The Economic Power of
Petrochemical industry drew up its long-term plan in five phases and
focused on two industrial poles of Mahshahr and South Pars.
Establishment of the
infrastructure of the petrochemical industry started before the victory of
the Islamic revolution. Based on a contract signed with Japan,
construction of a petrochemical factory in Mahshahr started. However, soon
after the inception of the Iraqi imposed war, the Japanese contractor that
was apparently looking for a pretext to halt the project refrained from
completing the factory. It was obvious that decision-makers on
international division of labor had decided that Iran should remain an
exporter of crude oil and not play a more constructive role. However,
strong determination and inclination of the Iranian nation for development
and doing away with monopolies, disturbed the deep slumber of imperialists
and despite their will, Iranians decided to establish a powerful
petrochemical industry in the country.
In the following
interview, Mohammad Hassan Peyvandi, director of planning and research at
the National Petrochemical Company sheds more light on the process of
planning and long-term goals of the industry. Mohammad Hassan Peyvandi
holds a bachelorís degree in chemistry and petrochemical engineering as
well as a materís degree in the executive management. He has worked on
projects carried out by the National Petrochemical Industry as a director
and is currently director for planning and projects at the National
explain the main approaches and goals of the Iranian petrochemical
First, we better have a
look at the First Five-Year Economic Development Plan. The First Economic
Development Plan, part of which was related to petrochemical industry, was
influenced by the imposed war. Petrochemical sector tried to invest a
minimum in petrochemical industries proportionate to minimum facilities it
enjoyed in terms of feed and raw materials.
Those minimums included
the amount of naphtha made available by refineries in Isfahan, Arak and
Tabriz. The investment resulted in the establishment of small
petrochemical complexes in Isfahan, Arak and Tabriz as well as a chemical
fertilizer complex in Bojnourd, Khorasan. The main problem was that the
country lacked any planning strategy for developing refineries. Even now
after the construction of a seventh refinery, no other refinery has been
slated for development and, for this reason; petrochemical feed is
severely affected by dominant fuel in the country (gasoline). What
petrochemical sector used as feed for Arak, Tabriz and Isfahan refineries
and later, from Abadan refinery for Bandar Imam Petrochemical Complex
during the First Economic Development Plan was part of the countryís
gasoline fuel. Vulnerability of petrochemical industries due to use of
naphtha feed, which is originally part of automobile gasoline, encouraged
petrochemical industries to change their feed.
big occurrence was rapid development of South Pars gas resources. The gas
coming from the field contains 8-10 percent C2plus
compounds, which could be an ideal feed for olefin units. Also, liquid gas
containing that 10% C2plus
compounds was a good financial resource to finance projects. The massive
volume of gas liquids which amounts to about 40,000 barrels per day for
every phase of the South Pars Project could provide a suitable feed for
aromatic units as well as olefin units supplying propylene.
Based on the
abovementioned feeds, petrochemical industry drew up its long-term plan in
five phases and focused on two industrial poles of Mahshahr and South
Pars. The benefit of this planning was distancing from the effects of
global crude oil price fluctuations. As we know, crude oil is affected by
OPEC and similar structures in terms of production ceiling. With regard to
price, in addition to supply and demand trend in the world, it is affected
by political upheavals such as the war in Iraq, revolutions and economic
Adoption of the planning
strategy on the basis of gas feed would immunize the industry against such
upheavals because the gas price is regional and competitive and the Middle
East contains the biggest gas reserves in the world and enjoys the best
competitive prices. Therefore, the economy of petrochemical development
projects would yield a suitable return for investments. All these
possibilities have enabled the petrochemical sector to not only develop
during the Third Economic Development Plan on the basis of developmental
planning for economic and global capacities, but also make up for the past
dormancy during the Second Economic Development Plan. Thus, projects
considered during the Second Economic Development Plan were made
operational simultaneous with the implementation of the Third Five-Year
Economic Development Plan.
