
Ethylene dichlor ide, Ethylbenzene)
Ethylene
Alpha- Olefins
Polyethylene
Various Cracker Models
Crude oil " heavies”
Natural gas liquids
" lights" (NGL)
Ethane
or
Other s (e.g., Ethylene oxide, Ethylene dichlor ide,
Ethylbenzene)
Ethylene
Alpha- Olefins
Polyethylene
Various Cracker Models
Crude oil " heavies”
Natural gas liquids
" lights" (NGL)
Ethane
Natural gas liquids
" lights" (NGL)
Ethane
Source: Casewriter.
Cracking naphtha (the raw material derived from crude oil) required much more energy, manufacturing intensity, and equipment than cracking ethane (derived from natural gas). A plant for cracking ethane was estimated to cost $400 million to $500 million, a plant for cracking naphtha $1 billion.3 Roughly half of the world’s ethylene plants, particularly those in gas-poor regions such as Japan and Western Europe, utilized naphtha. Plants in gas-rich regions such as North America and the Middle East more frequently employed ethane from natural gas streams.4
Large plant sizes and the need for economies of scale rendered the ethylene industry highly capital intensive. Consequently, capacity additions or reductions could significantly affect balance of supply and demand, influencing capacity utilization rates, prices, and profit margins. Ethylene profitability was tightly linked to its global operating rate. Among the investors in the ethylene business were oil companies, governments, pure chemical companies, conglomerates, private investors, and joint ventures. According to UBS Warburg plc, financial return objectives ranged from loss leader to zero return to beating the cost of capital. The loss leader or zero-return player was often a government operator that was, directly or indirectly, financing capital-intensive ethylene plants in order to stimulate downstream business. This was the case in Brazil, where the government sponsored a “tripartite” model, in which private Brazilian capital, multinationals holding the technology, and the government would each contribute one-third of the investment. Because producers of ethylene and first-order derivatives (mostly plastics) were highly integrated, margins for both products were highly correlated.
Polyethylene Plastic
Polyethylene plastic, produced from ethylene, was widely used in the manufacture of everything from trash bags, picnic cutlery and garbage pails, to plastic toys. Polyethylene also replaced glass, wood, and metal in certain applications. There were three types of polyethylene, each with distinctive physical properties and commercial applications (Table A).
3 Andrew Cash, Lara Palevitza, Gregg Goodnight, “Dow Chemical Report,” UBS Warburg, January 31, 2001, pp. 23 and 24.
4 Ibid., p. 23.
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Table A Types of Polyethylene and Main Applications
Type of Polyethylene Physical Properties Examples of Commercial Applications
LDPE—Low-density polyethylene optical clarity, soft feel,
printability supermarket-related film and sheet applications such as bread bags
HDPE—High density polyethylene tough, opaque, rigid milk jugs (nearly half of this plastic’s blow-molded volume)
LLDPE—Low linear density polyethylene strength, optical clarity, soft feel, printability
garbage bags
Source: Glenn W. Mierendorf, Dow Chemical Company Report, Prudential Securities, September 10, 1996, p. 7.
LDPE started to be commercialized in the late 1930s, whereas HDPE was introduced in the mid- 1950s. The fastest growing polyethylene, LLDPE, introduced in the 1970s, enjoyed a cost advantage over LDPE. However, it fell short of replacing LDPE totally because customers were required to upgrade their equipment to process the newer product.
Polyethylene was a global commodity product and pricing worldwide typically fell into a narrow band, inside which variations reflected different transportation costs. Polyethylene customers were typically small and medium-sized plastic processing companies.
Dow’s Ethylene and Polyethylene Interests
In 1995, Dow generated annual revenues of $20.2 billion from its three major businesses: chemicals, plastics, and agricultural products. The Chemicals & Metals Division (which included ethylene) accounted for $3.3 billion, and the Plastics Division (which included polyethylene) accounted for $3.9 billion. Dow held the leading market position worldwide in numerous chemical product lines, including ethylene and polyethylene. In a historically fragmented industry, Dow accounted for 7% of global capacity (Table B).5
Table B Major Polyethylene Producers
Company Polyethylene Capacity (in billions
of pounds as of year-end 1995) Share of Global Capacity
Dow Chemical 6.3 7%
Union Carbide 6.1 6%
Exxon 5.4 5% Quantum 4.6 5%
Borealis 3.2 3%
Source: Glenn W. Mierendorf, Dow Chemical Company Report, Prudential Securities, September 10, 1996, p. 7.
5 Glenn W. Mierendorf, Dow Chemical Company Report, Prudential Securities, September 10, 1996, p. 7.
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Besides being a low-cost producer, Dow embraced a strategy of horizontal and vertical integration, technological leadership, and international presence. Dow’s capacity for ethylene, its largest-volume chemical, was 11.3 billion pounds.6 Nearly half of its internal ethylene consumption was accounted for by seven sites that manufactured 6.3 billion pounds of polyethylene annually. The remainder of internal consumption was used in the production of other products.7 Polyethylene represented approximately 15% of Dow’s total sales and 35% of its operating profits. (Exhibit 1a shows sales by industry segment; Exhibit 1b shows sales by geographic region.)
Dow had actively expanded globally by locating world-scale petrochemical complexes in emerging economies. In 1995, it counted 94 plants in more than 30 countries. In Latin America, Dow was present in Colombia, Chile, Brazil, and Argentina, with most of its investments concentrated in Brazil where Dow had built a petrochemical complex that manufactured products other than ethylene and polyethylene. Dow entered Argentina in 1957, and in the 1960s Dow Quimica S.A. invested in a facility that produced petrochemicals, herbicides, insecticides, and fungicides. Dow invested approximately US$100 million in this business over four decades.
Development of the Bahia Blanca Petrochemical Complex
Dow had long been interested in expanding its interests in Argentina and, 20 years earlier, the company had urged the Argentine government to develop a petrochemical complex in Bahia Blanca. It cited the natural competitive attributes of the region: availability and proximity of the two largest Argentine gas basins; easy access to maritime, rail, and road transport; proximity to the city of Buenos Aires (which represented nearly 50% of the domestic market); adequate service infrastructure; and the requisite human resources owing to the existence of institutions of higher learning in Bahia Blanca. At that time, it was critical to involve the government since the state owned the power, gas, and oil supplies. (See Exhibit 2 for maps of the petrochemical sites in Brazil and Argentina.)
Ethylene and Polyethylene Industries in Argentina
The Argentine government did decide to develop a petrochemical complex in Bahia Blanca, but Dow did not participate. Instead, in September 1977, the government began development of the complex in association with the local petrochemical private sector through mixed companies (owned partly by the state, partly by private companies), including the creation of PBB. The PBB assets consisted of a cracker and one polyethylene plant. Although ready in 1977, the cracker remained idle awaiting completion of the polyethylene facilities. Ethylene from PBB and polyethylene from Polisur finally started to be produced in 1982. In 1987, PBB began to operate an HDPE plant based on technology from the German company Hoechst AG.
In addition to PBB, the Bahia Blanca development included another mixed company set up to invest in ethylene, Polisur. In 1985 Polisur brought its first LDPE plant on line, and in 1987 Polisur purchased from Union Carbide a “swing plant” capable of producing both LDPE and HDPE (Figure B).
6 Ibid., p. 4.
7 Ibid., p. 6.
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Figure B PBB and Polisur Assets
PBB
Domestic Plastic Processing Companies
Ethane from TGS
Ethylene Cracker
HDPE Plant LDPE/HDPE Plant
LDPE Plant
POLISUR ASSETS
PBB
Domestic Plastic Processing Companies
Ethane from TGS
Ethylene Cracker
LDPE/HDPE Plant
Source: Casewriter.
In 1994 PBB and Polisur, the only local players, controlled a 70% share of the Argentine polyethylene market. PBB’s and Polisur’s customers included more than 100 local small and medium-sized plastic-processing firms. Brazilian competitors supplied the rest of the Argentine market. (See Exhibit 3 for Latin American ethylene and polyethylene capacity.)
Privatization in Argentina
Throughout the 1980s, Argentina experienced periods of hyperinflation, stagflation, and huge fiscal deficits. When Carlos Menem was elected president in 1989, the nation was gripped by hyperinflation with rates approaching 5000% per annum. Menem’s policies achieved a quick, decisive success in March 1991 with the Convertibility Plan. This was the brainchild of his newly appointed economics minister, Harvard-trained economist Domingo Felipe Cavallo. The Convertibility Law ensured that the money supply was fully backed with external reserves and fixed the Argentine peso at exactly one U.S. dollar. Almost immediately, inflation converged to international levels. Convertibility also seemed to tame inflation without incurring a significant economic slowdown.
Concurrently, Menem and Cavallo implemented policies, sanctioned by the International Monetary Fund, aimed at reducing trade barriers, deregulating industries and capital markets, and privatizing businesses. The State Reform Law declared 32 state-owned enterprises eligible for privatization. Included were oil, natural gas, electricity, telecommunication, steel, transportation, and petrochemicals. Privatizations included the Ministry of Defense’s sale of its minority stake in Polisur to its existing majority shareholder, Ipako, a local company. Approximately 90% of state- owned companies were privatized between 1991 and 1994, with proceeds exceeding $19 billion used largely to refinance and reduce public debt. (See Exhibit 4a for sale proceeds for selected privatizations and Exhibit 4b for privatization cash proceeds.)
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The Decision to Privatize PBB
The Argentine economy became even more open in 1995 with the elimination of all duties, charges, and other restrictions in the reciprocal trade between the members of Mercosur, a trading bloc created in 1991 which included Argentina, Brazil, Paraguay and Uruguay. (See Exhibit 5 for macroeconomic data on the Mercosur participants.) Argentine petrochemical producers would now compete directly with their Brazilian competitors and would likely lose market share to them because the technology and scale of the Bahia Blanca complex was no longer in line with international standards. Consequently, the government decided to privatize PBB. On October 2, 1995 the Argentine government announced a public bidding to execute the sale of 51% of PBB.
Given PBB’s relative importance to the Argentine economy, Cavallo transferred the supervision of its privatization from the Ministry of Defense to the Ministry of Economy. The government retained Credit Suisse First Boston and a local investment bank as advisors, and a respected local law firm to organize the privatization. (See Exhibit 6 for the principal provisions of the tender.)
Dow’s Interest in the PBB Privatization
As Dow’s vice president for business development in Latin America, Oscar Vignart had watched the rapid transformation occurring in Argentina. He anticipated continued improvement in standards of living, leading to increased demand for polyethylene in Argentina. The food and packaging industries and the supermarket/hypermarket sector (including multinationals such as Carrefour and Wal-Mart) had experienced dramatic growth since 1991. Competition from imported products in modern attractive packaging was forcing local manufacturers to upgrade their presentations. The Brazilian plastics market, three times the size of Argentina’s, had also experienced significant growth during this period.
The expected growth in polyethylene demand made PBB a potentially attractive acquisition. (See Exhibit 3 for Latin American ethylene and polyethylene capacity.) As Vignart observed:
The Bahia Blanca petrochemical pole has structural disadvantages, but there is an abundant supply of primary materials (petroleum and gas) and energy is competitively priced. If we were to get into the privatization, the project would require the modernization of existing facilities and a considerable increase in production capacity through the expansion of existing plants and the construction of new plants, in order to become internationally competitive. By planning to produce not just for the domestic market, but also for all of Mercosur, and especially Brazil, the Bahia Blanca complex would be able to justify its new scale.
