Iran to Start Oil Advance Sale

Islamic bonds (Sukuk) will be issued next year (starts March 21) for procuring financial resources for oil industry plans of the country and also to sell incomes generated from selling oil in advance, deputy oil minister for planning said Saturday.

“For the first time, the possibility to purchase these bonds by the Persian Gulf littoral states and Middle East countries will be facilitated,” added Mohsen Khojastehmehr.

He referred to diversifying financial and credit tools for implementing and expanding various upstream and downstream projects in oil industry in the next Iranian year (starts March 21), Mehr News Agency reported.

“One of the ways for financing oil projects in the first year of execution of the Fifth Development Plan (2010-2015) is issuance of hard currency and rial participation bonds. The subject of issuing participation bonds has been presented in the proposed budget of Oil MinistryOil Ministry to the Majlis. For the next year, issuance of participation bonds has been forecast for National Iranian Oil CompanyNational Iranian Oil Company (NIOCNIOC), National Iranian Gas CompanyNational Iranian Gas Company (NIGCNIGC), National Iranian Oil Refining and Distribution CompanyNational Iranian Oil Refining and Distribution Company (NIORDCNIORDC) and National Iranian Petrochemical CompanyNational Iranian Petrochemical Company (NIPCNIPC),” he noted.

Sukuk Bonds
He recalled that upon coordination between Oil MinistryOil Ministry and Central Bank of IranCentral Bank of Iran (CBICBI) the mechanism for issuing Sukuk bonds has been specified.

“These bonds will be in hard currency and in addition to local investors, investors in the Persian Gulf littoral states and also the Middle East can purchase them,” he noted.

The official recalled that profit-yielding and attraction of Islamic bonds for foreign and domestic purchasers will be more than hard currency participation bonds.

“Before issuing the Islamic bonds, its level of profit will officially be declared by the CBICBI and Oil MinistryOil Ministry,” he noted.

He said the objective behind issuance of Sukuk bonds is for more people to participate in oil industry projects of the country.

“For next year’s budget plan, the price of each barrel of crude has been considered as $80. It is projected that the same base price will be considered in Sukuk bonds.

With the increase of price of a barrel of crude to over $80, the level of profit-yielding of these bonds will increase in a proportionate manner.

In other words, concurrent with the rise in price of Iran’s crude, the level of profit yielding of these bonds will increase.

Upon purchasing the Islamic bonds, people will have a direct role in the profit for oil production. Of course, the final mechanism for issuance of Islamic bonds will be first ratified by the Majlis and then the government will be notified for its implementation,’ he said.

National Resources
Khojastehmehr said another way for procuring finances of oil industry projects in the Fifth Development Plan will be using the resources of National Development Fund.

“It is expected that this financial resource be allocated for private investors in petrochemical industry. This resource will be used only in projects whose investor is the private sector.

Therefore, specific amounts of money have been designated for private investors in the petrochemical sector.”

He also cited internal resources of NIOCNIOC, buy-back scheme, and domestic and foreign financing is other ways of procuring financial resources for oil industry projects.

“It is forecast that through using the said mechanisms no problems will arise in terms of procuring financial resources of oil, gas and petrochemical projects,” he noted.

Recently, Oil Minister Massoud Mirkazemi said for expanding the oil and gas industry’s upstream sector some $150 billion of new investments is required.

He also said $210 billion is needed to implement various oil industry projects in the course of the Fifth Development Plan.

The rise in political crises in the Persian Gulf littoral states and North Africa has increased Iran’s incomes from sale of oil by 41.5 billion and it s forecast that the country will have $80 billion of income from selling oil in the fiscal year ending to March 20.

Oil MinistryOil Ministry statistics show in the period between August 23, 2009 and August 23, 2010, about $69 billion was generated.

Given the rise in the price of Iranian crude, the target of $80 billion in oil revenues is not out of reach. Before 2005, oil revenues were on the average $22 billion per year while during the tenure of the incumbent government the figure stands at an yearly average of $58 billion.

Crude’s Price Rises
The price of Iranian crude has hit about $112 per barrel, which is a new record in the past 30 months. Synchronous to intensification of civil war in Libya, which is one of the biggest producers of oil in North Africa, the price of crude of Iran, North Sea Brent and America’s WTI has increased.

The average price of each barrel of Iranian light crude has reached $110.76 in the Asian market, $111.79 in European northwest market, $110.29 in the Mediterranean market and $111.89 in the South African market.

Furthermore, the average price of each barrel of Iranian heavy crude has reached $108.19 in the Asian market, $110.19 in the European northwest market, $107.74 in the Mediterranean market and $110.29 in the South African market.

Enough Oil Supply
Iranian OPEC Governor Mohammad Ali Khatibi said there is no lack of oil supply in the market.

“Raising outputs by some countries were unnecessary and it may have sought particular and probably political aims,” he told ISNA.

“Sources’ calculations suggest that 29,7000,00 to 30,000,000 oil barrels were produced daily in January, whereas some 700,000 to 1,000,000 barrels exceeded the demands.”

Khatibi continued Libyan oil outputs hit 1.6 million barrels which is now lessened by half, noting that the extra-produced amount by other countries make up for decreased outputs by Libya.

He added not only is there no lack of supply in the market, but also massive amount of outputs have been stored.

OPEC’s members are Algeria, Angola, Ecuador, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates and Venezuela. Iraq is exempt from the quota system.

Iran’s oil capacity is around 4.1 million barrel per day.

Iran has OPEC’s second-highest oil output, ranking second in the world in terms of natural gas reserves after Russia.