For Iranian gas, imitation is the sincerest form of flattery

By bne IntelliNews February 12, 2014

David O'Byrne in Istanbul -

With local elections looming in March, presidential elections later in the year and general elections in 2015, Turkish Prime Minister Tayyip Erdogan has been keen to play up his government's record of major infrastructure investment.

Recent visits to Berlin and Brussels have seen him stressing the importance of projects such as the $7bn-plus TANAP pipeline project that will carry Azeri gas to Europe, and Istanbul's $9bn planned third airport. While back in Turkey he has continued to stress the importance of the $4.5bn third Bosphorus bridge and his own "pet project", Kanal Istanbul, for a ship canal to bypass the Bosphorus at a cost of anything up to $20bn.

Oddly though, neither Erdogan nor any of his ministers have found time to mention the recent granting by the economy ministry of investment incentives worth $6.3bn to a major infrastructure project that promises to benefit both Turkey and Europe too. Or perhaps not so odd given that the project is for a 5,000-kilometre pipeline to carry gas from Iran through Turkey and all the way across Europe to Germany.

Stranger still, the project's developer, Turang Tasimcilik, is the subsidiary of a minor Turkish petroleum trading company called Som Petrol - neither of which have any prior experience in the development of intercontinental gas pipelines or indeed infrastructure projects of any kind.

Pars for the course

Beyond that almost the only things that are clear about the project are its origins: namely, a 2008 agreement between Turkey and Iran under which Turkey's state oil company TPAO would develop three blocks of Iran's giant South Pars gasfield and a pipeline to carry the gas back to Turkey, from where it could be transited to Europe.

TPAO's involvement ended with the international outcry at Iran's nuclear programme and subsequent sanctions, after which the previously unknown Som Petrol announced that it would be developing a gas pipeline from Iran to Europe, dubbed the Iran-Turkey-Europe (ITE) gas line.

Despite the sanctions, work in Turkey appears to have continued with the website of Turkey's Ministry for the Environment and Urban Affairs hosting a ream of reports detailing the route and other preliminary steps.

Now with the apparent rapprochement between Iran and the West, Turkey has granted the project unparalleled financial incentives in the form of VAT and customs duty exemptions in apparent readiness for the lifting of sanctions.

However, some suggest there might be ulterior motives for Turkey's apparent largesse toward the project.


The past month has also seen Turkey pressuring Iran for a reduction in the price it pays for the 10bn cubic metres a year (cm/y) of gas it already imports - or at least imports when Iran doesn't halt the flow as it already has twice this winter.

These frequent cuts in supply two years ago prompted Turkey to launch an international arbitration case against Iran demanding compensation that Energy Minister Taner Yildiz has said could reach $2bn. Yildiz, though, has also suggested that Turkey could drop the case if Iran agrees to a significant discount, and could even double the volume of gas it imports if an agreement is reached. Possibly this is where ITE comes in, with analysts suggesting that the incentives may be more to "incentivize" Tehran into cutting a deal.

But that too is not to say that Turkey would be unwilling to transit Iranian gas if the gas was made available, and the ITE incentives could equally be aimed at persuading Turkey's other gas suppliers and potential suppliers that they face competition for Ankara's business.

As with Iran, so with Russia. Erdogan visited Russia for the opening of the Sochi Winter Olympics with the aim of negotiating a discount on the price that Turkey pays for the 24bn cm/y of gas imported under contracts with state gas importer Botas. Moscow, though, is likely to be dismissive of the potential competition.

A quick perusal of the ITE website reveals an apparently well produced site befitting an ambitious project, replete with impressive photographs of enormous pipeline sections being laid,

In cyberspace though, more than anywhere, appearances can be deceptive.

As stated above, neither Turang nor its parent Som Petrol have any experience of developing major infrastructure projects. And a closer look of the project website using Google's image search tool reveals that the bulk of the impressive pipeline photographs are not unique to ITE's site - they also appear on the site of Russian state gas company Gazprom.

Which, being charitable, could be said to be a measure of the ambition of ITE's developers Turang. As the saying goes, imitation is the sincerest form of flattery.

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