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    Azerbaijan to Raise More Funding for Southern Corridor



SGC to raise finding from all possible sources including IFIs, Export-Credit Agencies (ECAs) and commercial banks

by: Kama

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Azerbaijan to Raise More Funding for Southern Corridor

Azerbaijan intends to raise more funding this year from international financial institutions to finance its share of the southern gas corridor (SGC).

“We are in talks with international financial institution for attracting more investment. The political support for the project gives us a good chance to get long term loans on attractive terms. We will borrow up $2bn by the end of this year for 20 years with low interests,” Socar president Rovnag Abdullaev told reporters in Baku April 2, without giving details.

Fitch ratings reported that SGC’s net financial needs for operations and capex will be close to $8.4bn in 2016-2019.

According to Abdullaev, talks are going on with the European Bank for Reconstruction & Development (EBRD), Asian development bank (ADB) and other financial institutions.

Azerbaijan is talks with ADB for a $450mn loan for the Shah Deniz 2 development in the Caspian, the only named field so far that will supply the SGC. 

Last month, the state-owned Southern Gas Corridor Company (SGCC) raised $1bn in a 10-year eurobond at 6.875% yield. However, it met only half of its original plan.

SGCC is 100% owned by the state through a 51% stake held by the economy ministry and a 49% stake held by Socar.

Azerbaijan's share in the $45bn SGC project is around $14bn, half of which will be borrowed from international financial institutions and commercial banks, the deputy head of Socar’s investment division Socar Zaur Gahramanov said earlier.

The rest of Azerbaijan’s stake in SGC will be funded by the sovereign oil fund (Sofaz), where cash flow from development of the nation’s energy resources in cooperation with international companies has been building up, although these days the rate is relatively slow.

In 2014-2015 Sofaz invested $736.9mn in SSGC according to the government report. This year it will spend twice that amount – $1.5bn.

The SGCC’s funding stemmed from a combination of debt and equity from the state; $2.5bn bonds issued in favour of Sofaz at below market rates (Libor + 1%) and capital injections, which totalled $1.7bn as of end-February 2016, Fitch said.

The European Investment Bank (EIB) is working closely with European Commission and fully supports SGC, the bank's official representative Massimo D’Eufemia said in February during the second SGC advisory council meeting in Baku.

According to him, last year, EIB closely worked with both the TransAnatolian Pipeline (Tanap) and the TransAdriatic Pipeline (TAP), the pipeline projects that will form the Southern gas corridor. EIB is also considering financing the other components of SGC.

EIB report said that the bank is considering providing €2bn for TAP.

"TAP has been included in the European Commission’s list of 33 priority energy security Projects of Common Interest. EC in its positive decision to grant exemption to the pipeline from third party access highlighted the overall positive impact for the EU of this investment as it is responding directly to the security of supply objective of diversification of gas sources, routes and counterparties,” the bank said in a statement.

European investment bank will allocate €1bn for Tanap, more precisely to fund Turkey’s Botas share in it, Bloomberg reported with reference to EIB vice-president Pim Van Ballekom.

Both TAP and Tanap loans are expected to be approved this month.

Additional funds for SGC will be raised from multilateral and bilateral institutions, such as EBRD, World Bank and export credit guarantee agencies of OECD countries.

Commercial banks and financing institutions are also expected to provide funds for the project, the reports said.

On May 17 the inauguration of TAP will be held in Greece near Thessaloniki, said Abdullaev. Meanwhile Tanap is already making a good progress in Turkey, he said. 

The $45bn SGC envisages development of Shah Deniz 2 field in Caspian and deliver gas from it by 3,500 km pipelines chain to Europe. The gas will be pumped by expanded South Caucasus (SCPX), Tanap and TAP. SCPX will start from Sangachal gas terminal near the capital Baku and run across Azerbaijan and Georgia to Turkey, where it will be connected to Tanap.

Tanap will ship gas from eastern Turkey to its western border with Greece, where it will be connected to TAP.

The European segment of SGC will run from the Greek-Turkish border and across Greece, Albania and the Adriatic Sea before coming ashore in southern Italy to connect to the Italian natural gas network.


Azerbaijan desk