TBY talks to A. Ghannad REzaei, Managing Director of Pasargad Oil.

A. Ghannad Rezaei
A. Ghannad Rezaei is currently Managing Director of Pasargad Oil.

Your company uses Iran's mineral wealth for a very special product: bitumen. How many factories do you have devoted to bitumen production?

There are seven refineries in Iran producing bitumen, six of which belong to Pasargad Oil, separated from the mother refinery. Our six refineries are near Tehran, Shiraz, Bandar Abbas, Arak, Abadan, and Tabriz.

Were you a public or private company when you were created?

We were affiliated to the Welfare Ministry, which has an investment company known as Shasta. This company has investment holdings, one of which is Tamin Oil and Gas Investment. Our company, meanwhile, is managed under this division, but the system of managing our company is done in accordance with Iranian commercial law. Meanwhile, it is managed as a private company, including its supervisory board and its general assembly. The main shareholder is Shasta. Our annual turnover is $2 billion.

Are you the sole producer of bitumen in Iran?

No, there is another company in the country, Jey Oil, and it belongs to the Oil Pension Fund Organization.

“We have 70% of the domestic market. Internationally, we supply 57% of Iran's bitumen exports."

Nonetheless, you have a dominant market share with six of the seven refineries.

Yes, within Iran, we have 70% of the domestic market. Internationally, we supply 57% of Iran's bitumen exports.

Why is bitumen an important product in Iran?

Bitumen is one of the most important and critical materials for developing countries. In recent years, the importance of the product has grown because emerging markets in the Far East, China, Africa, and other places need it for road construction and insulation for new buildings.

Until now, no one has discovered an effective alternative to bitumen for roads. There is one new material, but its use is not widespread yet. As a result, more than 95% of the materials used in the construction of roads and the insulation of buildings are made from bitumen. This means that day-by-day the use of bitumen is growing. Moreover, in developed economies like Europe and the US there have been moves afoot to convert refineries into low fuel or no fuel. This means that they convert all the components of crude oil to light products, meaning that they have omitted producing heavy products like bitumen. They no longer produce bitumen and this means that bitumen-producing countries like Iran are well placed to take advantage of this. The super-heavy oils are found most in the Persian Gulf, as they are the most conducive for the manufacture of asphalt.

At the moment, the current production of bitumen around the world stands at 110 million tons, while in Iran, this figure stands at 4.5 million tons. However, we have a much higher capacity, and because the demand for bitumen is only going to increase, we will be able to play a much more serious role in the future.

Looking back at the export volume in Iran over the past two or three years, the total amount exported by the country in the Persian year 1386 (2Q 2007-1Q 2008) was 400,000 tons. Since the second quarter of 2010, however, it has been 1 million tons and by the end of the first quarter in 2011 it will be 2 million tons.

The price of bitumen in the Persian year 1387 (2Q 2008-1Q 2009) was $250/ton, but currently it is $415. These figures show that demand is really strong at the moment, and this means that we need to increase our production capacity. We have the capability to double our annual production capacity. Pasargad can produce about 3 million tons, while Jey Oil has 1.5 million tons of capacity.

Do you have plans to increase capacity in the medium term?

The goal of Pasargad Oil is to hit 4.5 million tons within five years. Meanwhile, I think Jey Oil will increase its capacity to 2 million tons. In 2010 we invested a lot, especially in export facilities—for instance in jetties, pumping systems and short tanks at the ports. This will allow us to load ships more easily. When transported as a liquid, the temperature required for bitumen is extremely hot, at 150 °C. If you want it to be cooler, you need to find an alternative, for instance transporting with steel barrels, or polybags. This is much more expensive and there are also environmental issues with the residue. As a result, we generally transport it in bulk, in which case it is very hot. We thus transport the bitumen through both bulk methods and in barrels.

