Azeris, Spaniards ink $4.8 billion Turkish refinery deal

ISTANBUL - Hürriyet Daily News

Vagif Aliyev (R), the CEO of Petkim, and Juan Llado, the CEO of Technicas Reunidas, shake hands to celebrate the deal signed for building Star Refinery. Company photo

Socar Turkey and a consortium led by Spain’s Tecnicas Reunidas signed an agreement yesterday to build “Star Refinery,” worth $4.3 billion in the western province of İzmir.

Socar Turkey, which was founded by Azeri state-run energy company Socar to carry out its activities in Turkey in 2008, had begun infrastructure and excavation work for Star Refinery in the Aliağa district of İzmir after the groundbreaking ceremony attended by Turkish Prime Minister Recep Tayyip Erdoğan and Azeri President İlham Aliyev in October 2011.

The value of the agreement signed between Socar Turkey and a consortium of Spain’s Tecnicas Reunidas, Italy’s Saipem, South Korea’s GS Engineering and Construction and Japan’s Itochu is $3.4 billion, said Socar Turkey CEO Kenan Yavuz, adding that they had invested $185 million using their equity capital so far for the refinery’s infrastructure and completed 70 percent of infrastructure work.

“When we add the infrastructure investments worth $185 million, the future expenditures for electric and automation systems, others and taxes, the investment value aside from the financing costs will be worth $4.3 billion,” Yavuz said. The estimated value of the refinery, including financing costs and interest, is between $4.8 billion and $5 billion, he added. Yavuz said Star Refinery was a localization project that would enable a $2.5 billion reduction in Turkey’s current account deficit yearly.
Currently Turkey’s sole refinery is Tüpraş.

Value-Site vision

“As Socar plans to invest $17 billion in Turkey by 2018, around $7 billion to $8 billion of this amount will be used for Star Refinery, which will be a chemical industry park on Petkim Peninsula in framework of the ‘Value-Site’ vision,” said Vagif Aliyev, the head of Socar’s International Investment Management Department and also the CEO of Petkim, Turkey’s state-run petrochemical company, which is owned by Socar. The Value-Site vision aims to integrate refinery, petrochemical, energy and logistics on the Petkim site in order to complete production, which begins from crude oil and ends with the final product, in the framework of a cluster model.

Aliyev said the strategic partnership between Turkey and Azerbaijan, which gained speed with the privatization of Petkim in 2008, would be enforced by Star Refinery and the Trans-Anatolian natural gas pipeline project (TANAP). Turkey has a 20 percent stake in TANAP, while Socar holds 80 percent.

Construction of the TANAP pipeline, which will be built from the Turkish-Georgian border to Turkey’s border with Europe, is expected to start at the end of 2013 and the project’s first phase is estimated to be ready by the end of 2017 or early 2018.

TANAP is set to take some 10 billion cubic meters (bcm) of gas a year from Azerbaijan’s Shah Deniz II field to Europe, while Turkey, which aims to cut its dependence on Russian gas, will get six bcm. BP and Azerbaijan’s Statoil hold 25.5 percent of shares each in the Shah Deniz II as Socar, Total, LukAgip Nioc and Turkey TPAO share the rest.

10 million ton capacity

Star Refinery is planned to have an annual capacity of 10 million tons to refine different crude oil types.

The refinery is planned to produce annually 4,900,000 tons of ultra-low sulfur diesel, 1,300,000 tons of naphtha, 457,000 tons of mixed xylene, 1,630,000 tons of jet fuel, 260,000 tons of LPG, 525,000 tons of reformat, 692,000 tons of petroleum coke and 159,000 tons of sulfur.

Yavuz said they had put in $8 billion of equity capital for Star Refinery as they would borrow $3 billion from foreign banks to finance the project. “We came to the final phase of the negotiations with export import banks of Spain, Italy, South Korea and Japan, which have been continuing for two years,” Yavuz said. UniCredit has been their corporate solution partner since the beginning of the process, he added.

Moody’s recent rating upgrade for Turkey, which lifted the country’s grade to “investable,” will have positive impacts on Socar’s foreign finance seeking, Yavuz noted.

Yavuz said the project, in partnership between Socar Turkey and the consortium, would be completed 51 months from today. “We will complete the refinery’s mechanical works by the 43rd month, start-up works between the 43rd and 48th months and performance tests between 48th and 51st months. Star Refinery will be completed and come into operation after 51 months,” he said.