Petrochem Industry Has a Mountain of Debt

Petrochem Industry Has a Mountain of Debt Petrochem Industry Has a Mountain of Debt

The petrochemical industry owes an estimated 120 trillion rials ($4.34 billion at official exchange rate) to the oil ministry in exchange for the feedstock it has received over the past ten years. The private sector, according to a report published in the daily Forsat Emrooz, accounts for less than 10 trillion rials of the sum, and the government is responsible for the remaining 85% of the debt.

"The majority of the debt belongs to the public sector, and the private sector is accountable for 15% of the amount. The next large portions of the debt belong to Persian Gulf Holding (PGH) and other debtors such as Ilam Petrochemical Company and Bakhtar (West) Petrochemical Company," deputy oil minister and director of the National Petrochemical Company (NPC), Abbas Shari Moqaddam, was quoted as saying.

The petrochemical industry went through initial development in 1980s and expanded in the late 1990s and early 2000s. Implementation of Article 44 of the Constitution – that calls for the privatization of major state-owned companies and industries – was supposed to result in further progress of oil industry and its export rates. Nevertheless, only less than 20% of the industry was transferred to the private sector and the growth did not reach beyond that of the upstream sector.

"If the private sector had a larger share in oil industry, perhaps Iran could have a bigger export rate than the current one percent," NPC director said.

The overdue debts resurfaced when the feedstock prices hit record lows at the start of the first term of Mahmoud Ahmadinejad's presidency in mid-2000s. However, recent developments in the petrochemical sector, including the cabinet's decision to set a new feedstock pricing system, is seen as a chance to pay the mounting debts.

"It has been stipulated that PGH pay 500 million euros annually to the oil ministry over a four-year period to clear part of its debts," Shari-Moqaddam noted, adding that the holding company has so far paid off 6,000 billion rials out of its total debt of 64,000 billion rials. "Other debtors that account for smaller portions of the debt are expected to follow suit," the official asserted.

According to Hamid Hosseini, a petrochemical industry expert, the government has been playing a minor, almost invisible, role in the management of petrochemical companies since they were privatized. "This is while the public sector should be held accountable for the mountain of debts," he said. On the other hand, Hosseini added, the private sector claims to have produced petrochemicals in exchange for feedstock and the debts should be attributed to the previous managements who created the debts by overspending and mismanaging the financial resources.

At the same time, the NPC has made it clear that they currently have no plan for paying off the massive arrears.

The question, according to Hosseini, is: "Would the government adopt the same approach if, in a different scenario, the private sector was accountable for such a huge amount of debt?"