Japanese Investors Back Iran Oil Venture

Mariko Sanchanta, The Financial Times:

Itochu, the Japanese trading house, said yesterday it would invest in a Y25bn (USD230m, €188m, £120m) petrochemicals joint venture in Iran, in a move that could trigger complaints from US politicians. READ MORE

Japanese companies' agreement with Iran last year to develop Azadegan, one of the world's largest oilfields, drew criticism from the US, which has a trade embargo against Iran.

Itochu said yesterday that it had consulted specialists in the US to ensure that its investment would not infringe Washington's sanctions , adding that the Multilateral Investment Guarantee Agency (Miga), the political risk insurance arm of the World Bank group, had accepted its application.

Mitsui, another trading house, pulled out of an Iranian petrochemical venture in 1989, after the Iran-Iraq war. Itochu's move marks the first time a Japanese trading house has invested directly in a petrochemicals plant project since Mitsui's failed venture.

Itochu said yesterday it would form an alliance with two Thai firms as part of the deal - Siam Cement Public group and the state-run PTT Public. Itochu and the Thai companies will take a 60 per cent stake in the investment company, while Iran's state-run National Petrochemical will hold the remainder.

Itochu's 12 per cent stake in the venture through the investment company will total about Y900m. Of the Y25bn needed, 70 per cent would be financed by lenders, including the Japan Bank for International Cooperation.

The plant, in southern Iran, would begin producing 300,000 tonnes of polyethylene a year in 2008, using natural gas from large fields in the Persian Gulf. Itochu said the polyethylene would be exported to Asia, primarily China, where demand remained robust.

Itochu expects global demand for petrochemicals to increase 5-6 per cent over the next few years.