Oil Ministry to Modify Contracts With Domestic Parts Producers

EghtesadOnline: The Oil Ministry plans to modify the contracts it had earlier signed with domestic oil parts manufacturers so that they would be able to fulfill their commitments, the head of the Society of Iranian Petroleum Industry Equipment Manufacturers said.

News ID: ۷۸۳۰۰۴

20 June 2018

Welcoming the ministry’s scheme to increase the value of agreements to support domestic producers against the surge in foreign currencies, Reza Khayyamian added that Iran’s oil industry will face challenges in procuring its required equipment if domestic manufacturers are undermined, IRNA reported on Sunday.

Khayyamian noted that a rise in the rate of foreign currencies, especially the US dollar, adversely affects bilateral contracts previously signed between the Oil Ministry and equipment manufacturers, hindering the process of production as manufacturers can no more count on a definite cost of raw materials to meet their commitments.

“Therefore, they make a loss on the sale of their products, which weakens manufacturers,” Financial Tribune quoted him as saying.

However, the official added that the administration is making efforts to alleviate the forex problems by providing local oil equipment manufacturers with US dollar at the rate of 42,000 rials.

According to Khayyamian, the ministry is preparing a directive based on which the contract prices will be updated to benefit manufacturers.

He stressed that the contract modification will spur domestic production and balance equipment prices.

Khayyamian said volatility in exchange rates may gradually eliminate Iranian manufacturers from the production cycle, which makes the initiative vital.

More than 70% of the industry’s required equipment can be produced inside the country, but a part of the capacity is not used due to a lack of liquidity.

Reza Padidar, SIPIEM’s chairman of the board of directors, told ILNA last month that local producers are capable of manufacturing electrical equipment and valves, as well as some of the 10 strategic goods defined by the ministry for indigenization.

As per the terms of Iran’s new framework of oil contracts, foreign contractors are obliged to meet at least 51% of their requirements from qualified domestic manufacturers before resorting to foreign suppliers.