The Forum for Partners in Iran's Marketplace

September 2017, No. 85

Global Economy

Seoul to Finance $13 bn Korean Projects in Iran

Korea Eximbank (KEXIM) would provide the lion share of the funds at $8 billion. The rest of the funds - $5 billion - would be provided by Korea Trade Insurance Corporation.

“Determination and seriousness of the Korean side can pave the way for implementation of previously-signed agreements between the two countries,” Tayebnia concluded.

Iran has received a major credit line worth $13 billion from South Korea for several of its industrial projects. 

Negotiations to receive the credit line were almost complete and Finance Minister Ali Tayebnia travelled to Seoul in mid-June to finalize the procedures. 

Korea Eximbank (KEXIM) would provide the lion share of the funds at $8 billion. The rest of the funds - $5 billion - would be provided by Korea Trade Insurance Corporation.  

Tayebnia, who was in South Korea to attend the 2nd AIIB Annual Meeting, met and talked with Lee Duk-Hoon, Chairman and President of Export–Import Bank of Korea, also commonly known as the Korea Eximbank.

Negotiations were held at the joint meeting over financing Iran’s civil and infrastructure projects in energy, petrochemical, oil and health sectors.

An agreement was also reached on the final draft of the long-negotiated deal for opening a Line of Credit (LOC) worth eight billion euros.

The South Korean side also expressed eagerness to supply necessary financial resources to Iranian projects and called for introduction of projects in energy, petrochemical, oil and health arenas as well as for presence of Korean companies in Iran.

The Iranian minister, while pointing to positive economic developments and abundance of emerged opportunities in Iran, emphasized that great potentials for collaboration led numerous countries to voice readiness for economic and financial cooperation with Iran.

“Determination and seriousness of the Korean side can pave the way for implementation of previously-signed agreements between the two countries,” Tayebnia concluded.

On the sidelines of 2017 AIIB meet, the Iranian minister also met with his South Korean counterpart Dong-yeon where the two sides exchanged views on economic issues like creating credit lines and opening branches of Iranian financial institutions in South Korea.

The 2nd Annual Meeting of the Board of Governors of the Asian Infrastructure Investment Bank (AIIB) was held in the city of Jeju on June 16-18, 2017.

Accordingly, talks with South Korean banks over creation of LOCs are being finalized though agreements needed to be reached by ministers of the two countries in order to resolve certain issues.

The huge investment comes following a nuclear deal signed between Iran and major world powers known as the Joint Comprehensive Plan of Action (JCPOA).

JCPOA or Iran Nuclear Deal, as it is commonly known, was signed on July 14, 2015 between Iran and the five permanent members of the United Nations Security Council - China, France, Russia, United Kingdom, United States - plus Germany), and the European Union. 

Who Gets What?

Out of the amount, $8 billion will be provided by KEXIM Bank and $5 billion by KSure Bank of South Korea. Out of the Korean finance, $1.7 billion will go to the optimization of the Isfahan Refinery. Another $3 billion will go to construction of gas condensate refineries in Siraf. Part of the finance too will go to extraction of ethane from South Pars Phase 12. This project will be implemented by Kangan Petro Refining Complex. Construction of a modern hospital is among other projects finalized with the Korean side.

This $13 billion is the first big foreign investment entering Iran after the lifting of the sanctions, a significant portion of which will go to the oil industry projects. Until now only $320 million had been devoted to the Persian Gulf Holding in the form of 6-month LC which was supposed to increase to $640 million in the form of usance within a year.

Now everything is set and everyone is waiting for the Koreans to announce the news formally. 

Isfahan Refinery Project

South Korea’s construction giant Daelim Industrial Company has won the deal from Iran to expand Isfahan Refinery. 

Daelim announced in a statement that the project involves improving and optimizing facilities at Isfahan Oil Refinery. It is among the biggest Iran has awarded a Korean builder after the removal of the sanctions in January, Daelim added.

The project, due for completion in 48 months, is to add facilities that will be used to produce high value-added products to the oil refinery located 400 kilometers south of Tehran, the capital of Iran.

