Petkim has big expansion plans for Turkish petrochemicals

Supersize supersite

12 November 2009 13:03  [Source: ICB]

Petkim's petrochemical hub in western Turkey is set to grow quickly to take advantage of the country's blossoming petrochemical market. It should also help tackle the country's huge polymer deficit

IT WAS no wonder, say market analysts, that there was such a scramble to try and pick up 51% of Turkey's predominant petrochemical producer when the state finally conducted a long-delayed privatization offer in May 2008. Petkim figures show that the undersupplied Turkish petrochemical market has grown at around 12%/year in the past 15 years and is expected to continue at that brisk pace for the foreseeable future.

The winners, including lead investor the State Oil Company of Azerbaijan (SOCAR), as well as Turkey'sTurcas Petroleum and Saudi Arabia-based developer Injaz Projects paid $2.04bn (€1.37bn) for the holding. They have committed themselves to a $5bn investment program centered on Petkim's coastal Aliaga petrochemical complex by the Aegean Sea near Izmir in western Turkey. Commodity producer Petkim has a 25% share of the petrochemical market, but if the program comes to fruition, this should rise to 40% by 2018. Much ground should be made by replacing massive polymer imports that make Turkey the third-biggest importer of petrochemicals in the world, behind China and Italy.

"Our vision is to become a regional force in petrochemicals," says Kenan Yavuz, Petkim CEO since May 2004. "This means that in the next 10 years we have to increase our capacity at least [twice]. If we cannot increase our capacity by 2018, our market share will only be 10%. It is not possible to control the local market on 10%. We have to have at least 40% so that we can bring more products to the domestic market," he adds.

Yavuz says Petkim is intent on adopting the "cluster model to transform Petkim into a global petrochemicals supersite."

Central to Petkim's grand plan is the three-year-old 800,000bbl/day Baku-Tbilisi-Ceyhan (BTC) pipeline, the second-longest oil pipeline in the world, which runs from Azerbaijan's capital, Baku, to the southeastern Mediterranean coast of Turkey via Georgia.

Petkim, established in 1965, concedes that Turkey's lack of oil has caused it to suffer from low raw feedstock reliability, with requirements often having to be met by countries such as Russia, Syria and Algeria.

Now, however, it is counting on supplies of largely Azerbaijani BTC crude, feeding a new SOCAR-Turcas refinery to be built on 130ha (321 acres) of land adjacent to the Petkim complex. Feedstock from the facility should enable Petkim's ambitious petrochemical expansion plan.

And, the company publicity says, if in turn Petkim's long-term hopes of becoming a big exporter to the EU are realized, Petkim will be able to celebrate having accomplished its mission "to create the first major bridge from the Caspian, to the Aegean to Europe."

Turkey's petrochemical market was worth about $6.1bn last year according to the Turkish Privatisation Administration (OIB), which continues to hold a 10.3% stake in Petkim, so it is far from being saturated. Petkim reckons Turkish thermoplastics consumption stands at around 29kg per capita, compared with rates of between 75-100kg per capita in developed countries.

SIX-YEAR PLAN
Under its investment program, within six years, Petkim aims to exploit this and other consumption shortfalls by at least doubling its Aliaga production of 1.9m tonnes/year, utilizing 6-8m tonnes/year of naphtha and other feedstock from the refinery.

"Our vision is to become a regional force" Kenan Yavuz, CEO, Petkim

The company is constrained by far from adequate production capacities, such as 520,000 tonnes/year of ethylene; 150,000 tonnes/year of polyvinyl chloride (PVC); 334,000 tonnes/year of low-density polyethylene (LDPE); 96,000 tonnes/year of high density polyethylene (HDPE); 144,000 tonnes/year of polypropylene (PP) and 160,000 tonnes/year of benzene.

But Petkim has remained ebullient about its expansion prospects despite the global downturn, which it believes will be, at most, a short-term hindrance to its ambitions. Despite the economic woes, points out Yavuz, Petkim was one of the few petrochemical companies to post a profit in the first half of 2009. The profit of Turkish lire (TL) 25m ($16.8m), contrasting against a TL14m net loss in the same period of 2008, was achieved while Petkim increased its labor output per capita from 457 tonnes in 2008 to 539 tonnes in the first half of 2009.

"Our valuation of Petkim for Turkey's privatization administration was certainly based on this company's future prospects," says Ayse Kolat, managing director of Raiffeisen Investment in Istanbul, which acted as adviser to the OIB during the Petkim sale. "The sale price was a rather good multiple - equivalent to some 19 times EBITDA [earnings before interest, tax, depreciation and amortization] - with the bidding very well attended by 10 or 12 companies," she adds.

Integral to the supersite grand plan is also the development of Petkim's port. This should become one of "the largest sea gates of Turkey, both from the point of view of transshipment of containers and dry and liquid cargoes," says Yavuz.

"We are also planning to transform the Petkim Port into Turkey's largest logistics hub, and we have set aside a 1m m2 area which will serve as a logistics support area," he adds.

NEED FOR POWER
If power projects are also completed - power to meet petrochemical production needs and for sale to the national grid are to partly come from a 47.5MW wind farm and coal and/or natural gas power generation investments - Petkim should one day also be able to boast of being the largest production complex in Turkey, notes Yavuz.

But the company has far more to do than building production capacity if it wants to become the agile company of its executives' dreams. For instance, big efforts must be put into resolving marketing problems encountered because Petkim has simply had a production-focused structure for long years.

Petkim, adds Yavuz, envisages its supersite moving into innovative and high value-added chemicals, but Helmut Struger, CEO for chemical distributor Brenntag Central & Eastern Europe, is happy to note that Turkish producers offer no competition to imports of specialty chemicals.

"For us in Turkey, the commodity business is not a first priority. There are key players such as [Turkish chemical importer] Soditas, which owns a nice terminal; Solventas in Gebze [on the Marmara sea], and you can hardly compete without having your own terminal," he says. In specialties, however, Turkey offers Brenntag and other players "big room to grow," adds Struger.

Yavuz recalls how he and fellow directors worked day and night to achieve the long-sought privatization that has at last given Petkim the chance to fulfill its potential.

"It has been, to say the least, a source of regret for me to see countries with limited resources, no tradition of statehood and no natural resources pull ahead of us [in strategic areas such as petrochemicals]. There are such amazing success stories out there, and when I look at them, it pains me that I cannot point to similar successes in my own country. What we have achieved pales beside what we could have achieved. Our projects are crucial ones that our country desperately needs," he concludes.

 

PETKIM TIES UP WITH IRAN
Petkim and Iran's National Petrochemical Co. (NPC) signed a memorandum of understanding for a supension polyvinyl chloride (S-PVC) plant in October. The unit will have a capacity of 300,000 tonnes/year and be located in Miandoab, in Iran's West Azerbaijan province. Both parties will have a 50% stake in the joint venture (JV) behind the plant. In April, Petkim and NPC signed an agreement for a 50:50 JV that should see the construction in Iran of a 300,000 tonnes/year polyethylene (PE) and 1.65m tonnes/year methanol plant.

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By: Will Conroy
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