We increased our barrel exports this year because some countries, especially in Africa, are far away, while transport from the port to the destination is difficult. Because of this, they prefer the bitumen to come in barrels, and they just heat it up when they want to construct the roads. We can respond to both needs actually. We have a big barrel plant in Bandar Abbas with a capacity of 3,000 tons per day.

Is the increase in production at the moment mostly for export?

Not necessarily, it's for both export and domestic use. In 1387 (2Q 2008-1Q 2009), 15% went for exports, while 85% was used domestically. Now, however, this has changed. This year, only 60% was for domestic use, while 40% was for export. I expect that this ratio will be 50-50 in the coming years.

Do you need more investment to increase your production capacity?

Companies are like organic systems—without investment they will wither and die. I think the company will receive at least $100 million in investment per year. In the last three years, we have certainly done this.

This investment has gone into storage tanks, a pumping system, a new plant in Abadan under construction, as well as new facilities that assist ships to export at Port Imam Khomeini in its oil zone.

Where does Iran rank among other exporters of bitumen?

We are the biggest in the Middle East, while Pasargad Oil Company is the 11th largest bitumen-exporting company in the world, according to the reports of various consultancy companies.

Do you think more players will enter the Iranian market to produce bitumen if there is such an advantage here?

Yes, some new players are certainly trying to enter the market, but their ability to compete with us is not so high because we have the advantage of being in close proximity to the refineries, whereas they are not.

Who are your main clients in the domestic market?

The contractors of the road ministry, as well as the local municipalities, are our potential customers. In this, the contractors are private, even if the projects belong to the government. All over the world, most of this work is done by private contractors.

Iran, too, is an important regional player, with projects in Afghanistan and Pakistan.

Yes, some of our customers have projects in Afghanistan and Pakistan, and they buy from us. Furthermore, bitumen is sold on the Iranian Mercantile Exchange, or IME, which is composed of a domestic ring and an export ring. All of the bitumen sold here is done on the open market. Two days of the week are devoted to export sessions, while the other five days are for the domestic market.

So the price you mentioned, is that only in Iran, or around the world as well?

For the export market, it is all over the world. There are two magazines, Platts and Argus, and they are the reference sources for bitumen. In this region, we are the price maker as the dominant player in the market. The two reference magazines give our prices as the price of the region.

You are now providing far more environmentally friendly bitumen, or green bitumen. Can you tell us a little bit more about that?

Yes, we have built six emulsion plants, 49% of which belongs to us, and 51% belongs to another company. These are for producing green bitumen, but it hasn't been easy because it is difficult in terms of usage, and it has not really caught on in the domestic market. At the same time, exporting it has also been difficult because 30-40% of its weight is water. This means that when you want to export this product, the customer has to transport 30% water. Many people thus prefer to buy bitumen and then emulsify it closer to the area where it will be used.

We heard recently from cement companies about plans to use cement on the roads. Do you see that as feasible?

It is not a new technology; many years ago, they used cement on the roads. There are both pros and cons to the material. There are some places on highways, particularly where there is a lot of acceleration and deceleration, where cement can be useful for a kilometer or so. However, if you look at the roads overall, it is not a good idea, since it is expensive and is not so soft. When you have big swings in temperature, there can be problems. Ultimately, when you look at the market, 90% of the material is bitumen in its different forms, whether of a conventional grade, a polymer grade, emulsified grade and so on.

We, meanwhile, produce in all grades, but mostly in the conventional grades, which is common throughout the world in its 40/50, 60/70, 85/100 grades. As far as I know, only Switzerland and France uses more polymer or emulsion.

Which countries are you most targeting for export at the moment? China?

China perhaps less so, because it is close to Korea and Singapore, both of whose traders have good connections with the Chinese. We do our best, but it is a difficult market for us. However, for us, Kenya, the UAE, India, Sri Lanka, Indonesia, Malaysia, and Singapore are important. The World Development Bank has many new projects in these countries, which ultimately helps us.