PBB’s Growth Potential
The acquisition of PBB would be the first step toward consolidating all of Bahia Blanca’s polyethylene activity under Dow’s control, a plan Vignart believed was consistent with Dow’s business model. To achieve this goal, Dow would also have to acquire Polisur’s two polyethylene plants and expand existing capacity. According to Dow engineers, the expansion of its polyethylene capacity in Bahia Blanca would require the company to build a world-class competitive cracker. Doing so would nearly triple PBB’s ethylene capacity.
Marcer and Vignart, therefore, had to not only consider what to bid for PBB in the privatization, but also develop an overall plan for the development of Dow’s polyethylene business in Argentina. Gaining control of PBB would be the first step in a project, which they defined in three s:
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• Stage 1 involved taking control of PBB, which comprised the ethylene cracker and a polyethylene plant, and then upgrading the facilities in order to make them internationally competitive
• Stage 2 involved acquiring Polisur’s two polyethylene plants
• Stage 3 involved building a new ethylene cracker and a polyethylene plant
The production capacity and investment required for each stage of the project are described in Exhibit 7. Vignart and Marcer also sought to identify the main issues for each stage of the project.
In Stage 1, Vignart and Marcer had to consider Dow’s competitors in the bidding for PBB. Two major regional players—the Brazilian privately owned petrochemical company Copesul and the family-owned Argentine firm Perez Companc—had teamed up for the purpose of taking over PBB.8 Typically in its acquisitions, Perez Companc had sought foreign partners with the capacity to issue debt in the international financial markets in order to bid jointly. Copesul, which had been privatized in 1992, produced petrochemicals including ethylene in Brazil and was interested in expanding internationally into petrochemicals. (See Exhibit 8a for Perez Companc financial data; see Exhibit 8b for Copesul financial data.)
In Stage 2, Dow would have to negotiate with Ipako, a private company owned by local businessmen who owned 100% of Polisur.
For Stage 3 to be successful, the supply of ethane would have to be secured, and a key issue for Vignart was how to secure additional ethane for a new cracker. The current supplier was TGS, but Vignart believed that the magnitude of the project required an alliance with a larger player. He knew that YPF, which produced approximately 50% of the natural gas in Argentina, was looking for alliances downstream. YPF was Argentina’s largest enterprise and the eleventh-largest oil and gas company in the world. Vignart had been impressed by YPF’s restructuring which led to its successful privatization,9 and he considered it a potentially credible partner. Vignart wondered whether building a strategic alliance that went beyond a long-term ethane contract might enhance the project’s probability of success.
Valuation
Marcer and Vignart worked on the valuation in collaboration with the corporate M&A department. The valuation team included two economic valuators, one based in Buenos Aires, the other at headquarters. The board of directors had retained Chase Manhattan Bank to provide an independent assessment of the value of PBB. Marcer and the economic valuator used standard Dow procedures based on net present value to evaluate the different stages of the project. The Dow methodology emphasized building a cash flow model and then running sensitivity analyses.
8 In the recent Argentine privatizations, Perez Companc had already made several acquisitions in the telecommunication and energy sectors. It was granted major gas and oil concessions, part of the San Lorenzo refinery and TGS which provided ethane to PBB.
9 YPF was privatized in June 1993 in an international public offering which yielded $3.04 billion.
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Stage 1 Cash Flows
For Stage 1, the Dow team developed two cash flows, one for the PBB ethylene cracker and one for the PBB polyethylene plant.
The cash flow for the PBB ethylene cracker is given in Exhibit 9a. Cash flow items for the PBB cracker included:
• Revenues Approximately 95% of cracker revenues derived from the sale of ethylene; the remainder were from by-product credits. All the ethylene produced would be sold internally at the Bahia Blanca complex at the international ethylene market price in U.S. dollars.
• Variable costs Ethane represented 85% of the cracker’s variable costs. A cracker’s competitiveness depended in part on its “ethane ratio” (the volume of ethane consumed per pound of ethylene produced). The existing PBB cracker had a higher ethane ratio than new crackers; that is, it consumed more ethane to produce the same amount of ethylene. The price of ethane from the local supplier was based on the international market price of ethane in U.S. dollars. Utilities (fuel, gas, energy, chemicals) accounted for the balance of the variable costs.
• Fixed costs Overhead (mainly labor) and maintenance were for the most part a local currency cost. At PBB, fixed costs would gradually be reduced to approximately 15% of the total costs of the plant producing at a 100% operating rate.
The cash flow for the PBB polyethylene plant is shown in Exhibit 9b. Cash flow items for the PBB polyethylene plant included:
• Revenues Polyethylene was sold at the international market price in U.S. dollars.
• Revenue destination and incidence of transport costs The incidence of transport and duties in the net sales price (net sales price = gross sales prices – freight and duties) made the business mix by geographic area a key factor for profitability. Transport cost represented around 3% of the net sales price in the case of selling locally, 10% in the case of selling to the Mercosur, and 17% in the case of selling to the rest of Latin America. When selling to the Extra Zone (the United States, Europe, or Asia), transport cost represented around 24% of the net sales price.
For the PBB plant, it was anticipated that all production would be sold in the local market.
• Variable costs Ethylene consumption represented approximately 85% of total variable costs denominated in U.S. dollars. A plant’s competitiveness depended in part on its “ethylene ratio” (the volume of ethylene consumed per pound of polyethylene produced).
• Fixed costs Overhead (mainly labor) and maintenance were largely local currency costs. At PBB, fixed costs represented 15% of the total costs of a plant producing at a 100% operating rate.
Stage 2 Cash Flows
In Stage 2, Dow would acquire control of Polisur, the only other polyethylene firm in Argentina. (Exhibit 10 provides the cash flows for the Polisur polyethylene plants.) The cash flows for Stage 2 of the project were projected using the same model as for the PBB polyethylene plant in Stage 1, taking into account the greater efficiency of the Polisur plants in terms of their variable and fixed costs.
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Also, while the existing Polisur production was sold within Argentina and Mercosur, it was anticipated that eventually all of the production would be sold in the local market.
Stage 3 Cash Flows
Stage 3 of the project involved building a new ethylene cracker and a new polyethylene plant.
Exhibit 11a provides the cash flow projections for the new ethylene cracker, using the same model as for the PBB cracker in Stage 1. The new cracker would be more efficient than the PBB cracker, with an improved ethane ratio, and fixed costs for the new cracker would account for only 6% of total costs.
Exhibit 11b provides the cash flows for the new polyethylene plant, using the same model as for the PBB plant in Stage 1. The new plant, however, would be more efficient and fixed costs would be reduced to 10% of total costs.
The new polyethylene plant would start to operate in 2001, exporting 70% of its production. Demand in the Mercosur trade bloc was projected to escalate at a rate such that in 2010 all of the new plants’ sales would be concentrated in Argentina (43% of the volume) and Mercosur (57%). For projections of polyethylene demand, Vignart explained, industry planners used a multiple of GDP growth (1.5 to 2 times). If demand in Argentina and the rest of Mercosur fell short of expectations, exports to other regions could always be increased, albeit at the expense of profitability.
Terminal Values
In their financial analysis, Vignart and Marcer also had to incorporate the terminal value of each stage of the project. Since demand and prices were subject to cyclical changes, they decided that the future cash flows for each stage of the project could best be estimated by using the average of the last five years of cash flows. They used 3.3% as the terminal growth rate for the project.
Risk Measurement
To assess whether the project would earn an acceptable return on the investment, Vignart and Marcer had to consider Dow’s weighted average cost of capital and determine a risk premium for doing the project in Argentina. The risks of political instability or expropriation appeared small, since Argentina had had a stable democratic government for the past 12 years and there had been no case of expropriation in the previous 50 years.
Currency risk, and the possible impact of government policies on the project, were more difficult to evaluate. Argentina had experienced no less than eight major currency crises between the early 1970s and 1991, and in 1995 the banking and credit crisis—known as the Tequila crisis—affected Argentina.10 The Convertibility Law, which tied the peso to the U.S. dollar, had remained in force despite the Tequila crisis, and by November 1995, the availability and cost of funds in Argentina had significantly improved over January 1995, albeit not to the pre-Tequila level. Most of the business and financial communities, having witnessed the robustness of convertibility, were confident to a large extent that it would last for several years. However, Vignart and Marcer had to consider the possibility of future crises and their likely impact on the project. They also examined government
10 The Tequila crisis was attributed to the loss of confidence following the Mexican peso devaluation in December 1994, and uncertainty regarding the Argentine presidential elections in May 1995, in which President Menem was ultimately reelected.
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policies relevant to foreign investments. The Menem government had dismantled many of the laws and regulations on repatriation of capital. Capital repatriation in hard currency was now permitted through the free foreign exchange market without limits. No limits were imposed on payments of foreign loan principal and interest, and there were no restrictions on borrowing abroad by non- resident companies or private individuals. Vignart and Marcer debated whether to cover for exchange-rate risk in the event that the Argentine convertibility law came to an end, and discussed how to assess the risk that the laws on capital repatriation might change.
Vignart and Marcer were aware that Dow had analyzed a similar project in the United States using discount rates in the range of 8% to 10%, and they debated the country risk premium required for the Bahia Blanca project. As part of their analysis, they examined interest rates and yield spreads in the U.S. and Argentina over the previous five years (see Exhibit 12) and reviewed the various currency, economic, and political risks they had identified.
Financing Alternatives
Marcer, working with Dow’s corporate M&A department, had to determine the best way to finance the acquisition of PBB as well as the subsequent stages of the project. To invest in the Bahia Blanca project, Dow would create a holding company, Dow Investment Argentina. The alternatives for the PBB bid were to either use general corporate funds or to raise debt. Marcer emphasized that the decision would be a function of the company’s global financial position. (See Exhibit 13 for Dow Chemical’s balance sheet.) In the case of raising debt, Dow would have to analyze the options of pledging the assets or giving a corporate guarantee. Because Dow had a cost advantage in raising corporate debt, it might prefer to use internal funds rather than secure project loans. Dow would be faced with the same options for Stage 2. In Stage 3, project finance aimed at funding the construction of new facilities would have to be considered as a third alternative.11 The appetite for project finance in Argentina would depend on the country risk at the time.
Preparing for the Bid
Vignart and Marcer reviewed the different scenarios they had built and the uncertainties they had identified for each stage of the project. In Stage 1, they had to decide whether Copesul/Perez Companc were serious bidders and how Dow would finance the acquisition. In Stage 2, Dow would have to acquire Polisur, which would require successful negotiations with its owner. For Stage 3, Vignart believed that securing a partnership with YPF would significantly drive down the level of investment risk. Reaching a pricing agreement acceptable to both parties, however, would not be an easy task. In addition to these uncertainties, Vignart had to consider the political and economic factors that were relevant in determining the country risk for the project.
Vignart believed that Dow had the opportunity to become the number-one player in the Latin American polyethylene industry. His immediate concern was to decide on the price to bid for PBB in the upcoming privatization. He also needed to complete the valuation of the entire project to justify the investment in Argentina to the parent company.
