Iran's Western Provinces Will Have Five Petrochemical Plants.

Five relatively poorer western provinces in Iran - Lorestan, Kermanshah, Kurdistan, Western Azerbaijan and Kohgilooye/Boyer-Ahmad - will each have a petrochemical plant to be fed with ethylene by a pipeline loop to be built starting from the major ethylene production zone of Asaluyeh on the Persian Gulf coast facing the offshore South Pars gas field. The main source of ethylene will be the 1.2 million tons/year Olefins-11 cracker to be built at Asaluyeh, for which commercial bids opened on Dec. 15.

All five plants' companies will be fully-owned units of a western firm yet to be established as a partly-owned affiliate the state-owned National Petrochemical Co. (NPC). This will be called Gharb Petrochemical Co. (GPC). GPC will be in charge of buying the ethylene and supplying it to the five plants, as well as of arranging project finance for them mainly out of the cash resources of its shareholders. The five companies and their plants will be as follows:

Lorestan Petrochemical Co. at Khoramabad, with its plant to have a capacity of 300,000 t/y of linear high-density polyethylene (LHDPE). Like the other four western provinces, Lorestan has a high rate of unemployment which has caused many of its inhabitants to migrate to Tehran or other major urban centres.

Kermanshah Polymer Co., with its plant to produce of 300,000 t/y of high-density polyethylene (HDPE).

Kurdistan Petrochemical Co. at the provincial capital of Sanandaj, with a plant to produce 300,000 t/y of low-density polyethylene (LDPE).

Mahabad Petrochemical Co. in Western Azerbaijan, with a plant to produce 300,000 t/y of LHDPE.

Gachsaran Petrochemical Co. in Kohgilooye/Boyer-Ahmad Province, with two plants - one to produce of 400,000 t/y of mono-ethylene glycol (MEG) and another for 100,000 t/y of polyethylene products.

GPC will be owned 30% by NPC , 20% by the Oil Ministry's pensions funds, 10% by Arak Petrochemical Co., 5% by Bank Melli's International Investment Co., 5% by the Social Security Organisation, 5% by the Pension Funds Investment Co., 5% by Ghadir Investment Co., 5% by Petrochemical Investment Co., 5% by Modaber Investment Co., 2.5% Iran Industrial Development Co., and 2.5% by Rena Investment Co.

Additional feedstock will be supplied to the five plants from excess ethylene capacity at Assaluyeh and/or Bandar Imam. The pipeline loop, to run about 1,500 kilometres with diametres of 10 and 20 inches and up to six pumping stations, will allow any shortfalls in capacity at either of the two main ethylene production zones - Asaluyeh and Bandar Imam to the north - to be covered by spare capacity at the other.

Originally, the planned Olefins-12 cracker was to be the source of ethylene for the five western plants. But NPC finally chose Olefins-11 because this project is more advanced, while Olefins-12 is at an earlier stage of the tendering process.

However, Olefins-11 is facing further delays due to a lack of a clear base price for the EPC contract, as in the case of Olefins-8 which is to be built at Bandar Imam. In addition, there are differences between NPC and the bidders over several technical issues relating to the state requirement that all EPC contracts must be given to local engineering companies in partnership with foreign firms (see below). As a result, the projects will be delayed for months.

The bid prices for the Olefins-8 and 11, offered by four consortia, will not be announced until all these issues have been resolved. One of the most complicated issues is NPC's requirement that liability in any EPC contract must be shared by all the partners involved, including the foreign companies. But the latter have complained that, while they are doing most of the work, the weight of the liability is not matched by their status in the contracting consortium.

Only Technip and Linde have agreed to share liability with their lead partners - the local Nargan with the French company and the local Sazeh with the German firm. The other two bidders for the two crackers could not secure a pledge of liability sharing from their US-parented process providing partners: Petrochemical Design & Engineering Company (PIDEC), with technology to be licenced by European unit of ABB Lummus Global; and Namvaran Engineers Consultants, with the process from a European unit of Shaw Group.

Both US-parented companies refused to share liability unless their share of the contract price was high enough to cover the risks entailed in implementation of the local's projects. But PIDEC and Namvaran could not raise their partners' share of the EPC job and compete with the other two bidders at the same time.

On the Iranian side there have been complaints that US-parented companies have less confidence in the technical capabilities of local engineering companies than in the case of their European counterparts.

MEED noted on Dec. 17 that a similar issue over liability had complicated price comparisons for the South Pars Phases 15-16 gas development project, saying that international contractors were concerned they would not be able to compete effectively in future NPC projects if the trend continues.

By law in Iran, all engineering projects must be given to local companies as lead contractors. But in practice foreign contractors carry out most of the complicated the work through joint venture partnerships with local firms.

An important additional factor is that international EPC contractors are no longer as eager to compete for projects in Iran or elsewhere in the Middle East as they used to be in the 1990s; and to them, particularly to US-parented companies, Iran is less attractive than countries on the Arab side of the Gulf. This is why the two LNG trains of QatarGas-II last week went for $4 bn to a partnership of Technip and Chiyoda Corp (see Gas Market Trends of this week).

PIDEC bid $267m for Olefins-8 and $311m for Olefins-11. Olefins-8 will have a capacity of 1 million t/y of ethylene; and the complex will include units to produce ethylene dichloride (EDC), vinyl chloride monomer (VCM) and polyvinyl chloride (PVC). It will be operated by NPC subsidiary Arvand Petrochemical Co.

Sinopec Low Bid For Ilam Cracker Worries NPC: The state-owned Sinopec of China has bid $310m for a 318,000 t/y cracker to be built in Ilam. NPC, however, is worried that Sinopec has not done a job of this size and technical complexity in Iran before and is offering lower equipment and engineering costs than in the case of the other bidders for the EPC contract.

Sazeh with Linde bid $375m. Nargan with Technip bid $415m. The project will use ethane and C3+ feedstock provided by National Iranian Gas Company (NIGC) and will be used to supply downstream units including HDPE.

Yet Tehran cannot afford to upset the Chinese company. As part of MoUs signed between China and Iran on Oct. 29, Sinopec has agreed to import 10 million t/y of LNG for 25 years. It will also prepare a master development plan for Yadavaran, a 17,000m barrel structure combining the Kushk and Hosseinieh oilfields.