NIOC stands by buyback deals

06 September 2002

National Iranian Oil Company (NIOC)has denied reports that the award of buyback contracts will be frozen for one year. The statement followed reports published on 30 August that Oil Minister Bijan Namdar Zanganeh had suspended the award of new deals for 12 months as a result of increased pressure from hardline factions. Several major oil and gas contracts are expected to be awarded during the Iranian year ending 20 March 2003, notably for the development of the Azadegan and Bangestan fields and several phases on the South Pars gas development scheme.

A NIOC representative told MEED on 3 September that Zanganeh had been misquoted as saying that no buyback contracts would be signed for a year. 'NIOC sent out a statement denying that the minister [Zanganeh] said that there will be no contract awards. What he said was that buyback contracts were and are going to be delayed due to international conditions with falling demand and Iran already producing below capacity,' the representative said.

Zanganeh in July hinted at fears among his managers about concluding new deals with foreign companies as the reason for the delays, indicating that political pressure had prevented the signing of agreements. However, Zanganeh did not expand on his comments.

The award of buyback contracts has become embroiled in domestic factional fighting and corruption charges against Zanganeh and members of the NIOC management team over the past 12 months. The minister was lambasted over his handling of buyback contracts with foreign oil companies and accused of alleged mismanagement of oil revenues and irregularities in awarding contracts to the local Petropars. Industry sources say the charges were politically motivated.

Another reason for the delay in awarding new contracts is the lengthy contract negotiations, due to disagreement between foreign oil firms and NIOC over the terms of the buyback deals, notably the limited rates of return and short contract periods. The only major deal signed since July 2001 is the $1,000 million contract awarded to Italy's Enito upgrade the Darkhovin oil field.

Among the most eagerly awaited deals to be concluded is the estimated $1,600 million contract to develop South Pars phases 9 and 10. The project is set to be carried out by a consortium led by South Korea's LG Engineering & Constructionbut has yet to be formally signed. Other contracts in the pipeline include deals for South Pars phases 11 and 12 and the giant Azadegan and Bangestan onshore fields (MEED 19:7:02; 15:3:02, Cover Story).

International oil firms have not yet threatened to withdraw from Iran in view of the new delays. However, the latest developments may add to a feeling of insecurity about their future in the Iranian market. Says the Tehran-based representative of one international oil company: 'Generally speaking, there is always a limit to the waiting time one can accept and to how long interest in a project can be kept.'

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