(EnergyAsia, February 13, 2012 Monday) — The Asian Development Bank (ADB) said it has approved a loan and political risk guarantee totalling up to US$400 million to help build Uzbekistan’s largest petrochemical plant worth some US$4 billion.

Located about 1,300 kilometres from the capital Tashkent in the Karakalpakstan region, 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.

Expected to start up in 2016, the plant will have supply capacity of about 4.5 billion cubic metres per year throughout the life of the project. It will include production wells, pipelines, ethylene cracker, polymer plants, and onsite power generation.

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 South Korean companies, comprising Honam Petrochemical Corporation, Korea Gas Corporation, and STX Energy, a unit of STX Corp.

ADB said its 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 US$125 million and a 13-year guarantee of up to US$275 million which will cover certain risks on loans extended by commercial lenders to Uz-Kor Gas Chemical.

“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.”

With total reserves of 59.4 trillion cubic feet, Uzbekistan is the second largest gas producer in the Commonwealth of Independent States behind the Russian Federation.

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.

Financing will be provided by a consortium including 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.