PETKIM, A NEW ENERGY VENTURE BETWEEN TURKEY AND AZERBAIJAN

Journal of Turkish Weekly, Turkey
Oct 23 2007

Abdullayev: Petkim, a new energy venture between Turkey, Azerbaijan

The president of SOCAR discusses the repercussions of state-controlled
petrochemical producer Petkim’s 51 percent stake sale to the
SOCAR-Turcas-Injaz consortium, the second highest bidder, instead of
the TransCentralAsia consortium.

The State Oil Company of the Azerbaijan Republic (SOCAR)-Turcas-Injaz
consortium submitted the second best bid in a July 5 tender for the
block sale of a 51 percent state-owned stake in Turkish petrochemicals
producer Petkim. The Kazakh-led TransCentralAsia Petrochemical
Holding consortium had outbid all of its five rivals by offering to
pay $2.05 billion, causing the Azeri consortium to withdraw from the
open bidding after announcing its final offer of $2.04 billion. After
the tender, a wave of resentment toward the winning group spread in
light of rumors that the Kazakh company was supported by the Armenian
diaspora, causing Turkey’s board overseeing the proceedings to nullify
the winning bid and instead award the tender to the second highest
bidder, the Azeri consortium.

Speaking to Today’s Zaman, Revnak Abdullayev, the president of
SOCAR, evaluated the recent developments. He stressed that Turkey
and Azerbaijan were not only sister countries because of their
historical connection but also strategic partners in many fields,
especially in energy. Abdullayev emphasized that Petkim was a kind of
continuation of the Baku-Tbilisi-Ceyhan (BTC), Baku-Tbilisi-Erzurum
(BTE) and Baku-Tbilisi-Kars (BTK) pipeline projects.

What are your thoughts on the Petkim tender?

Abdullayev: First of all, this nice gesture is a sign that Turkey
regards Azerbaijan as important. This is SOCAR’s first attempt at
such a large project abroad. Our company has the largest financial
potential in Azerbaijan. Our first investment abroad was the Kulevi
Terminal project in Georgia. It was not as big as Petkim but it had
great importance in transporting Central Asian and Caspian Sea oil to
the Black Sea. To date the total investment in the Kulevi project has
reached $360 million. Our aim is to contribute to the Samsun-Ceyhan oil
pipeline with this project. Firstly, we have a $2 billion investment
plan for Petkim to upgrade and to modernize the facilities. After this
modernization process we want to meet an important share of Turkey’s
need for petrochemical products.

Currently Turkey imports 75 percent of its petrochemicals. With
SOCAR’s investment this will drop to 30 percent.

Was the proximity of the Petkim decision and the Armenian resolution
in the US a coincidence or a message to the world?

Abdullayev: Turkey and Azerbaijan’s foreign policies are similar.

That’s why the Armenian genocide claims are a problem for Azerbaijan
as they are for Turkey. On this issue both countries take the same
stance. Their stand against the diaspora is same; however, it would
be a mistake to relate this decision only to the Armenian issue.

Turkey and Azerbaijan are sister countries and strategic partners,
so they care about one another’s political, strategic and economic
interests.

Are there also refinery construction plans?

Abdullayev: Yes, our refinery construction work is ongoing. We plan
to build an oil refinery that has an annual production capacity of
6 million tons. I believe commercial relations between Turkey and
Azerbaijan will go much further because of these projects.

What are SOCAR’s projects other than Petkim?

Abdullayev: The most important and unforgettable event for SOCAR is
the launching of the Ceyhan terminal, which carries the name of our
deceased president Haydar Aliyev, who was involved in the completion
of the BTC project despite many difficulties. With the launching
of the BTC the most important part of the energy corridor between
Caspian Sea and Europe was opened up. Here we must mention that the
BTC has to this point carried the equivalent of 400 tankers of oil
directly to the Mediterranean Sea instead of through the Bosporus and
the Dardanelles straits. This means the BTC is also contributing to
the environmental and ecological balance.

With the BTC, Caspian Sea oil has reached the Mediterranean. How
are the regional and global energy markets affected by the BTC? Are
Kazakhstan and Turkmenistan expected to join the project?

Abdullayev: As I just said, with the launching of the BTC the issue
gained global importance. The global need for energy will increase
by 60 percent by 2030. This means the current reserves must increase
their capacity by 60 percent. So it is not very hard to predict
the importance of Caspian Sea reserves in the future. Azerbaijan’s
current economic and political stability contributes to the BTC’s
importance. Azerbaijan is ready to meet Kazakh oil exports. Today,
the world is governed mostly on economic principles. If Turkmenistan
and Kazakhstan think it is more profitable to export their oil and
gas through Azerbaijan’s pipelines, I believe they will do so. Last
year Azerbaijan’s president, Ilham Aliyev, signed a protocol during
his visit to Astana [Kazakhstan’s capital city]. The protocol details
the infrastructure of Kazakh oil transportation via the BTC.

Kazakhstan also has important oil reserves. With the increase
in production, the amount of oil transported via the BTC will
significantly rise.

Can we say that the relations in the energy field between Turkey
and Azerbaijan have reached desired level since the independence
of Azerbaijan?

Abdullayev: The BTC project, which we called the "project of the
century," helped us attract foreign capital to Azerbaijan. We removed
the old oil exploration and extraction infrastructure and began to use
modern technologies. Now, when establishing a collaboration, SOCAR
assesses the potential counterparts’ financial and technological
infrastructure. We have important cooperation with the Turkish
Petroleum Corporation (TPAO)

What’s the recent situation of the BTE project, which is also known
as BTC II?

Abdullayev: Azerbaijan is one of the most important centers of energy
reserves for the security of Europe’s energy supply. Energy needs
will increase sharply in the near future. The important part for
Azerbaijan is that Europe plans to meet its needs from Azerbaijan.

Furthermore, Turkish experts are also predicting that gas reserves
in the Shahdeniz field will be a good source for Turkey’s domestic
needs. A protocol was signed in 2001 between Azerbaijan and Turkey
according to which Turkey plans to purchase 79.9 billion cubic meters
of gas through the BTE between 2006 and 2018. Also, the plans for
exporting Azerbaijani gas to Europe via Turkey still active. All
these plans and developments reflect the importance of the BTE project.