Azerbaijan Petrochemicals Report Q2 2008

The future of the Azerbaijan petrochemical sector will soon be decided with the planned publication of a long-awaited feasibility study into the construction of a new world-class petrochemicals complex, according to BMI's latest Azerbaijan Petrochemicals Report.

A feasibility study drawn up by the Allied Investment Company (AIC) consultancy is being used as the basis for government planning and consultations for the development of Azerbaijan's petrochemical industry. A new petrochemicals complex is being planned in three phases over seven or eight years. The first phase is set to cost US$1bn. The minister of economic development and the chairman of AIC Supervisory Board, Heydar Babayev, has said that the consultant will submit a report identifying companies that can become guaranteed purchasers of the output from a new complex. The new project will be submitted for consideration by the AIC's supervisory board as soon as purchase commitments are confirmed. Approval of the feasibility project will lead to negotiations with potential investors.

Three or four investors have shown an interest in participating in the project. Negotiations with them will last for two or three months, according to AIC. AIC wants to achieve preliminary agreement in the short term with a project participant or a group of participants. The possibility of creating the project consortium is lined with large project costs, the first phase (one or two years) of which alone will be estimated at least US$1bn, although manufacture and approach to project recoupment will already start at this stage. The whole three-phase project period is seven or eight years. In March 2008, AIC Deputy Chief Executive Riad Gasimov said that offers for the construction of a plant to produce ethanol, methanol, and other derivatives were received from Middle East investors. The AIC has the option to become an investor in the proposed petrochemical project, with a stake of 20-25%. However, its current level of capital is still not enough for this.

Azerbaijan remains in last place in BMI's Central and Eastern Europe Petrochemicals Business Environment Rankings, with a score of 30.4 points, well below the regional average of 50.8 points and 11.1 points behind Ukraine, but 1.5 points up on the previous quarter due to increased capacity utilisation.

Azerbaijan's considerable energy reserves and rising gas output have not led to any improvement in its petrochemicals capacity, largely due to the poor business environment which has deterred investors. This is likely to change once the details of a planned new petrochemicals complex are revealed.