Germany provides €1.2 billion loan for Southern Gas Corridor

Jens Spahn and Angela Merkel
Jens Spahn and Angela Merkel

Azerbaijan and Germany held talks on attracting funds for the Shah Deniz-2 and TANAP projects, sections of the Southern Gas Corridor (SGC). During the meeting of the Interdepartmental Committee an agreement on provision of guarantees for 1.5 billion dollars was reached. APA recalls that the Southern Gas Corridor projects are being financed by the company-shareholders. The Azerbaijani side participates in all segments of the Southern Gas Corridor, and therefore, in addition to profit from this agreement, it will receive additional revenue from production and transportation. Total volume of obligations of the Azerbaijani side in all segments of the SGC is one quarter of the total investments. Earlier, there were reports that the German government would provide a large loan to finance the SGC gas pipeline from Azerbaijan to Europe. Loan amount is 1.5 billion dollars.

As Euractiv writes in an article "Germany provides €1.2 billion loan for Southern Gas Corridor", the German Ministry of Finance will provide €1.2 billion to help Azerbaijan finance its part of the Southern Gas Corridor project. Deutsche Welle announced the news quoting a letter from Finance Secretary Jens Spahn (CDU) to the chairman of the budget committee of the Bundestag, Peter Boehringer (AfD). The money is intended for the Closed Joint Stock company Southern Gas Corridor (SJCC). CJSC was founded in 2014 by a decree signed by Ilham Aliyev, the President of Azerbaijan. Its purpose is to consolidate, manage, and finance the country’s interests in the development of the “Shah Deniz” offshore gas field in the Caspian Sea, the expansion of the South Caucasus Pipeline, the construction of the Trans Anatolian pipeline (TANAP) and  the Trans Adriatic Pipeline (TAP). CJSC has undertaken the project financing aspect while operational management is provided by SOCAR, the Azeri state energy company.

“These gas deliveries should make a significant contribution to securing the supply of gas to Europe and Germany,” says the letter. The loan should be repaid from proceeds generated by the project, with backing from Azerbaijan in the form of a state guarantee, Spahn’s letter further says. Specifically, the money will be used to refinance CJSC’s stake in Shah Deniz and Turkey’s TANAP gas pipeline. In addition, an application for an export credit guarantee for a further €500 million will be examined to finance German supplies and services intended for TAP transmission between the Turkish-Greek border and Italy.

‘In the special interest of Germany’

TANAP and TAP are respectively the Turkish and the European sections of the Southern Gas Corridor. The German government can secure so-called Unbound Financial Loans upon request. These are intended to finance projects abroad that are “in the special state interest of the Federal Republic of Germany”. This applies in particular to projects which “ensure the supply of oil and gas to the Federal Republic of Germany by guaranteeing long-term supply contracts for the benefit of German customers”.

Deutsche Welle reminds that even Chancellor Angela Merkel had welcomed the construction of the Southern Gas Corridor. The European Bank for Reconstruction and Development (EBRD) approved a loan of €500 million for TANAP in October 2017. Financial support also came from the World Bank. And in February, the European Investment Bank approved its largest ever single loan to an energy project: €1.5 billion for the the Trans-Adriatic Pipeline (TAP).

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