Iran General NewsRafsanjani rejects oil industry reform

Rafsanjani rejects oil industry reform

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Financial Times: Iran will not reform its foreign investment policy in the oil sector if Akbar Hashemi Rafsanjani is elected president next week. Mohammad-Baqer Nobakht, a spokesman for Mr Rafsanjani, president between 1989 and 1997 and a frontrunner in the presidential race, told the FT there were “no specific problems” with the “buy back” system. Under this system, Iran gives payment in kind to oil companies that develop its oilfields. It was introduced to attract foreign capital to boost oil production. Financial Times

By Gareth Smyth in Tehran and Kevin Morrison in London

Iran will not reform its foreign investment policy in the oil sector if Akbar Hashemi Rafsanjani is elected president next week.

Mohammad-Baqer Nobakht, a spokesman for Mr Rafsanjani, president between 1989 and 1997 and a frontrunner in the presidential race, told the FT there were “no specific problems” with the “buy back” system.

Under this system, Iran gives payment in kind to oil companies that develop its oilfields. It was introduced to attract foreign capital to boost oil production. But with foreign oil companies complaining of poor returns, the system has been criticised for failing to lure significant investment. The government of President Mohammad Khatami has acknowledged the scheme could be improved.

However, Mr Nobakht, who heads the economics commission of Iran’s Supreme National Security Council, said the system removed “concern for us over handing over money”.

Mehdi Varzi, an independent oil consultant and former head of energy research at Dresdner Kleinwort Wasserstein, said keeping the buy-back system under its present structure would harm Iran’s oil industry.

“This is not a good day for the Iranian oil sector,” said Mr Varzi, a former Iranian diplomat. “Foreign companies bring not only capital, but expertise. Iran will continue to struggle to lift production.” He said there were only six foreign companies left in Iran under “buy-back”, after several companies including Royal Dutch/ Shell backed out because of changes in contract terms.

Mr Varzi said new production from the schemes was responsible for about 500,000 barrels a day of output – about an eighth of total production, but barely ahead of Iran’s annual depletion rates of between 300,000 and 500,000 b/d.

Mr Nobakht said there was no contradiction between continuing “buy back” and Mr Rafsanjani’s promises of market reforms in other areas of Iran’s economy.

He said Mr Rafsanjani intended to phase out within two years all subsidies – which he estimated at $8-$9bn per year – while introducing social security payments for the poorest 30 per cent of the population.

Iran currently subsidises petrol, bread, electricity and many other items.

Mr Nobakht said “buy back” would create no problem for Iran’s efforts to join the World Trade Organisation, which he predicted could succeed within five years. The WTO recently accepted Tehran’s application to begin talks after the US dropped its opposition in order to encourage Iran to reach agreement with the European Union on its nuclear programme.

WTO membership would give Iran no choice, said Mr Nobakht, but to remove its extensive barriers, which include bans on many imports. “If we want to join the world economy, we have to observe their regulations,” he said.

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