11 Project finance was not available for funding improvements/capacity increases of existing facilities.
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204-021 Dow Chemical's Bid for the Privatization of PBB in Argentina
12
Exhibit 1b The Dow Chemical Company—Historic Performance by Geographic Area (in millions, except for share amounts)
United States Europe Rest of the
World
Discontinued Operations & Eliminations Consolidated
1995 Sales to unaffiliated customers $ 9.035 $ 6.411 $ 4.754 - $ 20.200 Intersegment transfers 1.728 515 454 ($2.697) -
Operating incomea 1.603 1.112 1.176 - 3.891 Identifiable assets 10.127 6.914 6.541 - 23.582 Gross plant properties 12.416 7.466 3.336 - 23.218 Capital expenditures 1.008 295 114 - 1.417
1994 Sales to unaffiliated customers $ 8.093 $ 4.809 $ 3.840 - $ 16.742 Intersegment transfers 1.424 447 341 ($2.212) -
Operating incomea 1.024 237 559 - 1.820 Identifiable assets 9.399 5.516 4.867 6.763 26.545 Gross plant properties 11.729 6.725 3.337 1.419 23.210 Capital expenditures 692 234 148 109 1.183
1993 Sales to unaffiliated customers $ 7.486 $ 4.299 $ 3.267 - $ 15.052 Intersegment transfers 1.042 325 304 ($1.671) -
Operating incomea 795 23 302 - 1.074 Identifiable assets 9.475 5.010 4.034 6.986 25.505 Gross plant properties 11.326 5.901 3.165 1.216 21.608 Capital expenditures 762 266 176 193 1.397
Source: The Dow Chemical Company, December 31, 1995 10-K (Midland, Michigan: Dow Chemical Co, 1995), available from Thomson Research, http://research.thomsonib.com.
aLatin American operations represented approximately 10% of Dow Chemical Company’s total sales in 1995.
Dow Chemical's Bid for the Privatization of PBB in Argentina 204-021
13
Exhibit 2 Maps of the Petrochemical Sites in Argentina and Brazil
Bahía (Copene)
Río (Río Polímeros)
Sao Paulo (P.Q.U.)
Porto Alegre (Copesul)
Bahía Blanca (PBB/Polisur)
Brazil
Argentina
Uruguay
Paraguay
Neuquen oil & gas
basin
Austral oil & gas basin
North East oil & gas basin
San Jorge oil & gas basin
Bahía Blanca
Buenos Aires Bahía (Copene)
Río (Río Polímeros)
Sao Paulo (P.Q.U.)
Porto Alegre (Copesul)
Bahía Blanca (PBB/Polisur)
Brazil
Argentina
Uruguay
Paraguay
Bahía (Copene)
Río (Río Polímeros)
Sao Paulo (P.Q.U.)
Porto Alegre (Copesul)
Bahía Blanca (PBB/Polisur)
Brazil
Argentina
Uruguay
Paraguay
Neuquen oil & gas
basin
Austral oil & gas basin
North East oil & gas basin
San Jorge oil & gas basin
Bahía Blanca
Buenos AiresNeuquen oil & gas
basin
Austral oil & gas basin
North East oil & gas basin
San Jorge oil & gas basin
Bahía Blanca
Buenos Aires
Source: Dow Química Argentina S.A.
20 4-
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8 5 %
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C
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C a p ita
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ty
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d u ct
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O p e ra
tin g C
a p
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ty
8 8 %
8 3 %
8 6 %
8 6 %
9 2 %
8 6 %
8 8 %
8 9 %
8 4 %
8 5 %
8 3 %
7 4 %
8 8 %
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8 9 %
C
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C a p ita
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T
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a
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ty
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1 1 ,1
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1 3 ,7
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P ro
d u ct
io n
4 ,1
7 8
4 ,1
1 2
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1 0 ,8
6 7
1 1 ,5
1 5
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O p e ra
tin g C
a p
a ci
ty
9 0 %
8 8 %
9 2 %
8 9 %
9 3 %
8 6 %
9 0 %
9 3 %
1 0 1
%
1 0 0
%
1 0 2
%
9 1 %
8 7 %
9 1 %
9 7 %
1 0 3
%
C o n su
m p tio
n p
e r
C a p ita
1 1
1 1
1 2
1 3
1 4
1 4
1 5
1 7
1 7
1 8
2 0
2 1
2 2
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rc e:
D
o w
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a A
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a S.
A .
a M
er co
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+ C
h il
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+ C
ar ib
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n &
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a +
M ex
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.
Dow Chemical's Bid for the Privatization of PBB in Argentina 204-021
15
Exhibit 4a Sale Proceeds for Selected Privatizations (in millions of U.S. dollars)
Enterprise Cash Debta YPF 3,040 855 Telephone 2,271b 5,000 Aerolíneas Argentinas 260 1,610 Petrochemicals 53 0 Oil fields 1,560 0 Power (SEGBA, AYE) 308 955 Real estate 107 0 Steel companies 143 40 Natural gas 300 2,651 Ports 14 0
TOTAL 8,056 11,111
Source: Adapted from Argentina’s Privatization Program: World Bank Publication, 1993. (Table originally published in HBS No. 702-002, “Argentina’s Convertibility Plan,” by Rafael di Tella and Huw Pill, p. 14.)
a Face value
b Plus $380 million in promissory notes
Exhibit 4b Foreign Direct Investment and Privatizations, 1990–1995
0
1
2
3
4
5
6
1990 1991 1992 1993 1994 1995
bi ll
io ns
U S
do ll
ar
0%
10%
20%
30%
40%
50%
60%
70%
80%
Privatization Cash Proceeds FDI % FDI related to Privatization
Source: Adapted from Japan External Trade Organization, “Privatization in Developing Countries,” 1998. (Graph originally published in HBS 702-002, “Argentina’s Convertibility Plan,” by Rafael di Tella and Huw Pill, p. 14.)
204-021 Dow Chemical's Bid for the Privatization of PBB in Argentina
16
Exhibit 5 Macroeconomic Data on Mercosur Countries
1995 Data series
Unit Argentina Brazil Uruguay Paraguay
Real GDP (PPP US$ at 1996 prices) mil USD 322,139 1,088,000 23,786 17,222
GDP per capita USD 7,421 4,321 7,325 3,498
International reserves/total debt % 16.2 32.0 31.5 43.2
Exchange rate LCU:US$ (av) LC/USD 1.0000 0.9177 0.1575 0.00059
Private consumption (real change p.a.) % -4.4 16.4 -3.7 2.6
Consumer Prices (end-period change p.a.) % 1.6 22.4 35.2 10.5
Recorded unemployment % 15.4 4.6 10.3 8.1
Population (million) 35 163 3 5
Source: EIU Country Data database at http://80-countrydata.bvdep.com.ezp2.harvard.edu/cgi/template.dll?product=101 &user=ipaddress, accessed August 27, 2003.
Dow Chemical's Bid for the Privatization of PBB in Argentina 204-021
17
Exhibit 6 PBB Privatization Terms
The Argentine government offered for sale shares representing 51% of the total capital stock of Petroquímica Bahia Blanca S.A. (PBB). The tender was designed as follows:
(a) Bidders were invited to participate in a 45-day “due diligence” process. For that purpose, every bidder had access on assigned days to PBB’s “data rooms” and could ask for additional information about the companies. Information provided to any bidder was made available to the other participants.
(b) Following the due diligence process the bidders were required to present their offers in two envelopes.
(c) Bidders were to submit in envelope number 1 the fulfillment of legal and accounting requirements:
a. by-laws and most recent balance sheets; b. a board resolution accepting the terms and conditions of the bid; c. a statement of net worth of at least US$5 billion; d. an offer guaranty (deposit of money or letter of credit issued by a first class bank) in
favor of the government for an amount of US$15 million.
(d) Offers submitted in envelope number 2 were to be: a. unconditionally subject to the terms of the bid; b. inclusive of all the offered shares of PBB; c. expressed in U.S. dollars without any reserve.
(e) Once the government would determine that a bidder had satisfactorily complied with the requirements set forth for the contents of envelope 1, envelope 2 was to be opened. The only consideration open to the seller in assigning the shares was price, the minimum accepted price being US$150 million.
(f) The price was inclusive of all offered shares. The seller made no other representation than that the shares were validly issued and free of any encumbrances and that their owners would be accorded the right of vote and dividends as set forth in the by-laws and other corporate documents. The seller’s sole liability was for any contingency unknown at, and that arose after, the date of transfer; any contingency discovered within two years of the transfer date would be compensated up to the amount of US$8 million.
(g) The price had to be paid in cash within three days of the seller officially accepting the offer. Source: Dow Química Argentina S.A.
204-021 Dow Chemical's Bid for the Privatization of PBB in Argentina
18
Exhibit 7 Description of Different Stages of the Project
Production Capacity (MM lb.)
as of 1995 Increased
Capacity (MM lb.) Total Investments (MM $)
between 1996 and 2000 Stage 1 PBB Ethylene Cracker 540 66 128.9 PBB Polyethylene Plant 203 --- 28.0 Stage 2 Polisur - Two Polyethylene Plants 463 --- 45.8 Stage 3 New Ethylene Cracker --- 937 376.3 New Polyethylene Plant --- 595 160
Source: Dow Química Argentina S.A.
Dow Chemical's Bid for the Privatization of PBB in Argentina 204-021
19
Exhibit 8a Main Financial Data on Perez Companc S.A. (in millions of U.S. dollars)
Perez Companc Sales (MM US$) 1993 1994 1995
Oil and Gas Production and Services 560 594 672 Petrochemicals and Refineries 38 212 482 Telecommunications 148 158 138 Construction 165 139 144 Farming, Forestry and Agro Industrial 37 40 42 Other Investments 100 119 115 Subtotal 1,048 1,262 1,593 Eliminations 53 111 126 Total sales 995 1,151 1,467
Perez Companc Other Key Financial Data (MM US$) 1993 1994 1995
Operating Income 129 154 186 Net Financial Expense (23) (42) (26) Total Assets 2,496 2,567 2,830 Current Liabilities 514 467 501 Non Current Liabilities 720 691 748 Subtotal 1,234 1,158 1,249 Minority Interest 113 122 120 Shareholders' Equity 1,149 1,288 1,461 Total Liabilities and Shareholders’ Equity 2,496 2,568 2,830
Source: Perez Companc S.A., 1995 Annual Report (Argentina: Perez Companc, 1995), pp. 29 and 35.
Exhibit 8b Main Financial Data on Copesul
Copesul Shareholders 1995
Odebrecht Group (Brazilian company) 29% Ipiranga Group (Brazilian company) 29% Petroquisa (subsidiary of Petrobras, the state-owned oil company) 15% Others (banks, pension funds, and others) 27%
Copesul Key Financial Data (thousands US$) 1993 1994 1995
Total Net Sales 637,959 662,759 677,780 Operating Income (21,566) 12,918 96,755 Net Financial Income (Expense) 17,663 21,518 58,288 Net Income (476) 21,121 65,950 Total Assets 1,250,191 1,166,993 1,221,815 Current Liabilities 105,189 99,877 160,834 Non Current Liabilities 41,130 80,540 131,443 Subtotal 146,319 180,417 292,277 Shareholder's Equity 1,103,872 986,576 929,538 Total Liabilities and Shareholders' Equity 1,250,191 1,166,993 1,221,815
Source: Company Reports and Economatica.
