Zanganeh: No Trial & Error in Oil Industry

EghtesadOnline: Oil Minister Bijan Namdar Zanganeh said the maximum use of Iranian manufacturers' capacity is a top priority, but the key sector "is not a place for trial and error".

News ID: ۷۸۳۴۶۹

29 July 2018

Zanganeh made the statement in a parliamentary hearing on Tuesday over criticisms concerning the ministry's "lack of support for domestic manufacturers", Mehr News Agency reported.

"The ministry has purchased over a million tons of petrochemical products and concluded deals worth €550 million with producers of seamless pipes," Financial Tribune quoted Zanganeh as saying.

"This is while the law calls for only €100 million worth of deals with local manufacturers."

Stressing on the ministry's bid to use domestic products over imported ones, the minister said only commodities not produced domestically should be procured from overseas, however the products need to have the required quality.

Asked about the supply of oil and gas equipment, especially pumps in the giant South Pars Gas Field in the Persian Gulf, Zanganeh said, "Pumps are the heart of the industry and contactors try to provide the equipment from domestic markets as long as they meet technical standards."

He noted that the government had banned the imports of pumps, but the inability of many producers in keeping the ministry's trust, where no trial and error should be tolerated, has changed the trend.

"We signed a €10 million deal with Iranian producers for propane and butane pumps, but they had a one-year delay in delivering the order, inflicting a heavy loss of over €427 million on the ministry. The domestic producers must update their technical know-how for manufacturing equipment or they cannot win our trust," he said.

Referring to fire protection pumps as another example, Zanganeh said, "These pumps are among the main safety elements in the oil industry … We tried to supply the equipment from domestic producers, but unfortunately they were unable to fulfill their responsibilities."

This is while Reza Khayyamian, the head of the Society of Iranian Petroleum Industries Equipment Manufacturers, had previously said more than 70% of the industry’s equipment can be produced inside the country.

The official added that Iran’s oil industry will face challenges in procuring its required equipment, if domestic manufacturers are undermined.

Khayyamian pointed to plans to raise $200 billion in the petroleum sector in the Sixth Five-Year Economic Development Plan that ends in 2022.

--- Lack of Liquidity

The Oil Ministry is burdened with some 30 trillion rials ($ 714 million) … Lack of financial resources has prevented us from ordering goods from domestic producers, the official added.

Since a bulk of raw materials are supplied from international markets and due to the recent upheaval in the rate of foreign currencies compared with the Iranian rial, bilateral contracts previously signed between the Oil Ministry and equipment manufacturers have been adversely affected.

The volatility has hindered the process of production, as manufacturers can no longer count on a definite cost of raw materials to meet their commitments.

Khayyamian said fluctuation in exchange rates may gradually eliminate Iranian manufacturers from the production cycle.

“Therefore, they make a loss on the sale of their products, which weakens manufacturers,” he said.

At the end, most lawmakers were convinced of Zanganeh's explanations.