The Fifth Iran Petrochemical Forum (IPF) concluded work in Tehran on May 18,2003. The two-day conference drew participants from across the world where they discussed major issues facing the industry. The need to forge regional cooperation among petrochemical players in the Middle East and to pool resources was among key issues that was reflected in the speeches of several speakers notably the Iranian Petroleum Minister, Bijan Namdar Zanganeh and Deputy Petroleum Minister and NPC President, Mohammad Reza Nematzadeh. Several speakers pointed out that trends augur high growth for the petrochemical industry in the Persian Gulf region while some others stressed that the main driving force behind the projected growth would be the feedstock cost advantage that the region enjoys. Excerpts of some of the speeches:



The policy of the government of the Islamic Republic of Iran vis-a-vis the petrochemical industry hinges upon rapid expansion of the industry's up and downstream sectors, Iranian Petroleum Minister Bijan Namdar Zanganeh told delegates at the IPF 2003. In alignment with this policy, he said, "Ministry of Petroleum gives special attention to the development of petrochemical products chain and the industry's downstream."
He said that in order to realize the objectives of the development of Iranian petrochemical industry, major projects have been defined some of which have already been implemented while some other would enter implementation phase in the near future. Once these projects are completed, Zanganeh said, "Our output capacity will grow to some 31 million tonnes per year, increasing the share of the added value of the industry in Iran's GDP from 1.1% in the base year to 2.1%. "As a result of such developments, Iran's share of the Middle East Petrochemicals output will rise from 13% to about 30%. He said revenues from the exports of petrochemicals would rise to $5bn per annum, which would have the largest contribution to Iran's foreign trade after oil.
Zanganeh stressed that "Our policy to develop the Iranian petrochemical industry rests upon extensive collaboration with the regional producers and substitution of the unhelpful and ineffective competition with the culture of cooperation."
He said Ministry of Petroleum was planning to make available all the ethane produced from various development phases of South Pars to private or state-owned petrochemical industry.
Petroleum Ministry has sanctioned the petrochemical industry to utilize all the associated gases that are produced at onshore oil-rich regions. Meanwhile, it welcomes investment initiatives to optimally utilize associated gases from the onshore regions within the petrochemical sector," Zanganeh reiterated, adding that, "With regard to the offshore, all the C₂+ fractions from associated gas will be recovered. The Ministry of Petroleum will sanction and approve investments in this field as well." He said that with the start-up of several petrochemical projects in the current year and also next year 2 million tonnes would be added to Iran's polymers output capacity. Zanganeh said "It should be mentioned that the Petroleum Ministry in principle approves the attraction of investments for implementing parts of FCC projects within refineries in order to increase the production and supply of propylene. He stated that the Petroleum Ministry was fully and seriously committed to supply NPC and potential investors with an immense amount of locally produced gas" adding that it required all the gas conversion technologies, either traditional or those which are under development such as GTL, LNG and DME to market and export its natural gas. "We are actively following this and invite potential investors to cooperate with us," he concluded.





Despite the global decline in petrochemical investment, NPC decided to step up and accelerate our capital investment to inject some $10 billion in twenty grassroots projects in order to make up for our lost time due to the imposed war, Mohammad Reza Nematzadeh, Deputy Petroleum Minister and NPC President told the IPF 2003. He said, "Several NPC projects have so far been completed and are onstream, while; during the current Iranian year, several others will become operational. With the completion of these projects, NPC's production is expected to reach 16 million tonnes with 20% increase over the previous year. At the same time, end products will increase from 8.1 million tonnes to 10 million tonnes."
NPC President said that in the second half of 2004, NPC would bring onstream the next wave of its world-scale projects rising its annual capacity to around 30 million tonnes. He said the projects included: Olefin No. 7 with a capacity of 1.3 million tonnes per year of ethylene and propylene, Olefin No. 9 with 1 million tonnes per year of ethylene capacity, Fourth aromatic, which will produce 1.4 million tonnes of aromatics annually, Fourth methanol with a capacity of 1.6 million tonnes of pure methanol. "Ministry of Petroleum and NPC are working together to build up and expand the infrastructure and underlying foundations which are essential for the growth of oil, gas and petrochemical industries," Nematzadeh said.
Briefing participants on the NPC's performance in the past Iranian year, which ended on 20 March 2003, he said, NPC's export earning reached $940 million showing a 20% increase over the previous year adding, "Exports earnings are expected to rise to $1.2bn at the end of the current year." He mentioned that NPC authorized 20 exclusive commercial agents in 15 countries to market its products while 10 new agencies would be awarded in several other countries. "We opened our trade offices in Shanghai and South Korea. In the near future, we will open a trade office in Turkey to expand our global export network", Nematzadeh said.
NPC is also establishing a joint venture maritime transportation company with the collaboration of two specialized partners in order to facilitate the export and import of its liquid and gaseous petrochemical products. The company is expected to start work in the near future.
During the past years, NPC backed and assisted the expansion of downstream petrochemical sector. To this end, he said, "We conducted fifty feasibility studies, which will be handed over to the prospective investors." Since IPF 2002, NPC has finalized and approved 5 joint ventures with foreign partners whose shares in the ventures amount to over 600 million dollars. NPC expects to finalize several other joint venture arrangements in the current Iranian year. He underscored that cooperation with regional petrochemical companies, especially those in the Persian Gulf region, was among the company's strategic goals.





