Weekly actual topics in Azerbaijan (July 20-24)

Analysis Materials 27 July 2015 17:18 (UTC +04:00)

How will Azerbaijani energy projects help Greece?

The economic situation in Greece is deteriorating, literally, every minute. The country's foreign debt continues to increase, and new agreements with lenders on financial assistance only entrap the country in debt.

In such a difficult situation, Greece needs to focus on developing strategic projects that will bring revenues and dividends to the country in the future. Azerbaijani projects can also be considered in this regard: a deal on purchasing a share by the State Oil Company of Azerbaijan in Greek DESFA natural gas transmission system operator and the project for construction of the Trans-Adriatic Pipeline (TAP) which is part of the Southern Gas Corridor.

Nevertheless, the new Greek government which took office in January 2015, initially ignored these projects. The government showed absolute passivity with regard to SOCAR-DESFA deal. This was followed by an attempt to revise the existing agreements and to reduce the share to be obtained by SOCAR to 49 percent. (This is while the tender, won by the SOCAR, was held for 66-percent share.)

Thereby, Greek government wanted to retain more than half of the shares in the gas operator.

Apparently, the new cabinet presumed that by retaining the major part of shares in DESFA, it will get more revenues from its operation. However, the Greeks forgot that investments in a project are made in accordance with the share and under the current conditions, they won't be able to make more investments than SOCAR. This made the project even less advantageous and caused doubts about SOCAR's participation in the project under these conditions. The expectations came true: SOCAR refused from making concessions and changing the existing agreements.

Greece had an uncertain position on TAP project as well. The government first expressed its commitment and interest in the project, but then hinted that it would like to get more benefits from its implementation.

In the case of DESFA, Azerbaijan which has already grew stronger with similar trials when implementing the Baku-Tbilisi-Ceyhan project, made it clear to the Greeks that no one is going to revise the international agreements and contracts after signing.

The current situation can push Greece to revise its views. The country's parliament accepted the conditions of the creditors under which they agreed to allocate additional funds to Greece. The paragraph on privatization of state enterprises is among these conditions. This situation can push Greece to be more active in DESFA deal. The cost of the deal estimated at $400 million euros is no object to Greece.

In parallel to the news about possible acquisition of a share in TAP by Italy's Snam company, there are also reports about the desire of Greek companies to obtain share in the project. Participation of one or several Greek companies in the project will naturally require certain investments from them. Nevertheless, in the future, the revenues from the operation of TAP will be even more.

Undoubtedly, the flow of funds to Greece's private sector will have a positive impact on the country's economic development. Namely for this reason, Greece should understand that Azerbaijani energy projects will help it.

Who will buy Statoil's share in TAP?

The Norwegian oil and gas giant Statoil has decided to completely withdraw from the Southern Gas Corridor project. A 20-percent stake in TAP was Statoil's last asset in the project. According to the latest information, the company intends to sell it.

Who will buy Statoil's share? This is the most interesting question. Italy's Snam company has expressed interest. Snam Executive Director Carlo Malacarne said that a 20-percent stake in the Trans Adriatic Pipeline is estimated at about $ 400 million. However, 20 percent in TAP is quite a big asset. It is likely to be divided among several customers.

What other companies may buy a stake in the project? First of all, these are the current shareholders of the pipeline - BP (owning a 20 percent share), SOCAR (20 percent), Fluxys (19 percent), Enagás (16 percent) and Axpo (5 percent), having certain advantages when buying shares of other shareholders. It is possible that some of them will want to strengthen their participation in the prospective and economically beneficial project.

Turkey is another interesting candidate for buying a stake in TAP. According to a source in the Turkish government, this issue will be considered. The acquisition of a stake in TAP is a historic chance for Turkey.

So, the Turkish TPAO company owns a 19-percent share in the development project of Shah Deniz field and the South Caucasus gas pipeline. Botas has 30 percent in TANAP pipeline.

Purchase of a share in Trans-Adriatic Pipeline will allow Turkey to have assets in all routes of the Southern Gas Corridor, which considerably increases the country's significance in terms of energy.

Another quite obvious candidate for participation in the project is Malaysian Petronas. Namely this company bought Statoil's share in Shah Deniz and South Caucasus Pipeline. Probably, this company wants to further play a role in transportation of the gas produced with its participation. The positive experience between Statoil and Petronas in the implementation of such deals can also play a certain role.

If would be logical, if the TAP shares were bought by the companies of the European countries through which this pipeline will run and those which want to get access to Azerbaijani gas. As SOCAR President Rovnag Abdullayev said, the participation of Greek companies is not ruled out either. Possibly, Bulgaria and some other Balkan states will be very interested in participation in this project.

Even Gazprom can obtain a share in TAP. Although, at first sight, this option seems to be fantastic, there are several reasons for this. The problems with Chinese economy affected the process of negotiations between Russia and China on gas supply via the Altai (The Power of Siberia-2) pipeline.

This happens against the backdrop of decrease in gas demand in China, decrease in oil prices, which means greater availability of liquefied natural gas, as well as Gazprom's reluctance to sell gas at low prices by explaining this with high prime cost of pipeline construction.

At the same time, Gazprom rejects China's proposal to announce an open tender for construction of the pipeline, which will make its cost more real.

All these factors greatly reduce the possibility of an early agreement on the 'Altai'.

Waiting for a speedy solution to the problem is useless considering that Gazprom and CNPC were agreeing on the 'Power of Siberia' for over 10 years and there was a need in political intervention of the states' leaders to ink the contract.

Gazprom's problems in the Chinese market are reinforced by the problems with the 'Turkish Stream' in the western direction. There is still no official agreement with Turkey, the construction has not started, a deal with an Italian contractor has been broken, and a number of tenders have been cancelled.

All of this poses a threat to Gazprom's ability to sell gas both in Europe via the southern route bypassing Ukraine, and in China. So, theoretically, the Russian company, in order to pump its gas, may benefit from TAP's capacity through the acquisition of a share in it.

There is also much talk about the possibility of Iranian gas entering the European market. This can't happen soon as the complete removal of sanctions from Iran and creation of an infrastructure will take some time.

However, Iran is already planning to increase the daily gas production by 2017 and direct a certain part of it to Europe. In this regard, the participation in the 'Southern Gas Corridor' will become one of the most important steps for Iran.

Moreover the Iranian NICO holds assets in 'Shah Deniz' and 'South Caucasus Pipeline', and therefore one cannot rule out the purchase of a stake in TAP by Iranian companies.

Each option is interesting in its own way, and such a large number of them suggests only one thing: the 'Southern Gas Corridor' is a strategically important and economically attractive project, which in the future will bring benefit to all its participants.