Azerbaijan's progress in their negotiations with the Extractive Industries Transparency Initiative (EITI) is a key factor for the European Bank for Reconstruction and Development (EBRD) in advancing the Bank's financing of the Trans-Anatolian Pipeline (TANAP) project, according to the EBRD's Managing Director for Energy and Natural Resources, Riccardo Puliti.
EITI is an international organization whose stakeholders include governments, companies, institutional investors, international financial institutions and civil society and which sets a standard of transparency in the natural resource industry. The EITI standard seeks to promote open, responsible management of countries’ oil, gas and mining sectors.
Azerbaijan currently has the status of an EITI candidate country, and is working towards regaining full compliance status before the end of 2016. A decision on the return of Azerbaijan to full EITI-compliant status may be taken at the EITI Board meeting on Oct. 26.
The EITI standard requires information along the extractive industry value chain, starting from the point of extraction. It covers how revenue makes its way through government, as well as how it benefits the public. The information includes how licenses and contracts are allocated and registered, who the beneficial owners of these operations are, what fiscal and legal arrangements are in place, how much is produced, how much is paid, where revenues are allocated, and details of the contribution to the economy, including employment.
“The EBRD has always been supportive of the Southern Gas Corridor as a means to diversify the routes and the suppliers for the delivery of natural gas to Europe. This is illustrated by our financing in August 2015 for the development of the Shah Deniz II gas field, which is the main field for delivery of gas to TANAP and the Trans Adriatic Pipeline (TAP),” Puliti told Anadolu Agency in an exclusive interview.
“We have been involved with this for many years. In addition, some years ago, we financed the South Caucasus Pipeline (SCP), which is also part of the Southern Gas Corridor,” he noted.
Puliti commented that the EBRD is currently working on financing the Trans Adriatic Pipeline (TAP) and TANAP, but explained that both projects are at the appraisal stages.
“At the moment we are working on both TAP and TANAP, because we support the whole project. The work on TAP is perhaps a little more advanced, but in both projects we are still at the appraisal stage. The processes for both projects will probably run more or less in parallel,” he explained.
“We have not made any final decisions, nor have we gone to our credit committee or to our Board of Directors. We are still appraising the projects; we are doing our technical, financial, legal, environmental and social due diligence,” he said.
- No final decision on amount yet
The Bank has not reached a final conclusion regarding the amount of financial support for the projects, Puliti said, adding that the EBRD is still considering how it could best finance and structure the ventures.
“We are still at the point where we are considering how best to structure both of these projects, because TAP and TANAP will be two different financing structures,” he said.
“We believe that altogether on TAP and TANAP, we would probably go towards more or less US$ 1 billion dollars. It is an aggregate number for both TAP and TANAP, and it is the maximum amount. So I would say that a number between US$ 600 million to US$ 900 million is the combined amount we are probably going to consider for both projects. At this stage, it is too early to divide amounts between one project and the other,” Puliti said.
He stated that in addition to EBRD financing of $600-$900 million, the Bank will also try to attract as much commercial banking finance as possible.
“I would say we will probably try to attract the same amount – US$ 600 - US$ 900 million – in terms of commercial financing, from commercial banks, as part of an EBRD syndicated loan. It is too early to name any specific banks before the completion of our due diligence, but I imagine it will be big Turkish and European banks, above all,” he underlined.
- EITI progress critical for TANAP
“EITI is a very important organization that measures, in the field of extractive industries, the level of actions by governments in terms of anti-corruption and public consultation with civil societies,” Puliti commented.
“On Oct. 26, there will be a meeting of the EITI in Astana, and EITI will publish their findings on the progress made by the government of Azerbaijan on important issues such as ‘publish what you pay’, anti-corruption measures, and civil society consultations. What I expect is that EITI will confirm to us that progress has taken place and is continuing to take place, that the government of Azerbaijan is moving in a constructive way to make all these activities – such as anti-corruption measures, such as civil society consultations – more accessible and more transparent,” he emphasized.
“In the case of TANAP, it is important that this progress takes place. If there is no progress it will be quite difficult to justify a large amount of financing,” he continued.
“It is important for both TAP and TANAP, but it is particularly important for TANAP, because SOCAR is so prominent in TANAP,” he added.
- EBRD not excluding future similar gas or LNG projects
Puliti stressed that the EBRD has always been supportive of the Southern Gas Corridor.
“We always thought it was very important to link the Caspian Sea with Europe via Turkey, which has potential to be a very important energy hub. Of course we would be interested to finance similar projects, including LNG, which could be an interesting proposition, in due course,” he said, but added that no such projects were being considered at present.
- Turkey's legal framework good to attract global entrepreneurs
Turkey is and remains a key country for energy projects for the EBRD, Puliti stated.
“We are involved in one of the first geothermal projects in the country, which is important, because Turkey has large geothermal potential. We are very much involved in other renewables such as wind. We think Turkey has a very good legal framework to attract global entrepreneurs [into the sector], so we are planning to continue working in renewables,” he said.
The EBRD has helped Turkey develop a National Renewable Energy Action Plan, a guiding document for the Ministry of Energy and Natural Resources, which identifies the regulatory gaps hindering private investment in the sector and establishes measures based on international best practices.
Puliti also stated that the EBRD is highly active in energy efficiency.
“Just recently we signed the financing for Tupras which is very much an energy efficiency project. We also financed a combined-cycle gas turbine power plant in Kirikkale. Turkey has a strong domestic market and has potential to be a strong international energy hub,” Puliti concluded.
By Nuran Erkul