Abstract
Azerbaijan' s petrochemicals industry is faced with a crisis, amid a global
economic downturn and large
inventories. Yet the government' s ability to
bail the sector out is limited by severe budgetary constraints,
casting
doubt on the long-term viability of Azerkimya, the country' s leading
petrochemicals producer.
Industrial plants in Sumgait are suffering from
the effects of lower oil prices and a contraction in credit
availability.
Azerkimya' s facilities stopped production in early March with most workers
reportedly sent
on unpaid leave, having not been paid since January.
Official statistics indicate that the petrochemicals
industry is in
crisis, with Azerkimya' s production dropping by 72.5% year-on-year (y-o-y) in
February
2009 as exports collapsed. According to local sources, by April
2009 Azerkimya' s plants still had four
months' worth of production left
unsold.
BMI believes the contraction in the sector will wipe out the gains
achieved in 2008, when chemicals
output grew by an estimated 35%. The
rubber and plastics industry already reported a 5% fall in output in
2008
and is likely to decline further in 2009. BMI forecasts that output across the
petrochemicals industry
will fall by at least 50%, a fall that could
imperil the future of the industry in Azerbaijan. The collapse in
sector
output is likely to be worse than in 2007, when Azerkimya' s output was
affected by a rise in
electricity and raw material costs which the company
struggled to finance without state subsidies.
The situation in 2009 is far
worse and BMI expects some form of government intervention to ensure that
the petrochemicals industry survives the global economic turmoil and to avert
serious social unrest caused
by mass lay-offs at plants in Sumgait.
However, the government' s finances are in trouble after it based its
2009
budget on an oil price forecast of US$70 per barrel (bbl). Much reduced crude
export revenues may
prompt the government to make more strenuous efforts
towards diversification away from dependence on
oil, which could lead to
greater efforts towards strengthening the petrochemicals sector. But
short-term
budgetary constraints are a serious concern.
The government
is determined to develop downstream sectors, aware that the country has
considerable
long-term potential. While the government has considered
several measures to establish a stable
environment for investment, its
chemicals and petrochemicals industries remain in the ' have potential'
category, awaiting ' trickle-down' funding from other industries to initiate
some sort of revitalisation in
the sector. In June 2008, national oil and
gas producer Socar announced that it was planning to raise
EUR20-22bn
(US$31-34bn) to invest in building a new oil and gas processing complex and a
chemicals
and mineral unit in Baku. The company aims to obtain the funding
from international lenders, but no
potential sources of finance or a
timeframe have been announced. In addition, Azerkimya signed a
memorandum
of understanding and confidentiality in September 2008 with a number of
leading
petrochemicals companies to construct a large petrochemicals
complex at Sumgait, but the project' s
current status is unclear and could
be jeopardised, or at least delayed, by the economic slowdown.
Azerbaijan
is in last place in BMI' s proprietary Europe Petrochemicals Business
Environment Rankings
with a score of 32.0. The score has deteriorated
considerably in recent months due to growing
uncertainties over the future
of the petrochemicals industry as well as the impact of the global
economic
crisis. Azerbaijan' s considerable energy reserves and rising gas
output have been hampered from
improving the country' s petrochemicals
capacity, largely due to the poor business environment which has
deterred
investors.
| 
View Cart