20 4-
02 1
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B B
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19
95
19 96
19
97 19
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01 20
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20 03
20 04
20 05
20 06
20 07
20 08
20 09
20 10
R E
V E
N U
E
E th
yl e n e P
ro d u ct
io n C
a p a ci
ty (
M M
lb s)
5
4 0
.1
5 4
0 .1
5
4 0
.1
5 4
0 .1
6
0 6
.0
6 0
6 .0
6
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6
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E
th y le
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m e P
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( M
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4 8 7 .0
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6 0 6 .0
6 0 6 .0
6 0 6 .0
6 0 6 .0
6 0 6 .0
6 0 6 .0
6
0 6
.0
E th
yl e n e I
n te
rn a tio
n a l N
e t
S a le
s P
ri ce
(U
S $ /lb
) 0
.2 7
3
0 .2
1 9
0 .2
5 0
0 .2
2 0
0 .1
9 0
0 .2
2 2
0 .2
8 5
0 .3
5 8
0 .2
9 7
0 .2
4 7
0 .2
1 8
0 .2
2 9
0 .2
6 1
0 .3
0 4
0 .3
4 6
0 .3
0 6
E th
y le
n e r
e v e n
u e
1 3 2 .9
1 0 6 .4
1 3 5 .2
1 1 9 .0
1
1 5
.4
1 3
4 .7
1
7 2
.6
2 1
6 .9
1
8 0
.2
1 4
9 .9
1
3 2
.0
1 3
8 .9
1
5 8
.3
1 8
4 .0
2
0 9
.7
1 8
5 .5
B
y p
ro d
u c t
c re
d it
s a le
s
5 .0
5 .4
5 .7
6 .1
9 .2
8 .4
8 .4
8 .3
8 .5
8 .9
9 .0
9 .6
9 .9
1 0 .2
1 0 .4
1 0 .7
T O
T A
L R
E V
E N
U E
S
1 3 7 .9
1 1 1 .8
1 4
0 .9
1
2 5
.1
1 2
4 .6
1
4 3
.1
1 8
1 .0
2
2 5
.2
1 8
8 .7
1
5 8
.8
1 4
1 .0
1
4 8
.5
1 6
8 .2
1
9 4
.2
2 2
0 .1
1
9 6
.2
C
O S
T S
E
th a
n e I
n te
rn a
tio n
a l P
ri ce
( U
S $
/lb )
0 .0
6 2
5
0 .0
6 3
8
0 .0
6 2
5
0 .0
6 1
7
0 .0
6 2
5
0 .0
7 4
3
0 .0
7 7
6
0 .0
8 1
0
0 .0
8 4
4
0 .0
8 7
8
0 .0
9 1
1
0 .0
9 4
5
0 .0
9 7
9
0 .0
9 7
9
0 .0
9 7
9
0 .0
9 7
9
E th
a n
e r
a tio
( vo
lu m
e o
f e th
a n
e
co n su
m e d p
e r
lb .o
f e th
yl e n e )
1 .2
6 7
0
1 .2
6 7
0
1 .2
6 7
0
1 .2
6 7
0
1 .2
6 7
0
1 .2
6 7
0
1 .2
6 7
0
1 .2
6 7
0
1 .2
6 7
0
1 .2
6 7
0
1 .2
6 7
0
1 .2
6 7
0
1 .2
6 7
0
1 .2
6 7
0
1 .2
6 7
0
1 .2
6 7
0
E th
yl e n e V
o lu
m e P
ro d u ct
io n (
M M
lb s)
4 8 7 .0
4
8 6
.1
5 4
0 .1
5
4 0
.1
6 0
6 .0
6
0 6
.0
6 0
6 .0
6
0 6
.0
6 0
6 .0
6
0 6
.0
6 0
6 .0
6
0 6
.0
6 0
6 .0
6
0 6
.0
6 0
6 .0
6 0
6 .0
E
th a
n e
c o
s t
3 8
.6
3 9
.3
4 2
.8
4 2
.2
4 8
.0
5 7
.0
5 9
.6
6 2
.2
6 4
.8
6 7
.4
6 9 .9
7
2 .6
7
5 .2
7
5 .2
7
5 .2
7
5 .2
O
th e r
v a ri
a b
le c
o s ts
( 5 %
o f
s a le
s )
6 .9
5
.6
7 .0
6
.3
6 .2
7
.2
9 .1
1
1 .3
9
.4
7 .9
7
.0
7 .4
8
.4
9 .7
1
1 .0
9
.8
T o
ta l
v a ri
a b
le c
o s
ts
4 5
.5
4 4
.9
4 9
.8
4 8
.5
5 4
.2
6 4
.2
6 8
.6
7 3
.5
7 4
.2
7 5
.4
7 7
.0
8 0
.0
8 3
.6
8 4
.9
8 6
.2
8 5
.0
T
o ta
l fi
x e
d c
o s
ts
2 5
.2
2 6
.1
1 8
.3
1 4
.5
1 4
.8
1 5
.3
1 4
.5
1 5
.0
1 5
.4
1 5
.9
1 6
.3
1 6
.9
1 7
.4
1 8
.0
1 8
.5
1 9
.1
D e p
re c ia
ti o
n
4 .2
4 .9
1
2 .2
1
4 .1
1
5 .3
1
6 .3
1
7 .0
1
7 .8
1
8 .6
1
9 .5
1
6 .1
1
6 .3
9
.9
9 .0
8
.8
8 .9
-
-
P R
O F
IT B
E F
O R
E T
A X
6 3 .1
3 5 .9
6 0 .6
4
8 .0
4
0 .3
4
7 .4
8
0 .9
1
1 8
.9
8 0
.5
4 8
.1
3 1
.5
3 5
.3
5 7
.3
8 2
.3
1 0
6 .6
8
3 .3
-
- T
a x
(3 1
% u
n til
1 9
9 9
t h e
n 3
6 %
) 1
9 .6
1
1 .1
1
8 .8
1
4 .9
1
2 .5
1
7 .1
2
9 .1
4
2 .8
2
9 .0
1
7 .3
1
1 .4
1
2 .7
2
0 .6
2
9 .6
3
8 .4
3
0 .0
P R
O F
IT A
F T
E R
T A
X
4 3 .5
2 4 .8
4 1 .8
3
3 .1
2
7 .8
3
0 .3
5
1 .8
7
6 .1
5
1 .5
3
0 .8
2
0 .2
2
2 .6
3
6 .7
5
2 .7
6
8 .2
5
3 .3
P lu
s:
D e p re
ci a tio
n
4 .2
4 .9
1 2 .2
1
4 .1
1
5 .3
1
6 .3
1
7 .0
1
7 .8
1
8 .6
1
9 .5
1
6 .1
1
6 .3
9
.9
9 .0
8
.8
8 .9
L e ss
: C
h a n g e in
w o rk
in g c
a p ita
l
(6 %
o f
sa le
s)
8 .3
(1
.6 )
1 .7
(1
.0 )
(0 .0
) 1
.1
2 .3
2
.6
(2 .2
) (1
.8 )
(1 .1
) 0 .5
1
.2
1 .6
1
.6
(1 .4
) L e ss
: In
ve st
m e n ts
-
7 .5
7 2 .9
1
8 .5
1
2 .0
9
.9
7 .6
7
.9
8 .1
8
.4
8 .7
9
.0
9 .2
9
.5
9 .8
1
0 .2
P
lu s:
P
B B
P o si
tiv e C
a sh
T re
a su
ry
P o si
tio n U
S $
7 4 .0
-
- -
- -
- -
- -
- -
- -
- -
C A
S H
F L
O W
E T
H Y
L E
N E
- S
ta g
e 1
1 1 3 .4
2 3 .8
(2
0 .6
) 2
9 .7
3
1 .1
3
5 .6
5
8 .9
8
3 .4
6
4 .2
4
3 .6
2
8 .7
2
9 .4
3
6 .2
5
0 .6
6
5 .7
5
3 .4
So u
rc e:
D
o w
Q u
ím ic
a A
rg en
ti n
a S.
A .
20 4-
02 1
-
21 -
E xh
ib it
9 b
St ag
e 1:
B as
e C
as h
F lo
w —
P B
B P
o ly
et h
y le
n e
P la
n t
(i n
m il
li o
n s
o f
U .S
. d ol
la rs
)
S T
A G
E 1
: P
B B
P O
L Y
E T
H Y
L E
N E
P L
A N
T
19 95
19
96 19
97 19
98 19
99 20
00 20
01 20
02
20 03
20 04
20 05
20 06
20 07
20 08
20 09
20 10
V
O L
U M
E
P
o ly
e th
yl e n e P
ro d u ct
io n C
a p a ci
ty (
M M
lb s)
2
0 2
.8
2 0
2 .8
2
0 2
.8
2 0
2 .8
2
0 2
.8
2 0
2 .8
2
0 2
.8
2 0
2 .8
2
0 2
.8
2 0
2 .8
2
0 2
.8
2 0
2 .8
2
0 2
.8
2 0
2 .8
2 0
2 .8
2
0 2
.8
O p
e ra
tin g
r a te
6
5 .0
%
6 5
.0 %
6
5 .0
%
1 0
0 .0
%
1 0
0 .0
%
1 0
0 .0
%
1 0
0 .0
%
1 0
0 .0
%
1 0
0 .0
%
1 0
0 .0
%
1 0
0 .0
%
1 0
0 .0
%
1 0
0 .0
%
1 0
0 .0
%
1 0
0 .0
%
1 0
0 .0
%
P o
ly e th
y le
n e T
o ta
l V
o lu
m e P
ro d
u c ti
o n
(M
M l
b s )
1 3
1 .8
1
3 1
.8
1 3
1 .8
2
0 2
.8
2 0
2 .8
2
0 2
.8
2 0
2 .8
2
0 2
.8
2 0
2 .8
2
0 2
.8
2 0
2 .8
2
0 2
.8
2 0
2 .8
2
0 2
.8
2 0
2 .8
2
0 2
.8
P o ly
e th
yl e n e s
a le
s b re
a kd
o w
n
S
o ld
lo ca
lly
1 0
0 .0
%
1 0
0 .0
%
1 0
0 .0
%
1 0
0 .0
%
1 0
0 .0
%
1 0
0 .0
%
1 0
0 .0
%
1 0
0 .0
%
1 0
0 .0
%
1 0
0 .0
%
1 0
0 .0
%
1 0
0 .0
%
1 0
0 .0
%
1 0
0 .0
%
1 0
0 .0
%
1 0
0 .0
%
E xp
o rt
s M
e rc
o su
r -
- -
- -
- -
- -
- -
- -
- -
- E
xp o rt
s L a tin
A m
e ri ca
-
- -
- -
- -
- -
- -
- -
- -
- E
xp o rt
s E
xt ra
Z o n e
- -
- -
- -
- -
- -
- -
- -
- -
P o ly
e th
yl e n e T
o ta
l V o lu
m e P
ro d u ct
io n
(M M
lb s)
S o
ld lo
ca lly
1
3 1
.8
1 3
1 .8
1
3 1
.8
2 0
2 .8
2
0 2
.8
2 0
2 .8
2
0 2
.8
2 0
2 .8
2
0 2
.8
2 0
2 .8
2
0 2
.8
