Petrochemical price relaxation under study: official

July 31, 2007 - 0:0

TEHRAN (PIN) – Deputy oil minister for petrochemical affairs here Monday said the government was studying the plan on price relaxation in the petrochemical sector.

Gholamhossein Nejabat told PIN that the cabinet, Economic Council, and Ministry of Agricultural Jihad were busy with studying the price flotation plan and they would announce the outcome of their discussion in the near future.
“Certain arrangements should be made for putting the plan into action,” said the official, adding further survey would help find the suitable way for implementation of the plan.
“Urea fertilizer should be excluded in the initial plan as it is highly consumed by farmers and is regarded a very important and strategic product,” he added.
The country needs about 5 million tons of urea fertilizer per annum, of which 1.3 million tons is supplied by domestic producers and the remaining part is imported by the Ministry of Agricultural Jihad.
Urea fertilizer is the only product that petrochemical complexes directly deliver to the farmers and if it is sold at open market price, it will cause inflation.
Nejabat, also the managing director of National Petrochemical Company (NPC), had already said the plan on supply of petrochemical products in open market would make the market transparent.
Nejabat told PIN that the total estimated profit the NPC would earn after the implementation of the plan would be around 5.69 trillion rials (61.8 million dollars).
He, however, added, “Instead the company will take on more commitments, including the payment of 25 percent tax, and increase in the price of feedstock of complexes. Therefore, the plan will not raise the revenue of National Petrochemical Company.”
Nejabat said the number of petrochemical products sold at approved prices was limited and consequently those few products would be offered at the world rates when the plan was put into action.
The deputy oil minister for management and human resources’ affairs said transparent price would prevent any corruption in the petrochemical sector and price relaxation would definitely make the production sensible.
Elaborating on price flotation plan, Mansur Mo’azzami added, “At present, the considerable difference between real domestic output and consumption and supply of products in the downstream production sector at unreal rate has forced the consumers to pay more, helping the middlemen gain huge profits.”
He said price transparency would help calm the market and production atmosphere.
There would be more options open to customers if the plan on relaxation of petrochemical products’ prices were put into practice, Amir Kabir Petrochemical Complex production manager Abdolali Hushmand told PIN.
Petrochemical market in Iran would be competitive and the products’ quality would improve if the plan on price relaxation took effect, said a Shiraz Petrochemical Complex official.
Talking to PIN, the production manager Kazemi added the complex’s petrochemical products met international standards, arguing that the middlemen would disappear and the goods would be available for real producers if the approved plan were put into practice.
Liberalization of petrochemical products has been discussed among lawmakers, officials, and experts for years. The good news is that the industry has slackened its prices.
According to a Majlis ratification, the government has been obliged to eliminate rationing of petrochemical products and their subsidized prices and also reduce prices.
Undoubtedly, fixed prices have had devastating impacts on petrochemical products that they have been chiefly blamed for the ongoing crisis in the polymer industry.
President Mahmud Ahmadinejad also maintained that elimination of subsidies would be tantamount to creating more investment opportunities in this particular sector.
The fact is that only one-sixth of such subsidies went into the pocket of producers.
However, certain producers have warned that elimination of subsidies and limitations in supply with relaxed prices could ultimately increase prices of petrochemical products.
Under the 20-year Outlook Plan, Iran will hold 34 percent of the petrochemical market share in the Middle East and 6.2 percent of the world’s by the final year of the plan. However, the market share of Iran’s NPC is currently 12 percent of petrochemical production in the Middle East and 0.9 percent in the world.
Investment needed to achieve the objectives set for the sector will be around $50 billion. This means during every Five-Year Development Plan some $12.5 billion should be invested in the sector, i.e. the total amount will be $50 billion by end of the Outlook Plan