With a capacity of processing 375,000 barrels per day of oil, Isfahan Refinery is currently responsible for supplying around 22 percent of Iran’s required oil products.  

Under the deal with Daelim Industrial, the South Korean company will be in charge of design, equipment and material procurement, construction and financing. 

Daelim Industrial has been a leading South Korean company in Iran’s construction business sector since the two countries established diplomatic relations in 1962.

It has clinched 26 projects worth $4.5 billion in total over the past 40 years. 

“The latest order is the outcome of being recognized as a credible company by Iran’s state-run firms and private companies based on (Daelim’s) long experience in Iran,” said a Daelim Industrial official, as quoted by The Korea Herald.

The new deal will likely lead to additional orders, said the company, which has carried out various projects in Iran ranging from oil refining, natural gas and petrochemical plant construction. 

Kangan Gas Processing Deal

Industrial giant Hyundai has won a contract worth €3 billion to develop a key gas processing unit which is primarily planned to produce natural gas liquids (NGL) from natural gas in southern Iran. 

The contract – which Hyundai signed with Iran’s Ahdaf Investment Company – involves the development of Phase Two of Kangan natural gas processing plant in the country’s southern energy zone of Assalouyeh.

The plant would be constructed at Phase 12 of South Pars gas field which is described as the country’s biggest gas project. 

A key section of the contract with Hyundai involves the development of a major ethylene cracking unit which would produce what is technically known as natural gasoline from natural gas, Iran’s Shana news agency reported.     

Natural gasoline – or pentane plus (C5+) – is primarily used by refineries in gasoline blending, but has a lower economic value than gasoline due to its lower octane value and somewhat higher vapor pressure.

Other products that would be produced at Kangan project would include olefin, propane, ethane and ethylene.     

The contract marks one of the biggest investments since the nuclear accord with world powers lifted global sanctions on Iran.

The South Korean firm will have nine months to secure financing for the project.

Securing the financing through Korean banks will be “the most important and most difficult step,” Shana quoted Asghar Arefi, head of Ahdaf Investment Company, as saying.

“The start and execution of this project relies on 95 percent of the project’s financing coming from Korean banks with full support from the Hyundai Engineering Company in securing those funds,” Arefi told Shana.

A Hyundai Engineering spokesman told AFP that 85 percent of the funding would come from Korean lenders, including Export-Import Bank of Korea and the Korea Trade Insurance Corporation.

The second phase of the deal, involving the construction of four production plants at the Kangan site, is expected to take four years. 

Siraf-Eight Refinery Project

Siraf Refineries Infrastructure Co. has overall responsibility for managing and building infrastructure for the project which will process as much as 480,000 bpd of condensates.

The project includes eight private refineries and, once fully operational, will have the capacity to produce about 270,000 bpd of naphtha, 140,000 bpd of gasoil, 30,000 bpd of LPG and 40,000 bpd of kerosene.

The eight private local Iranian firms will individually invest funds to build the processing plants, each with a capacity of 60,000 bpd. They will also be making their own export decisions.

Early production will start in 2018, but final production and trading will take place in 2019. Site preparation has been nearly completed for the project.

Condensates Exports

According to the International Energy Agency, Iran’s condensate exports doubled to about 200,000 bpd in 2014, accounting for total Iranian oil shipments of about 1.3 million bpd.

Once the Siraf project is fully operational, condensates exports out of Iran would disappear as the country was keener to export value-added products.

Refineries from the project would be aiming to sell bulk of their products in the spot market, rather than venturing into numerous long-term contracts. There is a big spot market for these products.

Siraf was expecting to see buoyant demand for its naphtha in countries with strong economic growth, such as India.

It would eventually stop exporting naphtha once its own petrochemical project — for which feasibility study is currently being carried out — is constructed under Siraf’s second phase of development.

A consortium of South Korean companies comprising industrial giant Hyundai and construction giant Daelim together with Chiyuda Company will build the eight refineries. Hyundai will take a share of 34 percent, Daelim 33 and Chiyuda 33 percent.

Construction operations are expected to start in October. 

