Following a debate in the Iranian parliament, the Majlis, on the value to the country of buyback contracts involving international oil and gas companies, Iran’s Expediency Council has rescued the program from a freeze advocated by the Council of Guardians.
The Expediency Council, Iran’s highest legislative court of appeal, overruled a decision by the conservative Council of Guardians that the buyback program, central to reformists’ moves to align the Iranian economy with the outside world, supported a form of interest forbidden by Islam.
On 11 February state TV quoted Mohsen Rezai, the Secretary of the Expediency Council, as saying that the council had accepted the validity of the buyback program among a number of decisions overriding Council of Guardians demands in approving the budget for the Iranian year beginning 21 March.
The decision marks the end to a Majlis debate which has effectively halted progress on negotiations between the National Iranian Oil Company (NIOC) and international petroleum companies since the end of November.
The decision by the new Majlis, formed after the elections in Spring 2000, to debate the whole worth of the buyback contracts was a key factor in delaying the expected awards of the Darquain, Cheshmeh Khosh and Ahwaz-Bangestan oilfield development projects until the new budget year (MEES, 27 November 2000).
The Expediency Council’s verdict is also expected to enable NIOC to proceed with a number of changes to the buyback contract which will affect all the deals under discussion.
The improved terms are intended to benefit both investors and Iran, but the decision to update the contract has been another factor putting a brake on progress.
The Darquain oilfield development was assigned to Italy’s Eni last spring (MEES, 29 May 2000), while the Cheshmeh Khosh oilfield gas reinjection project was allocated to Spain’s Cepsa at the time when responsibility for the buyback program was transferred from the Oil Ministry to NIOC subsidiary PEDEC (MEES, 18 September 2000).
Shell, Eni, TotalFinaElf, Lasmo and BP submitted bids for the massive Ahwaz-Bangestan gas injection projects, intended to boost oil output from the aging Ahwaz, Ab-Teymour and Mansouri oilfields (MEES, 25 September 2000).
MEES soundings indicate that none of the companies negotiating with NIOC for these and other exploration and production projects have so far been informed of what changes will be made to the buyback contract, although changes are confidently expected.
The international companies have not been given any indication by NIOC of when they can expect to hear the new conditions, or what is the current timetable for awarding the two allocated contracts and the ‘fast track’ Ahwaz-Bangestan projects.
MEES understands that the $5bn allocated to NIOC for buyback contracts under the current budget will be rolled into the next Iranian year, but that the company must apply for approval of the outlay at the new dollar-rial official exchange rate set in the budget.
MEES also understands that the sidetracking of progress by the Majlis debate on buybacks has caused considerable frustration among international companies.
The general feeling is that PEDEC has made significant progress in advancing the projects since it assumed responsibility, but that the Majlis diversion was a result of the new members of parliament flexing their muscles.
There is concern that while the reasons for the introduction of buybacks in the first place is not understood by many Majlis members, the issue makes a convenient and emotive weapon in the power struggle between conservatives and reformists.
However, the Iran Daily newspaper of 14 February reported that Ali Hashemi, a member of the Majlis Energy Commission, said that with the buyback and finance regulations approved, investment in Iran would be attractive to international companies.
The newspaper quoted Mr Hashemi as saying that the Majlis will soon ratify a specific foreign investment plan and that direct investment in Iran would help solve many problems, including unemployment and economic recession.
With the Majlis debate out of the way, both international investors and NIOC appear keen to move negotiations along.
One source said that NIOC is working to award the Darquain and Cheshmeh Khosh contracts and to announce the winner or winners of the Ahwaz-Bangestan projects before the Iranian presidential election on 8 June.
Even more optimistically, the official news agency IRNA reported on 13 February that the Oil Ministry is looking to allocate 17 oil and gas buyback contracts in the coming months.
The agency quoted Deputy Oil Minister Hojjatollah Ghanimifard as saying that the projects to be awarded or allocated would include the Ahwaz-Bangestan, Cheshmeh Khosh, Dehluran, Sarvestan and Sirri C and D oilfield projects, as well as Phases 9-12 of the giant South Pars gasfield (for details of the oilfield projects see MEES, 6 July 1999; for South Pars Phases 9-12 see MEES, 4 September 2000).
Meanwhile, government officials have spoken on a number of occasions since the intention to change the buyback contract was first announced about what changes to the buyback legislation are being considered. Proposals include:
New clauses penalizing operators who do not achieve production targets and rewarding those who exceed targets;
Extended participation in projects by international companies, beyond handover to NIOC, to improve commitment by and incentives for international partners;
A shift towards conventional engineering, procurement and construction (EPC) contracts, under the supervision of Iranian operators, rather than buybacks under the control of international operators;
Encouragement of improved technology transfer and the use of state-of-the-art techniques and equipment;
Introduction of a “purchase lever” to encourage local production of some 10 types of equipment and supplies which comprise about 70 percent of current purchases from international suppliers;
The offering of bank credits with low interest rates for projects that promote technology transfer and the use of local services.
Since the bidding for the Ahwaz-Bangestan fields work, Lasmo has been taken over by Eni, the transfer being officially concluded on 2 February.
Eni submitted bids to work in all three Ahwaz-Bangestan fields in an integrated project or to develop Ab-Teymour alone, while Lasmo bid to develop Ab-Teymour alone.
NIOC has not yet decided whether to opt for an integrated development by one operator or for a consortium approach with each field assigned to one operator, although recent reports suggest the separate projects approach is most favored. Lasmo’s bid is understood to be a strong contender and will be retained as one of the options offered by Eni.
(mees)
© 2001 Mena Report (www.menareport.com)
