TEHRAN (P.I.N.)-- The Iranian economy must be planned on the basis of oil. However, there are four categories: oil as an energy source; oil as a forex earner; oil as the feed for downstream industries; and oil as a national power source.

Torkan is a known figure in the field of domestic industries during post-revolution years. He gained lots of experience during his service terms at the ministries of road and transportation, defense and logistics of the armed forces as well as Industrial Development and Renovation Organization and Petropars Company.

He is now deputy oil minister for planning and research affairs. His views can reflect present and future situation of the Iranian oil industry from the viewpoint of large-scale planning.

Using oil as a leverage for making a link among the interests of Middle East countries, establishing security interaction in the region, the need for reviewing how to use oil revenues, oil industry's special viewpoints on the country's economic development, establishment of an oil bourse in the near future and similar issues were discussed during the following interview with Petroenergy Information Network. Q: An issue, which requires special attention at the current juncture, is the issue of joint oil and gas fields. Contracts signed by Qatar with Exxon Mobil for production of LNG and with Shell for production of GTL as well as Kuwait's decision for developing Arash oil field all overlap with Iran's interests. What is your plan to take better advantage of joint fields?

A: The most important of such fields is South Pars gas field, which is shared with Qatar. As you said, Qatari officials have signed contracts with Exxon Mobil for production of LNG and with Shell for production of GTL. We have likewise signed contracts for developing up to ten phases of the field. Tender bids for phases 11 to 16 are planned and we hope the winners will be announced by the year-end. Phases 11 through 14 are specific to GTL and LNG production while phases 15 and 16 are special to producing sweet gas. So far, required permits for developing those phases have been issued by the Islamic Consultative Assembly (Majlis). Permits for further phases of the field up to phase 24 would be issued by the Parliament during the Fourth Economic Development Plan. However, the Fourth Economic Development Plan would focus on phases 17-22. Q: Petropars was a contractor to phase 1 of South Pars Project. It was, however, criticized for delay in fulfilling its commitments. What is your opinion?

A: Many contractors are working in South Pars Project in addition to TOTAL and Agip. Statoil also is there. Petropars independently carried out phase 1 of South Pars Project. The company cooperated with Agip on phases four and 5 and also is responsible for phases 6, 7 and 8. It shares the marine part with Statoil and has won the tender bid for onshore refinery to be constructed by a consortium led by Japan's Toyo Corporation. Many companies are members of the consortium including Industrial Development and Renovation Organization from Iran. However, with regard to criticism about delay in implementing phase 1 of South Pars Project, I must say that the refinery is fully operational now and the work on the marine section is complete. Also, laying pipeline from the sea to the land has been finished and tested. Petropars started its work one year after TOTAL, and will deliver the project about one year after TOTAL. It is a pity that some people do not care about the delay by TOTAL, but focus on Petropars' delay. Those who came to loss because of the presence of Petropars in the project are making the ballyhoo. Q: Does the Oil Ministry have any specific plans for balancing oil products dealings inside the country?

A: The Oil Minister Bijan Zanganeh recently issued ordered Mr. Asemipour to launch an oil products market inside the country as a prelude to a forthcoming oil bourse. The bourse is to cover such oil products as diesel, gasoline, mazut, kerosene and other products. That is, it means to give Iranians control over oil products dealings. Q: What is your opinion about oil research inside the country?

A: Many oil sectors including research are still incipient in Iran and we hold no licenses in any oil-related field. Due to 100 years of experience in oil activities, we are entitled to hold some licenses, but we lag behind other countries in this regard. We must hold licenses in chemical industries, catalysts as well as downstream industries. We enjoy highly specialized and experienced engineers. Oil industry nationalization process started as of 1953, but is not complete yet and we are dependent on foreigners in many sector including research and oil engineering. We must try to become self-sufficient in those fields.

Q: The huge Azadegan oil field with 26 billion barrels reserves has been a focus of attention during past months. Japan failed to take advantage of its exclusive negotiation rights for developing the field, so Iran invited other countries. However, Japan has maintained interest in the field. Which countries are expected to take part in the upcoming tender bid for the field? With which country the negotiations have been more serious.

