Making sense of Belt and Road – The Non-Belt and Road project borrower: Southern Gas Corridor, Azerbaijan
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Making sense of Belt and Road – The Non-Belt and Road project borrower: Southern Gas Corridor, Azerbaijan

Euromoney is in the Socar Tower in Baku, Azerbaijan, about a mile from the Caspian Sea. Here, two members of the Southern Gas Corridor (SGC) holding company’s executive team are describing a complex gas pipeline project reaching from Azerbaijan’s Shah Deniz gas field in the Caspian, through Azerbaijan and Georgia, the length of Turkey and ultimately across Greece, Albania, the Adriatic Sea and into Italy.



Nothing in this picture has much to do with China. Even at the Azerbaijani end we are thousands of miles from China’s borders. And this project has nothing to do with China’s energy security: in fact it takes Central Asian gas and moves it to Europe.

But even here, China’s expansionism is visible. Euromoney has come here because it represents the biggest single funding effort so far by the Asian Infrastructure Investment Bank, with a $600 million loan alongside facilities from the World Bank and the African Development Bank. It is not, crucially, a Belt and Road project: neither the Silk Road Fund, China Eximbank nor the China Development Bank can be seen in its funding structure. But the fact that it is partly funded by a China-domiciled multilateral, albeit pooling the money of more than 60 nations, still tells us something about China’s role in global infrastructure development.

At this stage, the AIIB, still lacking in institutional capacity, tends to piggy-back on other multilaterals, particularly the World Bank, which in this case put in $400 million. “Essentially the AIIB was co-financing to the IBRD [World Bank] loan, so for the most part they relied on the work done by IBRD,” says Elmir Musayev, senior financial analyst in the finance department of Southern Gas Corridor CJSC, the borrowing company.


The same is true in disbursement ($382.1 million had been disbursed at the time of writing) and reporting, and helps to explain why the AIIB loan received board approval just one day after the IBRD in December 2016. AIIB conducted its own due diligence for financing. “We look at it as one loan of $1 billion,” says Musayev, “but the sources of this loan come from two different banks.”

Shah Deniz

AIIB’s involvement is specific to just one part of a vast and complicated $34 billion gas sector development: TANAP, the Trans-Anatolian pipeline through Turkey. SGC itself is wholly owned by the Azerbaijan state, 51% through the ministry of economy and 49% through Socar. But in total, the whole project is a complex geopolitical jigsaw covering not only six countries but crucial decisions on exemptions from the European Commission and the EU.

It is, in short, the sort of deal where the World Bank has typically thrived and where AIIB will now seek to step up. Its distance from any kind of Chinese state policy objective only underlines the image that AIIB is keen to project: a grown-up at the heart of infrastructure funding, cross-border, wherever the need and opportunity presents itself.

From the borrower perspective, it is all the better – offering more sources of funding. “Conceptually, they are all pretty much the same,” says Musayev, “though each international financial institution has its own specific requirements. AIIB made a good impression in terms of their responsiveness. This went pretty smoothly.”

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