Tuesday, April 25, 2006

Iran May Ease Oil-Investment Rules For Foreign Firms

Sally Jones, The Wall Street Journal:
Iran's Oil Minister Kazem Vaziri Hamaneh said Tuesday that the country is reviewing the restrictive rules under which foreign oil companies can invest in the nation in a bid to continue the development of its abundant energy resources.

In his first interview since being appointed head of Iran's powerful oil ministry in December, Mr. Vaziri also said the threat of economic sanctions over Iran's disputed nuclear ambitions won't keep investors out of the Islamic nation but does have implications for the global security of energy supply. READ MORE

Iran is facing a Friday deadline from the United Nations to halt uranium enrichment due to suspicions it is trying to develop nuclear weapons. The government of President Mahmoud Ahmadinejad insists the Non-Proliferation Treaty gives Iran the right to enrich uranium for fueling civilian nuclear power plants, and he has given no ground in the international face-off.

"I've spoken to the president and he's indicated clearly that he's open to any ideas and suggestions on the buyback," Mr. Vaziri told Dow Jones Newswires. "I've also assigned one of my deputy ministers to prepare our views on this method to take to the various councils and committees which would need to approve the change."

Iran's buyback system skirts around the constitution which prohibits foreign companies from taking an equity stake in its hydrocarbon sector. Instead, it enables foreign companies to develop a project for a set time, after which they are paid by the government in oil or gas revenues at market prices. But since its introduction, within the past decade, foreign companies have been constantly critical of the restrictive terms the buyback system imposes, such as an inability to directly control project costs and the limited timeframe of contracts.

Mr. Vaziri played down international concerns that in the current environment foreign oil companies would be discriminated against in favor of domestic firms. "The way I want things to develop, and I have the blessing of all officials, is that as long as we respect Iran's law and use local companies, we will also encourage foreign companies to be involved in our projects."

Foreign energy companies have become increasingly concerned since Mr. Ahmadinejad was elected last year that he would favor domestic companies developing the nation's massive oil and gas industry to their detriment. "Foreign companies have much experience and therefore we have to look at a way of working together," said Mr. Vaziri.

European oil giants Royal Dutch Shell PLC, Total SA and Eni SpA have a big presence in Iran. A number of energy-hungry Asian companies, including Japan's state-linked Inpex Corp, are also looking to tap Iran's abundant resources, although those plans are subject to considerable speculation now under the threat of sanctions on Iran.

Mr. Vaziri said although he isn't concerned that sanctions will keep foreign investors out of the country, the talk of any trade embargo doesn't help the investment climate or ease global concerns about the security of the energy supply.

"As far as people being willing to participate in our industry, from what I can see, they're willing and ready to work with us," he said. "We've done nothing wrong in the Non-Proliferation Treaty. As the U.N. discusses the issue, I believe and hope that any action will be decided with logic not feeling."

"If the talk of sanctions is simply rhetoric, it's fine, it will just increase the price of oil," Mr. Vaziri said. "But if applied it will give a big concern to all producers as to how vulnerable they really are."

Write to Sally Jones at Sally.Jones@dowjones.com