PGPIC Expects to Sign $2b Olefin Deal With Total

France's oil giant Total is expected to sign a $2 billion contract by March with the Persian Gulf Petrochemical Industries Company to build a petrochemical complex for olefin production in Iran, the chief executive of PGPIC said Friday.

"Total is willing to play a more active role in Iran's joint ventures under engineering, procurement and construction (EPC) as well as engineering, procurement, construction and financing (EPCF) contracts. It has already presented a scheme and a final agreement will be concluded in the near future," said Adel Nejad-Salim, IRNA reported.

Olefin is a synthetic fiber made from a polyolefin, such as polypropylene or polyethylene, used in a wide variety of products including vehicle interiors, carpeting and wallpaper.

"Total began to study Iran's petrochemical ventures after the historic nuclear agreement was signed between Tehran and the world powers (in July 2015)," he said.

Nejad-Salim stressed that negotiations with Total stretched out because of the French firm's concerns over steady supply of much-needed feedstock at fair prices for the olefin plant.

Based on Iran's pricing formula for feedstock, approved in April, every cubic meter of natural gas as feedstock is priced between 8.5 to 9 cents. However, it may vary based on parameters such as domestic natural gas consumption, the volume of the commodity's import and export and natural gas price in three international hubs including US Henry Hub, UK's National Balancing Point and the Title Transfer Facility of the Netherlands.

According to reports, new petrochemical projects in Iran will receive cheaper feedstock as part of the government incentive to spur growth in the key sector.

“New petrochemical ventures will receive between 10% and 30% cheaper feedstock,” the CEO said without elaboration.

Iran is also offering tax exemptions for investment in energy zones to attract multinationals to its fast-growing petrochemical industry.

Pointing to the potential for petrochemical investments, the official said, "Seven memoranda of understanding have been signed with international companies. But developing the petrochemical industry is need of more foreign and domestic investment."

--- Talks With Foreign Firms

According to Marzieh Shahdaei, managing director of National Petrochemical Company who is also deputy oil minister, several meetings have been held with foreign companies namely Germany's Linde Group and engineering giant Siemens on joint ventures.

German companies have been particularly eager to resume business with Iran and are expected to invest over $12 billion in Iran’s petrochemical industry.

According to reports, some 70% of Iran's petrochemical machinery and equipment are supplied by Linde and Siemens.

Linde Group, founded in Germany in 1879, is a multinational industrial gas and engineering company. It is the world's largest industrial gas company by market share and revenue.

Iran has set an ambitious petrochemical production target of 180 million tons a year by 2025, nearly three times the current level.