IRAN - NPC Position.

NPC wants to implement the new projects mainly by attracting foreign capital. Funding by the Iranian private sector would be welcomed, according to an interview in 'Iran Today' of March-April 1997 given by outgoing NPC Managing Director Ahmad Rahgozar (who was replaced at the post in May 1997 by NIOC's exploration chief Sayed Mehdi Hosseini and the latter was replaced later in the year by former industry minister Mohammed Reza Nematzadeh). But the Iranian private sector's funding capabilities, in terms of hard currency, are limited. There is no way that the 1997-2010 plan will be achieved without foreign capital. Petrochemical exports are seen as a key aspect of diversifying Iran's sources of income away from oil. Everyone is convinced in Iran that diversification is the only way ahead, with Iranian oil export prices having fallen to unacceptable levels since November 1997. Iran's main export markets for petrochemicals are India, which is the biggest, followed by Japan and South Korea. Just after US sanctions were tightened in 1995, NPC said it had "excluded US companies from our list of foreign buyers". At the time, NPC had contracts to supply $240m worth of petrochemicals to three US companies. Foreign investment will be critical to the planned expansions. As far as possible, state funds will be channelled to the petrochemical sector but there are constraints imposed by the top priority given to funding requirements for upstream oil and gas development. Tehran spent $5 bn on petrochemical projects in the first five-year plan from 1989 to March 20, 1995, with the focus on meeting local needs. However, state funding for petrochemicals in the second plan, 1995-2000, was reduced to $1.8 bn from more than $4 bn because of a financial crunch. This amount had been labelled "insufficient" by Rahgozar in June 1996. The government had calculated that, because the second plan expansions would focus on exports, foreign companies would be more interested in making investments. But US pressure on foreign companies doing business in Iran had a negative effect, and Iran's relations with Europe took a long time to recover from the strain caused by a German court ruling on April 10, 1997, that top Iranian leaders were involved in ordering assassinations of exiled Kurdish dissidents. NPC's priority projects in the first phase of the 1997-2010 plan are the following: - A 660,000 t/y methanol plant and a unit to produce 50,000 t/y of acetic acid, both being built on Kharg island. They will be using offgases from the Kharg petrochemical complex. Initial work on the plants had begun in 1994, with Lurgi having done the basic engineering and provided the licence. Detailed engineering was done by local contractors, because NPC could not get foreign companies to be involved in this project. Construction by local contractors began in 1995, with an initial investment of $250m, and was to be completed before end-1998. But work was delayed because of a lack of funding and could be completed in 1999. About two-thireds of the methanol will be exported and the rest will be supplied to a planned Bandar Imam MTBE plant. - A 160,000 t/y polyxylene plant and a 307,000 t/y olefins unit at the Bandar Imam (Khomeini) complex. Initial work on them began in 1997 and the plants should be completed in early 2000. - A 660,000 t/y MTBE plant at the Bandar Imam complex. Initial work on this has begun under a $150m contract awarded in March 1998 to a partnership of Iranian contractor Petroleum Industries Design & Engineering Co. (Pidec) and Spanish company INITEC. NPC hopes to get a foreign company involved in this project either as a buy-back partner or through another formula. - An engineering polymers plant, with the capacity to be negotiated with any qualified foreign company interested. - A 295,000 t/y PTA/PET plant, for which basic engineering was done in early 1998 by Tecnimont of Italy and Zimmer of Germany. The two companies also bid for detailed engineering and supply of equipment. - A 70,000 t/y PVC plant, to cost $226m, with the state-owned NIIO as the partner of NPC. This is to be a JV with a foreign partner or to be implemented on a buy-back basis. - A 530,000 t/y ethylene cracker and olefins derivatives plant in the Bandar Imam SEZ. These combine the originally planned olefins-6 and olefins-7 projects. A DM300m ($164m) contract for cracker was awarded in March 1998 to a partnership of Linde of Germany and Iran's Oil Industries & Construction Engineering (OIEC). Related to this is a 140,000 t/y HDPE plant for which design work was awarded in March 1998 to Pidec and Spanish Intecsa-Uhde which uses the German Krupp Uhde technology. - A 170,000 t/y LLDPE plant and 225,000 t/y ethylene glycol unit to be built at Bandar Imam's SEZ. In addition, the ministry of industries has a list of projects which is open to foreign investment, through joint venture or buy-back arrangements. These include small scale petrochemical projects: - A 36,000 t/y PET plant, with Aryan Chimi Private Co. as the local partner, involving an investment of $22m. - A 20,000 t/y petroleum resins plant, with a state-affiliated company as the local partner, involving $5.2m in investment. - A 50,000 t/y MTBE plant, requiring $21.7m in investment. - A 15,000 t/y butyl rubber plant, with the project to cost $28.3m. - A 10,000 t/y poly-isobutylene plant, using MTBE as feedstock, in a project worth $21.7m. The MTBE, butyl rubber and poly-isobutylene plants would involve NIIO as the local partner. Kermanshah Petrochemical Industries Co. in 1996 reached an agreement with a consortium of German and South Korean companies based in Dubai to build a fertiliser complex at a cost of $600m. The plant is to produce 1,000 t/d of ammonia and 1,500 t/d of urea. Another fertiliser plant, to be built on the Qeshm island free zone, has been discussed for years. Its proposed output of 1,350 t/d of ammonia and 2,200 t/d of urea is to be exported to India. Partners in the venture are the Indian Farmers Fertiliser Co-operative and Krishak Bharati Co-operative, each of which hold 30% equity, while the Qeshm Free Area Authority has the remaining shares. The Indian side has said that proposals for $300m in financing have been submitted to international banks, but whether this will materialise in view of US pressure against any lending to Iran remains to be seen. Feedstock for the plant will come from Qeshm gas fields and from Iranian onshore fields near Bandar Abbas. One of the reasons why the project is delayed is the pricing, with the Indian partners initially insisting on a 10-year fixed price. In 1996, they agreed to a five-year term, at a price of $0.75/m BTU. The rationale of the project, proposed in the early 1990s, was for the Indian companies to have access to very cheap gas. Petrochemical expansions should involve the private sector as well. The current plan envisages $1.5-2 bn in private hard currency investment, with Iranian companies urged to build plants to process NPC's base chemicals. And partly to encourage the private sector, the government insists that foreign companies involved in Iran must sub-contract at least 30% of their work to Iranian companies. They must contract Iranian specialists for ancillary work as well as purchase local equipment. However, the response of the private sector has not been as enthusiastic as the government has hoped, due to a worsening of the financial crisis in recent years.