ECONOMIC BROTHERHOOD: Azerbaijani support for Turkish petrochemicals

Part II

Azerbaijani-Turkish economic relations, of course, aren’t limited only to participation or partnership in big projects - the countries have long been at the top of the list of each other’s leading investors. According to the latest data, Turkey has invested up to $12 billion in Azerbaijan, while Azerbaijan invested up to $19 billion in Turkey. At the same time, Azerbaijan’s principal investor in Turkey is SOCAR - thanks to the projects it is implementing in the brotherly country, the level of self-sufficiency in petrochemical products has grown significantly. “Many of our companies led by the Turkish Petroleum Corporation (TPAO) have made large investments in Azerbaijan. At the same time, we are pleased with the investments of Azerbaijani companies led by SOCAR in Turkey,” Turkish President Recep Tayyip Erdogan said in one of his speeches during his recent visit to Azerbaijan.

Without skimping on the environment

It is no secret that Turkey has recently imported more than 80 percent of petrochemical products, spending billions of dollars on them. At the same time, the Turkish petrochemical market has high potential. Its annual growth is 6-7 percent. It was necessary to save the day, and Turkey decided to develop its petrochemical industry, and the State Oil Company of Azerbaijan SOCAR liked this idea. SOCAR put forward several expensive but very effective projects for the Turkish economy.

Today SOCAR is the biggest foreign investor in Turkey. The State Oil Company has invested in the purchase of a controlling stake in the petrochemical complex Petkim Petrokimya Holding, the construction of the STAR refinery and the SOCAR Terminal, a 51 MW wind farm, as well as in several other projects that already have a significant impact on Turkey’s self-sufficiency in petrochemical products.

At the same time, the enterprises are trying to establish the production process using the most modern technologies and observe environmental protection requirements. That is why they have been awarded a ‘zero waste certificate’ by the Ministry of Environment and Urban Development. Even considering that the products manufactured at the enterprises are extremely in demand in Turkey accordingly, their activities are only encouraged by the government. There is no question of saving investments on the environmental, social, and other components of projects.

Petkim - new investments will come

SOCAR Turkey Enerji owns a 51 percent controlling stake in the Petkim Petrokimya Holding petrochemical complex, Turkey’s leading petrochemical complex. The complex produces ethylene, polyethylene, polyvinyl chloride, polypropylene, and other petrochemical products that are used in the production of plastics, textiles, and other consumer and industrial goods. The fact that even during the pandemic, when many petrochemical plants suspended or reduced the production of goods, Petkim didn’t do this, testifies to the extent to which the company’s products are in demand. Thanks to this, the activity of Petkim’s production facilities reached 92 percent, and its net profit in the first quarter of 2021 amounted to 891.757 million Turkish lira, while in the same period last year - at the peak of the pandemic - the quarter of the year was completed with a loss of 9.781 million lira. However, the company then had an annual net profit of 1.1 billion lira due to the correct management of financial resources and optimization of operating costs.

Unfortunately, there is no monopoly position of Petkim in the Turkish market or the possibility of fully meeting the market demand for petrochemical products - with all its capacity, and the enterprise is still able to meet only 20 percent of domestic demand. However, undoubtedly, Petkim can continue to act as the locomotive of the petrochemical industry in Turkey since the main thing in SOCAR’s strategy for this enterprise is that the Azerbaijani management wouldn’t skimp on additional investments for business development. This allows taking new targets and increasing capacity - last year alone, their volume increased by 20 percent, and it has already been announced that investments in the modernization of Petkim plants will continue throughout 2021, in particular, in the general development of technologies, energy efficiency, and environmental safety measures.

Azerbaijani-Turkish ‘star’

One of the most significant investments of SOCAR abroad is the STAR refinery, which was put into operation on October 19, 2018, in Izmir in the Aliaga region. SOCAR has invested $6.3 billion in the construction of the refinery. In addition to the fact that the project is profitable - the annual income in the pre-pandemic period was projected at half a billion dollars - it creates conditions for SOCAR to enter the Mediterranean market with its diesel fuel and jet fuel, as well as crude for the chemical industry. Investments in STAR are also logical from the point of view of implementing Azerbaijan’s strategy to reduce dependence on oil - in particular, the profit received there will allow SOCAR to regulate its profitability if global oil prices fall.

The design capacity of the refinery is 10 million tons of oil per year, or 214,000 barrels per day, while it is planned to increase it by another 1.5 million tons. The enterprise is capable of processing up to 100 grades of oil. The manufactured products, which include 1.6 million tons per year of naphtha, 4.8 million tons of diesel fuel per year, as well as jet fuel and liquefied gas, petroleum coke, reformate, etc., are in great demand in the Turkish domestic market. In particular, STAR supplies the Petkim petrochemical complex with crude. In addition, the refinery, for now, meets 20-25 percent of Turkey’s domestic needs for petroleum products, and the goal is to achieve the total self-sufficiency of the country in aviation fuel.

‘Mercury’ is coming

Azerbaijani investments in Turkey came in very handy and played an essential role in the economy of this country, and it is profitable for the Azerbaijani side to invest in a market with such vast potential. SOCAR, despite the pandemic crisis, still plans to start implementing a project to build a new petrochemical complex ‘Mercury.’ It is assumed that it will be erected in Izmir, in the Aliaga region next to the Petkim and the STAR refinery. The construction of a new petrochemical complex is expected to enable Turkey to cover its current account deficit of $6 billion annually.

These plans were announced a long time ago, but as mentioned above, the pandemic prevented their implementation. Now the $1.8 billion projects will revive again next year. “The Mercury project will be SOCAR’s second investment in the Turkish petrochemical sector after acquiring the Petkim petrochemical complex. The decision to invest in this project will be made in 2022,” said Vagif Aliyev, deputy chairman of the Board of Directors of SOCAR Turkey.

During the pandemic, plans for the project also changed - if earlier BP was supposed to become the leading partner of Azerbaijan, later it announced that it was leaving the petrochemical business. SOCAR is still looking for a new partner since the project is enormous - it is worth $1.8 billion. However, there is an option to attract not a company engaged in this area, but, for example, a financial partner. Thanks to this project, SOCAR’s market share in the Turkish petrochemical market will still grow, and the success of the projects can stimulate new ideas for the fraternal economy.

In any case, already for a short period of activity in Turkey, SOCAR, on the one hand, has significantly expanded its portfolio of foreign projects, and, on the other hand, it has become an integral part of the economic development of this country.

Gulu Nuriyev