SOCAR Polymer, the project of international standing, is the first of its kind and scale in the petrochemical industry, implemented in Azerbaijan over the past 40 years. SOCAR Polymer was created on July 16, 2013. The plants of the company are being built on the site of the Sumgayit Chemical Industrial Park created on the basis of the Order of President of the Republic of Azerbaijan Ilham Aliyev. At present, the project is at the engineering stage. The decision to build a Polypropylene plant was made at first. Later the decision to construct a Polyethylene plant, which is to produce mainly plastic pipes withstanding high pressure, was made. The Front End Engineering Design of the project has already been completed. The assessment of the whole project is currently underway on basis of this engineering development. The commencement of construction work is scheduled for summer 2015.
Polypropylene and polyethylene are the key raw materials for the industry. In particular, it is a furniture industry, insulating materials in the construction business, plastic products as well as food packs. Propylene produced in Azerbaijan has been exported until now. However, a decision to build a Polypropylene Plant (PP) and High Density Polyethylene Plant (HDPE) was made in order to gain more profits that can be done in the cause of processing propylene into polypropylene. As a result, a project of SOCAR Polymer, which used to operate within SOCAR before, was created. However, later this project was separated in order to attract private investments. In particular, the country’s three big groups, Pasha Holding, Gilan Holding and Azersun Holding, were involved in the project and have become, together with SOCAR, the co-founders of SOCAR Polymer since 2013.
The majority of shares of the company belongs to SOCAR. The rest is shared equally between the three holdings. A consortium of EPC contractors, led by an Italian engineering company Tecnimont, was created to execute the project. The completion of the construction of the PP Plant has been scheduled for the 2017. The HDPE Plant, however will be ready in 2018.
SOCAR Polymer has an objective of delivering plants on time as well as creating a team of skilled human resources, so that they are, at a later stage, involved in implementation of big projects in the country. Another leading engineering company, Fluor, was attracted as a PMC to monitor the work of the EPC contractor. An integrated project management team was created together with Fluor. A team, consisting of specialists of Fluor and SOCAR Polymer human resources, is working on every engineering discipline. In this way, Azerbaijani specialists enjoy a chance to increase their knowledge in practice. In addition to the team of engineers, a group of operators meant for plants operation after their construction will be created.
It is noteworthy that despite the SOCAR Polymer plants are not commissioned yet, the company has clearly set the strategy for feedstock supply and sale in the domestic and global markets.
SOCAR Polymer signed a feedstock supply agreement (propylene, ethylene and hydrogen) with SOCAR. The contract is valid till 2030 on Delivery or Pay terms. SOCAR Polymer has SOCAR’s guarantee for supply of 150,000 tonnes of propylene and 110 000 tonnes of ethylene. Besides, it also has priority rights to purchase additional volumes of raw material, upon availability. This contract is important from the standpoint of attraction of International financial institutions and creditors who attach importance to the project risk assessment. Uninterrupted supply of raw materials is one of the major components of the project success. Thus, the contract with SOCAR ensures security of supplies. SOCAR Polymer is also preparing to sign the Offtake Agreement, i.e. the agreement on guaranteed sale of products in the international market. The contract will be signed with SOCAR Trading which is obliged to buy the whole products that SOCAR Polymer puts for export.
The maximum capacity of polypropylene and polyethylene plants will total 180,000 tonnes and 120,000 tonnes, respectively. About 30-40% of manufactured products will be supplied to the domestic market. It will be sufficient for meeting the whole domestic market demand. The rest of it will go for export. Turkey, where Azerbaijani products are competitive, is considered the major market for export. It is noteworthy that the research of the entire regional market was carried out in order to assess the competitiveness of products of the SOCAR Polymer. The results of the market research proved the competitiveness of Azerbaijani products, especially in the Turkish market which is big enough (2.3 mln tonnes of consumption per year). Surprisingly, nowadays the Turkish market receives 50% of products from the non-oil producing countries, which buy oil products, process them and sell. The production chain in Azerbaijan is more integrated, which leads to low cost of the product and thus, more competitive.
Regarding the local market, SOCAR Polymer is in process of negotiations with SOCAR Marketing and Operations which can be engaged in sale of products. The contracts signed with SOCAR for supply of raw materials, as well as with SOCAR Trading and SOCAR Marketing and Operations Department for sale of products, let the company calculate its profits. Thus, SOCAR POLYMER has serious task of creating a production complex, manufacturing qualitative products and ensuring their timely delivery to customers.
Pricing is the other important factor. The purchase prices are indexed to the prices for end products in the global market. If a product prices rise or fall then it is reflected on raw material prices as well. I.e. the risk of price fluctuation has no impact on SOCAR Polymer.
The project investment cost of the SOCAR Polymer is estimated at $700mln. It includes 2 plants, a central office and warehouses. 40% of cost will be covered by shareholders. The rest will be financed via debt. SOCAR Polymer has already agreed the terms of financing with a foreign bank, which is ready to pay the whole required debt sum ($420mln). In the meantime, this bank does not demand for the completion guarantee of SOCAR, as a founder. It is a big success for the SOCAR Polymer, its shareholders and management.
SOCAR Polymer attaches particular importance to the environmental component of the project. International banks allocate credits, requiring the project to meeting equator principles which set clear limit of allowable environmental impact. The plants of SOCAR Polymer shall be built on basis of these principles and operate under proven process technologies. SOCAR Polymer is interested in creation of the project of international standing, meeting all ecological requirements.
