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Implementation of Iran Petroleum Contract (IPC) and the Lost Appeal

25 Sept., 2016

Vistar Business Monitor

After many ups and downs, the general conditions governing Iran Petroleum Contract (IPC) have been finalized, and in the wake of the communication by the parliament speaker to government of the approved model of such contracts, IPC has officially landed on course to implementation. The latest communiqué by the Cabinet features the revisions underlined by senior establishment officials.

Those establishment officials have laid emphasis, among other things, on the sovereignty and public ownership of all resources and oil and gas reserves through the Oil Ministry which represents the Islamic Republic of Iran, the sovereign and regulatory responsibility of the Oil Ministry vis-à-vis project executors, implementation of Article 44 of the Constitution and priority for Iranian exploration and production firms in using loans. Determination of a production ceiling, measures to prevent likely abuse by foreign companies and a clear definition of the rights, commitments, and responsibilities of contracting parties were among other revised provisions.

If the Oil Ministry seeks to avoid problems in concluding new oil contracts with foreign investors, it should limit its accountability only to the institutions which are mentioned in the government communiqué. Open interference by numerous individuals and institutions with no expertise during the review and adoption process of IPC should not be repeated. If Oil Minister Bijan Namdar Zangeneh and Managing Director of the National Iranian Oil Company Ali Kardor and other senior officials of the Oil Ministry and the NIOC stick to a similar policy in concluding deals, the country’s oil industry will suffer a major blow.

Under the IPC model which has now been approved by the Compatibility Board, signing confidentiality deals and cooperation agreements with international companies and their subsequent access to secret information on Iran’s oil fields will be decided by the Supreme Security Council. The first institution is a council whose name is not even clear. In other cases, as it has been announced, institutions will be formed to keep an eye on IPC. Despite this and at a time when the IPC communiqué has already been communicated, unauthorized institutions keep poking their nose at these contracts.

Failing to pay attention to this and allowing the opponents to create crises will prompt foreign investors to back down and will result in the failure of the Oil Ministry to achieve its stated objectives. One should not forget the fact that these contracts are already among the strictest of their kind in the world and the likely failure of the Oil Ministry to secure the inflow of foreign investment through IPC will be used as [anti-government] leverage by the same critics who are fiercely opposed to IPC today.


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