Petrochemical Industry Development Plans:

General objectives of the Sixth Development Plan in the industrial sector

(Reference: The 6th Economic, Social and Cultural Development Plan of the Islamic Republic of Iran 2016-2020)

• Promoting the country's industrial competitiveness
• Industrial Renovation
• Upgrading the level of skills and technology in the industry with emphasis on the development of knowledge-based industries
• Promoting the power and effective presence of the private and public sectors in industrial activities
• Value chain development and industrial deepening
• Improving productivity in the sector

Sixth Petrochemical Industry Development Plan

Challenges, opportunities, threats, macro goals, strategies and policies of the petrochemical industry, which were approved at the 146th meeting of the board of directors of the National Petrochemical Company on January 5, 2015 are as follows:

Challenges

The challenges of the petrochemical industry in the four areas of governance/development, upstream resources, development requirements, and international sanctions are summarized as follows.

•     Challenges of the Petrochemical Industry in NPC’s Governance/Development Role
  • Incomplete implementation of the Oil Act (failure to delegate the powers contained in the act to the NPC)
  •  Lack of legal requirements for implementation of NPC regulatory bylaw;
  • Existence of several decision-making bodies regarding the definition and establishment of petrochemical units
  • Lack of authority and resources needed to achieve the 2025 vision of the petrochemical industry
  • Impossibility of providing consulting services including technical engineering, finance and management to the private sector by NPC according to the current articles of association
  • Problems and consequences of improper implementation of Article 44 of the Constitution in privatization of petrochemical complexes and projects to exercise governance, policy-making and integrated management of the petrochemical industry (loss of the NPC brand, slowed down development process, etc.)
  • Failure to implement projects for the development of prioritized petrochemical technologies and upgrading existing technologies and their localization and commercialization considering risk of such projects, in order to increase and enhance the scientific, technological and innovation potential of the petrochemical industry.
  • Not funneling the proceeds from privatizing petrochemical companies to the NPC (at least 70%) and as a result, making it impossible to bankroll future development of the petrochemical industry in less developed areas or infrastructure projects.

* The need to facilitate implementation of paragraph 7 of Article 29 of the General Policy Implementation Law of Article 44 of the Constitution

*According to "Note 7, paragraph A, Article 3" of the General Policy Implementation Law of Article 44 of the Constitution, the subject of amending "Note 5, paragraph A, Article 3" of the General Policy Implementation Law of Article 44 of the Constitution and the addition of two notes that in the public session of the Islamic Consultative Assembly on February 19, 2014 and approved by the Guardian Council on February 26, 2014, 70% of the proceeds obtained from the transfer of subsidiaries of development organizations for economic development of the underdeveloped regions, completion of semi-finished projects and partnerships with the non-governmental sector shall benefit those organizations. So far, however, no payment has been made to allocate 70% of the proceeds to the NPC as a development organization.

•     Upstream Petrochemical Challenges
  • Uncertainty about receiving the required feedstock as required by petrochemical projects (either quantitatively or qualitatively) from upstream sources; the need to provide a long-term feedstock allocation plan from the upstream sector.
  •  Lack of development of upstream resources of feedstock suppliers of petrochemical units in accordance with the ongoing projects of the petrochemical industry
  • Not prioritizing prevention of crude oil and gas sales and development of the petrochemical industry at the macro level of the oil industry; (there is more focus on selling the crude hydrocarbon products)
  • Existence of different and inconsistent views in the four main companies of the Ministry of Petroleum for the balanced development of the oil, gas, and petrochemical industries and the completion of the production chain
  • Absence of a final and transparent formula for pricing petrochemical feedstocks in the long run and competitively (especially liquid feeds) to attract domestic and foreign investors

•     Challenges facing the petrochemical industry for development
  • Financing Hurdles
  •  Lack of access to the state-of-the-art technologies (thanks to the international embargoes)
  • Lack of necessary infrastructure in new petrochemical zones and non-allocation of construction budget to NPC to build the infrastructure
  • Technical, financial and managerial problems of contractors and domestic equipment manufacturers

•     Challenges facing the petrochemical industry due to international sanctions
  • Lack of access to international financial resources
  •  Lack of access to new technologies
  • Absence of capable international companies in the Iranian petrochemical industry
  • Problems concerning insurance, transportation and transfer of the manufactured items to Iran
  • Problems concerning insurance, transportation and transfer of the manufactured items to Iran
  •  Hard Currency transfer problems
  • Increased cost of petrochemical industry projects due to sanctions and inflation and consequently increased investment risks in Iran's petrochemical industry
  •  Imbalance of the work volumes assigned to domestic contractors and their executive ability due to problems caused by the absence of world-class foreign contractors

Petrochemical Opportunities and Threats

•      Opportunities
  • Existence of the main sources of feedstock required by the petrochemical industry inside the country
  •  Access to high seas
  • Existence of appropriate facilities and infrastructure created in petrochemical special economic zones
  • Existence of specialized and young manpower in the country
  • Existence of capable educational and research centers and universities in the country
  •  Tendency of International Companies to Invest in Iran's Petrochemical Industries (Existence of an investor attraction potential)
  • Intrinsic and global value of petrochemical products
  •  Growing demand for petrochemical products in the region and the world
  • Emergence of new technologies to convert light hydrocarbons into various petrochemical products
  • Emergence of new technologies to convert light hydrocarbons into various petrochemical products
  • Access to a large domestic market
  •  Formation of new markets in Asia, India and China
  • Possibility of participation and creation of joint ventures in petrochemical industries
  • Current status in the region and ongoing political developments

•      Threats
  • Investment growth and development of petrochemical industries in rival countries in recent years and gaining a major market share
  •  Imposition of sanctions and international pressure
  • Existence of multiple attractions to attract petrochemical specialists in neighboring and rival countries
  • Lack of timely and adequate supply of feedstock to the units from upstream sources and its negative impact on production of petrochemicals
  • Global recession and a looming decline in demand
  •  Problems caused by inappropriate privatization and ceding petrochemical units
  • Problems in financing projects for various reasons, including sanctions, problems of domestic banks in terms of the amount of resources that can be allocated by them in comparison with the amount of capital required for petrochemical projects, etc.
  •  Impossibility of using the latest technologies in certain projects
  • Lack of development of upstream sources to feed the petrochemical plants as required by the ongoing projects
  • Lack of a competitive and long-term pricing formula (at least 10 years) for upstream feedstocks as one of the main indicators in attracting investors
  • Lack of adequate protection regulations to commercialize indigenous technologies in the petrochemical industry
  •  Incomplete enforcement of the Oil Act (failure to delegate the powers contained in the act to the NPC)
  • Existence of several decision-making centers for the establishment of petrochemical units

Macro Goals

The macro goals of the petrochemical industry, considering the upstream documents, are as follows:

• Sustainable and balanced development of the petrochemical industry in order to achieve the goals of the 2025 vision of the country's petrochemical industry with the approach of completing the value chain based on land management studies
• Achieving the nominal capacity of existing complexes
• Development of investment and creation of new petrochemical potentialities and boosting value added of hydrocarbon resources by considering completion of value chain with the priority of completing semi-finished projects
• Promoting the share of petrochemical industry in the national economy and effective presence in the global markets
• Technology development and operation of domestic knowledge-based companies in order to localize new technologies
• Market development, production of various products and presence in new domestic (downstream) and international markets
• Providing legal conditions for allocating financial resources required for petrochemical projects
• Application and development of industry standards in the fields of HSE, operations, maintenance, energy management, project management, etc
• Human resource development with the approach of promoting empowerment, productivity, scientific management, creating learning and knowledge-based organizations, systems thinking, etc.