By Malini Hariharan
A new problem is brewing for Iranian petrochemical producers. It appears that the government is quite keen on raising feedstock ethane prices and this issue is now under 'hot negotiations'.
"The National Iranian Oil Co (NIOC) and the petroleum ministry would like to rationalise the price of ethane according to the international trend and not subsidise it; different formulas are being considered," he says.
The price could either be based on heat value or linked to that of propane and butane which have international prices. The formula could also have a mix of these two elements.
The source was confident that an agreement would be reached by the end of the year. The net result would be higher ethane prices. The cost is now less than $75/tonne, he says.
The rationale for price hikes is easy to understand. Like many other governments in that region, Iran too sees gas as a national resource that is for all generations.
"If they sell it cheap now then they will be questioned in the future," points out the source.
Another important factor is Iran's privatisation drive that is part of the country's fourth Five Year Economic Development Plan (2005-2010).
"Previously all plants belonged to the government. So the value was transferred from one pocket to the other. But now plants are being built by the private sector," says the source.
Pic source: Tehran Times
But he was optimistic that the price hike would be moderate as the government would not want to jeopardise petrochemical investments. A compromise is likely to be reached that would give the government better returns on the national asset and keep Iranian producers competitive.
The source was also critical of the privatisation drive as it had resulted in confusion in the market place.
Each Iranian petrochemical company is now free to set up its own sales and marketing operations and not necessarily sell its products through Iran Petrochemical Commercial Co (IPCC). In addition to this, independent sales and marketing companies can also be established that can act on behalf of local petrochemical companies.
And if that is not sufficiently confusing, every company also has the option of continuing to use IPCC to sell part or all of their production.
IPCC has been partially privatised and it is possible that it would eventually be fully privatised.
"The Iranian petrochemical industry is passing through a transition sage where the state-owned companies are being separated into many small private companies, as happened in the former Soviet Union.
"The customer does not come know whether to go to IPCC or the plant operator. The decentralisation has created confusion.
"The passage will be expensive as the country will loose some opportunities. We now have small producers with no brand; we are lost in the market; who will remember us?" he asks.
Smaller companies are likely to consolidate over time although this would not be a state directed effort, he adds.