Malaysia invests big in Turkey and Azerbaijan

By bne IntelliNews November 5, 2014

David O'Byrne in Istanbul -


Malaysia, Turkey and Azerbaijan may be far apart geographically, but commercially they are drawing closer together after two huge investment agreements involving Malaysian state companies. More such deals are in the works.

The last half of October saw Malaysia's state owned Malaysia Airport Holdings Berhad (MAHB) pay $285mn for the 40% of equity in Istanbul's Sabiha Gokcen Airport (ISG) that it did not already hold, giving it full ownership and control of Turkey's second biggest airport.

Then Malaysia's national oil company paid $2.25bn for a 15.5% stake in Azerbaijan's giant Shah Deniz gasfield – the field slated to begin supplying gas to Europe by 2019 – and the South Caucasus gas pipeline (SCP) that currently carries the field's gas as far as Erzurum in eastern Turkey.

More in pipeline

The deals are significant not just for their size and strategic importance, but also because they are widely expected to be followed by others as Malaysia's state companies and the state investment fund Khazanah Nasional Berhad, which owns 60% of MAHB, seek to increase their investments outside of Southeast Asia.

According to Idzham Abdul Hamit, trade commissioner at the Istanbul office of Malaysian national trade promotion agency Matrade, Malaysian companies have a particular interest in exploring opportunities to invest in the still fast growing Turkish economy. "Over the past two weeks we have had two Malaysian trade delegations from Turkey, one from the logistics sector and one from the chemical industry sector," he told bne, suggesting that both were looking to capitalise on the recent deals and that both offer significant opportunities for further investments.

Both of the October deals certainly point toward the likelihood to more. Constructed as Istanbul's second airport, with a capacity of 3mn passengers a year, privatization in 2007 allowed a consortium of MAHB (20%), Turkey's Limak (40%) and India's GMR Group (40%) to expand the capacity of Sabiha Gokcen to 25mn, making it the second biggest airport in Turkey, and the main hub for domestic flights from Istanbul.

Now fully owned by MAHB, further scope exists for expansion of both passenger and cargo handling, especially with the expected closure of Istanbul's main Ataturk airport, following the completion of a new main passenger airport in 2017.

It is, however, Petronas' purchase of Statoil's stake in Azerbaijan's Shah Deniz gas field and the SCP pipeline that is exciting most interest, especially as the company simultaneously signed a long-term oil and gas cooperation agreement with Azerbaijan's state oil company Socar.

Statoil's exit from Shah Deniz came as little surprise; the Norwegian major last year sold 10% of it's original 25.5% stake in Shah Deniz to BP and Socar, and has been divesting assets as part of a strategy of "portfolio optimization." Petronas' purchase of the remaining 15.5% of Statoil's stake gives the Malaysian company the chance to play a major role in the export of the first major gas exports from the Caspian region to European markets.

Once in operation in 2019, the second phase of the Shah Deniz field is scheduled to export up to 16bn cubic metres a year (cm/y) of gas to Turkey via the SCP line and the planned Azeri-Turkish TANAP line. Of this 16bn cm/y, 6bn cm/y will be sold to Turkey, while the remaining 10bn cm/y will being transited through Turkey to Greece via TANAP and then though the Trans Adriatic Pipeline (TAP) across the Adriatic to Italy. Together with the SCP line in which Petronas now holds a stake, these form the EU's long-vaunted "Southern Gas Corridor," which designed as an alternative route for Caspian gas exports to enter the EU market rather than cross Russian soil.

Spare capacity

To date, neither of TANAP's main sponsors, Socar (70%) and Turkey's Botas (30%), has announced how the spare 15bn cm/y of TANAP's 31bn cm/y capacity will be filled. Socar has said it wants the line to carry gas from other as yet undeeveloped gas fields in its sector of the Caspian.

These include several blocks being developed by BP which has agreed to take 12% of Socar's stake in TANAP, but has yet to sign a formal agreement.

Petronas itself declined to comment to bne on the Shah Deniz purchase, however should BP opt not to join TANAP, that could open the door both for Petronas to take a stake in the pipeline, and to offer gas from the field it has been developing in Block One of Turkmenistan's sector of the Caspian Sea. Petronas needs to monetize its existing $8bn investment in Turkmenistan's offshore Block One," says John Roberts, an independent Caspian energy analyst.

With options for exporting gas from the east Caspian extremely limited, Roberts explains that it makes sense for Petronas to look to transit the gas to Azerbaijan. That may well make it amenable to taking a stake in TANAP," he says, adding that should Petronas take a stake in TANAP, then it might also make sense later on to take a stake in TAP.

That too could be possible if Statoil continues its portfolio rationalisation, and chooses to divest its 20% stake in TAP – a project in which its continued participation looks less of a core investment now it has exited Shah Deniz.

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