Mohamed Al-Mady, Vice-Chairman and Chief Executive of Saudi Arabian petrochemicals Sabic, stressed the need for petrochemical players in the region to develop a strategy to gain global competitiveness. He referred to the various dynamic forces that affect the petrochemical industry including sensitivity to global economic changes. Several petrochemical companies, he said, have reacted to such global changes "Through the formation of strategic alliances with each other, diversification, moving to best cost locations, and continuously building competitive advantages." Al-Mady, however; cautioned that such moves would be fraught with challenges. "It's like riding a tiger. All you can do is hold on," he said. He pointed to SABIC's drive to become a global company. This, he said, had been accomplished by going through three different phases, establishing strong local production facilities, establishing sophisticated international marketing and sales networks, and finally, making global acquisitions and building state-of-the-art global research and development facilities.





Professor Fazlollah Reza, President of Iranian Academic Association in Northern America, and a renowned Iranian scientist concentrated on the impact of science & technology on industrial development and economy. He told participants that advances in S & T are the world's new yardstick of economic progress. They are powerful indicators of a country's socio-economic development and well-being. Energy, petrochemical engineering and telecommunications are fundamental for economic development of the region, in order to narrow the gap with developed countries.
Fifty years ago, Prof. Reza said, "Petrochemical industry was in its infancy. Now, one can say, with a sense of admiration, that chemistry and chemical engineering play the pivotal role in ameliorating the quality of our lives." He noted that the sustained support of the Iranian government and its industrial partners for the advancement of S & T alongside specialized higher education would foment industrialization, regional prosperity and peace.





Deputy Foreign Minister for Economic Affairs, Seyed Mohammad Hossein Adeli, pointed to some of political developments in Iran's neighboring countries saying that the elimination of tensions in neighboring Iraq and Afghanistan plus Iran's expanded international interactions and cooperation have contributed to an increase in opportunities for further investments in Iranian economy. Adeli pointed out that Iran has experienced uninterrupted and sustained economic growth rate for the past fourteen years. Highlighting the economic performance in 2002-2003, he said GDP growth rate was %6.5,inflation rate stood at %15.8, exports reached $28.2bn while imports was $22.8bn, current account surplus was $3.7bn, foreign reserves stood at $17bn and foreign debt (actual) was $8bn. He enumerated some of the recently introduced economic reforms by the Iranian government, including new foreign investment act, new tax amendments, financial sector privatization, foreign trade and privatization of basic utility services. In order to go global, he suggested that the Iranian petrochemical industry should adopt an international strategy. To do so, it should be able to address challenges like the challenge of know-how, volatility of oil and gas prices and the necessity to be equipped enough to remain competitive. He noted that regional countries in the Persian Gulf have similarities, including availability of feedstock saying these countries can pool resources and use economy of scale in order to extend their cooperation.
He pointed out that Iran's petrochemical industry had already attracted $4.5bn in foreign investment thanks to its abundance of hydrocarbon resources.
"Utilizing gas fields in various manners, including transit pipelines, and developing the petrochemical industry, this potentially constitutes a comparative advantage for Iran," Adeli said. He noted that removal of barriers to markets for the petrochemical industry in industrial countries "Is amongst the main demands of developing nations who have the opportunity to produce petrochemical products."





