Iran’s national gas company said it is facing collapse, the latest sign of deepening economic distress from international sanctions as Tehran seeks urgent relief in talks with world powers.
The chief executive officer of state-owned National Iranian Gas Company, Hamid Reza Araghi, said over the weekend that the company has declared bankruptcy, according to the semiofficial Mehr news agency. The report said the company had a debt of 100 trillion rials, or about $4 billion.
The company tried to backtrack on the comments Monday. Majid Boujarzadeh, a spokesman reached by phone, denied it was bankrupt. But media reports also quoted Iran’s oil minister, Bijan Zangeneh, as saying the gas company “is destroyed.”
The sanctions, aimed at preventing Iran from developing a nuclear weapon, have devastated the country’s critical energy industry. While gas is a relatively small income generator, oil exports, a major revenue source, have been slashed by nearly half since the beginning of 2012.
“Iran’s economy is out of breath,” said Fereydoun Khavand, an economist and Iran expert based in Paris. “They’ve always had mismanagement, but they were able to ward it off with oil revenues. Now their pockets are emptying out fast.”
In Washington, lawmakers have cited the effectiveness of sanctions in arguing for intensifying them. However, President Barack Obama has invited senators to meet on Tuesday as the White House increases pressure on Congress to back the negotiations with Iran.
Iran sits on the world’s second-largest gas reserves, estimated at about 15% of the world’s total. It exports to Turkey, Armenia and Azerbaijan. Gas revenues were estimated at about $10.5 million per day in 2012, a fraction of what Iran earns from oil.
Sanctions have forced the country to curb natural gas projects such as expansion of pipelines and dashed hopes of exporting to Europe.
European Union sanctions in 2010 blocked Iran from receiving all technology used in exporting liquefied natural gas, including tankers for transport. As a result, all LNG projects in Iran stalled and the country can only export by pipeline, which accounts for a fraction of natural gas sales.
According to the U.S. Energy Information Administration, Iran’s proven gas reserves stood at 1,187 trillion cubic feet at the beginning of the year. If sanctions are removed and Iran is able to develop its gas fields, Iranian officials say the country could earn as much as $130 billion a year from natural gas sales—surpassing oil revenues.
Sales of natural gas aren’t barred under sanctions. But the industry has been hampered as foreign companies such as Shell and Total pulled out of developing gas fields such as South Pars, which lies 2 miles under the Persian Gulf between Qatar and Iran. About 38% is under Iranian territory, and Iran has watched Qatar develop its side and earn lucrative revenues.
Iranian firms taking over projects, many of them affiliated with the powerful, hard-line Revolutionary Guard Corps, have trouble securing loans and buying equipment and drilling rigs.
In addition to the sharp decline in oil exports, banking sanctions have frozen tens of billions of dollars in oil export payments in accounts overseas that Tehran cannot access. The currency has lost about half its value compared with the dollar over the past two years and inflation is above 40% annually.
Iran is about to embark on a new round of negotiations with world powers over its nuclear program in an effort to win relief from the punishing sanctions. Economic survival is seen as the driving force behind Iran’s new diplomacy.
The talks are set to begin in Geneva starting Wednesday. In the last round of negotiations two weeks ago, a near deal fell apart after France insisted that Iran offer more concessions in exchange for sanctions relief.
On Tuesday, Mr. Obama will meet with the chairmen and ranking members of the Senate Banking, Foreign Relations, Armed Services and Intelligence committees, White House press secretary Jay Carney said.
Senators for months have been poised to adopt more stringent sanctions, but have held off at the president’s insistence. Israeli leaders have considerable influence in Congress, however, and many lawmakers have been pressing to move ahead with new sanctions, a step administration officials have opposed.
Iran insists that its nuclear program is for peaceful energy purposes while the U.S. and its allies suspect that Iran is secretly building nuclear weapons.
Iran’s new nuclear negotiating team, led by Foreign Minister Javad Zarif, has said Iran is willing to compromise in exchange for a phasing out of sanctions.
Mr. Zarif has said that Iran would be willing to temporarily freeze or reduce its uranium enrichmentcurrently at 20%if the West recognizes Iran’s right to a nuclear program and if it offers substantial sanctions relief.
Iranian officials attributed the downfall of the state-owned gas company to economic mismanagement and failed reform policies of former President Mahmoud Ahmadinejad.
Earlier this month, Mr. Araghi said the former government took large amounts of cash from oil and gas revenues to replace energy subsidies with cash payments to Iranians.
Mr. Araghi, the head of the national gas company, was quoted by Mehr as blaming the company’s troubles on the failure of a subsidy-reform program.
“The failed execution of the subsidy reform plan has created significant problems for the country’s energy sector,” Mr. Araghi was quoted as saying.
He said the ministry of oil and the parliament’s energy and finance committee were intervening to restructure the gas company’s financial assets. The company is now asking the government to allocate funds for it in next year’s budget, media reports said.
Mr. Araghi’s comments were widely distributed on Iranian media sites as the latest sign of a deteriorating economy burdened with international sanctions and mismanagement. Conservative media lambasted him for exposing the country’s vulnerability ahead of a second round of nuclear talks.
Fars News Agency, affiliated with the Revolutionary Guards, said such comments were fodder for “Western media,” and blamed the gas agency for mismanaging its own funds.
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