Chinese Rules Obstruct Iran Petrochem Projects

Chinese Rules Obstruct Iran Petrochem ProjectsChinese Rules Obstruct Iran Petrochem Projects

Practices adopted by Chinese financers in Iran's petrochemical projects have imposed restrictions that discourage Iranian authorities from using Chinese funds, deputy oil minister and managing director of National Petrochemical Company said.

In order to implement development plans in the petrochemical sector, a total of $70-80 million should be invested over a 10-year period, part of which comes from Chinese finance and the National Development Fund of Iran," Abbas Sheri-Moqaddam was quoted as saying by Mehr News Agency.

"The projected $7-8 million annual investment cannot be solely provided by the NDFI or through Chinese financers."  

The Chinese have mposed several restrictions on the implementation of petrochemical projects, chief among which is the obligation to procure Chinese equipment and machinery worth at least 50% of the allocated fund.

"Iran and China reached an agreement in October 2014, based on which the latter will supply 50% of equipment for joint petrochemical projects. The requirement to purchase Chinese products for half the value of a project restricts the utilization of domestic industries," he said.

 "Therefore, we prefer  Japanese, European, and American financers who do not impose such restrictions on our petrochemical industry. Alternately, the purchase of goods and equipment from new investors could be made contingent on establishment of a joint venture with Iranian manufacturers."

According to the deputy oil minister, German, French, Spanish, Italian, Dutch, South Korean, Japanese and even investors in a joint venture with a US partner have expressed willingness to participate in Iran's petrochemical projects.

"Negotiations have been held with these companies and they are waiting for the removal of sanctions to invest in Iranian projects," he said.

"Setting up a long-term pricing formula for petrochemical feedstock, lack of sufficient infrastructure and the current numerous regulations are among challenges facing foreign investors in Iran."

China is the biggest oil importer from Iran and has an outstanding balance on previous contracts. It reportedly owes between $23.2 billion to $28.3 billion to Iran and has been committed to finance Iranian projects triple this amount.

Iran aims to recover part of its oil revenues from China by allowing the Asian economic giant to fund key energy development projects.

Although turning to Chinese products and equipment has sidelined domestic manufacturers, the government seemed to have no other option but to recover the frozen revenues in view of the financial sanctions imposed against the country since 2012.

Iran and six major world powers reached a landmark nuclear deal on July 14, clearing the way for an easing of international sanctions on Tehran. Lifting of trade sanctions is expected to be followed by significant growth in the petrochemical sector, where investment opportunities are estimated at $30 billion.

Masjed Soleiman, Lordegan and Gachsaran petrochemical complexes, Sabalan methanol unit and Bushehr project are planned to be funded through the Chinese line of credit. Some 67 petrochemical projects with a production capacity of 60 million tons are yet to be completed.

Iranian officials said China will fund around 30% of such projects, after the two countries reach a final agreement.