The Southern Gas Corridor and the Trans Adriatic Pipeline (TAP)
- Date: 06 February 2018
The Trans Adriatic Pipeline (TAP) project is a gas pipeline of about 878 km that crosses Greece (from the Turkish border) and Albania. It connects to the Italian gas network in Southern Italy and will transport up to 10 billion cubic meters of gas per year. TAP is part of the Southern Gas Corridor (SGC) development, linking the Shah Deniz 2 gas field in Azerbaijan to Turkey and Europe. The corridor could also be used in the future to deliver gas from the Middle East, Central Asia, and the Eastern Mediterranean.
A project of EU Common Interest
The SGC is about to offer a new source of competitively priced gas for the European Union market, as well as increasing diversity and security of supply. This is necessary in an environment where the EU’s dependence on gas imports is growing, in particular in Central and South East Europe, a region over-dependent on a single supply of gas. It will have a particularly positive effect on security of supply for Greece and Bulgaria, assisting Greece in meeting the required N-1 security of supply criterion and breaking the monopoly of the current gas supplier to Bulgaria. The SGC is strongly supported by the EU.
The SGC is included in the EU list of Projects of Common Interest (PCI) adopted by the European Commission in November 2017, as it is part of one of the priority corridors of the list. It is a cluster of infrastructure for the transport of a minimum 10 billion cubic meters of gas per year from the Caspian Region, crossing Azerbaijan, Georgia and Turkey and reaching EU markets.
The strategic importance of the Southern Gas Corridor has been underscored in the European Energy Security and Energy Union Strategies. Its importance was reiterated in the Second Report on the State of the Energy Union.
Gas and the EU’s Energy and Climate Objectives
As EU countries undertake the long-term transition to a low-carbon economy, gas will continue to play a significant role in decarbonisation. As a relatively low-carbon fossil fuel that provides flexible power generation, gas can be used to complement renewable energy.
Decarbonisation scenarios presented by authoritative bodies such as the International Energy Agency show that coal cannot be replaced fully by renewable energy in the near future. Thus gas is needed for the phasing out of coal and for the immediate reduction of carbon emissions, as well as to back up intermittent renewables. A majority of energy experts share this view.
EU gas demand is projected to decline in the coming decades. Domestic gas resources, however, are projected to decline even faster. Accordingly, the EU is committed to secure energy supply through diversification projects, such as the SGC.
Overall, the SGC should not have any direct effect on Climate Change, because it is an alternative source of gas and does not intend to cover any new demand.
EIB’s decision to finance the project
As part of the Southern Gas Corridor, the project will create a new European gas transmission corridor. This diversification of gas supply routes and sources will increase security of gas supply and reduce energy dependence. It is also classified as a Project of Common Interest.
The EU regions in which the project is implemented are cohesion regions. The project is, therefore, eligible under Article 309 of the Treaty on the Functioning of the European Union (a) projects for developing less-developed regions and (c) common interest.
The SGC will help Albania meet growing energy demand through gasification and, thus, diversify its energy mix. It is, therefore, in line with the objectives of financing economic infrastructure in the field of energy of the EIB’s External lending Mandate 2014-2020 for projects outside the EU, as approved in the Council Decision No. 466/2014/EU.
The EIB presence ensures that the project will be in line with EIB environmental and social standards, and that all necessary assessments to substantiate this have been undertaken and are published on the Bank’s website
The EIB’s financial contribution and facilitation of the project is high. The long-term funding provided by the EIB contributes favourably to the overall financing and economics of the project.
TAP’s economic justification
As with all the projects it finances, the EIB has assessed the economic justification of the project as part of its due diligence. The SGC is economically justified on the basis of its contribution to security of supply and by enabling a new source of cost-competitive natural gas.
The EIB’s assessment of economic viability is based on comparing the costs and benefits of the whole corridor—from production in Azerbaijan to delivery in Italy. This assessment demonstrated that the corridor is economically viable under conservative assumptions.