2 0
2 .8
2
0 2
.8
2 0
2 .8
2
0 2
.8
2 0
2 .8
E
xp o rt
s M
e rc
o su
r -
- -
- -
- -
- -
- -
- -
- -
- E
xp o rt
s L a tin
A m
e ri ca
-
- -
- -
- -
- -
- -
- -
- -
- E
xp o rt
s E
xt ra
Z o n e
- -
- -
- -
- -
- -
- -
- -
- -
T o
ta l
1 3
1 .8
1
3 1
.8
1 3
1 .8
2
0 2
.8
2 0
2 .8
2
0 2
.8
2 0
2 .8
2
0 2
.8
2 0
2 .8
2
0 2
.8
2 0
2 .8
2
0 2
.8
2 0
2 .8
2
0 2
.8
2 0
2 .8
2
0 2
.8
P R
IC E
P o ly
e th
yl e n e I
n te
rn a tio
n a l G
ro ss
S a le
s P
ri ce
(U
S $
/lb )
0 .5
8 1
0 .4
8 3
0 .5
2 2
0 .4
8 6
0 .4
5 0
0 .4
9 1
0 .5
6 1
0 .6
4 1
0 .5
6 0
0 .4
9 4
0 .4
6 1
0 .4
7 5
0 .5
1 4
0 .5
6 5
0 .6
1 6
0 .5
7 1
P o
ly e
th yl
e n
e f
re ig
h t
& d
u tie
s co
st :
S
o ld
lo ca
lly
0 .0
1 7
0 .0
1 7
0 .0
1 7
0 .0
1 7
0 .0
1 7
0 .0
1 7
0 .0
1 7
0 .0
1 7
0 .0
1 7
0 .0
1 7
0 .0
1 7
0 .0
1 7
0 .0
1 7
0 .0
1 7
0 .0
1 7
0 .0
1 7
E xp
o rt
s M
e rc
o su
r 0 .0
5 4
0 .0
5 4
0 .0
5 4
0 .0
5 4
0 .0
5 4
0 .0
5 4
0 .0
5 4
0 .0
5 4
0 .0
5 4
0 .0
5 4
0 .0
5 4
0 .0
5 4
0 .0
5 4
0 .0
5 4
0 .0
5 4
0 .0
5 4
E xp
o rt
L a
tin A
m e
ri ca
0
.0 7
7
0 .0
7 7
0 .0
7 7
0 .0
7 7
0 .0
7 7
0 .0
7 7
0 .0
7 7
0 .0
7 7
0 .0
7 7
0 .0
7 7
0 .0
7 7
0 .0
7 7
0 .0
7 7
0 .0
7 7
0 .0
7 7
0 .0
7 7
E xp
o rt
E xt
ra Z
o n
e
0 .1
0 0
0 .1
0 0
0 .1
0 0
0 .1
0 0
0 .1
0 0
0 .1
0 0
0 .1
0 0
0 .1
0 0
0 .1
0 0
0 .1
0 0
0 .1
0 0
0 .1
0 0
0 .1
0 0
0 .1
0 0
0 .1
0 0
0 .1
0 0
P o ly
e th
yl e n e I
n te
rn a tio
n a l N
e t
S a le
s P
ri ce
(U
S $ /lb
)
S o
ld lo
ca lly
0
.5 6
5
0 .4
6 6
0 .5
0 6
0 .4
6 9
0 .4
3 4
0 .4
7 5
0 .5
4 4
0 .6
2 5
0 .5
4 3
0 .4
7 7
0 .4
4 4
0 .4
5 9
0 .4
9 7
0 .5
4 8
0 .5
9 9
0 .5
5 4
E xp
o rt
s M
e rc
o su
r 0 .5
2 7
0 .4
2 8
0 .4
6 8
0 .4
3 2
0 .3
9 6
0 .4
3 7
0 .5
0 6
0 .5
8 7
0 .5
0 6
0 .4
3 9
0 .4
0 6
0 .4
2 1
0 .4
6 0
0 .5
1 0
0 .5
6 1
0 .5
1 6
E xp
o rt
s L
a tin
A m
e ri ca
0
.5 0
4
0 .4
0 6
0 .4
4 5
0 .4
0 9
0 .3
7 3
0 .4
1 4
0 .4
8 4
0 .5
6 4
0 .4
8 3
0 .4
1 7
0 .3
8 4
0 .3
9 8
0 .4
3 7
0 .4
8 8
0 .5
3 8
0 .4
9 3
E xp
o rt
s E
xt ra
Z o
n e
0 .4
8 2
0 .3
8 3
0 .4
2 3
0 .3
8 6
0 .3
5 0
0 .3
9 1
0 .4
6 1
0 .5
4 1
0 .4
6 0
0 .3
9 4
0 .3
6 1
0 .3
7 6
0 .4
1 4
0 .4
6 5
0 .5
1 6
0 .4
7 1
T O
T A
L R
E V
E N
U E
7 4 .5
6 1 .5
6 6 .7
9
5 .2
8
7 .9
9
6 .3
1
1 0
.4
1 2
6 .7
1
1 0
.2
9 6
.8
9 0
.1
9 3
.1
1 0
0 .9
1
1 1
.2
1 2
1 .5
1
1 2
.4
20 4-
02 1
-
22 -
E xh
ib it
9 b
( co
n ti
n u
ed )
S T
A G
E 1
: P
B B
P O
L Y
E T
H Y
L E
N E
P L
A N
T
19 95
19
96 19
97 19
98 19
99 20
00 20
01 20
02
20 03
20 04
20 05
20 06
20 07
20 08
20 09
20 10
T
O T
A L
R E
V E
N U
E
7 4 .5
6 1 .5
6 6 .7
9 5 .2
8 7
.9 9
6 .3
1 1
0 .4
1 2
6 .7
1
1 0
.2 9 6
.8 9 0
.1 9
3 .1
1 0
0 .9
1 1
1 .2
1 2
1 .5
1 1
2 .4
C
O S
T S
E th
yl e n e I
n te
rn a tio
n a l N
e t
P ri ce
U S
$ /lb
(f
ro m
F ig
u re
9 a )
0 .2
7 3
0
.2 1
9 0
.2 5
0 0
.2 2
0 0
.1 9
0 0
.2 2
2 0
.2 8
5 0
.3 5
8
0 .2
9 7
0 .2
4 7
0 .2
1 8
0 .2
2 9
0 .2
6 1
0 .3
0 4
0 .3
4 6
0 .3
0 6
E
th yl
e n e r
a tio
( vo
lu m
e o
f e th
yl e n e
co n su
m e d p
e r
lb .o
f p o ly
e th
yl e n e )
1 .0
0 7
1
.0 0
7 1
.0 0
7 1
.0 0
7 1
.0 0
7 1
.0 0
7 1
.0 0
7 1
.0 0
7
1 .0
0 7
1 .0
0 7
1 .0
0 7
1 .0
0 7
1 .0
0 7
1 .0
0 7
1 .0
0 7
1 .0
0 7
P
o ly
e th
yl e n e T
o ta
l V o lu
m e P
ro d u ct
io n
(M M
lb s)
1 3 1 .8
1 3 1 .8
1 3 1 .8
2 0 2 .8
2 0 2 .8
2 0
2 .8
2 0
2 .8
2 0
2 .8
2
0 2
.8 2
0 2
.8 2
0 2
.8 2 0
2 .8
2 0
2 .8
2 0
2 .8
2 0
2 .8
2 0
2 .8
E th
y le
n e
c o
s t
3 6
.2
2 9
.1 3
3 .2
4 5
.0 3
8 .9
4 5
.4 5
8 .2
7 3
.1
6 0
.7 5 0
.5 4 4
.5 4
6 .8
5 3
.4 6
2 .0
7 0
.7 6 2
.5
O th
e r
v a
ri a
b le
c o
s ts
( 1
0 %
o f
s a
le s
) 7
.4
6 .1
6 .7
9 .5
8 .8
9 .6
1 1
.0 1 2
.7
1 1
.0 9 .7
9 .0
9 .3
1 0
.1 1
1 .1
1 2
.1 1 1
.2
T o
ta l
v a ri
a b
le c
o s
ts
4 3
.7
3 5
.2 3
9 .9
5 4
.5 4
7 .7
5 5
.0 6
9 .2
8 5
.8
7 1
.8 6 0
.2 5 3
.5 5
6 .1
6 3
.4 7
3 .1
8 2
.8 7 3
.7
T o
ta l
fi x
e d
c o
s ts
1
0 .6
1
3 .6
9 .0
6 .8
6 .9
6 .4
5 .9
6 .1
6
.3 6 .5
6 .7
6 .9
7 .1
7 .3
7 .6
7 .8
D
e p
re c ia
ti o
n
8 .8
9 .1
9 .9
1 0
.6 1
0 .9
1 1
.2 1
1 .5
1 1
.6
1 1
.7 1 1
.9 3 .2
3 .1
2 .5
1 .9
1 .7
1 .6
P R
O F
IT B
E F
O R
E T
A X
1 1 .4
3 .6
8 .0
2 3
.3 2
2 .4
2 3
.6 2
3 .8
2 3
.2
2 0
.5 1 8
.2 2 6
.7 2
7 .0
2 7
.9 2
8 .8
2 9
.3 2 9
.2
T a
x (3
1 %
u n
til 1
9 9 9
, th
e n 3
6 %
) 3
.5
1 .1
2 .5
7 .2
6 .9
8 .5
8 .6
8 .4
7
.4 6 .6
9 .6
9 .7
1 0
.0 1
0 .4
1 0
.6 1 0
.5
P R
O F
IT A
F T
E R
T A
X
7 .8
2 .5
5 .5
1 6
.1 1
5 .5
1 5
.1 1
5 .2
1 4
.9
1 3
.1 1 1
.7 1 7
.1 1
7 .2
1 7
.9 1
8 .5
1 8
.8 1 8
.7
P lu
s:
D e
p re
ci a
tio n
8
.8
9 .1
9 .9
1 0
.6 1
0 .9
1 1
.2 1
1 .5
1 1
.6
1 1
.7 1 1
.9 3 .2
3 .1
2 .5
1 .9
1 .7
1 .6
L e ss
: C
h a n g e in
w o rk
in g c
a p ita
l
(2 0
% o
f sa
le s)
1
4 .9
2
.6 (1
.0 )
(5 .7
) 1 .5
(1 .7
) (2
.8 )
(3 .3
) 3
.3 2 .7
1 .3
(0 .6
) (1
.6 )
(2 .1
) (2
.1 )
1 .8
L
e ss
: In
ve st
m e
n ts
-
2 .6
8 .2
7 .3
3 .1
6 .8
7 .5
1 .3
1
.4 1 .4
1 .5
1 .5
1 .6
1 .6
1 .7
1 .7
C A
S H
F L
O W
P O
L Y
E T
H Y
L E
N E
- S
ta g
e 1
1 .7
6 .4
8 .2
2 5 .1
2 1
.8 2
1 .2
2 2
.0 2 8
.4
2 0
.1 1 9
.4 1
7 .5
1 9
.4 2 0
.3 2
0 .8
2 0
.9 1 6
.7
C O
N S
O L
ID A
T E
D P
B B
C A
S H
F L
O W
S —
S T
A G
E 1
1 9 9 5
1 9 9 6
1 9 9 7
1 9 9 8
1 9 9 9
2 0 0 0
2 0 0 1
2 0 0 2
2 0 0 3
2 0 0 4
2 0 0 5
2 0 0 6
2 0 0 7
2 0 0 8
2 0 0 9
2 0 1 0
C a sh
f lo
w e
th yl
e n e
1 1 3 .4
2 3 .8
(2
0 .6
) 2
9 .7
3
1 .1
3
5 .6
5
8 .9
8
3 .4
6
4 .2
4
3 .6
2
8 .7
2
9 .4
3
6 .2
5
0 .6
6
5 .7
5
3 .4
C
a sh
f lo
w p
o ly
e th
yl e n e
1 .7
6 .4
8
.2
2 5
.1
2 1
.8
2 1
.2
2 2
.0
2 8
.4
2 0
.1
1 9 .4
1
7 .5
1
9 .4
2
0 .3
2
0 .8
2
0 .9
1
6 .7
T
O T
A L
C A
S H
F L
O W
- S
T A
G E
1
1 1 5 .2
3 0 .1
(1
2 .4
) 5
4 .7
5
2 .9
5
6 .7
8
0 .9
1
1 1
.8
8 4
.3
6 3 .1
4
6 .2
4
8 .9
5
6 .5
7
1 .4
8
6 .6
7
0 .1
So u
rc e:
D
o w
Q u
ím ic
a A
rg en
ti n
a S.
A .
