NIOC Debts at $50b, Revenues Falling

NIOC Debts at $50b, Revenues FallingNIOC Debts at $50b, Revenues Falling

National Iranian Oil Company (NIOC) debts currently amount to $50 billion, while its revenues have seen a five-fold decrease, the company's managing director told Shana news agency.

NIOC is entitled to 14.5 percent of revenues derived from sales of oil and gas condensate. such revenues were reduced by four-fold due to recent plunge in oil prices, Rokneddin Javadi said, adding that domestic and global inflation rates have also contributed to a fall in NIOC income, which has had an overall five-fold decrease in the past Iranian calendar year (ended March 20) compared to the previous year.

The reduction is also attributable to the plunge in oil exports in the past few years as a result of trade and financial sanctions imposed on Iran, which have isolated Iran from international banking systems. The country's oil exports have been cut by more than half to around 1.1 million barrels per day (bpd) from a pre-sanctions level of 2.5 million bpd.

In early 2012, the United States commenced 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. Iran and six world powers (Britain, China, France, Russia, the US plus Germany) are trying to meet a self-imposed deadline of June 30 to reach a final agreement.

Iran had assumed an oil price of $100 per barrel in last year's budget, as global prices had been relatively stable for nearly four years, averaging $110 per barrel. However, prices tumbled almost 60 percent since last June, hitting near six-year lows as growing production and tepid global demand caused a supply glut. Iranian crude averaged $80 per barrel in 2014.

This year's budget lowered the crude price projection to $50 a barrel. "This year's revenues will further decrease on account of lower oil prices," the official said, noting that the NIOC will face difficulty if the expected resources are not provided in due course.

Brent crude was traded at $68.88 a barrel on Wednesday, after hitting a 2015 peak of $69.14 earlier in the day.US crude traded $1.51 higher at $61.91 a barrel, near an intraday high of $62.05.

  Accumulated Debts

The NIOC debts are estimated at $50 billion, Javadi noted. The parliament, however, has ratified a motion that grants a two-year moratorium to the NIOC in order to help it clear its debts.

Participatory bonds, borrowings from the Central Bank of Iran (CBI), and a recent provision stipulated by note 2(G) of the national budget law are the main financial instruments through which the NIOC can fund its projects and reimburse the expenses. In addition to the aforementioned means, the National Development Fund of Iran has also undertaken to provide $4.8 billion for development of joint oil and gas fields in the current year.

According to the plans, the NIOC should have issued 5,000 billion rials ($1.5 billion) worth of participatory bonds last year, but due to its accumulated debts to the CBI as well as other major Iranian banks, it was not permitted to issue the bonds, and the anticipated $1.5 billion was not realized.

The CBI was mandated by the budget law to provide the NIOC with $10 billion in funding. However, it could not fulfill its obligation due to problems with its own revenues. At the end of the year the CBI could provide a $2 billion loan. The NIOC, as a result, got into arrears and oil projects were delayed.

In line with note 2(G) of the budget, $29 billion is to be allocated for South Pars gas field projects, and $21billion for development of West Karun oilfields through buyback agreements with SPV companies. SPVs are subsidiaries of the Oil Industry Pension Fund, and are responsible for financial management of these projects. Note 2(G) establishes the investment framework for the oil ministry, allowing it to invest up to $100 billion in oil and gas projects in line with Article 44 of Iran Constitutional Law to help open new opportunities to the private sector and boost privatization.