No Gov't Help for Private Importers of Oil Products

No Gov't Help for Private Importers of Oil ProductsNo Gov't Help for Private Importers of Oil Products

At a time when sanctions have impeded the government's ability to import oil products, private sector has offered assistance and served the oil ministry to this end, incurring high risks while gaining little.

The tough sanction the US introduced against Iran in 2012 - particularly targeting the energy sector and financial transactions - restrained the government's ability to import gasoline and diesel. Thus, some private companies came to the aid of government, and helped prevent shortages in supply of oil products.

More than 10 private companies initiated the task, but the high risks involved and the oil ministry's inability to provide sufficient incentives ultimately made the companies stop doing the favor. Currently there are only four companies importing oil products.

Import of gasoline by private entities has been included in the budget for the past three years. Likewise, this year's budget has authorized import and sales of oil products by private firms, provided quality standards are met. However, the oil ministry remains responsible to supply and regulate the market, taking into account domestic production and the present infrastructure.

According to the next year’s budget bill (begins March 21), which was submitted to parliament on Dec. 7, private sector will be permitted to import and sell gasoline and other oil products.

“The NIOC will continue to import oil products, and private companies can operate alongside the government,” Mohsen Ghamsari, director of international affairs at the National Iranian Oil Company (NIOC) said in December, adding that the decision will help boost privatization and reduce government intervention in the economy.

  Gov't the Sole Buyer

"Private sector merely imports the products, without having any authority in decision-making," Hassan Khosrojerdi, head of the Iranian Oil, Gas and Petrochemical Products Exporters' Association, was quoted by Persian daily Forsat-e-Emrouz as saying.

"Sanctions have provided the window for private firms to play a part in the field," Khosrojerdi said, adding: "There are no means available to private companies for sales of the products, and since these commodities are subsidized, government remains the sole buyer; a fact which leads to unfavorable results."

The opportunity would have never been offered to private firms had the government been capable of importing them on its own, he noted. Profits generated by import of oil products are indeed marginal, and private firms would never invest in such activity "if nationalistic motives were not involved."

Regarding recent criticism over the low quality of imported gasoline, the official noted that the government determines which type of gasoline should be imported and verifies the quality at customs. A private purchaser is therefore compelled to import what has been ordered.  

  Low Profitability

Import of gasoline and diesel on average generates 65 cents in revenue per barrel. However, negotiations affect the price, as the price might vary between 45 cents and one dollar per barrel, as per contract. Diesel prices fluctuate as import of the commodity is decided by seasonal demand. The private sector earns $1-3 per each ton of imported mazut.

Private companies have no explicit contracts with the government on import of oil products, and "this has given rise to numerous problems," Khosrojerdi said, without further elaboration. While they endeavored to help address the crisis, private firms have received no privilege from the government. The government must provide companies with incentives to encourage them proceed with the task in view of the high risks and low benefits.

Private sector has also been of great assistance to the government regarding petroleum swap operations, notwithstanding the insignificant income generated thereby. Currently, swap operations are carried out by private firms alone, Pedram Soltani, a member of the Iranian Oil, Gas and Petrochemical Products Exporters' Association said.

Due to the time-consuming process, profit earned through swap stands at $15 per ton, Soltani said, adding that the government is determined to expedite swap operation, which were incapacitated during the incumbency of former president Mahmoud Ahmadinejad.

Oil and oil product swap deals with neighboring countries were repeatedly suspended during Ahmadinejad administration (2005-2013). "His government did not fulfill its obligations, so the costumers canceled the swap contracts and turned to other countries," deputy oil minister Mansour Moazzami said.

The US imposed sanctions on Iran to curb the country's nuclear program, which the West claims is geared to military use. Iran insists the program is entirely peaceful. Iran and the P5+1 (a group of world powers including the US, Russia, China, UK and France, plus Germany) were unable to reach a comprehensive deal by a November 24 deadline and extended the talks for seven more months.