TBY talks to Abdol Hossein Bayat, Deputy Petroleum Minister & President of the National Petrochemical Company (NPC), on the strengths of the Iranian petrochemical sector, attracting foreign investment, and long-term targets.
THE BUSINESS YEAR What is your evaluation of the Iranian petrochemicals sector and how would you assess product quality?
ABDOL HOSSEIN BAYAT The quality of petrochemical products in Iran is fully compatible and competitive with national and international standards. Thanks to the quality of our petrochemical products, I should bring to your attention that our international customers have a huge demand for our range of products. In the last six months, the National Petrochemical Company (NPC) successfully managed to meet all the requirements of the REACH Regulation—the qualification test for European standards—and now we have confirmation to export all of our products to the European market. This is proof that the quality of Iranian petrochemical products is very high, and serves as a good reason why there is such a high demand for them. In order to produce these products we utilize state-of-the-art technology, which improves our output. Iran started producing petrochemical products more than 50 years ago, and over this time we have been able to develop a skilled workforce that is positively affecting our production.
The value of petrochemical products is expected to reach $26 billion by 2015. What strategies is NPC taking to contribute to achieving this goal?
We have a vision for 2025 that will make us the number one producer of petrochemicals in the Middle East in terms of the value of products. According to this plan, we have formulated several different five-year plans. There are three more five-year plans at an industry level to carry out until 2025. We are currently implementing the fifth five-year development plan at the national level. Within this framework, we are financing 73 new petrochemical projects. When these 73 projects are implemented, we will have an extra 66 million tons of installed capacity. The requirements to implement this plan are finalized and ready. The required feedstock has been allocated, the private sector has been attracted, feedstock agreements have been signed in order to grant investors access to long-term supplies of raw materials, and the implementation activities for all 73 projects have been initiated. We have local and foreign investment for some of these projects, and for others we are working to secure and attract both local and foreign investors. If we can secure these investments, we can finish all these projects in accordance with the timetable. Our expectation is that by the end of the fifth five-year development plan, we are going to have an installed capacity of over 100 million tons of petrochemicals. We have a large and growing domestic market of 75 million people, but annual per capita consumption still remains below international standards. That is why we are trying to increase the existing per capita consumption rate. At the same time, the country’s population growth rate is healthy and Iran could reach a population of 150 million people. This means that there is a huge local market waiting for us. People all over the world are facing dramatic lifestyle changes. All things considered, petrochemical products are going to dominate the market. It is expected that petrochemical-based products will replace products made out of wood, aluminum, and metal, as well as those made out of minerals, in many sectors. Petrochemical products may also replace certain construction materials. We are looking at different markets, such as those in Asia. According to our research, the demand in that market is growing, and we have access to it. At the same time, we have experts at NPC that do market analysis, and we are directing our production capacity to be able to supply the demand of our neighboring countries and our national market. As an example, we are currently producing 5.5 million tons of urea per year, of which 2.2 million tons is used locally and the remaining 3.3 million tons is exported. Still, the demand is high, and customers often demand 10 million tons of urea—we cannot meet that level of demand yet. Another example is polypropylene output capacity, which is 600,000 tons per year, and domestic consumption actually exceeds our production capacity. This is the reason we import some products to satisfy our increasing domestic demand.
How are NPC and the government assisting foreign investors to enter the petrochemicals industry?
Iran possesses the world’s largest reserves of oil and gas combined. In terms of feedstock diversity, Iran has the most diversified resources. We have access to natural gas, gas condensates, LNG, and naphtha. Given these resources, the strategy is to implement and avoid selling crude products, and instead create value-added products for export. We believe that creating this value-added will attract investors, both domestic and foreign. In order to attract and facilitate foreign investment, we have to protect these investments by guaranteeing the highest profit margins. The benefits we offer are access to long-term feedstock supplies, the availability of cheap and abundant land, and infrastructural facilities located in special economic zones that enjoy advantages such as tax exemptions. The other available advantage is that exports can be made without limitations. The security of investments made through the National Fund allows investors to use the financial resources of the banking sector, which grants them the possibility to use the local capital markets. NPC and the government will offer guarantees so that investors gain access to the market. Of course, investors will benefit from a skilled workforce with managerial experience, as well as qualified companies active in the fields of engineering, manufacturing, and implementation. In addition, investors will have access to government-built infrastructure, such as the port in the South Pars Special Economic-Energy Zone. This port, for example, has facilities that allow the export of different kinds of gaseous, liquid, and solid petrochemical products.
What is your forecast for the petrochemicals sector?
I am very optimistic, and my optimism is based on facts and figures, as well as the 25 years of experience that I have in the petrochemicals sector. Given the potential that Iran has and the plans and efforts that the government is making to create a lucrative investment environment, I believe that Iran’s petrochemicals industry will boom. Any investor looking to invest in the coming period will enjoy a fruitful return on his or her investment.
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© The Business Year - September 2012