Caspian Energy (CE): Mr. Jafarov, what advantages does the new agreement, signed between SOCAR Polymer and an Italian contractor Maire Tecnimont, provide to Azerbaijan?
Farid Jafarov, General Director, SOCAR Polymer: The agreement signed on April 15, 2015 is a contract for construction of the polypropylene plant along with all associated facilities. Its capacity is 180,000 tonnes of polypropylene per annum. The structure of the contract implies a lump sum turn-key construction of the plant, which means that a partner assumes all plant construction risks within the budget and established deadlines. The type of the contract, used for this agreement, is similar to that of the Turkish project Star Refinery. It allows us to attract funds from international markets on the basis of the project financing principles, i.e. without a guarantee of the parent company. Nowadays, it is the most advanced type of contract relations between a contractor and a customer, which will also help SOCAR to attract long-term funds. We have currently been discussing a 10-year loan, while the period of the credit we took out for the construction of the oil refinery in Turkey comprised of 18 years.
CE: What could you tell about the financing scheme of the SOCAR Polymer project?
Farid Jafarov: The financing will be provided in the ratio of 60/40 (debt financing 60%, equity financing 40%, to be funded by SOCAR and private investors). General investments that have already been made in the project total about $100mln. Principle agreement about provision of the loan for financing the 60% of the project has been reached with Gazprombank. The corresponding agreement is expected to be signed in early June.
CE: What other areas does SOCAR Polymer plan to develop?
Farid Jafarov: Now we are planning to build one more plant for production of high-density polyethylene. This unit will be commissioned approximately a year after the launch of the polypropylene plant has been put into operation. We plan to sign the EPC agreement on this plant within the next 3-5 months.
I would also like to note that we attract financing for the whole project including both plants and common utilities and off sites. Thus, the total cost of the project makes about $700mln.
CE: What advantages will Azerbaijan gain after the launch of new petrochemical plants? Which markets do you aim at?
Farid Jafarov: It is a very good question. First of all, this project is aimed at import substitution. Azerbaijan is currently importing polypropylene. Azerbaijan exports low-density polyethylene since it is not in high demand on the local market and at the same time imports a high-density polyethylene. We actually pave the way to the import substitution by building this new plant for high-density polyethylene production. In point of fact, we are going to process our raw material into products that are in demand in Azerbaijan. Thus, we intend to fully meet the demand of the local market.
We expect that the local market will account for about 30% of the total production of these plants. At the same time, we think that 70% of products will be exported to the markets of Europe and Turkey. The IHS, an internationally renowned market research company, has held surveys which made us sure of the cost price competitiveness of our production. The thing is that we are shifting from naphtha cracking, which can be substituted with gasoline, to cracking of associated gas, which alternative usage is thermal burning capacity. It is extremely important as it lowers the cost price of the whole chain of petrochemical production in Azerbaijan.
CE: Which technologies will be used at the plant?
Farid Jafarov: There is a certain cluster of companies, known as licensers and holders of patents for technologies which are constantly developed. The LyondellBasell and the Ineos are our licensers for polypropylene and polyethylene, respectively. So, our products are intended to meet the highest standards.
Polyethylene, which we intend to produce, can be used for all products, right up to production of high pressure gas, sewage and water pipes.
Polypropylene is a so called ecological plastic which can be fully used for food packaging and medical industry.
Both of these plants are to meet the highest environmental standards and introduce, indeed, the most advanced technologies in Azerbaijan.
The employment of the population is another important factor that I would like to note. Processing plants, should it be an Oil Refinery or petrochemical processing, are not a source for a high number of working places. We will have about 200 people employed. But a key raw material (polypropylene and polyethylene) that we shall supply to the markets is a derivative for a huge range of products, starting from disposable injections and bottles right up to sewage and water-pressure pipes. The following stage of processing here provides a high quantity of working places. For instance, Turkey’s economic breakthrough, especially in the south-eastern region and such cities as Gaziantep, is directly associated with the development of plastics processing industry. The population of Gaziantep city has grown by 5 times (from 300,000up to 1 mln 300 thou people) over the past 10 years. The majority of those, who have moved to this city, is engaged in processing of plastic products that can be exported, as well.
CE: How do you evaluate the competitiveness of your products?
Farid Jafarov: I think that our export products will be able to withstand the competition. It is exactly what our project is aimed at. Let me mention one factor. Turkey is the second global importer of polypropylene after China. They import about 3 mln tonnes per year. 48% of polypropylene, that Turkey imports, comes from countries which possess no crude hydrocarbons. In other words, these are countries that purchase hydrocarbons at world prices from markets, process them and then have them supplied to Turkey. The products’ prices include transportation, processing and energy costs. So, naturally they cannot be more competitive than ours. On the other hand, cost price of petrochemistry is strongly dependent on type of raw material that you process. There are two major sources. It is naphtha, which currently accounts for about 40% of total petrochemical production, and associated gas of oil-gas processing (propane, ethane and butane). In other words, it is a gas chain accounting for the rest 60%. It is noteworthy that naphtha-based petrochemistry costs higher by 30-50%. Azerbaijan is currently shifting its petrochemistry from naphtha cracking to cracking of associated gas of oil processing. So, we are working for long-term perspective.
