The commencement of operation of Phases 2 & 3 of South Pars gas field has brought the Ministry of Oil to the limelight. Receiving special attention for pulling off this mammoth project despite all obstacles is Minister of Oil, Bijan Namdar Zangeneh. With 14 years of ministerial experience in the ministries of Jihad and Energy, Zangeneh has by virtue of his tenure occupied President Seyyed Mohammad Khatami’s Cabinet’s most key economic position since October 1997. Early on in his ministerial post, Zangeneh signed a buyback contract with a consortium of France’s Total (now TotalFinaElf), Malaysia’s Petronas and Russia’s Gazprom which has now budded as Phases 2 & 3 of South Pars. These contracts initially entailed heavy criticisms for the minister, to an extent that some even wanted to put him on trial. However the overwhelming benefits of these projects have now become common-wisdom and Zangeneh is being congratulated for his courage and determination. What follows is Zangeneh’s story, set out in an interview, of how we got to where we are, and more importantly, where we must go from here.

It has been the hope and ambition of every senior executive in the Ministry of Oil to see the exploitation of the South Pars gas field. This is the world’s biggest gas field and half of it belongs to Iran. I am glad that, even though delayed, we have finally started to claim our legitimate rights in South Pars, effectively putting an end to U.S. sanctions and increasing our domestic capabilities. When I saw the first refinery set alight, it felt like Iran’s flag was being hoisted and the national anthem rang in my ears.

Now it is widely accepted that buyback contracts are to the benefit of the country, even though there are still small groups that like to believe otherwise. But the support we enjoy now was earned through a long and strenuous process. The country was nervous and worried to make such huge investments in the oil sector, which was more or less understandable. Development is more of a cultural, rather than economic, process. For years there had been no major investments in the oil industry and we suddenly decided to invest tens of billions of dollars. Some thought such investments were uncalled for, but the reality was it was only a fraction of what needed to be done. We must not compare ourselves with our past, but with the pace of development of our neighbors. Despite all the difficulties and pressures we invested and did what we had to do and now that we have completed the work and are reaping the benefits we no longer have strong opposition. For example, Parliament granted us a permit for establishing four new phases in South Pars this year with virtually no argument, which was very surprising for me when I think back to the intense debates it fired up only a few years ago.

Utilizing foreign resources in oil and gas projects has many benefits and project management technologies are critical to major operations such as South Pars. Manufacturing products and goods needed domestically, creating domestic job opportunities through transfer of work and growth of domestic capabilities is not possible except through buyback contracts. Finance contracts are merely a credit and are not totally inline with domestic production but in buybacks the resources are provided by the main contractor which has the effect of bringing money into the country. Furthermore, domestic companies will learn new technologies through the work they receive. This system has been applied in Phases 1 to 10 of South Pars with huge benefits.

Ten phases of South Pars have already been contracted out and it is hoped that eight more phases will be contracted in 2003 –possibly through auctions. These phases, coming to a total of 18, will create a lot of jobs and generate a lot of wealth. The eight new phases have been allocated to supplying domestic demands as well as provide exports in the form of LNG and LPG. Each of the 10 existing phases produce a daily average of 25 million cubic meters of natural gas for domestic consumption, 40,000 barrels of condensate and some liquefied natural gas (LNG) for foreign export, 200 tons of sulfur and some ethane for fueling petrochemical units. Phases 6, 7 & 8 produce a total of 85 million cubic meters of gas per day, 79 of which are re-injected in the country’s southern oil fields –Aghajari being the most significant. These three phases alone will have a daily yield of 120,000 barrels of condensate and a yearly yield of 1.2 million tons of LNG.

Phases 2 & 3 have commenced production and next year so will Phase 1. 2004 will see the opening of Phases 4 & 5 and by 2005 Phases 6, 7 & 8 will become on-stream. Phases 9 & 10 will join the network at a later date. As for the contractors, Phases 2 & 3 were complete by a consortium of France’s Total (now TotalFinaElf), Malaysia’s Petronas and Russia’s Gazprom. The main contractor in Phases 6, 7 & 8 is Petro Pars which signed a $1.985 billion contract in 2001. The contract of Phases 4 & 5 has been signed by Italy’s Agip, Petro Pars and Niko Iran in 2001 for a total of $1.928 billion.

If things stay as they are South Pars will generate $7.2 billion per annum, but if gas becomes the main source of energy Iran will earn $13.8 billion per year. And even now that only Phases 2 & 3 have commenced production, we are earning $200 million a day for condensate exports, in addition to countless trickle-down benefits for all of the country’s industries. You cannot see any respectable installation or construction contractor that is not doing something in South Pars or any noticeable industry that is absent from the activities there. South Pars is not only a revenue-earner but also a motivator for all of the country’s industries.

Yes, and we have already increased the pace in which people are gaining access to gas. In 1998 only 19 million people were covered by the gas grid, but today that figure has risen to 35 million. We hope to further boost that figure to 38 million by 2004. The gas consumed by power plants has doubled and gas now enjoys a share of 50% of Iran’s energy basket. Last year we finally started exporting gas to Turkey and are now seeking to expand our export networks. Currently, 85% of Iran’s urban population – ²/₃ of the country’s total– is covered by the gas grid. If we can boost this figure up to 93% we will be leading the world in urban gas access.

We have allocated 0.2% of oil income for the development of the Assaluyeh region which stretches over 10,000 to 14,000 hectares and has an even wider area of effect. We have already done a variety of things for the region such as building a four-lane highway which will eventually be connected to the Fars province. This is in addition to other road construction going on with the cooperation of the Ministry of Transportation. Providing running water and electricity, establishing recreation centers, schools, education facilities to train the locals to take up jobs in the region’s projects are all underway thanks to the efforts of the Ministry of Oil. We have also agreed to give Rls 15 billion (approximately $1.9 million) a year for five years to the Bushehr province to boost the welfare of the region, as well as establishing a university with the cooperation of the National Iranian Gas Company (NIGC) and the National Petrochemical Company (NPC) to train an expert workforce to take part in the region’s activities.

We have invested over Rls 100 billion ($12.5 million) to expand Assaluyeh’s military airport and bring it under the control of the Iran’s aviation organization. Furthermore, we have decided to construct an advanced international airport in Assaluyeh by the end of next year.

In the field of hospitality, housing and hotel industries we call on the private sector to become more active. We will be providing the required land and support and indeed some have taken up these offers and are making good money to the best of my knowledge.

We welcome Iranian participation in any aspect of the South Pars project and the wisest thing Iranian contractors and manufacturers can do is produce and sell their products in the pars special economic energy zone where they are exempt from customs fees. Another benefit of this is that it will reduce costs and traffic on the surrounding roads because the need for transportation will be eliminated. This will have the additional effect of creating a competitive environment which will in turn enable the private sector to partake in different projects in the Persian Gulf region.