Germany to co-fund Southern Gas Corridor project in Azerbaijan

Southern gas corridor project © Stephan Röhl
Jens Spahn © Stephan Röhl

Germany will contribute €1.2bn in funding to help Azerbaijan to finance its part of the Southern Gas Corridor project.

In 2014, the President of Azerbaijan, Ilham Aliyev, signed a decree to manage the country’s interests in the development of Shah Deniz, an offshore gas field in the Caspian Sea. This development will be fundamental to the Southern Gas corridor project, and the decree also supported the construction and improvement of pipelines in the region.

Deutsche Welle obtained a letter sent from the German Finance Ministry’s Jens Spahn to the chair of the government’s budget committee, Peter Boehringer, which announced the plan for Germany to contribute an additional €1.2bn loan to aid Azerbaijan in this development.

There is also a potential additional €500m investment, which is yet to be formally agreed, to secure German gas supplies through Italy and along the border between Turkey and Greece.

Why is Germany funding a project in Azerbaijan?

The German government will fund the project through a mechanism of ‘unbound financial loans’, which allows it to finance developments abroad designed to secure external supplies of oil and gas to the country.

Euractiv reports that the letter says that gas deliveries facilitated by the Southern Gas Corridor project “should make a significant contribution to securing the supply of gas to Europe and Germany”, which ensures that the project is viable for funding under the mechanism.

Germany’s loan to Azerbaijan will be paid back from the profits generated by the project, and is backed by a state guarantee from the latter country.

How is the project being funded?

The Southern Gas Corridor project has also received funding from the European Bank for Reconstruction and Development, which has approved a €500m loan for the TANAP gas pipeline in Turkey.

Last month, the European Investment Bank approved a loan of €1.5bn for the Trans-Adriatic Pipeline, which is the European section of the project. This represents that bank’s largest ever single loan for an energy development project, and demonstrates Europe’s commitment to the Southern Gas Corridor project.

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