Events | Number 5, June 2004 | Expansion of Petrochemicals Exports

Expansion of
Petrochemicals Exports

M Ehtiati

Interview with Mr M Ehtiati, the Chairman and Managing Director of Iran Petrochemical Commercial Co, the body in charge of all exports of petrochemicals from Iran.

Events- Iran seems to be exporting increasing amounts of petrochemical products each year. This must mean considerable work for you.

Mohammad Ehtiati- Last year our total production amounted to 2.4 billion dollars of which we exported 1.23 billion dollars worth of products which is quite larger than the amount of 950 millions of exports of the previous year. During the current year we are certain of exporting 2b dollars of petrochemicals. In the next Iranian year, the year 1384 (ending 20th March 2005) we are bound to export 4b dollars of petrochemicals. This shows our ability to produce increasing amounts of petrochemicals from natural gas.

We have already invested 12 billion dollars in the industry and are planning to invest another 20 during the Fourth Socio-Economic & Cultural Development Plan which shall end in 2010 and within 10 years we should be exporting 20b dollars a year, i.e. a ten-fold increase compared to this year. By then we shall be producing over 60 million tons of petrochemical products for use as feedstock in our own downstream industries and in such industries abroad.

How wise it would be of the nation to invest in these downstream industries in line and proportion to the investments we are making in the upstream production facilities, to turn what we produce into final finished products where the main profit is made, thereby creating vast value added in the nation’s total income.

E- Are you sure that you will have a good market for your petrochemicals in future, even if local demand does not increase through the creation of downstream industries?

ME- Yes we are! Our major market is Asia which we predict shall soon be purchasing about 90% of our production. China is a huge market which we hope will purchase one billion dollars of our petrochemicals within the next 3-4 years as against 300m at the present time. To make firm our presence in China we are setting up an office in the Chinese capital and another in Shanghai, its major commercial and industrial city, as well as a number of representations in other industrial and commercial cities of China.

Already there is far more demand for our products than we can supply in Europe, Asia and the Middle East.
It is very important for us to keep our customers satisfied with our products and the way we handle our business. We have to act and behave as a large international company, that we are.

Another step we are taking towards customer satisfaction is to procure for ourselves large warehouses close to our major markets, to ensure speedy delivery of our products.

We have many knowledgeable and skillful colleagues with whose help we have defined and clarified our markets for the coming years at least till 2010. But this does not mean that we have neglected the local market. We have estimated the growth of the local market and have taken it into full consideration.

E- What will happen after 2010?

ME- We have plenty of natural gas under the ground, so our expansion of the industry shall not stop, nor shall constant increase in demand come to an end. Countries in Asia, America, the Middle East and Central Asia will continue to require more and more petrochemical products. So will local industries.

We enjoy unique privileges. Our petrochemical industry is close to the sources of feedstock, close to international waters, close to large markets... The reason I mentioned 2010 is that our sales contracts, which are advance sales, have only been fixed till 2010 to provide money for further investment and expansions.
We would not need to sell in advance beyond that year. When our sales reach 20 billion dollars a year we will be in a strong position and shall not need advance sales. Our natural gas costs us far less than it costs in Europe and it costs one-sixth of what it costs in America. I think very soon our competitors in Europe and elsewhere will find it difficult to compete with us, if not impossible. Our plan from now till 2010 is just the first step.

E- How are prices set?

ME- There are certain international journals which deal with the gas industry. Each year we make our agreement with our buyers for the coming year on the basis of these journals. The petrochemical industry does not have an exchange of its own but as its importance rises all the time, it is planned that the London Metal Exchange will cover these items as well. I should point out that here we are faced with one major problem. There are usually rapid changes in market prices for petrochemicals, polymers and liquid gas but we cannot adjust our prices so rapidly. So, very often there is a market profit margin on chemicals, polymers, fertilizers etc.

Last year we, i.e. the Iranian state, lost 300 billion toomans, almost 0.4b dollars, of which the consumer did not receive any part. It went straight into the pockets of those who deal with us. This often leads to black markets. It damages the downstream industries as the factory owners that deal directly with us shut down their factories and simply sell the petrochemicals they buy from us, on the black market making huge profits. So, we are trying very hard to adjust our prices to market prices. I want to emphasize this point and draw the attention of the relevant authorities to this very important issue through the media. We must adjust our prices to market levels and, therefore, our prices and the relevant regulations must be flexible. This will avoid corruptions in the market.

E- As usual we at Events must deal somehow with international affairs and foreign investment. How do you see the conditions in this context?

ME- During the short period since the Act on Attraction and Protection of Foreign Investment was ratified, some important steps have been taken with regards to foreign investment in Iran. Foreign investors are gradually showing increasing interest.

I hope serious investments will be made in Iran in the coming years. But a lot depends on ourselves. We have to act in the right way to gain the confidence of potential investors. We have to prove to them that their capitals and profits shall be safe and secure and that they can transfer them abroad at any time with minimum of formalities.

IPCC cannot become involved in investment directly but we are constantly in touch with our clients and all the major companies that are related to the petrochemical industry in some way, and we encourage them to seriously consider investing in Iran. But NPC has done a great deal to encourage investment in the downstream industries. It has opened a bureau for the development of downstream industries with foreign investment and joint ventures. It regularly holds conferences and seminars on the subject.

We have also good news with respect to privatization: Abadan, Farabi, Kharg, Arak and Isfahan petrochemical companies are now entirely private owned. Ahvaz Carbon Co. is now private and many service companies related to the industry, such as those providing repairs and maintenance, are now private owned. So, as you can see we are seriously working on attracting foreign investment and on privatization.