The BIGGEST grassroots oil refinery under construction in the world is going up near Bandar Abbas, on the Strait of Hormuz. When it starts processing 232,000 barrels a day (b/d) of crude and condensate in early 1997, the Bandar Abbas refinery will add about one-quarter to total refining capacity and fill a large gap in the country's supply of middle distillates.

The erection of the $1,600 million facility has not drawn much attention abroad, perhaps because foreign firms have been playing a limited role. For the first time in Iran, local contractors and engineers are in charge of building a grassroots refinery, acquiring the skills needed for similar projects planned within and outside the country.

The National Iranian Oil Engineering & Construction Company (NIOECC), the National Iranian Oil Company (NIOC) subsidiary in charge of erecting the Bandar Abbas refinery, is now doing the basic engineering for the long-delayed Bandar Assaluyeh condensates refinery. Initially a turnkey project sited at Bandar Taheri, the 80,000-b/d refinery has now been resited for the second time to Bandar Abbas to make use of the infrastructure.

'By doing it ourselves we have saved $800 million on the cost of Bandar Abbas and will reduce the $700-800 million cost of the condensates refinery by half,' says Ebrahim Zamanzadeh, project director at Bandar Abbas. Tenders for the condensates refinery will be issued by mid-1996 and construction should take up to three years.

Bandar Abbas itself plans a hydrocracker unit which will be open to bids by local and foreign companies, says Zamanzadeh. 'We set up the hydrocracker unit at the Isfahan refinery when the foreign contractor (Fluor) withdrew in 1979,' he says.

Construction work at the Bandar Abbas refinery is taking place under the management of the Italian/Japanese consortium Snamprogetti and Chiyoda Corporation in a contract awarded in January 1990. What distinguishes this project from previous ones, such as the Arak refinery, is that NIOECC has awarded the subcontracts to 12 local firms, which are held directly responsible for their work, says Zamanzadeh. A total of 45 local companies are involved and much of the equipment, including reactors, pressure vessels, boilers and steel structures, is locally manufactured.

Local firms were also involved in the basic and detailed engineering. Snamprogetti and Chiyoda, who did the detailed design and have a total of 40-50 people on site, are responsible for procurement and management services.

Financing problems have caused delays in construction. About $1,300 million in hard currency and IR 450,000 million ($150 million at the new fixed exchange rate) have been spent so far. Another $300 million and IR 550,000 million ($180 million) are required to complete the remaining 35 per cent of work.

Nearly two years of negotiations with the Mitsui Group for the balance in hard currency have been abandoned, says Zamanzadeh, because Mitsui was insisting on greater involvement by foreign firms. However Zamanzadeh says he sees no problem in raising the necessary funds.

The refinery will receive its heavy crude from the main Kharg island export terminal in the northern Gulf. An existing jetty at Bandar Abbas, built for the nearby Al-Mahdi aluminium smelter, will be extended to take tankers from Kharg. The jetty will also receive condensates, shipped in from the Nar-Kangan gas fields via Bandar Taheri, for the planned refinery. The Bandar Abbas refinery itself will process 12,000 b/d of condensates from the nearby Sarkhun gas fields.

A 24-inch pipeline has already been laid to Kerman to feed the products into the national network.

Bandar Abbas will mostly produce middle distillates (including 69,500 b/d of gas oil, 36,200 b/d of kerosine and 66,900 b/d of fuel oil) to fill the large gap in such products left by other refineries. There will also be 46,100 b/d of unleaded petrol. Iran's imports of oil products, averaging about 100,000 b/d in recent years, will drop to insignificant levels once the refinery starts up in 1997.

Originally planned as an export refinery, Bandar Abbas will supply most of its products to the domestic market, only exporting the excess. None of its future output is committed to repaying foreign finance, according to Zamanzadeh.

Completion of the crude oil refinery and the resited condensates refinery will turn Bandar Abbas into the country's biggest refining centre. The Abadan refinery, once the world's biggest, is now producing at less than half its former capacity of 630,000 b/d (see Table).

Vahe Petrossian