Petrochem Sector Suffering From Multiple Forex Rates

Petrochem  Sector Suffering From Multiple  Forex RatesPetrochem  Sector Suffering From Multiple  Forex Rates

A deputy oil minister has called on the government to implement a single pricing formula for foreign currencies, while criticizing the multiple pricing system which has given rise to import of petrochemical products from rival markets.

While domestic producers supply polymeric and petrochemical products at the free forex rate, petrochemicals are imported with official rates offered by the government as subsidies to beneficiaries of imports.

Rejecting allegations on high price of petrochemicals supplied in the energy bourse, Abbas Shari-Moghaddam, deputy oil minister and managing director of the National Petrochemical Company (NPC), said petrochemical prices are determined by a specific formula, which is not higher than in the regional markets.

However, imported products are cheaper than those sold by domestic suppliers due to a multiple pricing system. "The dual pricing system is indicative of an economic malaise," Shari-Moghaddam said, adding that the government is working towards setting a single pricing formula.

A single exchange rate cannot solve the entire problem, as it may undermine competitiveness of small-scale companies with a lower production capacity, the official noted. "Many countries, including China and Turkey, have supported development of their petrochemical sector; but the government of Iran is devoid of financial resources because of subsidy payments."

The NPC has so far addressed itself to upstream projects and had little involvement in downstream sector, but during the recent meeting of the NPC's board of directors, a directive was issued whereby the NPC is authorized to take part in downstream projects.

Most petrochemical projects are operating at half capacity due to lack of finance. Several petrochemical projects due for completion in the Fifth Five-Year Economic Development Plan (2011-2016) have been postponed to the 6th plan (2016-2021), with a further 67 unfinished contracts, with a capacity to yield 60 million tons, yet to be completed.

According to global estimates, Iran holds 24 percent of Middle East's and 4.2 of the world's petrochemical production capacity.

The Central Bank of Iran has an official exchange rate which is used for the settlement of oil and petrochemical product exports and for imports of priority goods and services. The US dollar free market rate is currently around 33,200 rials in Iran, while the official exchange rate announced by the Central Bank of Iran is 28,369 rials.