Virus Pushing Oil Equipment Manufacturers Over the Edge

EghtesadOnline: An estimated 800 companies active in manufacturing oil/gas equipment are facing insolvency due to the huge economic impact of the coronavirus, head of the Iranian Oil Equipment Manufacturers' Association said.

News ID: ۷۴۹۸۸۲

20 April 2020

"So long as incomplete oil and gas projects do not get back on track, we will receive no orders. In short, our production lines will be shut down one after the other," Majid Mohammadpour warned, ILNA reported.

The government has said degrading and defeating the deadly virus is the top national priority now, and everything else can wait, including oil development ventures, Financial Tribune quoted him as saying.

Moreover, the administration is struggling with a ballooning budget deficit due to low oil prices and not being able to generate revenue from selling crude because of the new US sections.

“All this means lack of liquidity for this sector and more difficulties for manufactures as they are forced to reduce production capacity” and furlough workers.

According to the IOEMA chief, most oil and gas equipment manufacturing companies have been shut  since February, when the outbreak was officially announced by officials in Tehran.

Nonetheless, the owners of manufacturing companies with about 8,000 workers had to pay close to $150 million in wages.

“This cannot continue any longer because the virus is still spreading. In addition, the second peak of the pandemic (COVID 19) has been projected to start in the fall. It is highly unlikely that oil/gas contractors will sign  new contracts or place new orders.”

Mohammadpour said the last option (for the firms) is to furlough large numbers of highly skilled part makers, engineers and technicians.

“We are very concerned about the rapidly declining economy and with it shrinking demand. Bankruptcies will follow.”

*** Other Ills

He voiced concern over other problems like raw materials being held up in the customs for no valid reasons.

"It is indeed regrettable that those in charge of industrial policy are not producers themselves.”

The bloated domestic bureaucracy is undermining the present and future markets for domestically-made oil equipment and parts despite the good quality, he complained.

Echoing protests of most stakeholders in the private sector, he said, "We meet regularly with the Ministry of Industries, Mining and Trade” but nothing gets done. “Problems cannot be solved with hollow slogans."

He questioned the logic of gatherings with senior industry officials from which “nothing of essence is achieved.”

Mohammadpour said so long as middlemen and brokers are present when it comes to oil and related tenders, private enterprise will not be able to do their  fair share and assert itself, play their destined role and contribute to economic growth.

Domestic companies have indigenized almost 85% of petroleum and gas processing and production equipment. The rest cannot be made domestically either due to lack of high-tech or unavailability of special materials.

There is no country that can be 100% self-reliant, and setting up new production lines for some parts and equipment is simply not cost-effective.

“Self-reliance does not mean that a country must produce all its needs at home.”

When the tired world emerges from the coronavirus plague—hopefully sooner rather than later—some big players like airlines to energy will face a new reality that could force them to merge or go out of business.