Importantly, natural gas consumers in the EU and Turkey will benefit from the cost competitiveness of the new gas supply. Further, the engagement of large European energy companies testifies to the project’s financial viability. Nine European companies have signed long-term agreements to buy gas from the Shah Deniz consortium that will be transported through the SGC.
Finally, the infrastructure created could transport larger volumes of gas in the future—at a lower cost than during the initial phase—which would increase the economic benefits of the projects.
Importance of the investment in the countries where SGC is implemented and in the EU
TAP is one of the largest single capital-investment projects currently being undertaken in Europe and the largest in Greece. It is expected to contribute to economic recovery in Greece and the other countries through which the pipeline is to be built.
Under competitive procurement procedures, a large share of equipment for the TAP project is sourced from European suppliers. In addition to Greek and Italian companies, German and French companies are supplying products to TAP such as steel pipes, turbo compressors and large-diameter valves. Leading European companies also provide their expertise (project management, onshore construction in mountainous conditions, offshore pipe-laying).
EIB’s environmental and social assessment
TAP has been subject to a thorough environmental and social assessment in line with the EIB’s Environmental and Social Standards.
The EIB has registered a number of complaints from individuals and communities affected by the project in Italy, Greece and Albania. Any EIB financing remains conditional upon TAP being built and operated in line with the EIB Environmental and Social Standards.
The EIB services have carefully reviewed and assessed the concerns raised by the complainants and have taken a number of actions to address these, in particular:
The Bank has met with several complainants during appraisal missions to the project sites.
Additional detailed review and analysis have been carried out by the Bank, with the support of independent, external technical, environmental and social experts advising the potential lenders, in particular on the issues brought to the Bank’s attention
The EIB is engaged with the Promoter regarding improvements and/or additional measures that could be implemented, specifically on:
- The health and safety concerns raised by the local population affected by the project;
- Contractor management and engagement with local communities during construction;
- As well as the Promoter’s meaningful and enhanced engagement with local communities opposing the project.
All complaint letters have been acknowledged. Each one is being followed-up with substantive answers to each matter raised, with the aim of allaying concerns and, where it is possible, resolving the issues.
In line with the EIB’s procedures and zero-tolerance policy against fraud and corruption, the project has been subject to an enhanced due diligence to address issues such as the potential presence of politically exposed persons.
The Bank is committed to ensuring that its loans are used for the purposes intended and that its operations are free from any prohibited conduct (including, but not limited to, fraud, corruption, collusion, coercion, and money laundering and the financing of terrorism). The EIB Anti-Fraud Policy details the measures and mechanisms in place at the Bank to prevent and deter prohibited conduct in all EIB-financed operations and, where it does occur, to address it in a timely and expeditious manner.
The EIB will ensure that the Borrower will comply with the relevant disclosure requirements under the relevant EU Transparency Directives.
TAP and Azerbaijan
While none of the components of the TAP project financed by the EIB are located in Azerbaijan, the EIB has taken into account the entire Corridor in its environmental and social due diligence, in line with the Bank’s Environmental and Social Principles and Standards.
During the EIB appraisal of TAP, the European External Action Service has confirmed that despite its withdrawal from the Extractive Industries Transparency Initiative (EITI), Azerbaijan is developing, in line with EITI requirements, standards of transparent extractive revenue management and has confirmed that it “will continue to work in line with EITI principles of revenue transparency and disclose all information related to revenues received from the extractive industries to the full extent”.
The EU has a policy of constructive dialogue and engagement with Azerbaijan, and maintains a continued policy dialogue on issues such as human rights and civil society organisations.
 The Southern Gas Corridor at present comprises the following components : i) the Shah Deniz gas field, ii) the South Caucasus Pipeline and its expansion through Azerbaijan and Georgia to Turkey, iii) the construction of TANAP through Turkey to Greece and iv) the construction of the Trans-Adriatic Pipeline (TAP) through Greece, Albania and the Adriatic Sea to Southern Italy.