INSIGHT: Iran plans bold global expansion

09 January 2006 13:32  [Source: ICIS news]

By Prema Viswanathan

Iran's No 9 Olefins projectSINGAPORE (ICIS news)--The sky is the limit for Iran’s petrochemical ambitions. Not content with pursuing 17 daunting projects in Assaluyeh in the gas-rich south-western part of the country, state-owned petrochemical major, National Petrochemical Co (NPC) has now embarked on a strategy of global acquisitions, aimed at turning it into a leading player on the world stage.

Undeterred by its failure in acquiring global polyolefins major, Basell, last year, due to political pressure from the US administration, NPC is pressing ahead with its plan of broadening its share of the petrochemical market. It is also spreading its risks by exporting to diverse destinations, so that it can divert cargoes from low-price markets to more lucrative ones.

Given the current government-controlled pricing system in Iran, NPC would secure better returns by exporting than by catering merely to the domestic market. Also, given the scale of its projects in the country, building an export network is a necessity, not a choice.

In line with this strategy, NPC bought a 60% stake in Bataan Polyethylene Co (BPC) in the Philippines, and is evaluating the possibility of back-integrating the plant by investing in a cracker project in the country in the longer term. The main impetus behind the BPC investment was to get closer to its customers in China and Southeast Asia, an NPC source said.

The Iranian major is also eyeing a fertiliser investment in Uzbekistan. A major incentive behind this move is that ammonia and urea are core products for NPC in which it will soon enjoy a significant global market share.

These acquisitions are not quite in the same league as Basell where NPC would have gained invaluable management expertise. The company is still aiming to emulate Sabic - it took over DSM a few years ago - and acquire an established producer.    

But can NPC succeed in its gameplan, hemmed in as it is by a host of political, social and infrastructural problems? By most counts it will be tough but the Iranians are making a determined go at it. 

On the face of it, Iran’s petrochemical industry has a lot going for it. At the top of the list is the availability of low-cost feedstocks, especially natural gas, of which the country has the second-largest reserves after Russia.

Iran hopes to corner 14% of the global petrochemical market by the end of this decade, with a capacity of 23m tonne/year of products, NPC president Mohammad Reza Nematzadeh said.

NPC’s 2010 target is to produce annually 6m tonne of ethylene, 900,000 tonne of polypropylene (PP), 3m tonne of other polymers, 3m tonne of ethylene glycols (EG), 5.5m tonne of methanol and 4m tonne of urea.

There is little doubt that the company will achieve its target. The question is whether it will do so by its self-imposed deadline.

Going by the persistent delays faced by most of the ongoing projects in Iran, it seems unlikely that the time schedule NPC has set for itself can be achieved.

Take Arya Sasol, the 1m tonne/year cracker joint venture between NPC and South Africa’s Sasol, which has been delayed from late 2005 to July, 2006. Marun Petrochemical, the 1.1m tonne/year olefins and polyolfins complex, which is set to finally see the light of day in March, had been pushed back three times from the original start-up date of early 2005.

These are just two of the more high-profile projects that have had to be deferred because of infrastructural bottlenecks such as a shortage of skilled labour. Adding to the problems are social and political factors. Faced with growing unemployment, Iran’s government has embarked on an agenda of dissipating social inequities through corporate initiatives.

Unfortunately, this is an economic model that cannot but have repercussions in this age of cut-throat global competition. Foreign contractors have thus found themselves being forced to slow their pace to match that of local contractors who do not adequately possess the skill and the expertise necessary for world-scale projects.

Also slowing projects development is the dearth of foreign investment, especially from Western petrochemical majors. South Africa’s Sasol has been a notable exception, remaining committed to its investment in Olefins No 9, and even planning a new polyethylene project, even as other majors such as Shell and Basell withdrew their interest in Iranian projects.

Johan Van Buren-Schele, managing director of Arya Sasol, recently said that if the Iranian government were to actually implement its proposal to allow foreign companies to take 100% stake in Iranian petrochemical companies, Sasol may be quite interested in enhancing its share in Arya Sasol from its current 50%.

But given the fragile geopolitical balance in Iran, and the nuclear stand-off between Iran’s President Mahmoud Ahmedinejad and the US administration, it seems unlikely that many Western companies will rise to the investment bait, even if the Iranian government were to offer it.

By: Prema Viswanathan
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