Domestic Oil Equipment Firms Face Banking Restrictions

Domestic Oil Equipment Firms Face Banking Restrictions
Domestic Oil Equipment Firms Face Banking Restrictions

Arrangements should be made in order to facilitate the process of preparing letters of credit (LC) by banks for domestic manufacturers of oil and gas industry equipment, said a senior official at the Society of Iranian Petroleum Industries Equipment Manufacturers (SIPIEM).

Banking restraints which impedes provision of guarantees are the main hurdle for domestic producers, Reza Khayyamian, a member of SIPIEM board of directors, was quoted by IRNA as saying. Pointing to the fact that oil projects in Iran are offered through tenders, the official said obtaining several banking guarantees required to participate in and win oil tenders has been faced with difficulty for domestic manufacturers.

Implementation of regulations stipulating for utmost utilization of domestic production potentials is among the recent measures taken by the oil ministry to help support domestic manufacturers, the official noted, also making reference to the oil ministry's recent call on private firms to participate in oil projects.

After imposition of international sanctions on Iran's oil industry the oil ministry fell back on domestic producers to a much greater extent. The oil ministry and its subsidiaries are now obliged to buy equipment and commodities via the Integrated System for Protection of Domestic Production, which contains a full list of eligible local suppliers.

As a result, Iran has achieved self-sufficiency in manufacturing of various types of equipment and machineries used in the oil and gas sectors. Domestic producers are now capable of manufacturing 70 percent of the equipment while only 30 percent of the industry’s spare parts and equipment are imported, managing director of SIMPIE, Reza Padidar, said earlier in March.  As Iran and the world powers (the United States, Russia, China, Britain, France and Germany) are negotiating to reach a comprehensive deal by the self-imposed deadline of June, an important concern of Iranian firms is the role domestic manufacturers could play once sanctions are removed.

"International companies would replace Iranian firms should the latter fail to keep up with the advancement of major global companies," Khayyamian said, adding: "Domestic producers should not be apprehensive of their post sanctions position, but regard it as a window of opportunity," Khayyamian said.

Cooperation with international companies is beneficial for Iranian producers as they can participate in projects handed over to foreign contractors and acquire technical expertise, he said while calling for a fair and competitive arena to be established for both foreign and domestic contractors.

Since early 2012, the United States has led a campaign to accelerate the pace of sanctions, focusing on Iran's energy and financial sectors. The EU also has imposed sanctions on oil purchases from Iran. Overall, sanctions have sharply cut back oil exports, isolated Iran from international banking systems, and restricted trade of oil industry equipment.