The proposed financing is to fund a portion of the State Oil Company of Azerbaijan Republic's (SOCAR's) share of cash calls relating to the development of the off-shore Shah Deniz gas/gas condensate field (SD) in Azerbaijan in accordance with the SD PSA. SOCAR holds a 10% interest in SD field via its subsidiary, AzSD.
Financing is being sought for stage 1 of a 4-stage field development (volume target is 11.9 Tcf gas-in-place). Initially 9 wells will be drilled from a fixed offshore platform. After processing onshore, gas will be sold to Azerbaijan at the gates of the Sangachal terminal and via the South Caucasus Pipeline (SCP) exported to Georgia and Turkey. Condensate will be exported to the world market via the BTC pipeline.
The country strategy for Azerbaijan (BDS/AZ/02-1) calls for the Bank to enhance co-operation with SOCAR and to promote its commercialisation through the provision of commercial financing. The key transition impacts of the AzSCP financing are:
Commercialisation of SOCAR - the proposed financing of SOCAR's subsidiary will provide the Bank with the opportunity to assist with SOCAR's corporatisation and commercialisation. Based on the agreed conditionality, which has been defined in close co-operation with the World Bank and the IMF, the envisaged financing and a complementary technical assistance operation will lead to improved financial transparency, the implementation of commercialisation and restructuring measures. It will also clarify the relationship between the State and the state-owned commercial company SOCAR.
Competition - the realisation of the SD project will substantially increase competition in the Azerbaijani, Georgian, Turkish and, in the medium-term, the gas markets in south-eastern Europe.
Demonstration Effect - the SD operator BP is setting standards in governance and business conduct in such areas as operational management, technology, financial transparency, disclosure of payments to the government, health, safety, environmental protection and procurement practices.
AzSD is SOCAR's 100% subsidiary holding its 10% interest in the SD PSA. SOCAR is the state-owned joint stock company responsible for the development of Azerbaijan's petroleum sector. According to terms of the SD Joint Operating Agreement, BP has been appointed as operator for the upstream development of SD.
US$ 110 million, senior loan (of which up to US$ 40 million will be syndicated post-signing).
Total SD stage 1 project cost estimate is US$ 2,263.8 million.
AzSD stage 1 project cost estimate is US$ 256.5 million.
The Project was classified as A/1, requiring the completion of Environmental Impact Assessments (EIAs). The EIA has been approved by the Azerbaijan government, and is consistent with EBRD environmental Policies and Procedures. The EIA contains the details for hundreds of environmental mitigation measures that will be implemented to minimise environmental impacts caused by construction and operation of the project.
The EBRD has received the right to sit on the Board of Directors (as a non-voting observer) to ensure that AzSD abides by its environmental undertakings as outlined in the Term Sheet and detailed in the Environmental and Social Action Plan which has formed part of the environmental documentation available to the public for review and comment. EBRD has worked with the sponsor to develop a rigorous monitoring program using in house staff and independent environmental consultants to ensure adequate implementation of the measures. The Team continues to work towards the introduction of a National Oil Spill Response Plan.
The ESIA, ESAP and other related documents can be viewed at www.caspiandevelopmentandexport.com/ASP/PD_SD.asp or on the EBRD website.
TC project (TCS ID 13188) - Commercialisation and restructuring of SOCAR - was initially approved by TC Com on 9 April 2003 and re-approved, with 2-stage approach, on 5 November 2003.
State Oil Company of Azerbaijan Republic
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Text of the PIP