A: Japan had exclusive rights over other companies before expiry of the agreement. That is, we had decided to give the field in due time without formalities. Japan, unfortunately, lost the opportunity. At present, the Oil Ministry is under no commitments with regard to Japan and can hand the project over to any country. Many companies have been invited to take part in the bid and we will give the job to the best bidder. It is a fact that Japan is the loser and Iran has not lost anything. Q: It seems that Iran's proposal for participation in the reconstruction of Iraq during Madrid conference based on oil swap with that country has drawn the attention of Iraqi Governing Council. Jalal Talabani, as the then chairman, and other members of Iraqi Governing Council discussed the swap deal during a visit to Iran. If Iran received Iraqi oil at Abadan Refinery and exported an equivalent amount oil from Kharg Island on behalf of that country, it would be a great contribution to that country and provide it with adequate financial resources for reconstruction. Swap deals with Caspian littoral states also require due attention. How do you assess such deals and what is your plan to develop them?

A: I have to elaborate in more detail. We have four major categories in this regard. We believe that Iranian economy must become independent of oil revenues while being planned on its basis. It is a mistake to think that an economy without oil would be beneficial for Iran. Budget must be made independent of oil, but oil is the main advantage of our country.

An economy without oil for our country would be similar to economy without electronics for Japan or without agriculture for Australia or without dairy for Denmark. Therefore, oil is our advantage and we cannot separate it from the economy. The Iranian economy must be planned on the basis of oil, but in four categories: oil as energy; oil as forex earner; oil as the feed for downstream industries; and oil as a source of national power.

With regard to oil and the national power, we think in terms of national security. Due to Iran's strategic situation between the Caspian Sea and Persian Gulf, our oil rich neighbors need us because they lack our scientific and technological capacity. In addition to being an oil rich country, Iran enjoys high industrial and technological capacity. Therefore, we must define our joint energy and oil projects with our neighbors. It means that we must make a link among national security matters of various countries. To develop, we need stability and security.

Today, East Asia is secure and stable and has started its growth spurt. However, West Asia has been grappling with two major hardships: firstly, the Ba'athist regime in Iraq, which caused many crises, including two wars with Iran and Kuwait. This problem has been partly solved with the toppling of Saddam regime.

The second problem is Israel, which is causing instability and insecurity in the region. Of course, we think that elimination of Saddam has paved the way for growth and development of West Asia and to do this, we must make a link among national security affairs of all regional countries through implementation of big oil and energy projects.

This is an idea, which comprises such projects as construction of gas pipeline to Pakistan, so that it would help economic development of Pakistan and tie national security of both countries.

Another example is the gas supply pipeline to Turkey or buying oil and gas from Central Asian countries. We have already started swap deals with Central Asia and purchase as much as 370,000 barrels crude from them that can be increased to 500,000 barrels.

We buy Central Asian oil, use it, and give them an equivalent amount in the south. We can greatly increase the capacity of the project. Therefore, we have defined joint project with Caspian Sea littoral states.

We also pursue joint oil and petrochemical projects with Saudi Arabia, Qatar, and Kuwait and we hope that one day, we would construct a joint oil platform with Qatar in South Pars region and start joint production. We pursue the same idea with Saudi Arabia too. Petrochemical industries of Iran and Saudi Arabia can get a big share of global markets through a strategic cooperation.

Now if you consider this big basket, Iraq could be part of that basket. We have had a long history of insecurity and tension with Iraq, but we must reach stability and security because the main obstacle, namely Saddam, has been eliminated. Now we pursue security and implementation of security projects.

In addition, we must think of joint projects on Border Rivers to boost border trade between Iran and Iraq. Finally, we must think about joint oil projects, production from joint fields and oil swaps with Iraq because Iraq has little marine border and limited access to free waters. We can purchase Iraqi oil and give it equivalent amount in the Persian Gulf. We can buy oil in the north, use it in Tabriz refinery, and give them an equivalent amount in the south. These are big security measure that we can take by use of oil and make a link among destinies of Middle East countries through oil.

In this way, security and stability in the Middle East would ensure interests of all countries, and West Asia would be relived of its 20-year backwardness. The main factors for backwardness of this region were Saddam and Israel and now, after elimination of Saddam, security can be partly achieved. Q: As you know, gas consumption is on the rise in the world and countries with more access to gas are more inclined to use it. Do you think that gas could replace oil in the future? What is you plan for developing Iran's gas reserves as a country which enjoys the world's second gas resources?

