PROFIT GUARANTEED

The Southern Gas Corridor (SGC) is the only project at this stage that can deliver gas to Europe from a new source by a new route.

The project initiated by Azerbaijan is able to bring gas to Europe from other sources in the future - Turkmenistan, Iraq, Iran and even Israel.

The general director of TANAP Dogal Gaz Iletim A.S. Saltuk Duzyol told R+ about the progress of the work on the construction of one of the main parts of the SGC - the Trans-Anatolian Pipeline (TANAP).

- You participated in the second meeting of the Advisory Council on the Southern Gas Corridor as the executive director of TANAP. How do you assess the results of this meeting?

- The meeting held on 29 February 2016 in Baku resulted in the adoption of the Joint Declaration, in which all the stakeholders of the SGC project reiterated their determination to continue the development of strategic cooperation between the participating countries, including suppliers, transit countries and natural gas customers, and to ensure reliable energy supplies to the countries along the pipeline route. The Joint Declaration also decided to strengthen measures aimed at the maximum use of SGC transit opportunities with the aim of providing other markets of the European Union (EU) with natural gas in the long-term. I think this meeting was important as it made it possible to openly demonstrate the full support of the EU for the SGC one more time.

- The main part of the Southern Gas Corridor is the TANAP pipeline. How is the work on the construction of the pipeline progressing? How far has the project got? When will Turkey be able to receive gas via TANAP?

- By the end of March 2016, the design and engineering work on the pipeline was fully implemented. Similar work on the compressor and metering stations to be built along the route of the pipeline has been completed by 77 per cent. The contract for the construction of the fourth section of the pipeline with a diameter of 48 inches and a length of 459 km, connecting the stretch of the way between Eskisehir (Turkey) and the Turkish-Greek border, was signed in January 2016 and for the construction of two compressor and four metering stations in February this year. Finally, in February we received proposals from the parties interested in the tender for the construction of two lines of an underwater pipeline with a diameter of 36 inches and a length of 19 km passing through the Dardanelles. In April, it is planned to sign the relevant documents on the feasibility study of the contract.

As part of this construction, the preparation of the pipeline route for 638 km (48 per cent of the total length) had been completed by the end of March; 521 km (39 per cent) had been laid and 394 km (30 per cent) of pipes had been welded. 1,020 km of pipes with a diameter of 56 and 48 inches, used in construction work, had been produced. Of this amount, 823 km of pipes have already been delivered to the construction sites. Land plots for the pipeline have been handed over to construction contractors in full. 32 per cent of the total land area used for construction has been bought from their owners by the mutual agreement of the parties.

- Lower oil prices also affect the prices of metals, pipes, equipment, and so on. How much impact did this trend have on the reduction of prices and the financial cost of the TANAP project, which was originally estimated at 10bn dollars?

- TANAP is an exclusively transport project. The annual profits that TANAP Dogal Gaz Iletim A.S. plans to get for its services to transport natural gas as part of 15-year agreements with AGSC and Botas gas transport companies are guaranteed in advance. The decline in oil prices followed by the collapse in natural gas prices, the value of which is determined on the basis of price indices for oil derivatives, mainly matters to natural gas producers. Therefore, this event does not have a direct impact on TANAP, for which the only source of profit is the profit from transportation based on a sustainable transport tariff.

At the same time, as a result of falling oil prices, the oil and gas market has narrowed, which led to increased competition between suppliers of goods and services and affected on prices for raw materials. As a result, there is a favourable environment to reduce expenses on the implementation of the TANAP project to a level below the original estimated costs, which increased the project's internal rate of return (IRR).

With regard to the financing of the project, work continues on its comprehensive assessment by the World Bank and the European Investment Bank. Our project is one of the essential parts of the SGC, and the EU attaches strategic importance to this corridor in terms of ensuring the security of energy supplies and diversifying energy resources. Therefore, in the estimates of international financial institutions, TANAP is considered from a somewhat different point of view.

On the other hand, the European Commission continues to provide financial support for TANAP in the form of grants for the implementation of some sub-projects. Along with such sub-projects implemented with free financial aid, there are projects, the estimation of which is not yet complete.

- Given the current pace of construction, when will TANAP gas reach Turkey?

- As part of TANAP, it is planned that Botas will get the first gas at the end of June 2018. In accordance with the schedule of work on the construction of the Trans-Adriatic Pipeline, it is planned to receive the first volumes of gas by the beginning of 2020. So far, all work has been going on according to schedule, and our pipeline will be ready to supply gas to Europe by the middle of 2019.

- In light of the tensions between Turkey and Russia, one cannot completely rule out possible limitations on energy cooperation. How can TANAP influence the energy security of Turkey in such conditions?

- At the moment, Russia is the largest supplier of natural gas to Turkey and the EU. Undoubtedly, Russia will continue to retain its leading position as the main supplier of natural gas even after the TANAP pipeline is put into operation. Azerbaijani gas to be transported via our pipeline to Turkey and further to Europe will ensure the diversification of supplies to those markets and additional volumes of gas. In addition, if supplies from Russia or other sources of natural gas are suspended or reduced, the potential of TANAP will only be of benefit and increase the security of energy supplies.

- During the last visit of Turkish Prime Minister Ahmet Davutoglu to Iran, they talked about discussions on the transportation of Iranian gas through TANAP. Is Iran interested in this project? Have there been any discussions about this?

- In order to create a production and marketing chain, it is necessary to provide the appropriate material and technical base, including: joint planning of investment in exploration and production, refining and transportation of raw materials; joining the efforts of companies that own the necessary technology and capital to carry out such capital investment projects; signing long-term contracts for the sale of natural gas to buyers and sellers, i.e. countries or individual companies; agreements with interested parties on the production, marketing and transportation of gas (obtaining guarantees on the throughput capacity of the pipeline); signing and ratification of intergovernmental agreements to ensure the legitimacy of the agreements concluded between producers/retailers and transport companies. Iranian gas is "sanctioned gas", i.e. it is under international sanctions. Therefore, in order to transport this gas to Turkey and further to Europe through TANAP, first of all you need to lift international sanctions on it. At present, TANAP is legally a transit pipeline with a single entry point on the Turkish-Georgian border. In order for TANAP to become a pipeline with multiple entry points and to create the appropriate infrastructure for the transportation of Iranian gas, it is necessary to make an appropriate amendment to the existing agreement with the Republic of Turkey as the host country and agree with the stakeholders of the project on future steps in this field.

- Which countries are mainly interested in transporting their gas to Europe through TANAP?

- To date, we have not received any offers or queries on this subject, although in the future, if there are necessary conditions, we can think about the transportation of natural gas produced in Turkmenistan, Iran, Eastern Mediter-ranean and Northern Iraq.