Izmir Port Project Magnifies Azerbaijan’s Integrated Investments in Turkey


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 Azerbaijan’s
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-Maersk’s Netherlands-based subsidiary APM Terminals
to develop the port and logistics center. This is one component of
Azerbaijan’s 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 $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. Petkim’s 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 (Trend, March 22).

In Turkey, overall, the development of modern port capacities lags behind
the country’s rapid industrial development. Aliaga is designed to become one
of Turkey’s largest ports (far exceeding the capacity of Izmir’s 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 SOCAR’s 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 (Journal of Commerce, February 13).

Petkim is by far the largest petrochemicals plant in Turkey, with a market
share of some 25 percent in that country of 80 million (market demand being
covered mostly from imports). Petkim currently produces approximately three
million tons 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 (Trend, March 12).

SOCAR identified Petkim’s great potential in Turkey’s 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-percent ownership of Petkim and operating
rights for $2.04 billion in 2008, and increased its stake to 61 percent by
paying another $169 million in 2012 (while 39 percent 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 Petkim’s
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 ten million tons 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 percent and 18.5 percent, respectively, expect to cover 30
percent of the investment from their own funds and 70 percent 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 (Trend, January 22,
February 14, 22; www.2b1stconsulting.com, accessed March 22; see EDM, April
12, 2012).

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. Azerbaijan’s 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 Turkey’s high-growth
economy. SOCAR’s capacity to invest in projects of Petkim’s and TANAP’s
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


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