AN ASSET IN IZMIR

Izmir has been famous for its tourist potential that is used by the Turkish authorities to the full. However, Izmir is also the centre of the south-western region of the country, which is second only to Istanbul in terms of the development of industry in Turkey.

Aliaga is a small peninsula in the Aegean Sea in the south-western part of Turkey, near Izmir. Located among its beautiful surroundings - the hilly woods and clear sea - is the home place of Petkim, one of the largest petrochemical complexes in Turkey, which celebrates its 50th anniversary this year. This complex plays an important role in the industrial potential not only of Izmir but also of the whole of Turkey. It is no coincidence that back in 2008, when the Turkish government offered a controlling interest in Petkim for privatization, the State Oil Company of Azerbaijan Republic (SOCAR) did not miss the opportunity to acquire such a tasty morsel.

While the geography of SOCAR projects abroad has long gone beyond the region, Turkey is going to remain number one in terms of investments of the Azerbaijani company for many years to come. Having started with the development of the Petkim complex, SOCAR has significantly expanded its presence in the country, primarily focusing on the Aliaga peninsula. And now this peninsula is also called the peninsula of Petkim. It is here, beside the Petkim petrochemical complex, that the STAR refinery, a container port and a thermal power plant (TPP) are being constructed. "In total, 20bn dollars will be invested in the projects in Turkey, including the acquisition of Petkim and the construction of the Trans-Anatolian Gas Pipeline (TANAP)," SOCAR Turkiye Enerji head Kenan Yavuz told a group of Azerbaijani journalists during the presentation of the company's projects on the Aliaga peninsula.

Since 2008, SOCAR's investments in projects on the Aliaga peninsula have totalled 10bn dollars. Moreover, SOCAR Turkiye Enerji has set itself ambitious goals. "We expect that in 2018, our total revenue will reach about 15bn dollars, including 3bn dollars in export earnings. Our company will provide jobs for 5,000 people. This will allow us to become the se-cond largest industrial company in Turkey, following Koc Holding," Yavuz said. In the next five years, the company intends to double the volume of consolidated revenue, which will turn SOCAR Turkiye Enerji into a major industrial company in Turkey.

It should be noted that these ambitions are not unfounded. The recent sale of a 13-per-cent stake in SOCAR Turkiye Enerji to US investment bank Goldman Sachs for 1.3bn dollars has brought the value of the entire company to 10bn dollars.

According to Yavuz, the sale of the stake to Goldman Sachs at this stage enabled the company to make all payments associated with the acquisition of Petkim. "Through this transaction, we paid the balance of 900m dollars for Petkim. In total, we spent 2.2bn dollars for acquiring nearly a 60 per cent stake in Petkim," the head of SOCAR Turkiye Enerji said.

The capitalization of SOCAR Turkiye Enerji will increase significantly in the next couple of years, with the opening of a container port scheduled for January 2016 and the completion of construction of the STAR refinery and the first stage of a 300 MW thermal power plant in 2018. Goldman Sachs will also help evaluate the capitalization growth, as the Bank is obliged to put up its stake in SOCAR Turkiye Enerji for sale on the stock exchange already in 2020-2021, which is stipulated in the agreement.

Interestingly, Goldman Sachs also invested in the container port and acquired a 30 per cent stake in this project of SOCAR Turkiye Enerji. "This transaction allowed us to almost completely compensate for all our investments in the port. In total, the cost of construction of the port is estimated at 400m dollars, of which 100m dollars will be invested by APMT, a subsidiary of Maersk, which has acquired the right to manage the port for 28 years, and the rest will be provided by our company. Goldman Sachs paid us 250m dollars for its 30 per cent stake in the port. That is, we will get the port almost for free," Yavuz said.

It should be noted that the port of Aliaga will be able to handle up to one million containers already at the first stage, which will make it the third largest port in Turkey in terms of capacity and the largest in the Aegean Sea. The port itself is nearing its completion so as to receive the first ship in January 2016. Furthermore, the port is capable of receiving the largest vessels carrying 11,000-12,000 containers, which can turn it into a transit hub.

While work on the container port is already in the closing stages, the implementation of the STAR refinery project is in full swing. All the preparatory work on the territory of the Aliaga peninsula allocated for the plant has almost been completed, and the stage of the construction of production lines has begun. The plant worth a total of 5.6bn dollars will commence production in March 2018.

According Yavuz, this project has also attracted the attention of international financial institutions. "For the construction of the plant, we took out a loan of 3.2bn dollars. These funds were provided by 23 banks from the US, Japan and Europe. Moreover, the entire amount was lent for 18 years without any state guarantees. It is the largest and the most long-term loan in the history of Turkey," Yavuz said.

In Turkey, the STAR refinery has acquired the status of a priority investment project, which provides a number of tax and customs benefits and allows the company to reduce the costs by 1bn dollars.

On the whole, the plant is designed to process about 10m tonnes of oil per year and manufacture products worth 9bn dollars. The main items of production are naphtha, diesel, LPG and other products, to be further processed at the Petkim plant. The latter has periodically undergone modernization since 2008. During this period, 0.5bn dollars has been invested in the development of the plant, and its capacity increased from 3.2m to 3.6m tonnes.

The location of the port and the STAR refinery in close proximity to the Petkim plant will make it possible in the future to reduce the logistics costs by 150m dollars per year. However, even this is only part of the entire portfolio of SOCAR projects on the Turkish peninsula of Aliaga. As is known, large plants of this kind such as Petkim and STAR are quite energy intensive. To meet the demand for electricity, SOCAR Turkiye Enerji intends to build a large TPP rated for 1500 MW. The first phase of the TPP with a 300 MW capacity will be ready in 2016. All necessary permits have been obtained from the government, and negotiations with banks to finance the project are in progress. Along with the TPP, a small wind farm of 51 MW will also be built on the peninsula. In general, alternative energy is given quite a lot of attention in Turkey. Solar panels are installed in many houses and hotels near Izmir, which are mainly used for water heating.

Over the past seven years since the privatization of Petkim, SOCAR Turkiye Enerji has largely proved its financial self-sufficiency. The company's intention to purchase a seven per cent stake in TANAP is just another piece of news to confirm this. Thus, SOCAR Turkiye Enerji promotes the growth of its influence on the economy of Turkey and assists the SOCAR parent company in funding this ambitious project.

In addition, SOCAR Turkiye Enerji intends to independently implement a project of laying a fibre optic cable along the same route with TANAP. While this project is not particularly expensive (investment is estimated at 20m-25m dollars), it will allow the company to enter the communications market of Turkey.

In short, SOCAR has already gained a fairly strong position in Turkey, which is going to be significantly strengthened by the end of this decade.

SOCAR's current investments abroad are expected to bring about significant and, more importantly, long-term income in the coming years. In the context of a trend towards low oil prices, assets of this kind could be an important help.