Iran Mulls IPC-Like Deals for Foreign Mining Investment

EghtesadOnline: The Ministry of Industries, Mining and Trade is considering the introduction of new contracts similar to Iran’s new oil deals for handing over Iranian mines to foreign investors for modernization and development.

News ID: ۷۴۳۶۸۰

05 September 2017

“We need something like IPC [Iran Petroleum Contract] for the mining sector and industries,” Industries, Mining and Trade Minister Mohammad Shariatmadari said during the annual general meeting of Iran’s largest state-owned mineral holding, Iranian Mines and Mining Industries Development and Renovation Organization said on Sunday.

Shariatmadari explained that in contrast to impediments faced by the oil sector, there are no major obstacles to implementing a similar scheme for the mining sector, not even for large-scale mines.

The mining sector is targeting a 9.3% growth and attraction of $16 billion in foreign investment in the course of President Hassan Rouhani’s second term, Financial Tribune reported.

The new model of oil contract was devised by the Oil Ministry during Rouhani’s first presidential term to open up the energy sector to foreign investment and technology.

According to officials, the new contracts have more flexible terms and take into account oil price fluctuations and investment risks.

IPC contracts will be used to develop large-scale upstream projects, replacing a lackluster buyback model that dominated most oil and gas development projects in the past two decades.

Up to 70% of operational works in new contracts will be assigned to domestic companies. Tehran hopes the linkup with oil majors will boost foreign investment and transfer of technology in the key industry.

Also, according to the terms of IPC, foreign companies should have an Iranian partner in exploration and production projects and transfer know-how as Iran aims to establish large E&P companies with technical and operational competence.

French energy giant Total S.A. signed the first contract concluded between Iran and a major western company within the framework of IPC in July. The $4.8 billion deal was on developing Phase 11 of the South Pars Gas Field in the Persian Gulf. Total holds a 50.1% majority stake in the project and its partners, CNPC and Petropars–a subsidiary of the National Iranian Oil Company–have a 30% and 19.9% share respectively.

The main requirement for kick-starting new mining contracts fashioned after IPC is to introduce a “definite framework” for cooperation between foreign investors and local partners, Shariatmadari said, pointing to the “high-risk nature of investing in mines”.

IMIDRO, as the mining investment arm of the government, is tasked with coming up with a framework and partnering up with potential investors.

The minister also called for empowering IMIDRO so that it can undertake projects that prove too risky for domestic private sector or foreigners.

Bonds for Debt Settlement

Mehdi Karbasian, the head of IMIDRO who was speaking in the same meeting, called on the government to issue bonds to clear its outstanding debts to the holding.

As per the law, 70% of the proceeds from privatizing state-owned enterprises must be given to the parent organization.

For IMIDRO, it amounts to 35 trillion rials ($899.74 million) while, Karbasian said, the holding has only received 370 billion rials ($9.56 million).

“IMIDRO is financially constrained and we don’t expect the government to pay its debt under the current conditions of the economy. We only ask for a bond issue to settle the debt,” said Karbasian, who is also deputy minister of industries, mining and trade.

The bonds IMIDRO has in mind include rial- and forex-denominated Musharakah bonds.

Musharakah bonds represent part-ownership of a particular project. Although they are similar to shares, they are subjected to a limited duration of time and can be adjusted to have a higher ceiling of profit for Islamic bond holders.

Iran is home to 68 types of minerals with over 37 billion tons of proven and 57 billion tons of potential reserves, including large deposits of coal, iron ore, copper, lead, zinc, chromium, uranium and gold.