PRIORITY MARKET

Turkish economy is going through a rather difficult period. At the end of November, the exchange rate of the Turkish lira fell to historic lows. In general, since the beginning of 2021, the Turkish national currency has lost almost half of its value, including a third since November.

Under the difficult economic circumstances caused by the pandemic, the current situation causes concern among the Turkish entrepreneurs.

State Oil Company of Azerbaijan (SOCAR) continues to be one of the largest foreign investors in the Turkish economy. Can SOCAR Turkey Enerji maintain its business stable in these circumstances?

Preparing for a breakthrough

At the recent press briefing, CEO of SOCAR Turkiye Enerji, Zaur Gahramanov, said that this year the company has done a good job to ensure an early return of investments. “This year we improved our operational efficiency. This year, in spite of the crisis, we could demonstrate good financial results. And this year we could prepare our company for the next breakthrough steps in coming years. 2022-2025 is a very important period for the return of our investments,” Mr. Gahramanov said.

By the way, the total volume of Azerbaijani investments in the Turkish economy has already reached $16.5 billion against the planned $19.5 billion. Only SOCAR’s share in this amount reaches roughly $10 billion, said Mr. Gahramanov.

He also assured that the company did not see any risks in Turkey. Therefore, SOCAR expects high financial indicators for this year and plans to expand its activities in the country.

“At the end of 2021, we expect EBITDA (earnings before interest, tax, depreciation and amortization, R+) at $1 billion against $630 million in 2020 (an increase of 58.7%, R+), which is $250 million above the planned amount. To ensure the return of investments made by the company in projects in Turkey, the annual amount of EBITDA should be $750 million on average. This will allow us to both earn and repay loans,” Z. Gahramanov said.

He also made a comment on the situation in the Turkish currency market, noting that the risks associated with fluctuations in the Turkish national currency do not pose a serious threat to the company. “As for fluctuations in the exchange rate of the lira, we do not see any big risks for the company. We take these risks into account and they are estimated at about $100 million. Our projects in Turkey, with the exception of Kayserigaz and Bursagas (gas distribution networks in the cities of Bursa and Kayseri, R+), are not related to the lira, but loans on these projects were in lira and are repaid in the same currency. It is also necessary to take into account the payment of salaries to employees, also in lira,” Mr. Gahramanov said.

What SOCAR seriously interested in to ensure successful operations are the global risks associated with the coronavirus pandemic and the plans of leading companies and countries to switch to clean energy, with the development of the electric vehicle sector.

Integration effect

CEO of SOCAR Turkey Enerji also noted that the company makes a significant contribution to the Turkish economy through Petkim, SOCAR’s petrochemical facility, and the STAR refinery. Thanks to the refinery it was possible to reduce the Turkish current account deficit by $2 billion annually.

At the same time, SOCAR expects the growth of the petrochemical market in Turkey and, apparently, for this reason qualifies the development of this sector as one of its key priorities.

“Our company has identified three main directions for future development: strengthening position in the Turkish petrochemical market, which is one of the most attractive in the world; increasing gas sales in the Turkish market, which will reach 4.5 billion cubic meters this year, while the projected level of domestic consumption for the current year is 52 billion cubic meters; sustainable development and RES projects,” Mr. Gahramanov said.

Currently, the lion's share of investments in Turkey, and the bulk of SOCAR Turkey Enerji's income comes from Petkim and STAR. At the same time, the share of Petkim Petrokimya Holding in the local market of petrochemical products is 20-25%, while the share of STAR in the same market reaches 16%.

For more efficient operation of both facilities, SOCAR has launched a process to integrate Petkim and STAR since 2020, expecting, among other things, to receive large tax preferences. “According to our assumptions, this process may take two or three years, since Petkim is a public company, while STAR refinery is not. We will have to fulfil serious legal and tax procedures,” explained the President of SOCAR Turkey Refining and Petrochemical Business Unit (a division of SOCAR Turkiye Enerji), Anar Mammadov.

In parallel with the integration process, SOCAR Turkey Enerji plans to increase oil refining capacities of the STAR refinery. According to A. Mammadov, these projects will increase the annual production capacity of the company after 2024 to 11.5 million tons against the current 11 million. Also, in 2022, the company plans to make large-scale investments in repair works at the enterprises working under Petkim. These works will concern increasing the efficiency of Petkim facilities.

“Climate change is the largest challenging crisis for us. The share of renewable energy is also increasing. But I think that the oil refining and petrochemical sectors will continue in the medium and even long term. For our part, we also plan to reduce emissions by 2035 at the STAR refinery and at Petkim by 1% annually. This is an ambitious goal,” Mr. Mammadov said.

Also, the company is trying to keep up with the ever-changing global trends by developing the renewable energy sector as well. Therefore, SOCAR Turkey Enerji's goals for a long-term and stable position in the market look quite realistic.