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    Baku Cuts ADB Loan as SGC Costs Drop


Prudent financial planning for the Southern Gas Corridor has left Socar with more headroom than needed.

by: Dalga Khatinoglu, Ilham Shaban

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Baku Cuts ADB Loan as SGC Costs Drop

Azeri state-run Southern Gas Corridor Company (SGCC) has cancelled the Asian Development Bank’s allocated $500mn loan, as the project costs are far below the initial forecast, state-run Socar told NGW April 2.

SGCC is responsible for funding Azerbaijan’s share of the pipeline project.

The SGC will deliver 6bn m3 Shah Deniz-2 gas to Turkey next year and 10bn m3/yr to EU by 2021, or 16bn  m3/yr in total thereafter. 

SGCC had spent $9.6bn of its $11.5 stake on SGC including SD2, South Caucasus pipeline expansion (SCPX), the TransAnatolian pipeline (Tanap) and the TransAdriatic pipeline (TAP) as of end-2018. It has spent $320mn on SGC during first quarter of 2019 as well. 

Tanap is almost ready to start deliveries to EU by July 1, 2019 in a restricted amount. Currently, only the European section of the project, TAP, remains incomplete, but it has also progressed more than 86% as of now.

Socar said that, the actual cost of SGC was far behind the initial forecast. “The overall costs declined, especially in Tanap, where Azerbaijan has a 58% stake. Initially, we estimated Tanap would cost $8.9bn but then that reduced to $7.9bn and now, we predict spending $7bn. ADP has allocated two loans for SGCC: the first, $524.5mn, has all been spent; and the second, $500mn, we no longer need."

Falling oil prices since 2014, when SGC construction started, pushed the material and service costs lower but the SGCC had already allowed cost inflation of 10%, Socar added, giving an even bigger safety margin.

Tanap shareholders are SGCC 58%, Turkey’s Botas 30% and BP 12%. TAP shareholders are BP 20%, Socar 20%, Italian Snam 20%, Belgium Fluxys 19%, Spanish Enagas 16% and Swiss Axpo 5%.

The shareholders of Shah Deniz and SCPX (together) are BP 28.8%, SGCC 7%, Socar 10%, Turkish Petroleum (19%), Petronas (15.5%), Lukoil (10%) and National Iranian Oil Co (10%).