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Financial Times: Tehran pushes for end to delays on gas field deal

By Najmeh Bozorgmehr in Tehran
Published: October 31 2007 02:00 | Last updated: October 31 2007 02:00

Iran says it is ready to address the concerns of western oil groups that have blamed spiralling global costs for delays in signing up to multibillion dollar contracts to develop the South Pars natural gas field.

“The increase in international [construction costs] and [the] fall in the dollar are logical concerns of companies which can be met through negotiations, provided illogical demands are not mixed with them,” said Ali Vakili, managing director of the Pars Oil and Gas Company, which handles development of the South and North Pars gas fields.

He warned, however, that time was running out for the western companies and that there was a queue of rivals waiting to step in to develop the field.

Mr Vakili’s offer of flexibility could remove any economic pretext for the delays. None of the western companies negotiating liquefied natural gas deals in South Pars have referred to the political risks of Iran’s nuclear programme as the reason for their hesitation but had cited rising costs as their “main” problem, said Mr Vakili.

He said Iran could sign contracts under a new buy-back system in which costs were not fixed, to accommodate fluctuations. But he warned Iran would not wait for the companies, which include Total, Royal Dutch Shell and Spain’s Repsol, to decide beyond the deadline of June 2008.

Talks had started with Russia’s Gazprom, which was “very interested” in two or three phases of South Pars, while Turkish Petroleum Corp was planning to come in November “for serious talks”. A contract with China’s CNOOC on development of the offshore North Pars gas field was being “finalised”, said Mr Vakili, who declined to give details.

“There is a long queue . . . anyone who steps back should then join the end of the queue,” said Mr Vakili.

Shell and Total, the two biggest western companies looking at investments in Iran, have suggested that technical and commercial issues are their priority, while acknowledging political factors will inevitably be taken into account when they make their investment decisions. Shell is thought unlikely to commit to a large investment while tensions over the Tehran’s nuclear programme are running so high.

Iran sits on the world’s second largest gas and oil reserves but has been unable to attract big foreign investments during the past couple of years and has signed only non-binding memoranda of understanding with foreign companies.

Iranian oil experts say the obstacles are partly the result of de facto international sanctions and US pressure, as well as unattractive contract schemes and inefficiency in attracting finance.

The US has increased pressure on financial institutions and companies to halt business with Iran, last week announcing unilateral sanctions targeting the elite Quds Force unit of the -Revolutionary Guards and Tehran’s largest bank. The US House of Representatives last month passed legislation to block foreign investment in Iran’s energy sector.

Mr Vakili, who is close to Mahmoud Ahmadi-Nejad, Iran’s president, took up his post in August as part of wider changes in the management team of the oil ministry aimed at improving co-ordination between the ministry and the rest of government.

He denied there were any big delays on South Pars but said some “technical issues or change of earlier plans, such as increasing capacity” had held up the progress of some projects.

Additional reporting by Ed Crooks in London

Copyright The Financial Times Limited 2007

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