Azerbaijan's Socar signs $4.8bn deal on Turkey refinery construction

By bne IntelliNews May 21, 2013

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The State Oil Company of the Republic of Azerbaijan (Socar), signed an investment agreement with an international consortium to build a $4.8bn refinery in Turkey's Izmir region on May 20.

The consortium, led by Spain's Tecnicas Reunidas, inked an engineering procurement and construction agreement worth $3.46 to build the Star refinery, Socar Turkey CEO Kenan Yavuz told reporters. The Italy's Saipem, South Korea's GS Engineering and Construction, and Japan's Itochu are the other members of the group.

Construction of the refinery, which will have capacity to process 10m tonnes of crude oil a year, is part of investment plans worth $17bn announced by Socar for the Turkish market. The refinery will turn out 1.3m tonnes of naphtha per year, as welll as 4.9m tonnes of diesel and 1.63m tonnes of jet fuel.

The launch of production, expected in mid-2017, will help Turkey reduce its reliance on imports of oil products. Currently the country has just one refiner, Tupras, whose four plants have total capacity of 28m tonnes.

Socar is planning to borrow around $3bn to finance construction of the project, Yavuz said. He added that after two years of negotiations, talks with the export-import banks of Spain, Italy, South Korea and Japan are at their "final stage", according to Trend.

"We are contributing $1.8bn from our equity into the project as the sponsors," he added, according to Bloomberg. He also welcomed the fact that the recent "... upgrade of Turkey's credit rating will help lower financing costs," and suggested that in a return of the favour, the refinery could help Turkey narrow its current account deficit - the major factor that has held back upgrades from the international agencies - by about $2.5bn a year.

The Turkish arm of the state-owned Azeri company has already started excavation work and building infrastructure for the refinery. The groundbreaking ceremony took place in October 2011, during Azeri President Ilham Aliyev's visit to Turkey, and around $185m has been invested thus far.

The planned refinery is part of a scheme by the Azeri company to establish a giant energy and chemicals complex near Izmir on Turkey's western Mediterranean coast. Socar, alongside Turkish energy company Turcas and Saudi Arabia's Injaz, took over Petrochemicals Holdings (Petkim) in 2008, and is now is now working to set up an integrated refinery, petrochemical, energy and logistics complex on the Petkim peninsular.

"Socar plans to invest $17bn in Turkey by 2018. Around $7bn-8bn will be used for Star Refinery, [as part of] a chemical industry park on Petkim Peninsula in the framework of the "Value-Site" vision," said Petkim CEO Vagif Aliyev, according to Hurriyet Daily News.

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