: "An Insight Into Petropars
Tuesday 04 June 2002 - (c) 2002 IranMania.com
By: Kayvon Biouki
Recent allegations of corruption against the Iranian oil company Petropars have increased the level of politicization of oil sector affairs in Iran.
Clearly, the Petropars story touches many aspects of Iran's developments, mainly the developments in the oil and gas sector, the push for privatization and restructuring as well as the struggle for political reform. This article discusses the recent developments relating to this company.
Since November 1995, when Iran's Oil Ministry (OM) decided to open significant sections of the Iranian oil and gas sector to international investors, the country's hydrocarbon sector has been under a constant wave of change and restructuring. Initially, the authorities concentrated on a restructuring plan for NIOC itself in order to respond to the organizational needs in this sector. However, as soon as MoP started awarding development projects to companies, a domestic lobby initiated a campaign to increase the local content of such projects. One of the logical responses from the Iranian side was to establish companies such as Petropars and Petroleum Development Company in order to lineup a series of Iranian firms as prime contractors of exploration and development projects.
Creation of Petropars
Petropars Limited was incorporated and registered in England under the laws of British Virgin Island in January 1998. This was among the first companies that are known as NIOC offshoots to be registered under the Khatami administration. Initially, Petropars' function within the NIOC family was to act as a Management Contractor by supervising over the subcontractors, and to undertake execution of the infrastructure projects on an E.P.C. basis. Nonetheless, it was clear from the start that NIOC's main desire was to turn Petro Pars into a full-fledged oil and gas upstream company with the capability of taking over independent projects. The cooperation with foreign firms within the current buy-back projects are development stages for the mentioned objective.
Another important precedent with regard to Petropars was the fact that it is owned by the NIOC Pension Fund (60%) and the Industrial Development and Renovation Organization Pension Fund (40%). This was the best that the MoP could offer in terms of creating a semi-private entity, which would be awarded various upstream projects.
In the case of Petropars the projects have mainly focused on the giant offshore gas field of South Pars (please see box). In fact, in addition to phase 1 of this field, Petropars has also been the prime contractor of phases 4, 5 as well as 6, 7 and 8.
Petropars under investigation
Since November last year, Petropars has been under severe accusations of corruption. Though the initial suggestion was that these allegations were politically motivated, the company has undergone some severe changes. These included:
Transfer of all overseas activities inside Iran based on an agreement reached between the Minister of Finance and Economic Affairs and officials at Petropars. Within that agreement, a new entity called Petro Pars Private Joint Stock Company was created. Consequently, all contracts and commitments of Petropars Ltd were transferred to the new company. The Ministry of Economy and Finance committed to facilitate bank, customs, taxation, registration and management related issues to this end.
Furthermore, the State Inspectorate Organization (SIO) sealed Petropars' books and records in Tehran for auditing, It was argued that the re-registration within Iran led to the need of making the financial status of the company more transparent.
The SIO investigation then evolved into a probe into the entire process of awarding the development of the first phase of South Pars gas field to Petropars. The SIO, which called for the auditing, explained that the core allegation is that the High Council of Economy's (HCE) approved of the concession of South Pars to this company before it was formally found. The SIO, then, returned the case to the Judiciary, where it was studied by the Headquarters for Combating Economic Corruption, which is chaired by the heads of the three branches of government. The Judiciary, meanwhile, provided the parliament with a report detailing the allegations against the Oil Minister, Bijan Namdar-Zanganeh.
Given the ambiguity in the allegations against Zanganeh and the announcement that Petropars' UK activities would be shutdown and relocated to Iran, some sources say that the real aim of the court summon was to pressure the Minister to accept the re-registration of Petropars, rather than a personal attack on him. It is noteworthy that after the SIO's initial allegations against Petropars, Zanganeh had defended this company, insisting that all pertinent laws had been observed in granting that company the first phase of South Pars. The ministry has alluded on the approval of the HCE in this regard at that time.
The mentioned upheavals came shortly after a major reshuffle in the top brass of that company which brought Akbar Torkan (see box), who is a very respected technocratic figure in the Iranian industrial apparatus, to hold the top position of that firm. The reshuffle was aimed at addressing critiques that Petropars' key posts were held by influential politicians, who were in breach of Iranian law by simultaneously holding two governmental posts. The main figure targeted at the time was Behzad Nabavi (see box), a leading reformist figure and an MP from Tehran. Nabavi initially resisted the pressure to resign, insisting that a member of parliament is not a government official, and also that Petropars could not be characterized as a governmental entity; but eventually succumbed to the building pressure.
It should also be noted that parallel to all above developments, the main critique against Petropars has been that it has only implemented 55 per cent of the development project of phase one of South Pars after four years, meaning it is 18 per cent behind schedule. For some Iranian decision-makers, the experience of Petropars has indicated that a purely Iranian firm is hardly capable of fulfilling a complex upstream oil or gas project, hence justifying the inclusion of foreign companies in later phases of South Pars.
