Petchem talks with foreign investors continue

SHANA | Negar Sadeqi: Despite the United States’ withdrawal from Iran’s 2015 nuclear deal with six world powers, negotiations between Iran’s National Petrochemical Company (NPC) and foreign companies are going on.

Hossein Ali-Morad, NPC investment chief, says no company has officially announced quitting cooperation with Iran. “Of course, cooperation has been suspended, but communications between these companies and NPC are still under way,” he added.

“Under the current circumstances, foreign companies expect us to facilitate their presence [in Iran], but we have reminded them of the fact that our request is bilateral; if they believe that Iran is the best market for them they had better take steps and urge their own governments to create a better atmosphere for cooperation with Iran,” said Ali-Morad.

Iran is determined to push ahead with the development of its petrochemical industry, without or without foreign companies. Iran’s relative advantage in hydrocarbon resources and big investment made in this sector in the past years have accelerated the rate of return on investment in the petrochemical sector.

That, along with self-sufficiency in some sectors of this industry, has grown into the undeniable incentives of the petrochemical industry in Iran.

Ali-Morad said 15 foreign companies rushed to Iran for negotiations immediately after Iran struck the 2015 deal with the world powers. “13 MOUs were signed by NPC and foreign companies for investment in this industry. Had these talks ended in agreement at least $15 billion in foreign direct investment would have been made in Iran’s petrochemical industry.”

“But the US’s unilateral withdrawal from the JCPOA (the official title of the agreement) complicated the conditions for the presence of foreign companies in Iran,” said Ali-Morad.

He said: “Asian nations like China and India did not follow the US government’s unilateral policy [of re-imposition of sanctions on Iran] in November and therefore Asian companies have not yet suspended their talks with Iran.”

“However, European companies are still waiting for the outcome of their governments’ talks with Iran and are seeking mechanisms like SPV (special purpose vehicle) in a bid to remain immune to the impact of US sanctions,” he added.

Ali-Morad said some smaller European companies had remained silent under such circumstances and were looking for options to continue cooperation with Iran.

The US sanctions waivers to eight countries to buy Iran’s oil would give green light to European companies that have set conditions for cooperation with Iran. “In other words, through their governments they can pressure the US government and win sanctions waiver,” he said.

No Adieu

As soon as the US pulled out of the JCPOA, rumors swirled of the end of cooperation between NPC and foreign companies.

“None of companies with which we were in talks have officially announced the end of their cooperation with Iran; however, they have either set conditions for their cooperation or suspended their cooperation,” said Ali-Morad.

Asked if European companies would terminate their talks with Iran, he said: “I don’t think so. I feel that all of them are waiting to see what SPV-style mechanisms would be envisaged by the European governments for cooperation with Iran or privileges they would win or if they would be able to win US sanctions waiver.”

The last sanctions imposed on Iran were of international type, but this time the US has unlawfully and unilaterally sanctioned the Islamic Republic.

Therefore, the conditions are totally different this time as the US sanctions give more room to Iran and its trading partners for maneuvering in a bid to find a way to circumvent the sanctions.

“We and our foreign partners are looking for a way to skirt around the sanctions,” said Ali-Morad.

He said both Iran and European companies had to make efforts to find facilitating mechanisms.

“Some time ago, the manager of a foreign company had travelled to Iran to appoint his new representatives and introduce him to the CEO of NPC. I told him: ‘In our meetings, you constantly tell us you look at Iran’s market and you are trying to export chemicals from Iran to global markets. But how come you are only expecting us to find a way to circumvent the sanctions? You must also benefit from your own tools and negotiate with your own governments and ratchet up pressure on them to find a mechanism to get around the sanctions’.”

Economic Risk Reduction

Iran says there are still many incentives for investment in the petrochemical sector despite the US imposition of sanctions. That would encourage investors to view the petrochemical industry as an option with a high rate of return on investment.

NPC can ensure investors that they could invest in the petrochemical industry without having to worry about anything. However, one cannot ignore the impact of US sanctions on the slow pace of talks for investment in this industry.

“As far as investment guarantees are concerned, apart from the issue of sanctions which is the political risk of a project, we have to help investors manage their economic risks and contain them. We create economic incentives for them in order to push them to invest in the petrochemical sector,” said Ali-Morad.

Incentives

The projects offered for investment are set to be implemented in areas where domestic and foreign investors would benefit from maximum discounts.

For instance, if the rate of return in a project is 18%, the figure could be increased to 20% by offering discount in the feedstock price. That would encourage foreign investors to envisage investment in Iran’s petrochemical industry because outside Iran they may even be content with half that figure.

The discount in feedstock prices considered for investors would be in line with regulations.

In case investors invest in underdeveloped or underprivileged areas, they would enjoy a 30% discount, which is the maximum discount granted.

Another possibility for foreign investors is that they can present their own plans in light of domestic, regional and international markets. “Of course, such facility is also available for domestic investors,” said Ali-Morad.

Another option, he said, would be to provide infrastructure in areas where petrochemical projects would be implemented.

“Following fulfillment of such infrastructure in the hubs with potential for petrochemical development, investors would be assured that the government favors development of that particular area and implementation of petrochemical projects,” he said.

“For instance, Iran’s Petroleum Ministry is managing the projects so as to accelerate the creation of infrastructure. Domestic and foreign investors also push ahead with their activities in light of the infrastructure,” he added.

Ali-Morad said either the Petroleum Ministry or NPC could fund the infrastructure.

“In case any investor is ready to build infrastructure in a specific area, it would be supported by NPC or the Petroleum Ministry. The required facilities would be provided to that company and it could finally generate revenue through these services,” he added.

