$13b Investment in Iran Refining Industry

• TEHRAN, March 14 (Shana) - Foreign investment in the refining industry and transfer of advanced technologies for this sector are of high significance for a largely populated country like Iran. According to official reports, of nine operating Iranian refineries processing 1.8 mb/d of crude oil, only one has acceptable profitability and other refineries need to be upgraded.
• Deputy Minister of petroleum for refining affairs Abbas Kazemi tells Iran Petroleum in an interview that Iran plans to invest $32 billion in refining sector. The full text of the monthly's interview with Kazemi, who is also CEO of National Iranian Oil Refining and Distribution Company (NIORDC) follows:
  
  
  Q: What are your plans for foreign companies post-sanctions?
  A: Among all foreign parties negotiating with Iran, South Korean and Japanese companies seem to be more serious than others. These companies have state-of-the-art technology and more secure financial resources. They are ready to invest in Iranian refineries producing large amounts of fuel oil and be remunerated through products. Therefore, we hope to reach final understanding with these companies next [calendar] year [starting on March 21].
  Some of these companies have accepted to receive half of their investment during work and the rest along with profits after the end of project from the sale of products. In my view, cooperation with Japanese and Korean companies under such conditions is logical and cost-effective. Negotiations with European companies have also begun.
  
  
  Q: How much investment does Iran’s refining industry currently need to implement its half-complete projects? 
  A: Except for the development of Abadan refinery for which the NIORDC must spend $3 billion, Tabriz, Tehran, Bandar Abbas and Isfahan refineries need $10 billion in investment so that their fuel oil production rate will fall below 10%. Of course, we have also had negotiations with foreign companies for investment in Anahita refinery.
  
  
  Q: Which measures have you undertaken for accelerating the construction of Anahita refinery?
  A: The stakeholders of this project do not currently show warm welcome for continuing work due to the need for extensive financial resources, but we hope that the National Development Fund of Iran or foreign investors will agree to contribute to this project.
  
  
  Q: How many new refining projects are to be implemented and operated in the country over the coming years?
  A: Except for Siraf refining project which would be processing 480,000 barrels of gas condensate, Anahita, Pars and Bahman Ganou refineries are among new refining projects in Iran. Investors for these three projects have already carried out basic engineering, license and land purchase, and I think that Siraf included, the country’s total crude oil and gas condensate refining capacity will exceed 3.1 million barrels.
  
  
  Q: What measures has the government taken in the past two years to speed up refining projects like Persian Gulf Star Refinery?
  A: The Persian Gulf Star project started slowing down in 2010 due to financial shrinkage, but the 11th administration changed the shareholders making great contribution to the acceleration of this project because the NDFI could not grant any loans to the government which had more than 20% share in this project. With changes in the composition of shareholders in this project, 650 million Euros in loan was granted to this project and the contractor has received it. This was an initiative of the 11th administration. But this project had plunged into stagnation three years before the 11th administration took office. At present, the distillation unit of the first phase of the Persian Gulf Star Refinery has entered pre-commissioning phase.
  
  
  Q: When is the schedule announced by the contractor and shareholders of the Persian Gulf Star Refinery for the operation of the first phase of this project? 
  A: The distillation unit of this refinery will come on-stream by the end of this year [in March] and we hope we would be able to launch the first phase in the first half of the next [calendar] year.
  
  
  Q: Over recent months there has been news about the purchase and construction of crude oil refinery by Iran in other countries like Brazil, South Africa and Spain. Could you refresh us on the negotiations to that effect? 
  A: The purchase of shares of crude oil refineries outside the country is one of policies of National Iranian Oil Company for guaranteeing crude oil sales in the country on the long-term. In my view, this policy is logical and correct. Before the [1979 Islamic] Revolution, Iran owned the shares of four big foreign oil refineries. Today, crude oil producing countries are implementing this policy. In negotiations with countries like Brazil and Spain, the issue of construction of oil refinery in these countries by Iran under partnership deals and with equal shares has been raised. In this regard, NIORDC only carries out economic feasibility studies for the construction of the projects and NIOC is the main decision-maker. In its negotiations with us, South Africa voiced its interest for improving the quality of its refineries by Iranian experts. We prefer that most equipment used in these refineries be supplied by Iranian manufacturers if Iran is to finance such facilities.
  Negotiations were recently held with Indonesian and Malaysian companies for further activation of refining projects in which Iran has shares.
  