A: Gas accounts for 25 percent of the world energy and the figure is expected to reach 28 percent in near future. Meanwhile, share of oil in supplying global energy demand is 40 percent and will remain unchanged. Therefore, share of gas in supplying global energy demand will increase.

However, with regard to gas exports, we give priority to using gas from the country's economic prosperity with exports being our last concern. That is, if we couldn't use gas for development, we would export it.

Of course, economic development plans have paid attention to gas exports and we are planning exports to Kuwait, the United Arab Emirates, Pakistan and Turkey through a pipeline. We are also considering gas exports to farther destinations as liquefied natural gas (LNG). I personally believe that we must use gas for prosperity of domestic gas and get on with oil exports. Q: It was recently announced that Iran's producible oil reserves amounted to 130 billion barrels. Does it mean that Iran enjoys the world's second biggest oil reserves after Saudi Arabia? If so, the country would rank second in terms of both oil and gas reserves. Would you please explain?

A: We have some terms in this regard. 'Oil in place’, which amounts to over 500 billion barrels. Another term is 'recoverable oil', whose volume is estimated in view of recovery factor of our reserves. The factor for Iran was previously low, but due to technological advances, it has reached 25-26 percent, which means 130 billion barrels crude. The figure can further be increased and we are trying to increase it to 28 percent and then 30 percent during five-year economic development plan.

Q: On the sidelines of conference on maximizing oil revenues you told reporters that Iran has so far consumed one-third of its oil revenues and two-thirds have remained. Please elaborate.

A: The volume of oil produced during 100 years of Iran's oil activities has amounted to about 50 billion barrels and 130 billion barrels remain. I neither like pessimism, nor aggrandizement. We must tell the truth. The truth is that we have used one-third of our reserves and two-thirds have remained. Of course, as you know, our country's gas reserves are two times its oil reserves. Q: The Fourth Economic Development Plan has projected a method for using oil revenues according to which 50 percent of price of every barrel of oil at the export rate would be paid to the government by the National Iranian Oil Company. Can this policy help develop oil industry? On the other hand, would tax revenues be capable of replacing oil revenues and contribute to overall development of the country?

A: During the Fourth Economic Development Plan, a new relationship would be defined between the government and the National Iranian Oil Company and their relationship would be reviewed. The government would own oil reserves and the ministry would represent the government in this regard.

The Oil Ministry is producer and takes oil from the reservoirs and, in return, would pay a loyalty to the government. Overall, the National Iranian Oil Company must pay the government in three ways: royalty, special tax, and stock dividend.

Moreover, it must pay a kind of tax that all companies pay. Royalty is indigenous value of oil that should be paid for production of every barrel crude. Based on our estimate, the indigenous value of oil is 25 percent in sea and 35 percent on land, averaging 33 percent.

It is share of the reservoir, which should be paid to the government and the government settles the sum to a fund, which was previously known as Forex Reserve Fund and is currently called Investment and Development Fund. This money should exclusively be used for investment in the country's development ... and nobody would be allowed to use it for other purposes.

The second sum taken from the National Iranian Oil Company by the government is a special tax, which changes in proportion to increase or decrease in oil price. Since special tax is a tax after all, it can be used as part of the general budget.

The third part is revenues earned through stock dividend and the National Iranian Oil Company's ordinary taxes, which would be paid to the government. Therefore, according to the Fourth Economic Development Plan, the National Iranian Oil Company would be a tenant who would pay the government a royalty.

However, the government would be forced to pay a large part of the special tax it takes from the National Iranian Oil Company as fuel subsidy. The government has come to conclusion that it should phase out fuel subsidies and spend them on infrastructural projects.

Q: Please, explain about employment of specialized and experienced manpower in the oil industry.

A: The academic background of our country goes back to 70 years ago. However, we still lack specialized academic courses in our universities. Specialties related to oil industry are taught in Oil Industry University, which is affiliated to Oil Ministry.

This indicates a great oblivion on the part of our higher education system. We are trying to employ elite university graduates and use them for technological development of the oil industry.