20 4-
02 1
-
23 -
E xh
ib it
1 0
St ag
e 2:
P o
li su
r B
as e
C as
e C
as h
F lo
w (
in m
il li
o n
s o
f U
.S . d
o ll
ar s)
S T
A G
E 2
: P
O L
IS U
R –
T
W O
P O
L Y
E T
H Y
L E
N E
P L
A N
T S
19
95
19 96
19
97 19
98 19
99 20
00 20
01 20
02
20 03
20 04
20 05
20 06
20 07
20 08
20 09
20 10
V O
L U
M E
P
o ly
e th
yl e n e P
ro d u ct
io n C
a p a ci
ty (
M M
lb s)
4 6 2 .6
4 6 3 .0
4
6 3
.0 4
6 3
.0 4
6 3
.0 4
6 3
.0 4
6 3
.0 4
6 3
.0
4 6
3 .0
4 6
3 .0
4 6
3 .0
4 6
3 .0
4 6
3 .0
4 6
3 .0
4 6
3 .0
4 6
3 .0
O
p e
ra tin
g r
a te
8
6 .0
%
1 0
0 .0
%
1 0
0 .0
% 1
0 0
.0 %
1 0
0 .0
% 1
0 0
.0 %
1 0
0 .0
% 1
0 0
.0 %
1
0 0
.0 %
1 0
0 .0
% 1
0 0
.0 %
1 0
0 .0
% 1
0 0
.0 %
1 0
0 .0
% 1
0 0
.0 %
1 0
0 .0
%
P o
ly e th
y le
n e T
o ta
l V
o lu
m e P
ro d
u c ti
o n
(M
M l
b s )
3 9 7 .8
4 6 3 .0
4 6 3 .0
4 6 3 .0
4 6 3 .0
4 6
3 .0
4 6
3 .0
4 6
3 .0
4
6 3
.0 4
6 3
.0 4
6 3
.0 4
6 3
.0 4
6 3
.0 4
6 3
.0 4
6 3
.0 4
6 3
.0
P
o ly
e th
yl e n e S
a le
s B
re a kd
o w
n
S o
ld lo
ca lly
8
4 .0
%
8 5
.0 %
8
9 .0
% 9
1 .0
% 9
5 .0
% 9
8 .0
% 1
0 0
.0 %
1 0
0 .0
%
1 0
0 .0
% 1
0 0
.0 %
1 0
0 .0
% 1
0 0
.0 %
1 0
0 .0
% 1 0
0 .0
% 1
0 0
.0 %
1 0
0 .0
%
E xp
o rt
s M
e rc
o su
r 1 6 .0
%
1 5 .0
%
1 1 .0
% 9 .0
% 5 .0
% 2 .0
% -
- -
- -
- -
- -
- E
xp o rt
s L a tin
A m
e ri ca
-
- -
- -
- -
- -
- -
- -
- -
- E
xp o rt
s E
xt ra
Z o n e
- -
- -
- -
- -
- -
- -
- -
- -
P
o ly
e th
yl e n e T
o ta
l V o lu
m e P
ro d u ct
io n
(M M
lb s)
S
o ld
lo ca
lly
3 3
4 .1
3
9 3
.5
4 1
2 .0
4 2
1 .3
4 3
9 .8
4 5
3 .7
4 6
3 .0
4 6
3 .0
4
6 3
.0 4
6 3
.0 4 6
3 .0
4 6
3 .0
4 6
3 .0
4 6
3 .0
4 6
3 .0
4 6
3 .0
E
xp o rt
s M
e rc
o su
r 6 3 .6
6 9 .4
5 0 .9
4 1 .7
2 3 .1
9 .3
- -
- -
- -
- -
- -
E xp
o rt
s L a tin
A m
e ri ca
-
- -
- -
- -
- -
- -
- -
- -
- E
xp o rt
s E
xt ra
Z o n e
- -
- -
- -
- -
- -
- -
- -
- -
T o
ta l
3 9
7 .8
4
6 3
.0
4 6
3 .0
4 6
3 .0
4 6
3 .0
4 6
3 .0
4 6
3 .0
4 6
3 .0
4
6 3
.0 4
6 3
.0 4
6 3
.0 4
6 3
.0 4
6 3
.0 4
6 3
.0 4
6 3
.0 4
6 3
.0
P
R IC
E
P o
ly e
th yl
e n
e I
n te
rn a
tio n
a l G
ro ss
S a
le s
P ri ce
( U
S $ /lb
) 0
.5 8
1
0 .4
8 3
0
.5 2
2 0
.4 8
6 0
.4 5
0 0
.4 9
1 0
.5 6
1 0
.6 4
1
0 .5
6 0
0 .4
9 4
0 .4
6 1
0 .4
7 5
0 .5
1 4
0 .5
6 5
0 .6
1 6
0 .5
7 1
P
o ly
e th
yl e
n e f
re ig
h t &
d u tie
s co
st :
S o
ld lo
ca lly
0
.0 1
7
0 .0
1 7
0
.0 1
7 0
.0 1
7 0
.0 1
7 0
.0 1
7 0
.0 1
7 0
.0 1
7
0 .0
1 7
0 .0
1 7
0 .0
1 7
0 .0
1 7
0 .0
1 7
0 .0
1 7
0 .0
1 7
0 .0
1 7
E
xp o rt
s M
e rc
o su
r 0 .0
5 4
0 .0
5 4
0 .0
5 4
0 .0
5 4
0 .0
5 4
0 .0
5 4
0 .0
5 4
0 .0
5 4
0
.0 5
4 0 .0
5 4
0 .0
5 4
0 .0
5 4
0 .0
5 4
0 .0
5 4
0 .0
5 4
0 .0
5 4
E
xp o
rt s
L a tin
A m
e ri ca
0
.0 7
7
0 .0
7 7
0
.0 7
7 0
.0 7
7 0
.0 7
7 0
.0 7
7 0
.0 7
7 0
.0 7
7
0 .0
7 7
0 .0
7 7
0 .0
7 7
0 .0
7 7
0 .0
7 7
0 .0
7 7
0 .0
7 7
0 .0
7 7
E
xp o
rt s
E xt
ra Z
o n e
0 .1
0 0
0 .1
0 0
0
.1 0
0 0
.1 0
0 0
.1 0
0 0
.1 0
0 0
.1 0
0 0
.1 0
0
0 .1
0 0
0 .1
0 0
0 .1
0 0
0 .1
0 0
0 .1
0 0
0 .1
0 0
0 .1
0 0
0 .1
0 0
P o ly
e th
yl e n e I
n te
rn a tio
n a l N
e t
S a le
s P
ri ce
(U
S $ /lb
)
S
o ld
lo ca
lly
0 .5
6 5
0 .4
6 6
0
.5 0
6 0
.4 6
9 0
.4 3
4 0
.4 7
5 0
.5 4
4 0
.6 2
5
0 .5
4 3
0 .4
7 7
0 .4
4 4
0 .4
5 9
0 .4
9 7
0 .5
4 8
0 .5
9 9
0 .5
5 4
E
xp o rt
s M
e rc
o su
r 0 .5
2 7
0 .4
2 8
0 .4
6 8
0 .4
3 2
0 .3
9 6
0 .4
3 7
0 .5
0 6
0 .5
8 7
0
.5 0
6 0 .4
3 9
0 .4
0 6
0 .4
2 1
0 .4
6 0
0 .5
1 0
0 .5
6 1
0 .5
1 6
E
xp o
rt s
L a tin
A m
e ri ca
0
.5 0
4
0 .4
0 6
0
.4 4
5 0
.4 0
9 0
.3 7
3 0
.4 1
4 0
.4 8
4 0
.5 6
4
0 .4
8 3
0 .4
1 7
0 .3
8 4
0 .3
9 8
0 .4
3 7
0 .4
8 8
0 .5
3 8
0 .4
9 3
E
xp o
rt s
E xt
ra Z
o n e
0 .4
8 2
0 .3
8 3
0
.4 2
3 0
.3 8
6 0
.3 5
0 0
.3 9
1 0
.4 6
1 0
.5 4
1
0 .4
6 0
0 .3
9 4
0 .3
6 1
0 .3
7 6
0 .4
1 4
0 .4
6 5
0 .5
1 6
0 .4
7 1
T O
T A
L R
E V
E N
U E
2 2 2 .3
2 1 3 .3
2
3 2
.3 2
1 5
.8 1
9 9
.8 2
1 9
.4 2
5 1
.9 2
8 9
.1
2 5
1 .6
2 2
0 .9
2 0
5 .7
2 1
2 .4
2 3
0 .3
2 5
3 .8
2 7
7 .3
2 5
6 .5
20 4-
02 1
-
24 -
E xh
ib it
1 0
(c o
n ti
n u
ed )
S T
A G
E 2
: P
O L
IS U
R –
T
W O
P O
L Y
E T
H Y
L E
N E
P L
A N
T S
19
95
19 96
19
97 19
98 19
99 20
00 20
01 20
02
20 03
20 04
20 05
20 06
20 07
20 08
20 09
20 10
T O
T A
L R
E V
E N
U E
2
2 2
.3
2 1
3 .3
2
3 2
.3 2
1 5
.8 1
9 9
.8 2
1 9
.4 2
5 1
.9 2
8 9
.1
2 5
1 .6
2 2
0 .9
2 0
5 .7
2 1
2 .4
2 3
0 .3
2 5
3 .8
2 7
7 .3
2 5
6 .5
C O
S T
S
E th
yl e
n e I
n te
rn a
tio n
a l P
ri ce
( U
S $ /lb
s)
0 .2
7 3
0 .2
1 9
0
.2 5
0 0
.2 2
0 0
.1 9
0 0
.2 2
2 0
.2 8
5 0
.3 5
8
0 .2
9 7
0 .2
4 7
0 .2
1 8
0 .2
2 9
0 .2
6 1
0 .3
0 4
0 .3
4 6
0 .3
0 6
E
th yl
e n e r
a tio
( vo
lu m
e o
f e th
yl e n e
co n su
m e d p
e r
lb .o
f p o ly
e th
yl e n e )
0 .9
7 9
0 .9
7 9
0 .9
7 9
0 .9
7 9
0 .9
7 9
0 .9
7 9
0 .9
7 9
0 .9
7 9
0
.9 7
9 0
.9 7
9 0
.9 7
9 0
.9 7
9 0
.9 7
9 0
.9 7
9 0
.9 7
9 0
.9 7
9
P o ly
e th
yl e n e T
o ta
l V o lu
m e P
ro d u ct
io n
(M M
lb s)
3 9 7 .8
4 6 3 .0
4 6 3 .0
4 6 3 .0
4 6 3 .0
4 6
3 .0
4 6
3 .0
4 6
3 .0
4
6 3
.0 4 6
3 .0
4 6
3 .0
4 6
3 .0
4 6
3 .0
4 6
3 .0
4 6
3 .0
4 6
3 .0
E th
y le
n e
c o
s t
1 0
6 .3
9
9 .2
1
1 3
.5 9
9 .8
8 6
.3 1
0 0
.8 1
2 9
.1 1
6 2
.2
1 3
4 .8
1 1
2 .1
9 8
.7 1
0 3
.9 1
1 8
.4 1
3 7
.6 1
5 6
.8 1
3 8
.7
O
th e
r v
a ri
a b
le c
o s ts
2
5 .6
3
1 .1
3
2 .9
3 1
.1 3
2 .1
3 3
.1 3
3 .9
3 4
.7
3 6
.1 3 7
.7 3
9 .1
4 0
.3 4 1 .5
4 2 .7
4 3 .9
4 5 .4
T
o ta
l v
a ri
a b
le c
o s
ts
1 3
1 .9
1
3 0
.3
1 4
6 .4
1 3
0 .9
1 1
8 .4
1 3
3 .9
1 6
3 .0
1 9
6 .9
1
7 0
.9 1 4
9 .8
1 3
7 .8
1 4
4 .2
1 5
9 .9
1 8
0 .3
2 0
0 .7
1 8
4 .1
T o
ta l
fi x e d
c o
s ts
1 5 .1
1 5 .1
1 5 .5
1 5
.9 1
6 .3
1 6
.6 1
7 .0
1 7
.4
1 7
.9 1 8
.3 1 8 .7
1 9 .2
1 9 .6
2 0 .1
2 0 .6
2 1 .1
D
e p
re c ia
ti o
n
2 .1
4 .3
4 .9
5 .6
6 .4
7 .1
4 .4
5 .9
6 .5
7 .1
7 .7
8 .3
9 .0
6 .8
6 .9
7 .0
P R
O F
IT B
E F
O R
E T
A X
7 3 .1
6 3 .5
6
5 .4
6 3
.3 5
8 .8
6 1
.7 6
7 .5
6 8
.8
5 6
.3 4 5
.7 4
1 .5
4 0
.7 4 1 .8
4 6 .6
4 9 .1
4 4 .2
T a x
(3 1 %
u n til
1 9 9 9 , th
e n 3
6 %
) 2
2 .7
1
9 .7
2
0 .3
1 9
.6 1
8 .2
2 2
.2 2
4 .3
2 4
.8
2 0
.3 1 6
.5 1
4 .9
1 4 .7
1 5 .0
1 6 .8
1 7 .7
1 5 .9
P R
O F
IT A
F T
E R
T A
X
5 0 .5
4 3 .8
4 5 .2
4 3
.7 4
0 .6
3 9
.5 4
3 .2
4 4
.1
3 6
.1 2 9
.3 2 6 .5
2 6 .1
2 6 .8
2 9 .8
3 1 .4
2 8 .3
P lu
s:
D e
p re
ci a
tio n
2
.1
4 .3
4
.9 5 .6
6 .4
7 .1
4 .4
5 .9
6 .5
7 .1
7 .7
8 .3
9 .0
6 .8
6 .9
7 .0
L e ss
: C
h a n g e in
w o rk
in g c
a p ita
l
(2 0
% o
f sa
le s)
4
4 .5
(1
.8 )
3 .8
(3 .3
) (3
.2 )
3 .9
6 .5
7 .4
(7
.5 )
(6 .1
) (3
.0 )
1 .3
3 .6
4 .7
4 .7
(4 .2
) L e ss
: In
ve st
m e n ts
-
1 0 .1
6
.8 7 .0
7 .3
1 4
.6 1
5 .4
5 .5
5
.7 5 .9
6 .1
6 .3
6 .4
6 .6
6 .7
6 .9
C A
S H
F L
O W
P O
L Y
E T
H Y
L E
N E
— S
ta g
e 2
8
.1
3 9
.8
3 9
.5 4
5 .6
4 2
.8 2
8 .2
2 5
.7 3 7
.0
4 4
.3 3 6
.6 3
1 .2
2 6 .8
2 5 .7
2 5 .3
2 6 .9
3 2 .6
So u
rc e:
D
o w
Q u
ím ic
a A
rg en
ti n
a S.
