Iran is inviting foreign companies to bid for oil and gas projects for the first time since the lifting of international sanctions against the country in January – an announcement that comes on the heels of new US sanctions guidelines that could boost Iran’s ability to attract foreign investment.
The state-run National Iranian Oil Company (NIOC) announced on the oil ministry’s news service Shana that it will begin accepting applications to pre-qualify bidders on Monday (October 24) for a number of upstream oil and gas projects. Companies have until November 19 to submit their applications, and a list of eligible bidders will be published on December 7, according to Shana.
Iran is particularly looking for foreign companies to bring capital, technology transfer and project management expertise to the country, according to Elham Hassanzadeh, managing director of Iran-focused energy consultancy Energy Pioneers.
Speaking to GTR, Hassanzadeh says it is unlikely that NIOC will sign many contacts with foreign companies in the next six to nine months. “Medium-term, there could be some contracts for projects prioritised by NIOC,” she says. “The international oil market conditions are not very favourable and one should add this hurdle to IOCs or mid-size companies’ concerns. Mobilising the right amount and structure of funds could be very challenging.”
She adds that to be qualified, IOCs are required to pick a local partner from a list of qualified Iranian exploration and production (E&P) companies, which was announced last month, “to give them the chance to learn and play internationally,” Hassanzadeh says.
Iran has previously said the priority for E&P contracts for foreign companies would be given to neighbouring countries with which Iran shares gas and oil fields.
This week Reuters quoted Iranian oil minister Bijan Zanganeh as saying that the country plans to increase its crude oil production from its current 3.8 million barrels a day (bpd) to 4 million bpd in 2019 and 4.28 million bpd in 2020.
“A positive environment”
Iran’s tender announcement comes a week after the US Treasury Department released new guidelines for dealing with Iran, an update that could be seen as a relaxation of the rules on foreigners trading in US dollars with the country.
Foreign financial institutions, the guidelines say, “may process transactions denominated in US dollars” that involve Iran, “provided that such transactions or account activities do not involve, directly or indirectly, the US financial system or any US person.”
While a minority of US dollar transactions can indeed be processed without the participation of a US financial institutions, foreign financiers will have to put systems in place to ensure there is no risk that the US dollar funds are inadvertently cleared through the US. Still, the clarification will be welcomed, as OFAC had previously been vague about which US dollar transactions were sanctionable.
The updated guidance also says that it is “not necessarily sanctionable for a non-U.S. person to engage in transactions” with Iranian firms that may be controlled or minority owned by a person on the US sanctions list.
The treasury department said its new guidance does not represent additional sanctions relief, but is intended to clarify the scope of the sanctions lifting and those that remain in place.
Although international sanctions against Iran were lifted in January as part of the Joint Comprehensive Plan of Action (JCPOA), many large banks in Europe have been reluctant to reopen business lines in the country, for fear of falling foul of the US sanctions, particularly on its banking sector, that are still in place.
GTR approached a number of European banks to ask if the new guidance was enough reassurance, but none were willing to comment on the matter.
Yet according to Hassanzadeh of Energy Pioneers, the treasury department’s clarifications could have an important impact on investors’ willingness to engage in business with Iran. She says the “overall environment is very positive” and that she has received positive feedback from investors since the update. She adds that in the past week, one of the companies working with Energy Pioneers has hosted five groups of investors from Europe, Asia and even the US, mainly equity funds and small and medium-sized banks, to examine investment potential in Iran. “The guideline gave them substantial confidence to come back again,” she says.
That being said, foreign companies and investors still face many challenges and insecurities when looking to do business with Iran, Hassanzadeh says, mentioning internal political risks, politicisation of the industry, regulatory deficiencies, limited transparency, bureaucracy and systematic corruption as some of the main obstacles.