Divergent Views on Gas Feedstock Price

Divergent Views on  Gas Feedstock PriceDivergent Views on  Gas Feedstock Price

Although ministers of oil and industry have the opposite views on pricing gas feedstock for petrochemical plants, it is expected that they reach a final agreement, yet minister of industry seems to have taken the initiative in issuing directives, Fars News reported.

Last March a law was ratified by the Guardian Council according to which pricing gas feedstock for petrochemical plants was handed over to the government. The directives were supposed to be implemented by oil, industry and economy ministries in 6 months; however, to facilitate investment in petrochemical sector and because of fluctuations in stock prices, government's Committee on Capital Markets Regulation approved a plan based on which oil and industry ministries were tasked to set gas feedstock prices in addition to following the related directives in 2 months.

This issue was expected to be among the top priorities of oil ministry in the spring of 2015; nonetheless, remarks by Petrochemical Employers Association members is indicative of the fact that drafting the directive, which is about to be finalized, is seriously followed by the trade, mining and industry ministry, rather that the oil ministry. Recently, in spite of sharp contrasts in ministers' points of view, there have been joint meetings between oil, industry and economy ministries to formulate a plan to price the feedstock, secretary of Petrochemical Employers Association,  Mahdavi, noted.

Change in Pricing

In the winter of 2013, fixing gas feedstock prices put the profit margins of some private institutions and petrochemical shareholders at risk, and because they had strong connections with some state institutions, the issue turned into one the most challenging issues while ratifying the 2014 national budget. Ultimately, last March parliament approved that feedstock price would increase from 3 cents to 13 cents.

On the on hand, Oil Minister Bijan Namdar Zanganeh has repeatedly expressed his views regarding the necessity of cutting the hand of rent-seekers from cheap gas feedstock. "Producers should generate profits by producing, not seeking rent. Nobody can compete with us in the region to provide a cheaper feedstock. I am against long-term, fixed prices since they change. I believe that we should live a life without economic rent-seeking. Unfortunately, there are those who put us under pressure to get favors and it will put us in trouble in the next 15 years." He reiterated in the inauguration of the 9th Iran Plast International Fair in 2014.

On the other hand, trade, mining and industry minister Mohammadreza Nematzadeh has completely different views compared to that of oil minister. Nematzadeh remarked:"In cooperating with the oil ministry, we should formulate a plan to fixed long-term prices and if we do not consider the feedstock price in the neighboring states, downstream industries cannot thrive." The Oil minster responded to these statements implicitly.

Given the divergent views between the parliament and oil ministry, the future of pricing gas feedstock for petrochemical plants seems to be obscure; moreover, it is likely that rent-seekers take the initiative as some advisors to the industry minister insist on high profitability of semi-private gas petrochemicals through maintaining cheap gas feedstock rents.