By Vladimir Socor
On March 22 in Copenhagen, the Danish and Turkish prime ministers, Helle Thorning-Schmidt and Recep Tayyp Erdogan, witnessed the signing of agreements between subsidiaries of Danish Moeller-Maersk and Azerbaijans State Oil Company (SOCAR) to develop a giant port near Izmir in Turkey.
The petrochemicals holding Petrokimya (Petkim), majority-owned by SOCAR, is partnering with Moeller-Maersks Netherlands-based subsidiary APM Terminals to develop the port and logistics center. This is one component of Azerbaijans multi-billion-dollar, integrated investment program in Turkey. The port will be dedicated largely to serving Petkim and the Star Oil Refinery, all co-located around the Aliaga area near Izmir.
The agreement just signed involves an investment commitment of US$300 million to build the first stage of the port, Aegean Gateway Terminal (AGT), with an initial handling capacity of 1.5 million 20-foot-equivalent (TEU) containers, and potential expansion to a 4 million-TEU capacity in a follow-up stage.
The first stage is due to be completed in 2015, with the second stage envisaged to become operational in 2016. Petkims fully-owned port construction subsidiary, Petlim Limancilik (PetLim), will carry out most of the construction work, based on APM Terminals engineering and specifications. The Danish-Dutch company will provide cargo handling equipment and vehicles as part of its share of the investment. APM Terminals will hold the full operating rights, with responsibility for management for at least 28 years.
In Turkey, overall, the development of modern port capacities lags behind the countrys rapid industrial development. Aliaga is designed to become one of Turkeys largest ports (far exceeding the capacity of Izmirs existing port) and most modern logistics center under the agreement with APM Terminals, a world leader in this sector.
The port will handle petrochemicals, container, and general cargo transportation, serve as an export-import hub for SOCARs Petkim and Star assets, as well as provide cargo services for Izmir and its hinterland, with their total population of 15 million and a high-growth economy.
Petkim is by far the largest petrochemicals plant in Turkey, with a market share of some 25% in that country of 80 million (market demand being covered mostly from imports). Petkim currently produces approximately 3 million tones of petrochemical derivatives annually, including ethylene, polyethylene, polyvinyl chloride and polypropylene - which are being used for manufacturing plastic packaging - as well as fabrics, dyes, detergents and certain other products. The plant was relatively obsolescent technologically, and fully dependent on imported raw materials (most critically, naphtha) when SOCAR acquired majority ownership of Petkim, along with the Star Refinery also near Izmir.
SOCAR identified Petkims great potential in Turkeys high-growth economy, if Petkim could be integrated in a value chain with a major oil producer and refiner under the same ownership - in this case, SOCAR and the Star Refinery nearby. Thus, SOCAR acquired a 51% ownership of Petkim and operating rights for $2.04 billion in 2008, and increased its stake to 61% by paying another $169 million in 2012 (while 39% of Petkim shares remain in free-float on the stock exchange).
For both acquisitions, SOCAR won competitive tenders through its joint venture SOCAR Turkey Energy, aiming to modernize Petkim technologically, supply it with naphtha and other raw materials from STAR-processed Azerbaijani oil, expand Petkims production and its market share in Turkey, and re-orient some of that production toward exports in the Eastern Mediterranean region.
The Star Oil Refinery is undergoing a parallel modernization program under SOCAR. Prime Minister Erdogan and Azerbaijani President Ilham Aliyev broke ground for construction work on October 25, 2011, for the refinery with a processing capacity of 10 million tonnes of oil annually. Completion is planned in two stages until 2017, at an estimated cost of $6 billion in investments.
Shareholders SOCAR and Turcas (the Turkish fuel retailer), with stakes of 81.5% and 18.5%, respectively, expect to cover 30% of the investment from their own funds and 70% from bank loans.
Replacing an old refinery on the same site, which SOCAR had taken over from the Turkish state, the Star Refinery is designed to produce ultra-low-sulfur diesel fuel, jet fuel and naphtha.
An electricity generating plant with a capacity of 612 megawatts built by SOCAR Power Energy, the cargo port and the logistics center (see above), add an estimated $2 billion to the overall costs of $8 billion for this integrated project. The Turkish government has granted significant tax breaks to encourage the overall project in all its dimensions.
The overall project involves a Refinery-Petrochemistry-Energy-Logistics Integration, apparently the single largest fixed-asset investment program in Turkey at present.
Azerbaijans other flagship investment project in Turkey is the Trans-Anatolia Gas Pipeline (TANAP), its cost estimates ranging from $6 billion to $8 billion. With these projects, Azerbaijan has surged to the top of foreign direct investors in Turkeys high-growth economy.
SOCARs capacity to invest in projects of Petkims and TANAPs magnitude testifies to its effective use of oil revenues for re-investment in other projects, only four or five years after net oil revenues had begun accruing to Baku. These developments should reinforce Turkish-Azerbaijani political solidarity on all issues of regional importance.
Vladimir Socor is a Senior Fellow of the Washington-based Jamestown Foundation and its flagship publication, Eurasia Daily Monitor (1995 to date), where he writes analytical articles on a daily basis. Mr Socor covers Russian and Western policies, focusing on energy, regional security issues, Russian foreign affairs, secessionist conflicts, and NATO policies and programs. He is a regular guest lecturer at the NATO Defense College and at Harvard University’s National Security Program’s Black Sea Program. He is a Romanian-born citizen of the United States based in Munich, Germany.
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