IRAN's petrochemicals industry has had a good year. Many projects awarded in recent years finally received clearance in 1999 from financing banks, and the National Petrochemical Company (NPC) was able to move to the next stage of development based on buy-back investments.

The country's ambitious plans for the petrochemicals sector are laid out in five phases ending in 2013. By then, annual output of petrochemicals is supposed to more than double to 30 million tonnes.

Including projects finalised in the past two years, the total amount of investment NPC hopes to secure by 2013 exceeds $20,000 million. And the bulk of that sum is supposed to come from private investors at home and abroad.

NPC was in late 1999 trying to tie up the loose ends of the so-called combined phases one and two, which list a total of 10 projects, requiring $2,200 million in hard currency.

Most recently, in October, NPC picked a group led by Snamprogetti of Italy for the third methanol plant in Bandar Khomeini. The facility is to have an annual capacity of 1 million tonnes.

This would leave only the linear alkyl benzene 1 (LAB 1) project to be tendered from phases one and two. The relatively small LAB scheme, with an annual capacity of 50,000 tonnes, is delayed because of a change in the planned site to Abadan from Bandar Abbas.

Construction work has yet to start on a handful of other projects in phases one and two, but these are either in the final stages of tendering or financing. The second polyethylene terephthalate/purified terephthalic acid (PET/PTA 2) plant is under tender but should be awarded before the end of the year.

In mid-1999, more than $500 million worth of contracts signed in the previous two years for combined phases one and two were activated, thanks to the resumption of insurance cover from European state export credit agencies.

These included the first PET/PTA 1 facility at the Bandar Khomeini special zone with a total annual capacity of 762,000 tonnes. Lurgi Zimmer of Germany will be building the PET plant while South Korea's Daelim Engineers & Construction Company will be handling the PTA portion.

The third aromatics project has gone to Tecnicas Reunidas of Spain, as part of a$240 million package, while Salzgitter of Germany and Poland's Polimex Cekop will be building an engineering polymers plant.

Contracts for various units of the sixth and seventh olefins project were also finalised with European companies including Linde of Germany, the Spanish/German partnership of Intecsa-Uhde and France's Technip.

Efforts to launch phase three of the five-phase programme started in November with the opening of bids for the 8th olefins facility, a turnkey project that will cost $1,000 million, including downstream operations, and is to have an annual capacity of more than 1.1 million tonnes.

Contenders are a partnership of JGC Corporation of Japan and Technip; ABB Lummus Global BV of the Netherlands and Linde.

The presence of the Lummus name provides added interest in that it suggests that the firm, which has indirect US ties, does not expect to be penalised by Washington for violating US sanctions. And, indeed, other US firms such as Stone & Webster and The MW Kellogg Company, both of which have the necessary technology, are known to be following the bidding very closely. A source at Stone & Webster says the company hopes that US sanctions will ease in time for the company to take part in the 8th olefins scheme.

Phases four and five of the strategic plan, taking overall output to more than 30 million tonnes a year (t/y), are still on paper and may be radically modified in line with NPC's offer in 1999 to review products in line with private investors' requirements.

Phase three, which is now the centre of attention for foreign investors, consists of the 8th olefins scheme and four other projects with a capital requirement of $7,250 million, of which $3,790 million is to be in hard currency.

Initial plans from the mid-1990s were changed in 1998 to re-site four of the projects at Bandar Assaluyeh to take advantage of earlier than anticipated feedstock from the offshore South Pars gas field now under development. Assaluyeh will be the onshore treatment and distribution centre for up to 25,000 million cubic feet of gas a day from South Pars.

The capital needs of NPC and its various offshoots, which act as independent companies, have forced the authorities to open up the industry to private funds, especially from abroad. Three international presentations have been held since 1997, and Dresdner Kleinwort Benson provided recommendations in 1999 on the best ways of raising international finance.

NPC head Mohammad Reza Nematzadeh says the organisation wants to privatise all its operations, only maintaining minority shareholdings in various upstream activities.

London listing possible

The company has in mind a wide range of options. Buy-back arrangements and joint ventures are the basic vehicles, but NPC has approval to resort to the international bond market and stock exchanges. The first listing may appear on the London exchange - if negotiations started in 1998 are successful.

Foreign investment legislation has been under review by the government for some time, but officials insist the legal essentials are in place. Sources say NPC is now working closely with international lawyers to identify areas of the legislation which can be improved in the short term. More basic legislative changes may be possible, but these would be part of a longer-term political process requiring prolonged parliamentary consultation.

Experts are telling NPC to capitalise on Iran's advantages, focusing on, for example, the low cost of feedstock. NPC's best chances in the short term are through traditional bank financing, with access to international debt markets a medium-term solution, and use of international equity markets something for the long term.

A European investment bank, possibly French, is holding talks with NPC on a financing formula which could become a new model for the company to raise funds abroad, sources say.

The late-1999 announcement by Bank Markazi (central bank) of plans to ask parliament for approval of a $300 million Eurobond issue should also ease the way for NPC to carry out similar exercises.

Privatisation, at the top of NPC's and the government's priorities, has been slow in producing results. Since 1995, three small plants at Abadan have been put under a semi-autonomous NPC subsidiary, while the Kharg, Isfahan and Arak petrochemicals companies have been floated on the Tehran Stock Exchange. But even the listed firms are majority owned by NPC and commercial state banks.

Clearly, economic reforms will have to be speeded up if NPC is to attain its ambitious production target of more than 30 million t/y by the end of the strategic development plan. Even in the shorter term, by 2005, NPC hopes to double Iran's share of Middle East production to 30 per cent, quadrupling its share of world production to 2.1 per cent.

Iranian officials have long been counting on petrochemicals to provide significant export revenues as part of the country's general effort to reduce dependence on crude oil exports for hard currency. Petrochemicals exports have reached nearly $600 million a year. Projected annual export revenue of $5,400 million by the middle of the next decade would appear to be somewhat optimistic.

Nevertheless, NPC is ending this decade on a positive note as it takes advantage of new finance and export credit lines to finalise pending contracts and tender new projects.

'Iran is once again becoming one of the more important markets for us,' says a European engineering company. And for now, while US companies are sidelined by sanctions, the Europeans, with the Japanese and South Koreans, have the field to themselves.