Distinguished shareholders and business partners,
The year 2010 was a period in which the impact of the 2008 global economic crisis on the petrochemical sector started to diminish; nonetheless, it was a difficult year in terms of recovery under the shadow of the multitude of problems associated with the world economy, booming oil prices and newly installed capacities being two among them. As of end-2010, rising oil prices, on the border of USD 100 per barrel, directly impacted the price of our raw material naphtha. The price of naphtha which rose to USD 850 per ton at the end of 2010, adversely affected the profitability of the worldwide petrochemicals sector, by increasing production costs.
Although 2010 was a year in which raw materials prices were high and uncertainties abounded, PETKİM largely attained its budget targets, achieved the highest volume of production since its establishment, broke production records in seven plants, reached its highest ever capacity utilization rate of 99% and also set an all-time export record. For the year, the Company’s production rose by 10% and its turnover by 41% compared to 2009.
In 2010, PETKİM harvested the first fruits of its continuous growth and improvement strategies that the Company has implemented for many years now. The major factors at play in setting the new production record were the draw of the Turkish market and the strength of the domestic currency, as well as improvement in production lines, capacity boosting investments, technological advances and the high level of workforce productivity. In this year, the Company also identified its investment objectives, including projections for 2020. According to forecasts, the period 2011-2015 will be much more favorable for the worldwide petrochemicals sector than the period 2006-2010. At present, PETKİM enjoys one of the highest capacity utilization rates in Europe. Since European companies are losing their ability to compete effectively, PETKİM’s future competitors are likely to be Middle Eastern and Asian firms. One of our most crucial targets is to maintain the sustainability of growth and profitability in the coming years and break further records in production.
In parallel to these objectives, PETKİM will engage in a number of soon to be launched, high priority investments corresponding to its core operational areas, including a 13% capacity increase at the ethylene plant, a 20% capacity increase at the LDPE-T plant, a 44% capacity increase at the PA plant, a nearly 50% capacity increase at the PTA plant and the establishment of new PET, Ethoxylate and BDX plants whose feasibility studies are currently under way. We believe that all of these measures will contribute immensely to the profitability of PETKİM in the following years. Furthermore, losses from previous years appearing on our balance sheet will be totally eradicated as of 2011, thus allowing the Company to start distributing regular dividends to shareholders.
PETKİM continues to be a unique integrated producer in the Turkish petrochemicals sector and its products conform to world standards. With the purchase of PETKİM’s majority shares by the SOCAR & Turcas Group, a bridge was built to connect the Caspian Sea with the Aegean Sea and new opportunities and collaborations sprung up in both regions. Following privatization in 2008, the vision that we developed for PETKİM includes the implementation of projects creating long-term value. We aim to make PETKİM a regional power in the petrochemicals sector by 2018 and attain a 40% domestic market share through sustainable growth.
As part of the Refinery-Petrochemicals-Energy-Logistics Integration initiative, by 2023 the PETKİM Peninsula, one of the most important production bases in Turkey, will feature an oil refinery to safeguard raw materials security, 6 million tons of petrochemicals production, a container terminal with a capacity of nearly 1 million TEU, a port and logistics areas, a reliable level of energy generation and a cluster model featuring investments using domestic and foreign capital; as a result, PETKİM will become one of the most prominent production centers across Europe. We believe that these projects will allow the Turkish chemical and petrochemical sectors to rise to the next level in the global league.
At the initial stage of the PETKİM Value-Site Project, important steps were taken in 2010 for the establishment of the raw materials refinery in order to realize Refinery-Petrochemicals integration. On July 2010, the Energy Market Regulatory Authority (EMRA) granted our sister company, STAR Refinery Inc., a Refinery and Storage License, the most important aspect of the Refinery Project, which will completely alleviate PETKİM’s high foreign dependency in the supply of its raw materials. The concept design, feasibility studies, technology and licensor choices, and basic engineering studies are complete for the STAR Refinery Project, and a consultancy firm was designated to secure its financing. In 2011, following the selection of the main contractor firms and the provision of its financing, we intend to start the construction of the infrastructure. The construction of the refinery will fully take off in 2012 and production is planned to commence operations in 2014. The STAR Refinery will annually produce 10 million tons of products such as naphtha, jet fuel, (ultra low sulfur) diesel, LPG, petroleum coke and mixed xylenes, of which Turkey is currently a net importer; as a result, this refinery will contribute millions of dollars in reducing the Turkish current account deficit and will constitute one of the largest localization projects ever in a single site. With the launch of the refinery, other investments in the PETKİM Value-Site will also speed up. Thanks to this investment, PETKİM will guarantee raw materials security and eliminate high annual costs related to naphtha import, in terms of transport, storage and working capital. After the refinery begins operations, PETKİM will not only boost its petrochemical investments with the utmost confidence, but will also mobilize its available infrastructure, land, port, utilities as well as workforce and know-how for the refinery and generate significant additional income.
In 2010, a subsidiary company, PETLİM Port Operations and Commerce Inc. was established to ensure that the port, which currently engages only in the handling of dry and liquid cargo, can make maximum use of PETKİM’s logistics support areas and participate in a new container terminal investment; consequently, the facility will become one of the most prominent ports in Turkey. In addition, PETKİM plans to host a new tank farm investment with a capacity of 1 million tons, to store different petroleum derivatives transported from countries on the Black Sea or the Mediterranean via small and medium-sized ships. PETKİM’s port and tank farm projects under development will fill a significant gap in the Aegean Region and also generate additional revenue and added value for the Company.
In order to satisfy its growing energy needs and harness the high quality wind present on the peninsula, the Company obtained an autoproducer license for a 25 MW capacity wind power plant from the EMRA. The objective is to launch this energy plant based on a renewable energy source latest by year-end 2012.
In 2011, we shall continue to make vital investments towards sustainable profitability and implement our strategies at a fast pace.
Finally, we would like to express our gratitude to all those who have provided us with the greatest support on this journey, namely our dedicated employees, suppliers, customers, business partners, as well as shareholders and stakeholders, who have never denied us their full confidence.