Ralph Havenstein, Executive Director of the South African Sasol told participants that rationale for Sasol's presence and participation in a polymer project, which is underway in Iran was based on several key factors including the competitive cost base for petrochemical manufacture combined with the opportunity to invest in world scale petrochemical plants. He said, "It is evident that even under an oil price scenario of US$ 18 per bbl, the new large world scale ethane-based crackers in the Middle East have a significant cost advantage over those in other regions. " Havenstein said that Sasol Polymers Germany GmbH was actively involved in a joint venture with NPC in the No. 9 Olefins complex at Assaluyeh on the Persian Gulf coast. The participation, on a 50/50 basis, is in a 1 million tonne/year ethane cracker, a 300,000 tonne/year HDPE plant and a 300,000 tonne/year LDPE plant. He added that a number of issues have made the project at Assaluyeh an attractive proposition for Sasol enumerating the advantages as: competitive cost base, world scale plants, integrated free trade zone with centrally supplied utilities and services, well located for markets East and West, polymer plants adjacent to port from plant straight to ship and favorable tax regime for export businesses. "In a period of less than 15 months NPC and Sasol moved from signing a Memorandum of Understanding to a registered joint venture company with a project well underway. This achievement would not have been possible if it were not for the positive atmosphere in which the investment was made and the co-operation of NPC and other parties in Iran", he concluded.





Hilfra Tandy, Editor of the Chemical Matters focused on the challenges the petrochemical industry faces. According to her, the historical petrochemical production triad of the USA, Europe and Japan has sustained two years of dismal economic performance. Having transformed mid-1990s profits into global capacity builds and expansions, market conditions deteriorated as the industry entered one of it's more bruising periods of frail demand and higher costs. She said, "By 2000, the industry had redefined itself and specialization rules. Companies split to focus on their chosen fields - petrochemicals, life sciences or fine chemicals - having apparently identified their core competencies, if they had any. And in the petrochemicals sector management tackled costs, portfolio breadth, and CAPEX budgets where scrutinized by even more gimlet eyes." Tandy stated that it was debatable whether or not 2003/04 would provide the macro fundamentals for recovery. However, pointing to some critical issues lying ahead the industry she inquired, "Viewing longer term trends, will China's role as a net importer remain the silver lining? What does the future hold as the industry's productive epicenter is inexorably relocating to its natural home in the Middle East? Will consolidation produce a leaner more efficient sector? And how, if at all, will Europe's proposed revised energy policy impact her trading partners?" She said the patterns of world ethylene trade were changing adding that "Today we have three major trading regions for ethylene net exporters North America and the Middle East, and only one significant importer, Asis. But the real story lies in the Middle East, as an exporter and in Asia, as an importer."





Leif Wilnier, Managing Director of Chematur Engineering said the company has been active in Iran since the end of the 1930's. Referring to an 80,000 tonne/year of isocyanates project, Wilnier stated that based on the good experience of working in Iran "Chematur accepted and decided to form a joint venture for establishing a chemical complex in the economical free zone at Bandar Imam." The infrastructure work which started in autumn 2002 for both phase 1 and phase 2 is almost finished. Phase 1 is well under way and the civil construction work is ongoing.
Chematur Engineering is the responsible EPC contractor and has almost completed the engineering work and the supply of equipment is ongoing. The start up of production for phase one is planned for the end of 2004 and the beginning of 2005. The marketing and sales of the products is foreseen to be done by Hansa Chemie AG. Part of the production is intended for the domestic market but the major portion will be exported.
The construction of the plant started in mid 2001 and is well under way. The expected start up of chemical production for phase 1 of the complex is planned for the end of year 2004. Iranian professionals manage the company and the owners are forming the supervisory board of the JV company. The financing of the complex is envisaged partly through the owners' equity contributions and partly through long term loans from European finance institutions backed by ECAs.





Mohammad Hadi Rahbari, Managing Director of NPC International and an NPC board member said that the robust economic outlook envisaged for Iran in the next few years should ensure the continued flow of export credit guarantees for petrochemical projects from European and Japanese institutions. He stated that "Beginning with conventional export credit facilities guaranteed by Iranian Commercial Banks in early 1990s and later on by Ministry of Economic Affairs and Finance (Sovereign Guarantee), NPC's progression of its financing capacities represents a success story and remarkable track record. The efficient and timely implementation of NPC projects and due payment of its financial commitments out of export revenues led to development of the structured facility in the year 2000. Structured facilities, supported by product collateralization, have further progressed into pure corporate and project finance schemes."