Projects Ready for Investment

A total of 105 projects have been envisioned for investment in the petrochemical industry, 41 of which are new.

“Unfortunately, over 90% of these 41 projects have had less than 10% progress due to numerous problems including financing,” said Ali-Morad. These projects are estimated to need about $55 billion in investment for completion.

“If we assume that domestic investors would account for 20% of the aforesaid sum, i.e. $11 billion, the remainder has to be financed by the private sector through our planning and assistance,” he added.

Another 64 projects have had over 20% progress. NPC is looking for short-term and mid-term mechanisms and is focusing upon domestic financial resources in order to finance these projects and help investors complete them. The top priority goes to the 15 projects which have had over 70% progress.

“My colleagues are focusing on the management of these projects in order to enhance and assist the Iran’s economy,” said Ali-Morad.

“If our negotiations with 13 foreign companies yield results, at least $15 billion in foreign direct investment would be attracted into this industry,” he added.

Asked about how much investment had been attracted into the petrochemical industry since President Hassan Rouhani took office in 2013, he said: “Over this time, about IRR 200,000 billion plus $10 billion has been invested by the private sector in the petrochemical industry and the projects are currently under way.”

Financing and Investment

Ali-Morad said financing by foreign companies would not be considered as foreign investment.

“I personally do not see financing as foreign investment,” he said.

“Of course, at present $4-5 billion in Asian financial credit line has become effective, which private sector projects are using,” he added, noting that the credit lines became effective under the Rouhani administration.

Petchem Investment Trend

Everything starts from planning for the development of petrochemical industry. Planning for development is based on the two main parameters of available feedstock and demand, involving international markets, regional markets’ needs as well as domestic needs. For instance, it is important to know which areas contain naphtha, where natural gas could be delivered or how the demand for chemicals and polymers is in Iran.

Ali-Morad has not bound his view to the domestic market.

“Iran has 13 neighbors, each of which is considered as export potential. Therefore, in addition to Iran’s 80-million-odd market, we have 13 neighbors. Therefore, we have to find ways to supply the needs of a 400-million-odd market in the region,” he said.

“Our geographical or geopolitical situation is one of our means for neutralizing the US unlawful and unilateral sanctions,” he said.

However, petrochemical industry market development is not limited to domestic and regional markets. Iran is currently exporting petrochemicals to Far East, too as there are major buyers for Iran’s petrochemicals and polymers. Therefore, Iran’s market is facing a multibillion-strong growing market that can push investors to invest in this industry.

A stable and reliable market requires spatial planning. That would help provide information about areas where petrochemical projects would be profitable. For domestic market, the areas where petrochemical industry must be developed must be known. And for the development of exports and growth on the international scene, hubs which are selected are required to have access to high seas.

“Combining our market data with our objectives in production and getting to know our target markets for selling our products would lead us to a strategic planning out of which will be born the needs for investment. That is known as investment opportunity,” said Ali-Morad. “Now if the investors refer to us for investment in the petrochemical industry or show inclination for investment we will lead them towards projects which are in compliance with the Petroleum Ministry and NPC strategic plans.”

Domestic vs. Foreign Investment

Iran’s top priority for financing and implementing projects is attracting foreign investment. Petrochemical industry is no exception and the reason is clear as domestic resources would have the least engagement in the implementation of projects.

Ali-Morad also touched on another reason for favoring foreign investors over domestic investors, saying: “Foreign investors automatically do civil defense work for us in the region because the presence of foreign investors would reduce the possibility of threats.”

Asked if the presence of foreign investors would zero threats, he said: “No, the likelihood of threats will not be reduced to zero, but it will be reduced because a foreign investor comes with capital and that reduces the possibility of international threats.”

“We look differently at domestic and foreign investors. We give some privileges to foreign investors, but that does not necessarily mean that domestic investors are of lower significance to us. It must be taken into consideration that under the current circumstances our top priority is to rely upon domestic resources and investors,” added Ali-Morad.

“However, we are looking at foreign investors differently and we try to encourage them in the first place to account for the implementation of projects by themselves and then to implement projects in partnership with Iranian investors,” he said.

Diversity in Projects

Iran’s rich gas resources and gas-based technological progress in the petrochemical sector provides Iran’s petrochemical industry with the chance to envisage a variety of projects for implementation. That empowers investors to choose between the projects based on their objectives for investment. Naturally, the projects which are based on gas feedstock are welcomed further for investment. However, the Petroleum Ministry has mainly focused on the completion of value chain in its projects. NPC is pursuing the same strategy. That means NPC’s top priority is to finance projects feeding the petrochemical industry, including liquefied natural gas (LNG) projects. In fact, implementation of these projects results in feeding several petrochemical plants. However, a project may be 30% complete, but it is prioritized by NPC in implementation due to its benefits for other petrochemical units.

Ali-Morad referred to his talks with foreign companies for transferring value chain technology like methanol, saying: “At present, with the assistance of Petrochemical Research and Technology Company (PRTC) and a foreign company, we have made good progress in bringing in the technology to continue the methanol chain and we hope that the technology for this product would be indigenized in Iran soon so that we would no longer depend on importing it.”

Absolute Hopefulness

The US’s unlawful and unilateral sanctions have slowed the pace of attraction of investment in Iran. However, Ali-Morad said: “I am 100% hopeful in the future of investment in the petrochemical industry.”

“We are currently under US unlawful and unilateral sanctions. Anytime I am in talks with domestic banks, they say the petrochemical sector is the only industry which can reliably and sustainably generate hard currency,” he said.

“They are assured of the return of resources engaged in this industry and that means the future of investment in this industry is bright in light of the high rate of return on investment and reliance on domestic resources,” said Ali-Morad.