SOCAR halts its carbamide plant project in Georgia
14 May, 2015
SOCAR halts its carbamide plant project in Georgia
The State Oil Company of Azerbaijan has suspended the construction of the carbamide plant in the Poti free industrial zone of Georgia. This was revealed by Rovnag Abdullayev, president of SOCAR, on May 8. According to him, the project has been temporarily frozen and this decision has been made because of failure to complete certain negotiations with Georgian government. Abdullayev did not specify details of the mentioned negotiations, however. Georgian Energy Minister Kakhi Kaladze confirmed that the carbamide plant project worth
many millions is temporarily shelved for the reason of being “financially disadvantageous”.

The carbamide plant in Poti was expected to bring Georgia at least 700 million USD in investment

“The carbamide plant project was not viable from financial point of view, to Georgia and Azerbaijan both. The Azeri side had some problems with the natural gas supply. We get 80 percent of our gas from Azerbaijan, and this winter we had problems with getting the necessary volume of it. So I do understand the Azerbaijani point of view,” Kaladze said on May 11.
Neither Kaladze nor Abdullayev disclose details that drew back the project that was expected to bring Georgia at least 700 million USD in investment. Georgian Journal tried to get an in-depth explanation of the project’s withdrawal at Ministry of Economy of Georgia. However, we were pointed towards the Ministry of Energy, which, along with the head office of SOCAR in Baku, failed to provide timely responses. But people who are closely associated with the said project explained in private conversations with GJ that the problem probably lies in the financial field. According to them, the success of the carbamide plant was unclear from the very outset.
The idea of constructing a carbamide plant in Kulevi was trumpeted by the previous government in 2012. The construction was expected to start in 2013 and bring approximately 1 million tons of carbamide to the Black Sea market. The amount of money to be invested into the plant varied, according to SOCAR’s estimates, from 700 million to a billion USD. SOCAR also planned to build two identical plants in Azerbaijan and Georgia. Abdullayev stressed then that it was still questionable whether the production of carbamide was as profitable as the sale of natural gas itself.
As a matter of fact, the carbamide plant in the city of Sumgait, 35 km north of Baku, is under construction and expected to be completed by 2016. It will create 700 thousand tons of carbamide a year and as soon as the country’s need in this product is satisfied, part of it will be exported to the Black Sea markets.
The inception date of the Georgian project was delayed to 2014 and the completion date prolonged to 2019. However, it never commenced and was eventually put on halt for indeterminate amount of time. Instead, SOCAR launched construction of a similar plant in Turkey. SOCAR is the co-owner of the largest Turkish petrochemical complex Petkim, which processes around 10 tons of carbamide per day. People in the know claim the Georgian project might have been profitable only if Georgia had agreed to cede to SOCAR the natural gas that is paid to Georgia as a transit fee for transporting Azeri gas through Shah-deniz pipeline, which SOCAR is one of the major shareholders of. The project started under the previous government, and perhaps Georgia’s former authorities promised SOCAR a deal. But apparently, the situation has changed and the acting authorities said ‘no’.
Liana Jervalidze, energy analyst, believes the recent drop in oil prices has changed the SOCAR plans re­garding the Kulevi plant. Besides, the oil market balance may undergo a massive upheaval if the ban on Iran oil export is really lifted this June. The market may get more saturated, lowering the prices even further and thus dealing a huge blow to all oil producing countries.
“This could be profitable when oil and gas prices were as high as in 2009-2012, when the idea of Kulevi plant was entertained,” said Ms. Jervalidze in a conversation with GJ. “But now, with the oil prices dropping and uncertainty abound in the oil market, the project looks unattractive to SOCAR. It already runs similar projects in Azerbaijan and Turkey, all of them far larger and more promising than Georgia’s could possibly be. Income of SOCAR has dwindled, and investing a billion dollars into a plant in Kulevi has simply become commercially unviable. It needs at least a year or two to pay itself back, and in current market conditions the potential profit is unclear,” she elaborated.
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