Germany Signs $11b MoU on Petrochem Cooperation

Germany Signs $11b MoU on Petrochem CooperationGermany Signs $11b MoU on Petrochem Cooperation

Germany's Abels Decker Kuhfuss Lenzen (ADKL) signed a landmark memorandum of understanding in Tehran this week that paves the way for Europe's largest economy to mark an important foothold in Iran's burgeoning petrochemical sector.

The MoU, worth a total of $11.1 billion (€10 billion), is aimed at facilitating German investment and transfer of technology in Iranian petrochemical projects under engineering, procurement, construction and financing contracts, Shana reported.

According to the agreement, signed between ADKL Executive Director Bernd Lenzen and Yousef Davoodi, CEO of Masjed Soleyman Petrochemical Industries Company, Iran will receive €2 billion as the first tranche of German finance in its petrochemical sector.

Officials did not give more details.

ADKL is a leading solution-provider that advises a raft of international clients on commercial, legal and fiscal matters such as accounting, tax payment and investment.

The company is part of a delegation of 60 businesses alongside trade officials of Germany's western state of North Rhine-Westphalia that traveled to Tehran this week. The German mission was headed by Garrelt Duin, the state's minister of economy, energy, industry and commerce.

Lenzen said that negotiations with Iranian officials just took off earlier this month and "we managed to finalize the agreement in a short time".

"We are a multicultural company and have an Iranian team in our business. This has allowed us to swiftly coordinate with the present condition," he added.

Duin also underlined the MoU as a major step toward expanding ties with Iran and said he would brief German Federal Minister for Economy and Energy Sigmar Gabriel on the agreement.

"The agreement is a clear example of how German and Iranian companies can boost cooperation," he noted. "The state of North Rhine-Westphalia is Germany's industrial backbone and major companies operate there. This [agreement] will lead to more partnerships in the future."

------- Iran's Comeback

Iran opened up its economy to international investors following a historic agreement with six world powers in July 2015 and its implementation in January that limits its nuclear program in exchange for sanctions relief.

Currently the third-largest producer of the Organization of Petroleum Exporting Countries, Iran aims to diversify its one-dimensional economy that largely hinges on revenues from crude oil and make better use of its massive hydrocarbon resources by producing wide-ranging petrochemicals with higher value-added.

The petrochemical sector is Iran's second-most valuable industry after oil and gas. Nominal production capacity stands at around 60 million tons a year and plans call for tripling the volume in 10 years.

However, many production units are running below capacity due to difficulties in marketing and banking relations following years of sanctions that stifled Iran's trade and squeezed its petrochemical market share in Europe and elsewhere.

------- Renewable Cooperation

Power production from renewable sources was a topic of talks between Iranian and German officials.

Iran's Deputy Energy Minister Houshang Falahatian said after a meeting with Duin on Thursday that Germany can help boost Iran's underdeveloped renewable sector whose total output from renewables is a meager 300 megawatts.

"Germany stood by us during the sanctions … Our strategy for future is to expand cooperation with Germany in renewables," Falahatian said.

The Middle East nation enjoys immense open lands and more than 300 sunny days across its diverse climate to supply the better part of its electric demand from renewable sources. But more than 80% of Iran's 74,000 MW output come from thermal power plants.

In addition, most investments have been directed toward nuclear and fossil fuel plants in the past decades—a policy that has left little room for the fledgling renewable sector to shape up.

Iran plans to raise power output by 50,000 megawatts over the next decade, with 8,000 MW set to come from renewables. Germany produces 90,000 MW of electricity only from renewables.

"There is no nuclear plant in North Rhine-Westphalia and a lot of companies have discussed cooperation with us on wind and solar," Duin said.

He added that Iran can boost power efficiency and cut transmission and production costs by transforming its expansive power grid from analog to digital. Officials say Iran is already in the process of migrating to a nationwide smart power grid.

German investors are set to build one of the world's biggest solar power plants in the central province of Isfahan, according to agreements reached earlier this year.