Privatization of Iran's NPC restarts

For sale: NPC

11 June 2010 00:00  [Source: ICB]

Iran's government plans to restart the privatization of NPC. But can the strategy succeed, and bring vital global technology and financing to a company that has been starved by Western sanctions?

IRAN IS restarting the privatization of its National Petrochemical Co. (NPC) and may consider selling a majority stake to international investors, says a source close to the initiative.

 

 Rex Features

According to the plan, all NPC's production assets will be placed into a single entity that could then be sold in part or as a whole to investors including the international petrochemical industry. NPC's nonproduction assets would become an "incubator," raising capital in the markets and becoming a co-investor in new projects, the source says.

Iran's government has tasked NPC with developing a detailed privatization plan that it hopes to approve by the Iranian new year, in March 2011. It is not clear whether international expertise will be brought in to help develop the plan.

"A big share of NPC will probably be sold to the state's pension funds, but they want international investors and may be willing to sell a majority. Asian companies, perhaps the Chinese, Koreans or Japanese would be interested," says the source, adding that US and European companies would find it hard to participate because of political pressure. "This privatization would interest petrochemical players who want to build a presence in the Middle East and want access to cheap feedstocks and material."

Previous privatization attempts have failed, but this plan is quite definite and "the closest they've got to it in the last few years," says the source, who cautions that domestic political instability and any change in leadership could derail the plan. "There is a strong belief that NPC can be better run outside the state. They recognize that NPC might get easier access to technology if it is not state-owned."

SANCTIONS COULD STYMIE PLANS
The privatization of NPC will fail to improve the company's performance because it will not attract vital funding and expertise from the global chemical and banking sectors, according to consultants and analysts.

The soon-to-be privatized group needs access to international funding and the best chemical industry engineering and planning know-how because many of its projects and operations are inefficient and beset by delays. But access will be denied unless political relations improve significantly with the US and other Western countries.

"What's plagued NPC is the dearth of skilled labor and nonavailability of Western engineering companies. It suffers consistent capacity availability delays: the five crackers started up between 2005-2010 are only running at 50-60%," says Hassan Ahmed, partner and head of research at US-based analysts Alembic Global Advisors.

He adds: "The question is - will the privatization process solve NPC's issues? Only if it gains access to Western expertise, and which company would be willing to get involved? I could possibly see the Chinese or Koreans doing it but that remains to be seen."

Ahmed points out that US-headquartered Huntsman, and South Africa's Sasol - two of the few Western chemical groups until recently still active in Iran - have now pulled out as US sanctions have tightened.

If the political situation improves, NPC could become a major global player, says Ahmed: "They could be the next SABIC. They're sitting on some of the largest natural gas reserves in the world, and they want to monetize this. By converting natural gas to petrochemicals, there is huge potential because it is priced in line with crude oil."

Chris Stirling, head of chemicals and pharmaceuticals for global consultancy KPMG Europe adds: "Any company with a serious presence in the US is going to struggle to get involved in Iran."

Another consultant, who wishes to remain anonymous, says: "Six or seven years ago, international investors were lining up to invest in NPC. Not now: there is too much underlying pressure from the US. Sanctions could be extended to anyone doing business with Iran in oil or refined products."

The privatization could succeed, he says, but only by selling to domestic investors. But domestic investors would not have access to the finance or expertise to grow NPC.

 "A big share of NPC will probably be sold to the state's pension funds"
Source close to the NPC sale

The company lacks best practice in its business methods, he says: "This is the main problem for NPC. It has no clear strategy for which markets it wants to target or where it has a competitive advantage. NPC and the ministry [department overseeing chemicals] do not agree or understand each other."

He adds: "There are frequent changes to the board at NPC. Those appointed are not industry experts and not many have international experience or knowledge. A big roadblock to NPC's current development is the unrealistic price it charges for feedstocks."

Many chemical projects in Iran do not even have feedstock agreements in place, he says.

The commentators agree that it is hard to put a value on NPC because of the difficulty in accurately assessing its operations and projects. The latest financial figures available for NPC are for 2007-2008. Sales fell by 3.2% in local currencies to $7.51bn (€6.29bn). Operating profits were $1.06bn, giving a net profit of $627m.

NPC could not be reached for comment.

US RATCHETS UP PRESSURE ON IRAN
The US House Armed Services Committee is proposing to bar the Pentagon from buying fuel from companies that do business with Iran's energy industry. If approved, an amendment to a defense spending bill could cost some European energy firms billions of dollars. The Pentagon is the world's largest consumer of oil, burning around 400,000 bbl/day. Shell and BP both buy crude oil from Iran and have big supply contracts with the Pentagon.

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NPC'S FIVE MAJOR LONG-TERM PROJECTS
Project Location Main products (tonnes/year) Status Start-up* Investment costs
Boushehr Petrochemical Assaluyeh Assaluyeh methanol 1.97m, ethylene 675,000, C3+ and C3/C4 860,000 Feasibility study done;detailed design pending 2013 $1.2bn
Feedstock secured (currently flared)
Oxygen supply under construction
Cracker sub-scale, worldscale possible from feedstock perspective
Local downstream not planned yet
International partner could get majority
Propane de-hydrogenation plant Mahshahr propylene 350,000 Feedstock from existing plant 2014 $650m
Iranian private downstream customer available or new PP plant necessary
Marjan Petrochemical Assaluyeh methanol 1.6m Only for export markets 2013 $700m
No feedstock secured
Persian Gulf Petrochemical Complex Assaluyeh ethylene 530,000, propylene 310,000, C4 Cut 220,000, heavy ends 1.38m, paraxylene 770,000 No feedstocks secured 2013 $2bn
Firoz Abad C2 Cracker Firoz Abad ethylene 1.4m No infrastructure 2013 $750m
No utilities
No downstream customers
No feedstocks secured
Very long term
 *NOTE: None of these projects has secured financing

By: Will Beacham
+44 20 8652 3214



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