been the consequences of developing petrochemical industries for the
petrochemical industry activated domestic engineering, manufacture and
manpower development as well as capital turnover. As a result, through
about $10 billion investments at two special petrochemical zones of Bandar
Imam and South Pars, as well as other parts of the country, domestic
workshops capable of manufacturing petrochemical equipment were
established. Also, measures taken by the Economy Council and Majlis to
make maximum use of domestic manufacture and capabilities provided the
private sector with a good opportunity in the fields of engineering,
domestic manufacture, consultation as well as installation and
construction contractors. So that, there is currently no vacant space to
work in the above fields in relation to petrochemical industry and the
speed of implementing petrochemical projects is controlled by the speed of
equipment leaving domestic manufacturing workshops or problems resulting
from domestic engineering or manufacture.
The recent examples show
themselves during inauguration and this is natural because it is the first
time that an Iranian engineering company carries out detailed engineering
procedures on a several billion dollar project and, naturally, it wonít be
devoid of minor errors that could be corrected.
The same is true about
domestic manufacture too because a big apparatus like a reactor, with many
input and output nozzles, might contain errors in manufacture and assembly
that would only show by observing its dynamic and chemical behavior during
commissioning. This is natural. Therefore, we believe that the most is
made of petrochemical investments in the process of economic and
industrial development of the country, not only in terms of increasing
production, but also in terms of taking advantage of existing
potentialities and capacities of other sectors in creating jobs and a
remarkable added value that is not only earned through converting
hydrocarbon substances to petrochemical products, but also from
development of engineering, equipment manufacture and manpower sectors.
The end result of this planning is reduction of the cost prices of
projects in national terms. For example, we can say that the cost price
for production of one ton ethylene under equal conditions in terms of feed
has been reduced by about 30% or more in comparison to the First Economic
Development Plan and despite global inflation. Of courses, to have a more
accurate surmise we must wait until products of those projects enter the
How is the
capital needed for developing petrochemical industries supplied?
industry is basically a capital-intensive and technology-intensive
industry and there is no doubt about it. The national petrochemical
industry has embarked on investing in projects with suitable economic
justification by taking advantage of financial resources earned through
domestic or foreign sales of its products and within the context of
permits issued by the Islamic Consultative Assembly and the Economy
Council. Other investments are made according to finance permits and
through the supports offered by the Ministry of Oil. We have had no
problem with regard to financing projects.
have you made with regard to market?
Petrochemical Company paid due attention to international markets during
the Third Economic Development Plan. It scheduled its projects taking into
account the countryís relative and competitive advantages including gas
resources and skilled, inexpensive manpower as well as domestic
manufacture and engineering capabilities while taking into consideration
all projects that would be made operational worldwide during the
concluding years of the Third Five-Year Economic Development Plan and the
early years of the Fourth Economic Development Plan. The company paid
special attention to big markets of China and India in its planning as
well as that of the Southeast Asia. We could not confine ourselves to
competition in the Persian Gulf alone in view of available raw materials,
but we had to be able to produce high-quality products at competitive
prices by making use of suitable technology for the target markets. This
was not possible unless through increasing the capacity for production and
supply of substances that were in demand in the said markets. Therefore,
petrochemical industries planned production of such products as methanol,
ethylene, aromatics and their derivatives such as the various kinds of
polymers on the basis of relative and competitive advantages of natural
gas, ethane and gas liquids.
To acquire a share of the
market, we must produce adequately and the clients must be assured about
permanent and continued supply of their needed material by us at any time
and under any conditions. Also, quality of products and the technology
used for production must not only match rival products, but be superior.
On the other hand, the delivery mechanism must be such that the customer
would be sure about security and continuation of production.