  
  Q: How do you assess the NIORDC’s performance in the current calendar year?
  A: This year, we managed for the first time in the country to export petroleum products on a sustainable basis. We had exports in the calendar year 1393, but the balance was negative. This year, gasoil and liquefied petroleum gas were exported from domestic refineries. The main reason was the development of gas network. We reached 60-million-liter production this year, which stood at 62 million liters after mixture with MTBE. It shows one-percent growth from the year before despite overhaul of Imam Khomeini refinery.
  Half-complete refinery projects picked up speed this year, the isomerization unit of Isfahan refinery was launched in October so that 7 million liters of gasoline produced in this refinery would be standardized to euro-4 grade. It will reach 11 million liters in April. That would help us supply this fuel to all cities around Isfahan, Shiraz and Ahvaz.
  A project for quality improvement at Lavan refinery ended this year and we are now waiting for the catalyst charge. The quality improvement project at Bandar Abbas refinery progressed 96% and we are forecast to have 3 million liters of extra gasoline production next spring. By launching this project, half of gasoline produced in this refinery will be upgraded to euro-4 standard.
  Currently, in eight megacities, euro-4 gasoline and gasoil is being distributed. Only in the city of Tabriz, is euro-4 gasoil not distributed. The number of cities where euro-4 fuel is being distributed is expanding and the city of Qom will soon come under full coverage of this fuel soon. Our policy is that the cities leading to megacities would be prioritized for euro-4 fuel distribution. We have started this policy in Isfahan province by distributing euro-4 gasoline in Shahin Shahr and Khomeini Shahr. We hope that this project will start in the cities around Tehran soon so that we would see less pollution.
  Of course, I have to clarify something for your audience. Pollution shoots up when inversion happens. After this climatic phenomenon occurs, air can no longer move vertically and the wind blows much more slowly. Then, the carbon produced from fuel combustion in different areas around the city is trapped and we see pollution in these cities. Today, we can claim that four harmful factors (sulfur, benzene, aromatics and olefin) in the polluted air of Tehran and other big cities has been sharply cut due to the distribution of euro-4 fuel. We used to distribute gasoil with 10,000 ppm, but this standard has now reached 50 ppm. Benzene and aromatics have declined similarly.
  The fuel currently being distributed in Iran’s megacities is not much different from the fuel distributed in megacities like London and Paris and Frankfurt in terms of quality. Next year, distribution of euro-4 fuel will increase from 8 to more than 20 megacities. Based on our commitment to Institute of Standards and Industrial Research of Iran (ISIRI), distribution of euro-4 gasoline in port cities like Chabahar and Mahshahr and to megacities leading to bigger megacities is prioritized.
  Currently, we are impatiently waiting for the startup of Phase 1 of Persian Gulf Star Refinery. Once this project has been launched gasoline imports will be cut and we hope that it would happen in the second half of next year.
  With the implementation of JCPOA (Joint Comprehensive Plan of Action), we hope to start half-complete projects like the development of Abadan refinery. In this project, the quality of the refinery’s products is improved. This project needs around $3 billion investment. Good progress has so far been made and we hope that the executive phase starts next year.
  
  
  Q: Chinese banks were supposed to finance this project. What happened?
  A: There has been good progress in negotiations with the Chinese sides. At the beginning, this project was expected to be launched simultaneously in two phases, but now a Chinese bank plans to start work in one phase and the finance of the other phase will be guaranteed by another Chinese bank.
  
  
  Q: Are any other investors ready to contribute to Abadan refinery project?
  A: Yes, but of course we hope to continue this project with the Chinese like before. Foreign investors, mainly from Korea and Japan, have voiced readiness for other refining projects in Iran. For instance, these countries have specifically expressed willingness to invest in Bandar Abbas and Isfahan refineries. The dimensions of this investment are being negotiated and we hope to invest in these two projects next year.
  
  
  Q: Shareholders of private refineries in the country always complain about the high level of fuel oil production. What is the solution to spare refineries possible harm?
  A: The refining industry’s margin is low in the world. The refiners have to change their conditions and structure in conformity with market conditions. In Iran, refineries produce fuel oil at 26% on average, versus 12% in the world. In some European countries, this figure is 2%. Today, the world’s refining industry is looking to drop fuel oil off its mix because the price of this product is currently 35% lower than that of crude oil.
  We have always recommended our refineries to operate projects for cutting fuel oil production. Otherwise, their margins will be negative. Stakeholders of refineries are required by Article 59 of the Law on Energy Consumption Pattern Reform to consider such projects. According to this Law, fuel oil production must be brought to below 10% by the end of the Vision Plan. Fuel oil consumption in Iran and the world is falling. In our country, due to gas development, high consumption markets are being eliminated.
  
