x Abu Dhabi, UAEFriday 19 January 2018

Iran to privatise oil and gas sector

Iran plans to privatise its oil refining, petrochemicals and oilfield services sectors but it may have problems finding buyers.

Tehran could raise as much as $12.5 billion privatising plants like this refinery.
Tehran could raise as much as $12.5 billion privatising plants like this refinery.

Iran plans to privatise its oil refining, petrochemicals and oilfield services sectors but it may have problems finding buyers. Under the threat of stiffer sanctions over its nuclear programme, the second-largest OPEC oil producer is seeking to accelerate the sale of state assets to help balance the government's books and revitalise its troubled economy.

Now, even some parts of Iran's previously sacrosanct petroleum industry could be up for sale in a reversal of the country's previous policy of strict nationalisation of oil and gas assets. "The work on ceding [ownership of] oil companies has begun and based on plans, all petrochemical units and refineries will be ceded, including service, drilling and support companies," the Iranian oil minister Massoud Mirkazemi said on Saturday, according to the semi-official Mehr News Agency.

A senior Iranian privatisation official said this month Tehran was aiming to raise about US$12.5 billion (Dh45.91bn) by selling more than 500 state firms to private-sector investors in the coming year, Reuters reported. But the long-running standoff over Tehran's nuclear ambitions has led the US to exert increasing pressure on its allies to shun commercial dealings with Iran. Tehran may therefore have difficulty finding buyers willing to risk a spat with the US.

Another problem is that the refining and petrochemicals industries face tough times due to the slow pace of global economic recovery. Already thin petroleum refining margins, which contracted sharply last year as the downturn sapped demand for fuels, will shrink even further this year, the consulting firm Wood Mackenzie predicts. "Refinery over-expansion from the previous up cycle will be felt while the industry adjusts to shifts in market demand," the international consulting and publishing firm Hart Energy said in a recent issue of its Global Refining and Fuels Report.

Tehran will therefore be selling assets at the bottom of the cycle, further reducing its chances of attracting lucrative offers. But two sources of potential buyers stand out: China and Iran. Of the UN Security Council members, China has been the least receptive to US calls for new sanctions on Iran. That is because it has been building a strategic energy relationship with the country. China is already the biggest buyer of Iranian crude, offsetting declining Japanese imports.

To help bolster its future energy security, Beijing wants and has been granted direct access to Iran's upstream oil and gas sector. In return, Tehran has sought investment commitments from Chinese oil firms to help upgrade and expand its lagging refining sector. Mehr reported last November that China's state-controlled Sinopec had signed a memorandum of understanding to invest $6.5bn in Iranian refineries.

Tehran may court China's state-controlled oil companies as buyers for existing Iranian refining and petrochemicals assets, even though that would damage Beijing's relationship with Washington. The US has called for a ban on exports of oil products such as petrol to Iran, which does not produce enough for domestic demand. China has resisted because it is unwilling to agree to "a significant reduction in the diversity of its oil supply sources in the Gulf", the US-based foreign policy analysts Flynt Leverett and Hillary Mann Leverett have said.

On Friday, the state-owned Press TV said Tehran had transferred stakes in six petrochemicals plants and power stations to a social-welfare investment organisation of the Iranian armed forces, in lieu of a debt payment. In the past, many of the assets that Tehran has "privatised" have ended up in the hands of factions with strong ties to the ruling elite. Last year, a $7.8bn "privatisation" deal saw 51 per cent of Telecommunication Company of Iran, the dominant Iranian telecommunications company, transferred to Etemad-e-Mobin, a consortium linked to the Revolutionary Guard Corps.