During the recent Oil Show in Tehran, the company's officials defended the performance of this entity and played down the embezzlement allegations against Petropars as politically motivated. In an interview during the Oil Show, Akbar Torkan ruled out any illegal action taken by his company saying that the company was totally Iranian and had only signed contracts with National Iranian Oil Company's headquarters in London for its financial supply.
Furthermore, the heads of the three branches of government met and reached a compromise on the Petropars case. They have reportedly agreed to have an expert committee review the charges against Behzad Nabavi, the former MD of Petropars and a powerful reformist figure. The committee would then hand over itsreport to the president's office. In other words, Iran's top politicians have agreed to take the case out of the conservative dominated courts.
Nabavi appeared in court for a third time, but is still to be informed of any formal charges against him. In a recent interview, he told reporters that after the above-mentioned meeting, some top officials suggested to him that he needn't show up to court any longer. However, he decided now that the case has been brought up to complete the judicial procedure.
An unbiased analysis of the Petropars case underlines the chronic problems of Iran's current state of affairs. Petropars is the best example of the politicization of all aspects of economic activity in Iran.
The key phenomena to take into account are:
On the one side, Petropars represents an instrument through which Iranian authorities have tried to gradually offer a share of the country's huge oil and gas wealth to stakeholders outside the oil sector. The fact that IDRO is a 40% shareholder and also that 2 former IDRO directors are running this company are clear indications in this regard;
In addition, it is a representative of the distorted privatization attempts through which state entities are merely transferred to state pension funds or investments companies;
On the other side, the failure of Petropars to manage the very first project under its supervision (South Pars 1) has reminded all critiques in Iran of the management deficiencies in public and semi-public entities;
Furthermore, the company is being used as yet another case where political rivalries and factional struggles are played out. The internal and external damage of such phenomena to Iran's economy is irreparable.
An end to Petropars' current problems is clearly in sight as a result of the current atmosphere of reconciliation among the country's political factions. However, central issues such as the challenge of managing the current transition away from a centrally organized oil and gas sector towards a more competitive environment will not disappear. Also, the desire of various stakeholders and power centers who would like to secure their share of Iran's lucrative hydrocarbon sector, will continue to irritate companies in this sector.
As far as the commercial success of Petropars is concerned, unless it moves into the ownership of a truly private and apolitical entity, Petropars will remain yet another semi-public company with its various deficiencies and risks. Nonetheless, officials hope that the partnership and cooperation with Agip in phases 4 and 5 and also a prospect partnership with another international firm in phases 6,7 and 8 will help Petropars grow to become a more efficient entity. However, before that stage is reached, this company alongside top decision-makers in the oil and gas sector will have to encounter other political, judicial and technical challenges.
All of the above phenomena hand in hand with the very slow pace of developments and negotiations in the Iranian hydrocarbon sector are serious irritants to foreign players in this significant market. It remains to be seen whether the Petropars story has taught the Iranian authorities new lessons that they would consider in their next moves whether it is how new companies are structured and also how future contracts and projects are designed.
SOUTH PARS PHASES
The Persian Gulf based South Pars gas field together with the adjacent Qatari North Dome are the world's largest independent gas field. South Pars covers an area of 3,700 square km and contains a reservoir of 437 trillion cubic feet of gas which is about 8% of the world's and 40% of Iran's total reserves.
South Pars was explored in 1966 by the National Iranian Oil Company (NIOC). Located on Iran-Qatar borderline in the Persian Gulf, the field is 100km off Iran's southern coast. Given this vast expanse, the South Pars was planned to be developed in different phases. Assalouyeh port situated 270km southeast of Bushehr is considered as the base coast for erection of offshore establishments and for the phase-by-phase development of this field.
The first phase in development of South Pars was planned for exploitation of gas and gaseous condensates. Offshore and onshore installations are being created for a daily production and refining of 100 million cubic feet of gas to be transferred to countrywide pipelines.
According to the Master Development Plan (MDP), in addition to gas some 40,000 barrels of stabilized gaseous condensates and 200 tons of solid sulfur will also be exploited on a daily basis. The development project is carried out by Petro Pars.
The offshore facilities include drilling platforms, exploitation rig, residential complex, flare, 5.5 km length of 18 inch submarine pipeline 1.7km length of 30 inch pipeline from the refinery to the offshore export platform and 105km of 32 inch submarine pipeline for transferring gas and gaseous condensates in two phases to the coast based refinery.
The onshore facilities include units for reception and separation of gas and gaseous condensates stabilization of gaseous condensates sweetening dehydration mercaptan treating dew pointing and condensing for the transfer recycling and freezing of sulfur.
The completion of this phase which is the only phase so far awarded to a purely Iranian firm, has been delayed by months.
Phases 2 & 3
Implementation of phases two and three has been granted on a buy back arrangement to a consortium of TotalfinaElf (40%), Gazprom (30%) and Petronas (30%). The fields are planned to lead to a daily production of 80,000 barrels of gaseous condensates, 400 tons of sulfur and 52 million cubic feet of refined natural gas. The first production of this field started flowing at the end of April.