For this reason, projects
for constructing onshore reservoirs and warehouses in Bandar Imam as well
as construction of an export dock at special economic, petrochemical zone
and a big export dock at South Pars region, which is one of the biggest
portal export installations for liquids and solids were planned which are
currently being implemented and would complete the cascades of production
process as well as quality and supply simultaneous with realizing
production goals of the Third Five-Year Economic Development Plan.
At the same time,
Petrochemical Commercial Company took measures for developing sales
offices and representative offices in target markets as well as education
and development of human resources through consolidated and coordinated
planning with underway petrochemical projects.
We hope to increase our
0.7% share of global production in 2001 to 2.3% in 2006 by considering all
available global capacities with regard to major petrochemical products.
During the same period and since most underway projects aim for exports,
the current share of global exports which is about 1% would hit 5.5%.
observers have opined that most petrochemical development projects are
ambitious. What is your opinion?
We donít want to lose the
opportunity and there is no reason why we should not be determining prices
and assume a defensive position despite having abundant resources. Why a
country like Taiwan, which lacks raw materials and even enough land,
should account for a much higher share of the global market than us? If we
do not use the ethane coming from the South Pars field for petrochemical
purposes, this valuable substance would be consumed at homes and power
plants as fuel. At present, 900,000 tons gas is being used by household
and power plant sectors, while after implementation of the huge Maroun
project at Bandar Imam Special Economic-Petrochemical Zone, it could be
converted to polymer and then to polyethylene and polypropylene whose
added value is about 60%. We must note that ambitious measures follow
motivations that lead to ambitious decision-makings. And when there is a
scientific logic behind those ambitious steps, like Maroun project, we
would face no problems.
you goals, you would need specialized personnel. What plans are considered
by petrochemical industries for providing needed manpower?
manpower needed by petrochemical industries should have been planned in
two categories of experts and directors. With regard to the first
category, all scientific centers of the world have admitted that Iranian
graduates enjoy high quality and scientific capabilities. Therefore, the
best talents are chosen from among domestic graduates through special
examinations that are held by the National Petrochemical Company through
Oil Industry University as well as the companyís management,
administrative and educational departments. They pass a two-year
apprenticeship at production units of petrochemical industries and are
then chosen to lead production and engineering projects.
Moreover, education is
not only supervised by the administrative and educational management, but
also through special theoretical classes attended by professors of
domestic universities as well as skilled craftsmen of petrochemical and
oil industry by Fanavaran Fonoun Jonoub Educational Company in Mahshahr,
which is a subsidiary of the National Petrochemical Company.
With regard to
management, Rahbaran Company, which is responsible for education and
providing up-to-date management information, holds continuous courses on
every Thursday for senior- and medium-level directors of the company.
With regard to training
directors for future leadership of the industry, after approval and
confirmation of the Oil Ministry, a program for educating 112 directors
through a masterís degree course in the field of executive management is
underway in cooperation with Sharif University of Technology and Canadaís
Calgary University. The participants are chosen out of medium-level
directors of the company through special tests on management, language and
In addition, developing
the higher educational culture at petrochemical regions including Bandar
Imam, through establishing a branch of Amir Kabir University for courses
needed by petrochemical industry including polymer is another underway
plan for developing manpower resources of the petrochemical industries.
The special issue that
received special attention by the managing director was providing needed
manpower for petrochemical projects during installation and construction
phases that included skilled technicians in various fields including
welding according to oil industry standards, plumbing, precision tools,
electricity and so forth. In these fields, young people holding high
school diplomas were trained by holding practical workshops at the special
economic zone and entered labor market after passing technical courses.
Most of them have been employed by contractors in the region.
the reason for stagnation of petrochemical projects during the Second
Economic Development Plan?
The reason was that some
officials and planners were of the opinion that the planís projections
were ambitious and inaccessible. They decided to postpone parts of the
plan and this led to partial inactivity of the sector.
domestic industrialists supposed to attune to petrochemical projects?
