Gov't Unwilling to Privatize Oil Exports

Gov't Unwilling to  Privatize Oil Exports Gov't Unwilling to  Privatize Oil Exports

The Iranian private sector has frequently voiced readiness to undertake oil exports, but the government has retained control of the lucrative trade by setting up constraints in the way of private participation.

"The government is clearly unwilling to issue permits for crude export by private entities," Ali Shams Ardekani, chairman of Energy Commission at Iran's Chamber of Commerce, was quoted by Persian daily Forsat-e-Emrooz as saying.

"Previous experiences also fell through on the private sector's end, but the government should give credence to the private sector's transparent participation in oil exports."

Referring to the government's past experiences in collaborating with the private sector, Mehdi Sharifi Niknafs, a member of the Board of Directors at the Iranian Oil, Gas and Petrochemical Products Exporters Association, said a suggestion has been recently made for the establishment of a joint consortium to win back the government's trust.

Niknafs said a joint consortium, comprising the government and the private sector, should be established whereby one of the subsidiaries of the National Iranian Oil Company operates with an Iranian bank as financer.

The specialized consortium can avail itself of the facilities offered by the association, especially its commercial companies, which are experienced in oil export.

"The private sector carries out more than 50% of petrochemical exports," Niknafs said, suggesting that private firms can capitalize on their surplus capacity to help the government conduct crude oil exports.

Hassan Tajik, a member of the association's Board of Directors, also stressed that the private sector is not capable of handling oil export due to the current constraints imposed by the government.

The government is authorized by law to hand over, on credit, oil consignments of up to $100 million to the private sector. The private sector, notwithstanding the authorization, is required by the Oil Ministry to pay cash in advance or provide a bank guarantee for the export of oil products.

This is while foreigners are allowed to buy crude on credit or installments, and banks are reluctant to issue guarantees when it comes to the sale of oil and condensates as the stakes are high.

"Also, considering the fluctuations in oil prices, the private sector is not able to compensate for the rise and fall in prices. Even if the government were to issue export permits, no domestic bank would be capable of backing up the consignments."

  Joint Ventures

According to law, the private sector is authorized to handle 25% of oil exports without any limitation. But the conditions levied by the Oil Ministry have served as serious obstacles for the private sector's involvement.

In the face of such obstacles, Niknafs proposed another alternative to exports, which is to establish joint ventures with foreign companies to enter the market as a buyer rather than exporter, and to benefit from the two sides' logistical, commercial and technical capabilities to develop the business.

"This is probably the private sector's most recent plan to enter the oil trade market," he added.  Commenting on the scheme's viability, Niknafs said it is a workable plan considering that members of the association have extensive understanding of the market and are well abreast of other active players.

"As a result, there is a great deal of trust in the course of business. Moreover, both foreign and Iranian companies have the financial means to secure a profitable trade," he said.