TODAY.AZ / Business

International banks still reluctant to provide finance in Iran, expert says

25 May 2016 [17:57] - TODAY.AZ

/By Azernews/

By Fatma Babayeva

Sanctions imposed by the West on Iran over its nuclear program did not affect the country’s gas production, said Kamran Dadkhah, associate professor of Economics at the Northeastern University via email to Azernews on May 24.

By referring to the U.S. Energy Information Administration (EIA), Professor Dadkhah stressed that the data shows that Iran’s gas production has continuously been increasing.

Iran has the potential of attracting foreign investment to its gas sector and turning the country into a major producer and exporter, that is, a position commensurate with its reserves, which is the second in the world, told Dadkhah.

"Nevertheless, in order to attract foreign investment, Iran needs to initiate a number of structural changes in the economy, its laws and its relationship to the West, particularly the United States," noted the professor by adding that Iran has already taken some steps including changing its oil and gas contracts but much more needs to be done.

The expert further added that international oil and gas companies are interested in investing in Iran. The country has vast amount of gas reserves, and because of lack of investment and technology its production is far below its capacity, he said, adding that few issues stand in the way of international companies rushing in.

Dadkhah explained that international banks are reluctant to provide finance for such investment as some sanctions still in place against Iran.

Secondly, many economic activities are in the hands of the affiliate companies of the Islamic Revolutionary Guard Corps. Many of these entities and individuals running them are under sanctions, and dealing with them could potentially bring sanctions and fines against companies and banks doing business with Iran, he added.

Finally, the international companies did not like the old buy back contracts proposed by the Iranian government, said Dadkhah by reminding that in the past years, these contracts were revised twice but that did not change the attitude of companies.

However, the new government in Iran has proposed a new type of contract (Iranian Petroleum Contracts) that may make a difference. Already some hard-liners are opposing such contracts, said the expert.

He also elaborated that the old contracts had three main characteristics that made the international energy companies reluctant to invest in Iran. First, they were not partnerships, and companies did not own a portion of the discovered oil or gas. The company would be paid for its service a portion of the extracted oil or gas.

Second, they were short-term contracts, usually lasting 5-7 years, added Dadkhah.

In addition, the risk factor was not taken into account, said the professor by emphasizing that the Iran Petroleum Contracts (IPC) offer joint ventures between international companies and Iran’s national oil or gas companies. They will last 20-25 years, and allowance will be made for the risk factor.

It is hoped that the new contracts open the way for the revival of Iran’s oil and gas industries, said Dadkhah.

Iran’s natural gas (in billion cubic meters per day)

2013

2014 (est.)

Production

161.3

172.6

Consumption

157.3

170.2

Exports

9.3

9.6

Imports

5.3

6.9

Today, Iran lacks the necessary technology and infrastructure to expand its gas production, said Dadkhah adding that if the Iranian government is able to take the necessary steps mentioned above, it could easily increase gas production and exports.

The expert also noted that Iran is a net exporter of the gas, and its imports from Turkmenistan and its swap deals with Azerbaijan have to be considered within business and economic context.

Iran provides gas to its northern part from gas purchases from Turkmenistan and swap deal with Azerbaijan.

If it is too expensive to build a pipeline from southern Iran to the north and through the Alborz mountain range, then it makes economic sense to import gas from north and export it from the south, he added.

However, once the new technologies are in place and gas production is expanded, building a pipeline to the north may become economical, said Dadkhah.

Earlier, planning director of the national Iranian gas company Hassan Torbati Montazeri noted that Iran will build network of pipelines with a total length of 5,000 kilometers in its territory during the next five years. The Islamic Republic needs $15 billion in investment for the construction of new network of gas pipelines.

The amount of the foreign investment is yet to be determined.

Curently, Iran’s estimated gas reserves amount to 33 trillion cubic meters.

URL: http://www.today.az/news/business/151088.html

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