  
  Q: How much of refining and distribution equipment can Iranian manufacturers supply?
  A: I think that Iranian manufacturers can easily supply up to 70% of the required equipment. At present, the bulk of equipment like pumps, valves and transducers of Persian Gulf Star Refinery are supplied domestically.
  
  
  Q: How much are petroleum products’ imports and exports in the country?
  A: This year, on average 70 million liters of gasoline has been consumed in Iran on a daily basis while 62 million liters have been produced in the country’s refineries. Currently, 8 million liters a day of gasoline is being imported on average into the country.
  
  
  Q: Would you please explain about the implementation of branding project at gas stations in the country?
  A: This project is almost in its final stages. At present, the criteria for assessment of brand owners in the country, like turnover, history of shareholding at refineries, are being announced. In this project, in order to prevent monopoly, in every province at most one brand can hold 20% of nozzles.
  We believe in branding from this standpoint because in any case, NIORDC has the most fuel consumers. Gas stations are currently working as intermediaries. In other words, we give them fuel in safekeeping and they sell fuel for service fees. We plan to engage the private sector further in fuel distribution in the country. For example, the private sector takes delivery of fuel at refineries and supplies to people at gas stations while feeling responsible for quantity and quality. At present, the gasoline being distributed in the country is higher than in Turkey, but under the same brand.
  By implementing the branding project at fuel stations in the country, the gasoline price may finally cost IRR 200 to IRR 500 higher per liter. But this project would cause a positive rivalry between gas station owners in providing better services. In my view, people would be the real winner because they will get fuel while benefiting from as much better as services.
  
  
  Q: What are your policies with regard to liquefied petroleum gas (LPG) development?
  A: At present we intend to develop the LPG transmission and distribution in the transportation sector by assigning the job to the private sector. Development of consumption of this fuel is much easier and much more inexpensive than CNG. There are currently many candidates from the private sector for the realization of this idea in the country. They only want guaranteed LPG sales from us.
  Currently, more than half of LPG produced in the refineries of the country is in excess of consumption. Therefore, exports of this petroleum product will increase in the year 1395 (next calendar year).
  
  
  Q: Due to the decline in the manufacturing of gas-fuelled cars in the country, gas consumption in Iran has remained unchanged at 20 mcm/d. Is it possible for the Iranian Ministry of Petroleum to renew cooperation with car manufacturers for producing gas-fuelled vehicles?
  A: I think that people are more eager to consume gas than gasoline and there is no need for paying subsidies to car manufacturers to make gas-fuelled vehicles. This company pays IRR 1,400 per cubic meters to the CNG station constructors. This figure is IRR 800 for old gas stations.
  
  
  Q: How much euro-4 gasoline do you receive from petrochemical plants?
  A: Recently with the installation of benzene absorption systems and changes in the quality of Bandar Imam petrochemical feedstock, the benzene content of gasoline produced in this facility has fallen from 10% to 0.2%. Currently, we are receiving 800,000 liters a day of gasoline. I stress that it is euro-4 gasoline and not reformate. This company is always willing to buy gasoline from Bandar Imam Petrochemical Plant due to its high quality.
  
  
  Q: How many state-run gas stations are still operating in the country? What is the government’s plan for their privatization?
  A: There are currently 220 fuel stations which remain state-run. Following negotiations with the State Privatization Organization, these gas stations are planned to be privatized under a brand. It is also planned that the ownership key-money of gas stations be conveyed. The SPO has accepted almost all these ideas.
  
  
  Q: How has fuel smuggling changed in the country?
  A: Fuel smuggling in the country, particularly in central areas has declined because compared with last year, 20 million liters less of gasoil has been distributed in the country. This year, Iran started exporting 2ml/d to 3 ml/d of gasoline to Afghanistan and therefore fuel smuggling has been curbed. Moreover, in case of development of border trade between Iran and Afghanistan by businesspeople from both countries, fuel export to this country will be multiplied. We are currently looking for the launch of product trade with Pakistan. Last year, 55 million liters of gasoline was distributed for the use of trucks and public transportation fleet. Now, this figure has reached 42 million liters.

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