A .
20 4-
02 1
-
25 -
E xh
ib it
1 1a
St ag
e 3:
B as
e C
as e
C as
h F
lo w
— E
th y
le n
e C
ra ck
er (
in m
il li
o n
s o
f U
.S . d
o ll
ar s)
S T
A G
E 3
: N
E W
E T
H Y
L E
N E
C R
A C
K E
R
19 97
19
98 19
99 20
00 20
01 20
02 20
03
20 04
20 05
20 06
20 07
20 08
20 09
20 10
R
E V
E N
U E
S
E
th yl
e n e P
ro d u ct
io n C
a p a ci
ty (
M M
lb s)
-
- -
1 1 6 .8
9 3 7 .0
9
3 7
.0
9 3
7 .0
9
3 7
.0
9 3
7 .0
9
3 7
.0
9 3
7 .0
9
3 7
.0
9 3
7 .0
9
3 7
.0
O p
e ra
tin g
r a te
-
- -
1 0
0 .0
%
1 0
0 .0
%
1 0
0 .0
%
1 0
0 .0
%
1 0
0 .0
%
1 0
0 .0
%
1 0
0 .0
%
1 0
0 .0
%
1 0
0 .0
%
1 0
0 .0
%
1 0
0 .0
%
E th
y le
n e V
o lu
m e P
ro d
u c ti
o n
( M
M l b
s )
- -
- 1 1 6 .8
9 3 7 .0
9 3 7 .0
9 3 7 .0
9 3 7 .0
9 3 7 .0
9 3 7 .0
9 3 7 .0
9 3 7 .0
9 3 7 .0
9 3 7 .0
E
th yl
e n e I
n te
rn a tio
n a l N
e t
S a le
s P
ri ce
(U
S $ /lb
) -
- -
0 .2
2 2
3
0 .2
8 4
9
0 .3
5 7
9
0 .2
9 7
4
0 .2
4 7
3
0 .2
1 7
8
0 .2
2 9
2
0 .2
6 1
2
0 .3
0 3
6
0 .3
4 6
0
0 .3
0 6
1
E th
y le
n e r
e v e n
u e s
- -
- 2 6 .0
2 6 6 .9
3
3 5
.4
2 7
8 .7
2
3 1
.8
2 0
4 .1
2
1 4
.7
2 4
4 .8
2
8 4
.5
3 2
4 .2
2
8 6
.8
B y p
ro d
u c t
c re
d it
s a le
s
- -
- 0 .5
3 .8
3 .8
3 .8
3 .8
3 .8
3 .8
3 .8
3 .8
3 .8
3 .8
T O
T A
L R
E V
E N
U E
S
- -
- 2 6 .5
2 7 0 .8
3
3 9
.2
2 8
2 .5
2
3 5
.6
2 0
7 .9
2
1 8
.6
2 4
8 .6
2
8 8
.3
3 2
8 .0
2
9 0
.6
C O
S T
S
E
th a n e r
a tio
( vo
lu m
e o
f e th
a n e c
o n su
m e d
p e
r lb
.o f
e th
yl e
n e
)
1 .2
3 0
0
1 .2
3 0
0
1 .2
3 0
0
1 .2
3 0
0
1 .2
3 0
0
1 .2
3 0
0
1 .2
3 0
0
1 .2
3 0
0
1 .2
3 0
0
1 .2
3 0
0
1 .2
3 0
0
E th
yl e n e V
o lu
m e P
ro d u ct
io n (
M M
lb s)
-
- -
1 1 6 .8
9 3 7 .0
9
3 7
.0
9 3
7 .0
9
3 7
.0
9 3
7 .0
9
3 7
.0
9 3
7 .0
9
3 7
.0
9 3
7 .0
9
3 7
.0
E th
a n
e I
n te
rn a
tio n
a l P
ri ce
( U
S $
/lb )
- -
- 0
.0 7
4
0 .0
7 8
0 .0
8 1
0 .0
8 4
0 .0
8 8
0 .0
9 1
0 .0
9 5
0 .0
9 8
0 .0
9 8
0 .0
9 8
0 .0
9 8
E th
a n
e c
o s
t -
- -
1 0
.7
8 9
.4
9 3
.4
9 7
.3
1 0
1 .2
1
0 5
.0
1 0
8 .9
1
1 2
.8
1 1
2 .8
1
1 2
.8
1 1
2 .8
O
th e r
v a ri
a b
le c
o s ts
( 5 %
o f
s a le
s )
- -
- 1 .3
1 3 .5
1
7 .0
1
4 .1
1
1 .8
1
0 .4
1
0 .9
1
2 .4
1
4 .4
1
6 .4
1
4 .5
T
o ta
l v
a ri
a b
le c
o s
ts
1
2 .0
1
0 3
.0
1 1
0 .3
1
1 1
.4
1 1
3 .0
1
1 5
.4
1 1
9 .8
1
2 5
.3
1 2
7 .2
1
2 9
.2 1 2
7 .4
T
o ta
l fi
x e
d c
o s
ts
7
.0
7 .0
7
.2
7 .4
7
.5
7 .7
7
.9
8 .1
8
.1
8 .2
8
.4
D e p
re c ia
ti o
n
- -
- 3 7 .6
3 7 .6
3
7 .6
3
7 .6
3
7 .6
3
7 .6
3
7 .6
3
7 .6
3
7 .6
3
7 .6
P R
O F
IT B
E F
O R
E T
A X
-
- -
(3 0 .1
) 1 2 3 .2
1 8 4 .1
1 2
6 .1
7
7 .5
4
7 .2
5
3 .2
7
7 .6
1
1 5
.4
1 5
3 .0
1
5 4
.9
T a x
(3 1 %
u n til
1 9 9 9 , th
e n 3
6 %
) -
- -
- 4 4 .4
6 6 .3
4
5 .4
2
7 .9
1
7 .0
1
9 .2
2
7 .9
4
1 .5
5
5 .1
5
5 .7
P R
O F
IT A
F T
E R
T A
X
- -
- (3
0 .1
) 7 8 .8
1 1 7 .8
8 0
.7
4 9
.6 3
0 .2
3 4
.1 4
9 .7
7 3
.8 9
7 .9
9 9
.1
P lu
s:
D e p re
ci a tio
n
- -
- 3 7 .6
3 7 .6
3 7 .6
3 7 .6
3
7 .6
3
7 .6
3
7 .6
3
7 .6
3
7 .6
3
7 .6
-
L e ss
: C
h a n g e in
w o rk
in g c
a p ita
l
(6 %
o f
sa le
s)
- -
- 1
.6
1 4
.7
4 .1
(3
.4 )
(2 .8
) (1
.7 )
0 .6
1
.8
2 .4
2
.4
(2 .2
) L e ss
: In
ve st
m e n ts
4
.5
5 0
.1
2 4
7 .7
7
4 .0
-
- -
- -
- -
- -
-
C A
S H
F L
O W
E T
H Y
L E
N E
- S
ta g
e 3
(4
.5 )
(5 0 .1
) (2
4 7 .7
) (6
8 .1
) 1
0 1
.8 1
5 1
.3 1
2 1
.7
9 0
.0 6
9 .5
7 1
.0 8
5 .5
1 0
9 .0
1 3
3 .1
1 0
1 .4
S o
u rc
e: D
o w
Q u
ím ic
a A
rg en
ti n
a S.
A .
