Iran's Oil Minister Defends IPC in Parliament Hearing

EghtesadOnline: Oil Minister Bijan Namdar Zanganeh appeared before the parliament in a closed hearing on Sunday to address questions and concerns over the new model of oil contracts.

News ID: ۷۳۶۱۱۵

22 August 2016

The hearing was held following statements by several parliamentarians and analysts over the past week that Iran Petroleum Contracts does not need the Majlis approval to become effective.

However, the backing of parliament can prove to be a major step toward signing the first oil and gas contracts under the IPC framework that has been subject to months-long dispute and controversy.

ISNA quoted a member of parliament as saying that "most lawmakers were convinced of Zanganeh's explanations" about Iran Petroleum Contracts in a quizzing that lasted three hours.

Zanganeh reportedly expounded on amendments made to 15 terms and conditions that had been singled out by the Leader of Islamic Revolution Ayatollah Seyyed Ali Khamenei.

Some parliamentarians had called for the session to be made public, but the appeal did not gain enough votes, according to Oil Ministry's official news agency Shana.

IPC has been under the spotlight in the past few weeks, as Tehran is drawing closer to holding tenders for dozens of oil and gas projects introduced last year, reports Financial Tribune.

Remunerations of foreign contractors and ownership of hydrocarbon reserves have been the main sticking points of the new contracts.

Upgrade to Buybacks

In a TV interview on Saturday, Zanganeh said IPC is essentially an upgrade to buyback contracts that have been the main model of contracts in Iran's oil industry for over 20 years.

"I'm not interested in overstating the term IPC. It is a revision to buybacks with a particular stress on boosting extraction from existing oilfields, with the most notable difference being the remuneration of contractors that depends on their performance and production," he said.

"Our two biggest priorities are developing joint fields and enhancing extraction rate from operational fields."

Zanganeh noted that Iran sits on 800 billion barrels of oil in place, of which 230 billion to 240 billion barrels are recoverable. He added that a total of 80 billion barrels have been drawn thus far and some 150 billion barrels are left for extraction.

"A 1% increase in extraction translates into more than 8 billion barrel of crude. We need advanced technologies to raise extraction from existing fields," he said.

The oil minister stressed that foreign contractors will be paid only from the output or profit of the same fields they develop.

"If contractors fail to boost extraction, there will be no payment and the risk is borne by foreign companies."

Zanganeh also underscored Iran's full ownership rights in IPC.

"It is clearly specified in contracts that whatever there is on the ground and underground, including oil reserves and output, belong to us and contractors only receive a sum per barrel based on the terms of each contract," he said.

Strong Opposition

IPC has run the gauntlet of domestic critics since its first unveiling in an international conference in Tehran late last year.

Fierce opponents say the 20-year terms of cooperation with multinationals contractors is similar to "prolonged presence of foreigners" in Iran before the nationalization of the oil industry in 1951.

According to reports, a group of parliamentarians are collecting signatures for a bill to confine the Oil Ministry's authority to drafting the terms of the contracts.

Some analysts assert that Iran has to open up its oil sector to outside contractors to make up for years of limited trade and investment due to international restrictions on Tehran's nuclear program, which cut crude production and put a dent in Iran's most important source of revenue.

But domestic opposition is not the only problem. Iran is grappling with persistently low crude prices that have forced most oil producing nations and companies to cut investments in upstream projects.