New focus on petrol subsidies

27 January 2006
Mohammed Reza Nematzadeh, the recently appointed head of National Iranian Oil Refining Company (NIORDC), has pledged to build three new refineries using heavy crude and gas condensate feedstock, according to the Islamic Republic News Agency (IRNA). In budget proposals put to the Majlis (parliament), President Ahmadinejad said on 15 January that his government would seek to phase out the petrol subsidy within five years, reduce consumption and raise petrol production (Iran, MEED Special Report, 26:8:05, pages 31-32).

The location of the new plants has not been disclosed but industry sources in Tehran say one of them is likely to be a brownfield refinery situated at Abadan, home to Iran's oldest refinery and itself the subject of a revamp. NIORDC is already working on a series of refinery upgrades, which local contractors say has been given new impetus by the appointment of Nematzadeh. Under a recent bid deadline extension, contractors have until 21 February to submit their proposals for the $500 million Abadan fluid catalytic converter (FCC) project. Five groups were prequalified to bid for the contract and industry sources say that at least three of them are expected to submit proposals.

The Arak project - expected to be worth more than $1,000 million - needs attention because of what contractors describe as 'complex liability issues'. The project has seen several bid deadlines pushed back because of low appetite among international contractors. Other projects at Isfahan, Bandar Abbas, Shiraz, Lavan, Kermanshah, Tehran and Tabriz are now either at the basic engineering stage or waiting for new direction from the new NIORDC chief, say local contractors. Total spending on refinery upgrades during the fourth five-year development plan could exceed $10,000 million.

'We have plans to build new refineries to produce car fuel and have a plan to increase the price of petrol incrementally,' Ahmadinejad said. Iran now imports more than 40 per cent of its petrol, despite its large crude oil and natural gas reserves. Petrol consumption is reported to be rising at about 10 per cent a year - partly because the price is so cheap. But raising the price is seen as politically very difficult because it would have an immediate rebound on inflation.

While petrol is sold in Iran at IR 800 ($0.09) a litre, the cost of domestic production is IR 2,500 ($0.28) a litre and the cost of imported petrol is IR 4,500 ($0.50) a litre. Last year, the Majlis called on the government to introduce smart cards to ration petrol consumption at subsidised rates, with any excess petrol to be bought at market prices. The scheme will be introduced in the first half of the year. Other schemes include increasing public transport and manufacturing cars to run on compressed natural gas (CNG) instead of petrol. 'We will expand CNG stations all over the country,' the president said. 'And within five years, all of Iranian-made cars should run on CNG.'

A MEED Subscription...

Subscribe or upgrade your current package to support your strategic planning with the MENA region’s best source of business information. Proceed to our online shop below to find out more about the features in each package.

Get Notifications