20 4-
02 1
-
26 -
E xh
ib it
1 1b
St ag
e 3:
E xt
en si
o n
B as
e C
as e
C as
h F
lo w
— O
n e
P ol
y et
h y
le n
e P
la n
t (i
n m
il li
o n
s o
f U
.S . d
ol la
rs )
S T
A G
E 3
: N
E W
P O
L Y
E T
H Y
L E
N E
P
L A
N T
19
97
19 98
19
99 20
00 20
01 20
02 20
03
20 04
20 05
20 06
20 07
20 08
20 09
20 10
V O
L U
M E
P
o ly
e th
yl e n e P
ro d u ct
io n C
a p a ci
ty
(M M
lb s)
5 9 5 .2
5 9 5 .2
5 9 5 .2
5 9 5
.2 5
9 5
.2 5
9 5
.2 5
9 5
.2 5 9
5 .2
5 9
5 .2
5 9
5 .2
O
p e
ra tin
g r
a te
8
8 .9
% 9
6 .3
% 1
0 0
.0 %
1
0 0
.0 %
1 0
0 .0
% 1
0 0
.0 %
1 0
0 .0
% 1 0
0 .0
% 1
0 0
.0 %
1 0
0 .0
%
P o
ly e th
y le
n e T
o ta
l V
o lu
m e
P ro
d u
c ti
o n
( M
M l b
s )
5 2
9 .1
5 7
3 .2
5 9
5 .2
5
9 5
.2 5
9 5
.2 5
9 5
.2 5
9 5
.2 5 9
5 .2
5 9
5 .2
5 9
5 .2
P o ly
e th
yl e n e S
a le
s B
re a kd
o w
n
S o
ld lo
ca lly
3
1 .0
% 3
1 .0
% 3
2 .0
%
3 4
.0 %
3 8
.0 %
4 2
.0 %
4 2
.0 %
4 3
.0 %
4 3
.0 %
4 3
.0 %
E
xp o rt
s M
e rc
o su
r
4 4 .0
% 4 4 .0
% 4 7 .0
%
5 3
.0 %
5 8
.0 %
5 6
.0 %
5 6
.0 %
5 6
.0 %
5 6
.0 %
5 7
.0 %
E
xp o
rt s
L a tin
A m
e ri ca
1
1 .0
% 1
1 .0
% 1
1 .0
%
1 2
.0 %
4 .0
% 2
.0 %
2 .0
% 1
.0 %
1 .0
% -
E xp
o rt
s E
xt ra
Z o n e
1 4 .0
% 1 4 .0
% 1 0 .0
%
1 .0
% -
- -
- -
-
P o ly
e th
yl e n e T
o ta
l V o lu
m e P
ro d u ct
io n
(M M
lb s)
S
o ld
lo ca
lly
1 6
4 .0
1 7
7 .7
1 9
0 .5
2
0 2
.4 2
2 6
.2 2
5 0
.0 2
5 0
.0 2 5
6 .0
2 5
6 .0
2 5
6 .0
E
xp o rt
s M
e rc
o su
r
2 3 2 .8
2 5 2 .2
2 7 9 .8
3
1 5
.5 3
4 5
.2 3
3 3
.3 3
3 3
.3 3 3
3 .3
3 3
3 .3
3 3
9 .3
E
xp o
rt s
L a tin
A m
e ri ca
5
8 .2
6 3
.1 6 5
.5
7 1
.4 2
3 .8
1 1
.9 1
1 .9
6 .0
6 .0
- E
xp o rt
s E
xt ra
Z o n e
7 4 .1
8 0 .2
5 9 .5
6 .0
- -
- -
- -
T o
ta l
5 2
9 .1
5 7
3 .2
5 9
5 .2
5
9 5
.2 5
9 5
.2 5
9 5
.2 5
9 5
.2 5 9
5 .2
5 9
5 .2
5 9
5 .2
P R
IC E
P
o ly
e th
yl e
n e I
n te
rn a
tio n
a l G
ro ss
S a
le s
P ri ce
( U
S $ /lb
s)
0 .5
6 1
0 .6
4 1
0 .5
6 0
0
.4 9
4 0
.4 6
1 0 .4
7 5
0 .5
1 4
0 .5
6 5
0 .6
1 6
0 .5
7 1
P
o ly
e th
yl e
n e f
re ig
h t &
d u tie
s co
st :
S o
ld lo
ca lly
0
.0 1
7 0
.0 1
7 0
.0 1
7
0 .0
1 7
0 .0
1 7
0 .0
1 7
0 .0
1 7
0 .0
1 7
0 .0
1 7
0 .0
1 7
E
xp o rt
s M
e rc
o su
r
0 .0
5 4
0 .0
5 4
0 .0
5 4
0 .0
5 4
0 .0
5 4
0 .0
5 4
0 .0
5 4
0 .0
5 4
0 .0
5 4
0 .0
5 4
E
xp o
rt s
L a tin
A m
e ri ca
0
.0 7
7 0
.0 7
7 0
.0 7
7
0 .0
7 7
0 .0
7 7
0 .0
7 7
0 .0
7 7
0 .0
7 7
0 .0
7 7
0 .0
7 7
E
xp o
rt s
E xt
ra Z
o n e
0 .1
0 0
0 .1
0 0
0 .1
0 0
0 .1
0 0
0 .1
0 0
0 .1
0 0
0 .1
0 0
0 .1
0 0
0 .1
0 0
0 .1
0 0
P o ly
e th
yl e n e I
n te
rn a tio
n a l N
e t
S a le
s P
ri ce
( U
S $ /lb
s)
S o
ld lo
ca lly
0
.5 4
4 0
.6 2
5 0
.5 4
3
0 .4
7 7
0 .4
4 4
0 .4
5 9
0 .4
9 7
0 .5
4 8
0 .5
9 9
0 .5
5 4
E
xp o rt
s M
e rc
o su
r
0 .5
0 6
0 .5
8 7
0 .5
0 6
0 .4
3 9
0 .4
0 6
0 .4
2 1
0 .4
6 0
0 .5
1 0
0 .5
6 1
0 .5
1 6
E
xp o
rt s
L a tin
A m
e ri ca
0
.4 8
4 0
.5 6
4 0
.4 8
3
0 .4
1 7
0 .3
8 4
0 .3
9 8
0 .4
3 7
0 .4
8 8
0 .5
3 8
0 .4
9 3
E
xp o
rt s
E xt
ra Z
o n e
0 .4
6 1
0 .5
4 1
0 .4
6 0
0 .3
9 4
0 .3
6 1
0 .3
7 6
0 .4
1 4
0 .4
6 5
0 .5
1 6
0 .4
7 1
T O
T A
L R
E V
E N
U E
2 6 9 .4
3 3 7 .9
3 0 4 .0
2
6 7
.3 2
5 0
.0 2
5 9
.8 2
8 2
.8 3 1
3 .3
3 4
3 .6
3 1
6 .9
20 4-
02 1
-
27 -
E xh
ib it
1 1b
( co
n ti
n u
ed )
S T
A G
E 3
: N
E W
P O
L Y
E T
H Y
L E
N E
P
L A
N T
19
97
19 98
19
99 20
00 20
01 20
02 20
03
20 04
20 05
20 06
20 07
20 08
20 09
20 10
T O
T A
L R
E V
E N
U E
2 6 9 .4
3 3 7 .9
3 0 4 .0
2
6 7
.3 2
5 0
.0 2
5 9
.8 2
8 2
.8 3 1
3 .3
3 4
3 .6
3 1
6 .9
C O
S T
S
E th
yl e
n e I
n te
rn a
tio n
a l P
ri ce
( U
S $ /lb
)
0
.2 8
5 0
.3 5
8 0
.2 9
7
0 .2
4 7
0 .2
1 8
0 .2
2 9
0 .2
6 1
0 .3
0 4
0 .3
4 6
0 .3
0 6
E
th yl
e n e r
a tio
( vo
lu m
e o
f e th
yl e n e
co n su
m e d p
e r
lb .o
f p o ly
e th
yl e n e )
0 .9
2 0
0 .9
2 0
0 .9
2 0
0
.9 2
0 0
.9 2
0 0 .9
2 0
0 .9
2 0
0 .9
2 0
0 .9
2 0
0 .9
2 0
P
o ly
e th
yl e n e T
o ta
l V o lu
m e P
ro d u ct
io n
(M M
lb s)
5
2 9
.1 5
7 3
.2 5
9 5
.2
5 9
5 .2
5 9
5 .2
5 9
5 .2
5 9
5 .2
5 9
5 .2
5 9
5 .2
5 9
5 .2
E
th yl
e n
e c
o st
1
3 8
.7 1
8 8
.7 1
6 2
.9
1 3
5 .5
1 1
9 .3
1 2
5 .5
1 4
3 .1
1 6
6 .3
1 8
9 .5
1 6
7 .6
O th
e r
va ri a b le
c o st
s (8
% o
f sa
le s)
2
1 .6
2 7
.0 2 4
.3
2 1
.4 2
0 .0
2 0
.8 2
2 .6
2 5
.1 2 7
.5 2
5 .4
T
o ta
l v a ri a b le
c o st
s
1 6 0 .2
2 1 5 .8
1 8 7 .2
1
5 6
.8 1
3 9
.3 1
4 6
.3 1
6 5
.7 1 9
1 .3
2 1
7 .0
1 9
3 .0
T o ta
l f ix
e d c
o st
s
4 .9
4 .2
4 .2
4
.1 4 .0
4 .0
4 .1
4 .2
4 .2
4 .2
D
e p
re ci
a tio
n
1 4
.0 1
4 .0
1 4
.0
1 4
.0 1
4 .0
1 4
.0 1
4 .0
1 4
.0 1 4
.0 1
4 .0
P R
O F
IT B
E F
O R
E T
A X
9 0 .3
1 0 4 .0
9 8
.6
9 2
.3 9
2 .7
9 5
.5 9
9 .0
1 0
3 .8
1 0
8 .4
1 0
5 .7
T a x
a t 3 6 %
3 2 .5
3 7 .4
3 5 .5
3
3 .2
3 3
.4 3
4 .4
3 5
.6 3
7 .4
3 9
.0 3
8 .1
P R
O F
IT A
F T
E R
T A
X
5 7 .8
6 6 .5
6 3 .1
5
9 .1
5 9
.3 6
1 .1
6 3
.4 6
6 .4
6 9
.4 6
7 .7
P lu
s:
D e p re
ci a tio
n
1 4 .0
1 4 .0
1 4 .0
1
4 .0
1 4
.0 1
4 .0
1 4
.0 1
4 .0
1 4
.0 1
4 .0
L e ss
: C
h a n g e in
w o rk
in g c
a p ita
l
(2 0 %
o f
s a le
s)
5 3
.9 1
3 .7
(6 .8
) (7
.3 )
(3 .5
) 2
.0 4 .6
6 .1
6 .0
(5 .3
) L e ss
: In
ve st
m e n ts
3 0 .0
7 0 .0
6 0 .0
- -
- -
- -
- -
- -
C
A S
H F
L O
W P
O L
Y E
T H
Y L
E N
E —
S ta
g e 3
(3 0
.0 )
(7 0
.0 )
(6 0
.0 )
1 7
.9 6
6 .8
8 3
.9
8 0
.4 7
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Dow Chemical's Bid for the Privatization of PBB in Argentina 204-021
29
Exhibit 13 The Dow Chemical Company Consolidated Balance Sheet (in millions of U.S. dollars, except per share amounts)
December 31 1995 1994 Assets Cash and cash equivalents 2,839 569 Other current assets 7,715 8,124
Total investments 2,720 2,790
Net plant properties 8,113 8,726
Total other assets 2,195 6,336
Total Assets 23,582 26,545
Liabilities and Stockholders’ Equity Notes payable 323 741
Long-term debt due within one year 375 534
Accounts payable 2,246 2,562
Other current liabilities 2,657 2,781
Total current liabilities 5,601 6,618
Long-term debt 4,705 5,303
Total other non-current liabilities 3,799 3,884 Minority interest in subsidiary companies 1,775 2,506
Temporary equity-other 313 -
Preferred stock (authorized 250,000,000 shares of $1.00 par value each; issued Series A-1995: 1,521,175; 1994: 1,549,014) at redemption value 131 133
Guaranteed ESOP obligation (103) (111)
Total temporary equity 341 22 Common stock (authorized 500,000,000
shares of $2.50 par value each; issued 1995 and 1994: 327,125,854) 818 818
Additional paid-in capital 315 326 Retained earnings 10,159 8,857
Unrealized gains (losses) on investments 62 (21)
Cumulative translation adjustments (349) (330) Treasury stock, at cost (shares 1995:
76,168,614; 1994: 50,002,967) (3,644) (1,438)
Net stockholders’ equity 7,361 8,212
Total Liabilities and Stockholders’ Equity 23,582 26,545
Source: The Dow Chemical Company, December 31, 1995 10-K (Midland, Michigan: Dow Chemical Co, 1995), available from Thomson Research, http://research.thomsonib.com.
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