We think that such
industries must be developed rapidly. After the Third Economic Development
Plan was initiated and in view of the huge prospects for petrochemical
industries up to 2014 when they are expected to produce about $20 billion
worth of petrochemicals annually, a big market must be set up for
development of petrochemical industries as well as domestic engineering.
Of course, I do not
believe that everything should be made in Iran, but we must see what
projects enjoy economic justification. If you wanted to produce up to $30
billon per year, you would have to take advantage of all domestic and
foreign facilities. Some parts and equipment are specifically made for a
factory, like the rotor of a compressor for olefin units. This compressor
has been designed for a specific capacity and a specified gas composition
at the average molecular weight of gas and it is obvious that demand for
such equipment would be limited. Such equipment would be in demand in
international market, not in a special regional market. So producing such
equipment in view of the long time needed for manufacture would not be
economical for any industrial units. However, other equipment including
furnaces, reactors, and heat exchangers are so varied and take such a
short time to be manufactured that they would be economically justifiable.
The next point is that
just in the same way that the National Petrochemical Company has
established a Research and Technology Company adjacent to Arak
Petrochemical Complex, downstream petrochemical industries must focus
their efforts during the next several years on producing technology and
basic engineering. In that case, the process of sustainable development
would be completed. Most importantly, conditions must be provided for the
attraction of foreign investments in the industry because under such
circumstances, technology transfer would be more convenient, investment
risk would be distributed and presence in international markets would be
attention does the National Petrochemical Company pay to technology
transfer in its underway projects?
We have established a
research and development department known as ďResearch and Technology
CompanyĒ in Arak which is equipped with many semi-industrial (pilot) units
as well as research laboratories. On the other hand, according to the
contract signed for purchasing technical know-how and implementing basic
petrochemical engineering operations, the licensing companies have been
obliged to construct a pilot unit in the country. The goal of construction
and purchase of pilots could be summarized as:
First, being of
educational use for personnel; so that, the employees could practice the
processes and gain adequate skill without any interruption in production.
Second, working on pilot
and changing the process, operational conditions, composition of the feed
and other effective parameters that could lead to process improvements,
which is considered a new innovation.
If modifications on a
pilot lead to innovations, we would hold the license for those
innovations. Sometimes, the original license changes so extensively that
the resultant license would totally belong to the modifying company.
Commitments regarding the original license would not hold water for the
modified version too; that is, the modifying company would be entitled to
sell and multiply it. Therefore, taking good advantage of pilot units can
lead to acquisition of technical know-how, boosting domestic technical
capabilities, developing technology and creating new license through
been done in addition to building pilot units besides petrochemical
engineering and manufacturing companies could play a major part in
creating technology and obtaining technical know-how. As you know, various
stages of implementing a project include: basic engineering, detailed
engineering, procurement, manufacture, transportation, installation,
pre-launch stage, performance testing, improvements and final launching.
During the First Five-Year Economic Development Plan almost all these
stages were carried out outside the country and only a small part of
installation was carried out by domestic companies. At present, only basic
engineering and about 50% of equipment manufacture, which mainly includes
large dynamic equipment such as turbines and compressors, are done outside
the country and other stages are carried out domestically.
capabilities for basic design could enable us to acquire technical
know-how. One step that we had taken unknowingly in this direction was
construction of MTBE unit, during which the MTBE license holder did not
give us the needed technology due to sanctions. However, we constructed
the unit by relying on domestic capabilities and produced its catalyst at
a high risk rate (through joint technical know-how) in Europe.
projects carried out in recent years have developed domestic engineering
and manufacture. Although ceding domestic projects would entail such
problems as delay in implementation, most problems would be related to
launching and improvement stages. However, gaining experience and increase
in scientific, technical and executive capabilities of domestic companies
would be ultimately to the countryís benefit and would make up for the
said problems. Providing facilities as well as suitable grounds for basic
and applied study and research and optimal use of the elite and
specialists in the country would be another good way of creating