A Win-Win Accord

The Korean project is expected to break a big barrier. Those banks which are afraid of working with Iran would be encouraged to finance Iranian projects. The Japanese and European banks would feel more comfortable to work with Iran after the Korean finance project goes into effect. The project will create employment and this is a blessing for the government which says is committed to reduce unemployment and generate jobs.

But this is one side of the coin. On the other side, the Korean companies too will benefit from these deals.

In South Korea, Japan, and the EU the inflation rate is almost zero (negative). The interest rate is also close to zero. Therefore, there is no new demand for economic growth in their countries.

Economists believe that as high inflation is harmful negative inflation too is damaging. These countries need new demands to boost their economies. In the meantime, Iran is a best choice and there is no doubt that Japan and EU are eager to invest in Iran as well. They are interested because this would serve their own interests and political considerations have been a major barrier in this way.

The Korean finance project can break part of the obstacle. 

Total Gas Deal: Iran Safe for Investment

Iran will sign a $4 billion deal with France’s Total to develop Phase 11 of the giant South Pars gas field before summer, Minister of Petroleum Bijan Zangeneh said.  

Zangeneh and Total Chief Executive Patrick Pouyanne met in Vienna on the sidelines of the OPEC meeting (late May) and discussed the deal.

“The signing of the contract with Total is very close and will be done in less than a month,” Zangeneh told reporters.   

Total signed an agreement with the National Iranian Oil Company (NIOC) in November 2016 but said earlier in February that a final decision on the deal hinged on the new US administration renewing sanctions waivers on Iran.

Pouyanne told journalists on the sidelines of the Vienna meeting that the signing of the waivers had cleared the path for the deal to be concluded.

Zangeneh said a major European bank will provide guarantees, but did not disclose its name. He also said foreign countries have reached a consensus on Iran’s new oil contract called IPC.

Other Iranian officials have already said that they expected the first contract under the new formula to be signed soon, marking a turning point in months of anticipation as the country reopens its oil and gas sector to business.

Zangeneh said some companies had worries about the new contract but those concerns have been removed now.  

Iran has named 29 international firms as being eligible to bid for oil and gas projects but they have been waiting for the country to finalize the new model, known as Iran Petroleum Contract (IPC).

The new model has been the subject to repeated reviews amid fears that it might compromise Iran’s national interests at the expense of making business with the country more flexible.

Total became the first Western oil major to sign an energy agreement after the European Union and the United States eased sanctions as part of a nuclear accord with the Islamic Republic.  

The South Pars 11 project will have a production capacity of 1.8 billion cubic feet per day, or 370,000 barrels of oil equivalent per day. The produced gas will be fed into Iran’s gas network.

Total will operate the project with a 50.1% interest alongside Petropars at 19.9% and the Chinese state-owned oil and gas company CNPC at 30%.

The French oil major also plans to invest in the South Azadegan oil field. Zangeneh said the tender for development of Azadegan oil field will be implemented soon, for both the southern and northern sections.

The oil minister further reiterated that Iran has no problems for the participation of American companies in its oil and gas projects. 

“We have no problem for the presence of US companies in oil and gas projects in Iran. They are limited by their own government,” he said, adding Iran’s preference is to sign deals with noted international companies. 

How to Respond to Those Who Want Iran Unsafe?

We cannot stop the countries which do not want to see Iran’s progress by mere slogans. Some observers maintain that the final aim of Iran’s regional rivals is to prevent Iran from increasing its oil and gas production because they know that the oil industry is the driving engine of Iran’s economy.

According to Zangeneh, Iran needs $200 billion worth of investment in its oil industry. If we consider a similar scale for other industries and economic grounds such as IT, transportation, etc., it can be said that Iran offers a trillion dollar market for foreign investors.

In other words, the US administration has inflicted a loss of 1,000 billion dollars on European, Asian and other investors.

By adopting a wise and sound foreign policy we can forge development, boost our national security and beat our regional rivals through foreign investment.

For the time being, the Korean finance project and the French Total deal are a tough response to those who do not want Iran to be secure!


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  September 2017
No. 85