The offshore installations include two rigs for drilling 20 development wells, two submarine pipelines each with a diameter of 32 inches and two other pipelines each with a diameter of 4.5 inches running for 105km. Also a gas refinery is being built to operate at a capacity of 2,000 million cubic feet. The refinery will house units for reception and separation of gas and gaseous condensates, stabilization of gaseous condensates, sweetening, dehydration, mercaptan treating, dew pointing and condensing for the transfer recycling and freezing of sulfur. There will also be a restoration unit of Mono-Ethylene Glycol for injection.
Phases 4 & 5
Development of phases 4 and 5 of South Pars has been awarded to a partnership of Agip (60%) and Petropars (40%) through a buy-back contract. Completion of these phases will lead to a daily exploitation of 50 million cubic feet of natural gas , 80,000 barrels of gaseous condensates 1.05 million tons of LPG for export , 71 million cubic feet of Ethane and 400 tons of Sulfur. Based on the provisions of this contract, the project will be completed and operational in 2005.
Offshore facilities of these phases include two four-pillar platforms, two three-pillar flaring platforms, two submarine pipelines with 32 inches of diameter and 105km of length and two other pipe lines with 4 inches of diameter and 105km of length.
Phases 6, 7 & 8
Development of phases 6, 7 and 8 was awarded to a partnership between Petropars and Enterprise Oil. Once developed, the field will have a daily production of 80 million cubic meters of sour gas for injection purposes, 120,000 barrels of gaseous condensates and 1.2 million tons of LPG per year.
These phases will have three marine platforms, each to be used for drilling 10 production wells. The yield of these platforms will be transferred to the onshore installations via three pipelines each running as long as 105 km with a diameter of 32 inches. At the same time a gas refinery will be commissioned onshore to operate at a daily capacity of 3000 million cubic feet. The refinery will house units for reception and separation of gas and gaseous condensates, stabilization of gaseous condensates dehydration of gas exploitation of liquefied gas, dew pointing and condensing in order to transfer gas. These phases will be completed by January 2006.
Phases 9 & 10
Preliminary negotiations in legal and technical terms are under way with international companies to sign buy-back or finance contracts for development of these two phases. Similar to phases 4 and 5 implementation of these phases will lead to exploitation of 2,000 million cubic feet of gas.
Phases 11 & 12
Development of phases 11 and 12 of South Pars Field aims at exploiting 80,000 barrels of gaseous condensates plus 55 million cubic meter of gas per day.
Preliminary negotiations in legal and technical terms continue with international companies to sign buy-back or finance contracts.
Oil Layers in South Pars Field
In addition to Kangan and Dalan, which are the main gas reservoirs of South Pars, there are other reserves occurring in this field and drilling operations performed by Pars Oil And Gas Company confirm the existence of oil in these reserves.
The results of these drillings indicate that Daryan Reserve in the joint field of South Pars is of special significance. The oil column of this reserve goes over 25 meters.
Profile of Akbar Torkan
Date & Place of Birth: 1952, Tehran
Education: M.A. in management
· President of the Wrestling Federation
· Managing director of Petro Pars
· Director of the Industrial Development and Renovation Organization (IDRO)
· Former minister of roads and transportation (1993-1997)
· Minister of defense (1989-1993)
· Governor general of Ilam and Hormozgan provinces
Additional Comments: Founding member of Executives of Construction Party; Founding member of Party of Justice and Development; leading technocrat figure.
Profile of Behzad Nabavi
Date & Place of Birth: 1942, Tehran
Education: Master's Degree in electronics from Amir Kabir University (former Tehran Polytechnic) in 1964
Politically, Behzad Nabavi has an interesting background. He was a member of the National Front in the early 1960s; later associated with leftists and Islamic groups; then he formed an Islamic political group with former members of the National Front and advocated armed struggle against the former regime (1970); served 6.5 years in prison (1971-1978).
After the 1979 Islamic revolution Nabavi was a member of the IRIB supervisory council (December 1979). He also was a founding member of the Mujahedin of Islamic Revolution Organisation as a semi-clandestine paramilitary group. In 1980 he became minister without portfolio for executive affairs and spokesperson of the government. He helped establish the National Economic Mobilization Headquarters assigned to ration staple commodities following the outbreak of the Iran-Iraq war and took charge of it (1980-1982). He also played a major role in Algiers negotiations with the United States for the release of Americans taken hostage in Iran and signed the Algerian Declarations with the United States on behalf of the Iranian government.
Nabavi became Heavy Industry Minister in 1982 and held the portfolio until August 1989. During this tenure he was accused by the conservatives of mismanagement and corruption but survived 10 motions of no confidence by the Majles from 1980-1989; Deputy Chief of Armed Forces General Command for Logistics and Industrial Support. Since 1989, he has been focusing on his political grouping (Organization of the Mujhahedin of Islamic Revolution) but has held many positions, including a member of board of the MAPNA company and also Chairman of Petropars from 1998 to 2001."