Benno Bunse Director of Germany's Federal Ministry for Economics and Labor focused on reinforcing Germany's commitment to providing export credit for petrochemical joint ventures between German companies and NPC. He said, "Given the solid economic outlook and the good payment experience of the past, the government of Germany is ready to continue and increase its support to German-Iranian economic cooperation." He said that based on structured finance schemes "We were able to support the engagement of German banks and companies in NPC's ambitious Bandar Assaluyeh and Bandar Imam projects." Bunse added, "Our exposure in these transactions adds up to nearly €0.6 billion, the total volume covered regarding petrochemical plants being nearly €1 billion. Obviously this development was possible only against the backdrop of the excellent cooperation between the Iranian and German sides including both sides' governments. In particular, we were able to establish close ties to NPC." He went on to say: "Relying on its excellent creditworthiness and the very good payment experiences in the past, the German Federal Government recently accepted NPC as corporate risk without additional securities." NPC is now eligible for short-term transactions without any restrictions. Bunse stated that in the medium and long-term business, "We can accept projects on a case-by-case basis up to a volume of €40 million each. For structured finance deals NPC is accepted for interim payments on a stand-alone basis. We consider this first acceptance of an Iranian company for medium and long-term transactions on the basis of corporate risk to be a major step towards widening our cover options for Iran. The continuous extension of our Hermes cover policies since 2000 has to a large extent been induced by the overall payment experiences with Iran, which can be characterized as 'excellent'." He stressed that, "The soundness of the Iranian economy and Iran's reliable payment behavior have been recognized OECD-wide." This, he concluded, "Is reflected in the current OECD premium category: within three years Iran moved from category 6 to category 4."





Shinichi Jin, Deputy Governor And Managing Director of Japan Bank for International Cooperation (JBIC), said in tracing the history of the financial cooperation between Japan and Iran's petrochemical sector that his bank was currently exploring new avenues of lending to Japanese-Iranian joint ventures, such as the overseas investment loan (OIL), limited resource finance and structured finance. He said, "Our Bank has been diligently negotiating with NPC to design a new scheme that does not require the guarantee from the Iranian government but instead needs NPC's accounts receivables on export of its products as collateral."
Jin told IPF participants that the Iranian petrochemical sector's continued investment to diversify its industry and strengthen exports "Has drawn the attention of many Japanese plant exporters." The competitive strength of the industry resulted in orders for a PTA and an aromatic plant. With these projects, Jin said, "Financing from our bank to Iran's petrochemical section gained momentum." He stated that in response to Japanese firms' considerable interest in doing business with Iran, JBIC "Has been positively developing ideas on appropriate forms of financing. Our bank has been diligently negotiating with NPC to design a new scheme that does not require the guarantee from the Iranian government but instead needs NPC's accounts receivables on export of its products as collateral. When this so-called structured finance is established, NPC can seek financing from our Bank independently of the Iranian Government, which in turn might well lend an impetus to plant procurements from Japanese firms."





John Weiss, Group Director, Business, ECGD, focused on "How ECGD is supporting the petrochemical sector in Iran, describing some of the petrochemical projects, which it has supported since resuming its cover for Iran in 2000." He said the ECGD looked forward to future business prospects. Following its resumption of cover for Iran, petrochemical sector has become the main focus of ECGD activity in the country. He stressed that, "ECGD takes very positive view of the Iranian market and is planning for building close relationship with NPC and the National Iranian Oil Co (NIOC)." He told participants that ECGD had so far supported 4 projects with a contract value amounting to £133m. Expressing hope to build on what the two sides have achieved so far, he said they were negotiating, "Contracts worth £185 million." He also said that there was a possibility of using project finance scheme adding that ECGD and trade partners sought to mobilize UK companies to seize opportunities in the Iranian petrochemical industry.





Mohammad Hassan Peyvandi, NPC's Director of Planning and Development told IPF 2003 that since mid 1980, a driving force shaped the development of the Middle East petrochemical industry. This development, he noted, helped change policies to switch from oil exports into diversified products. According to Peyvandi, forecasts up to the 2006 indicated that the Middle East would continue its feedstock growth up to 34%. In order to make an optimal use of its feedstock resources, comprehensive studies were conducted to draw guidelines for development of petrochemical industries in Iran with priority given to production of methanol, olefins, polyolefins, aromatics, fertilizers, polyesters, styrene, and acetic acid. By implementing development plans, Peyvandi said, Iran's share of global ethylene market plus its derivatives and methanol products would increase to a considerable level.