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By Rufiz Hafizoglu

The TANAP project, which envisages the transportation of gas of Azerbaijan’s Shah Deniz field from the Georgian-Turkish border to the western borders of Turkey, has been launched. The project's initial capacity is expected to reach 16 billion cubic meters of gas per year.

In an exclusive interview to Trend Agency, the general manager of TANAP Natural Gas Transmission Co., Saltuk Duzyol spoke about TANAP's role in providing energy security, the project's possible rivals and its implementation.

TANAP is one of the most important energy projects that is being implemented by Turkey and Azerbaijan. What are the prospects for ensuring the energy security of Turkey and Europe with this project?

TANAP will enhance the supply security and diversity of Turkish and European markets without any doubt. Having two off-take points through TANAP system in Eskisehir and Thrace which are quite close to its major consumption centers, Turkey will reduce its capital expenditure requirements to upgrade its local transmission network and gain a great operational flexibility. TANAP will be a cure to the pain of Turkey and South East European countries, which from time to time face significant gas shortages from Russian Federation due to the problems which are often associated with the transit countries. Given the level of their import dependence on Russian gas, it will be the South East European countries that benefit most from this new gas supply corridor of which TANAP constitutes the most important part. TANAP may also be a transportation platform for other supply sources in the neighborhood of Turkey.

Aside from TANAP, currently, negotiations are underway on construction of the Turkish Stream pipeline. Can Turkish Stream be a rival to TANAP? To what extent is it real?

As TANAP we already signed our Gas Transportation Agreements for 16 billion cubic meters annual transportation capacity for 15 years with a fixed tariff. Turkey has become a part of TANAP project not only as a shipper but also a major investor with a 30% stake. By doing that Turkey has already made its decision. Turkey supports the Turkish Stream Project as a cure to gas shortages it faces almost every year in its West Line due to the conflict between Russian Federation and its transit country, Ukraine. In other words, Turkey hopes to off-take an equivalent amount of gas or a bit more from the Turkish Stream unless otherwise it would off-take from the West Line. Turkish Stream can only be rival to TANAP when we consider a capacity expansion in TANAP. In this case shippers of gas through TANAP and Turkish Stream will have to compete with each other to be able to sell their gas to both Turkish and European markets. But it should be always kept in mind that TANAP is a project which brings not only route but also supply diversity for European end users.

There has been an increase in the exchange rate of US dollar in Turkey over the recent months. Can this factor somehow affect the implementation of TANAP?

Our CAPEX estimate used to determine the transportation tariff in our Gas Transportation Agreement with the initial shippers and the final investment decision among our shareholders were made in US dollars and most of our contractual commitments and payments are also made in US dollars accordingly. For some goods and services that we procure from the local market or from Euro zone we may talk about a positive impact on our project. But we don’t expect a major impact of increase in US dollar exchange rate on our project.

Recently, Turkish Minister of Energy and Natural Resources Taner Yildiz said that attracting new shareholders to TANAP is under consideration. Does this project need new shareholders? Which of the current shareholders can sell part of its share in the project?

As a matter of fact we signed our Shareholders Agreement quite recently. It is quite normal for midstream projects of this kind to attract investors who would like to strengthen their market position. According to the Intergovernmental Agreement as ratified by the Turkish Parliament, shares of the state-owned companies designated by the Government of Azerbaijan at TANAP project in any case cannot be lower than 51 percent. However, having new shareholders at TANAP is something that can be discussed and agreed upon among our shareholders.

One of the facts proving the successful implementation of the TANAP project is that it is being implemented three month ahead of the schedule. So, can the implementation of this project be completed earlier than expected? We are currently investing in one of longest and largest diameter pipelines ever built in the world.

The pipeline will traversing 20 provinces, 67 districts and nearly 600 villages throughout Turkey and almost 60% of the pipeline will be laid in a hilly to mountainous terrain. In certain sections of the pipeline construction season is limited to 110 days only and we have only three construction seasons to build the pipeline. Under these circumstances, we should not keep our expectations too high for early completion.

However, as TANAP, we are fully committed to deliver the first gas to BOTAS in June 2018 and to Trans Adriatic Pipeline by the end of 2019. For the moment, all I can say is that we are aligned with our project schedule.

Which company is currently the main technical and commercial operator in TANAP? We do not have a technical or commercial operator type of management philosophy in TANAP Project.

TANAP’s existing shareholders are SGC (Azerbaijan) with 58%, BOTAŞ (Turkey) with 30% and BP with 12%. Final decision-making authority of TANAP is the Board of Directors where SGC, BOTAS and BP are represented by 6, 3 and 1 members respectively.

Most decisions are taken by simple majority which means the majority shareholder has greater influence in management decisions. Some critical decisions, however, require qualified majority and/or unanimity. An Integrated Project Management Team (IPMT) led by a CEO appointed by the Board of Directors is fully responsible for execution of the Project with the assistance of an EPCM (Engineering, Procurement and Construction Management Company). We also have committees where all shareholders are represented in a way similar to the Board of Directors. These committees enable our shareholders to involve in the process to some degree and increase the transparency.

The cost of the TANAP project is estimated at $10-$11 billion. Is it planned to attract financial institutions to finance this project?

For the moment, TANAP project is planned to be fully equity-financed by its existing shareholders. But, there is always a possibility of applying for project financing from international financial institutions or corporate banks upon our discretion. In case our shareholders change their minds, all TANAP policies and procedures including engineering, procurement and contracting, environment, health and safety are aligned with the requirements of international financial institutions for project financing.

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