ADB to Help Develop Uzbekistan’s Largest Petrochemical Plant
Wednesday 25 January 2012
MANILA (Press release) – The Asian Development Bank (ADB) has approved a loan and political risk guarantee totalling up to US $400 million to help build the largest-ever petrochemical plant in Uzbekistan.
- Proposed Loan and Political Risk Guarantee Uz-Kor Gas Chemical LLC Surgil Natural Gas Chemicals Project (PDF)
Uzbekistan is well positioned with its low-cost feedstock supply to establish a strong chemical industry. Despite this potential and the rate of growth of the commodity petrochemical market in the region, Uzbekistan has made only a limited foray into the market. The project will be the largest oil and gas project undertaken in Uzbekistan and one of the largest multisource financing schemes in Central Asia to date. The project will provide substantial benefits to Uzbekistan by enhancing its established gas extraction and processing industry with the capability to convert a portion of the gas into higher-value chemical commodities to be sold into high-demand manufacturing in the region. ADB’s participation, particularly through leading the due diligence as a direct lender, ensures that the project delivers on environmental performance – a key stakeholder concern in all chemical industry projects.
Uz-Kor Gas Chemical is a joint-venture company which is 50% owned by Uzbekistan’s state-controlled UNG and 50% by a consortium of Korean companies: Honam Petrochemical Corporation (45% of the Korean consortium), Korea Gas Corporation (45%), and STX Energy (10%).
The Surgil Natural Gas Chemicals Project will produce gas for commercial use and for conversion into chemical intermediates used in the plastics and textiles industries. The developer and operator, Uz-Kor Gas Chemical LLC, is a joint venture company owned by state-controlled oil and gas company National Holding Company Uzbekneftegaz, and a consortium of Republic of Korea companies, comprising Korea Stock Exchange-listed Honam Petrochemical Corporation, Korea Gas Corporation, and STX Energy, a unit of STX Corp.
“Instead of simply extracting gas and treating it for energy use, the project will also process a portion of it into chemical raw materials for exporting to plastics and textiles producers. That means Uzbekistan gets more bang for its buck out of its natural resources,” said Thomas Minnich, Senior Investment Specialist in ADB’s Private Sector Operations Department “ADB’s provision of a partial risk guarantee has helped draw in commercial lenders to the project and that could spur further foreign investment in this key sector.”
Uzbekistan is the second largest gas producer in the Commonwealth of Independent States behind the Russian Federation, with total reserves of 59.4 trillion cubic feet. However, the petrochemical industry in Uzbekistan is very small, meaning the country gets less benefit than it should from its abundant gas reserves. Developing the domestic petrochemical sector will diversify the country’s economy, generate additional revenues, and create jobs.
The project, which is located about 1,300 km from the capital Tashkent in the Karakalpakstan region, will have supply capacity of about 4.5 billion m³/year of natural gas throughout the life of the project. It will include production wells, pipelines, ethylene cracker, polymer plants, and onsite power generation.
The total project cost is about $4 billion with financing to come as well from Export Import Bank of Korea, Korea Trade Insurance Corporation, China Development Bank, National Bank of Uzbekistan, European export credit agencies and international commercial lenders. It will demonstrate the viability of large-scale domestic/foreign joint ventures and could pave the way for future foreign direct investments in Uzbekistan’s private sector manufacturing industry.
ADB’s participation will also help ensure that the facilities comply with internationally acceptable environmental, health and safety standards.
ADB is providing a 13-year loan of up to $125 million and a 13-year guarantee of up to $275 million which will cover certain risks on loans extended by commercial lenders to Uz-Kor Gas Chemical. The plant is expected to be operational in early 2016.