The Financial Times
By Guy Dinmore in Tehran
June 26 2001 17:40GMT
Italy's bid through Eni, the energy company, to become the biggest player in Iran's oil and gas sector has become embroiled in Tehran's factional politics, with parliament and the media fuelling a controversy over negotiations to develop the Darkhoein oilfield.
Industry officials said Iran's inability to maintain current export levels without substantial foreign involvement meant that the long-delayed deal, reported to be worth up to $1bn, would still be signed with Eni, perhaps next month.
But a growing political row over oil contracts with foreign companies in general could persuade both sides to wait until President Mohammad Khatami reshuffles his cabinet in August, when Bijan Zanganeh, the oil minister, is expected to be replaced.
Politics and oil have been inseparable in Iran's modern history. Half a century ago, Iran nationalised the oil industry, but decades of exploitation by the Anglo-Iranian Oil Company has left a deep suspicion of foreigners.
Darkhoein has the added sensitivity of being the first onshore oilfield to be awarded to a foreign company since Iran introduced its "buy-back" system in 1995. Foreign contractors are paid to develop the fields in the oil that is produced, at a pre-agreed rate.
Undeterred by the threat of US sanctions, Eni, which is 30 per cent owned by the Italian state, is already involved in three offshore oil and gas projects in Iran worth about $2.5bn.
The US Iran-Libya Sanctions Act, expected to be renewed by Congress shortly, threatens punitive measures against foreign companies investing in the energy sectors of those countries. But the act has never been enforced and European oil majors do not regard it as a serious deterrent.
Eni was close to signing an agreement on Darkhoein with the National Iranian Oil Company (NIOC) early last year. But after the Sirri field developed by France's Total failed to meet expected output levels, Iran demanded that foreign contractors should guarantee future production levels after handing over fields to NIOC to operate.
Since Iran's constitution forbids foreign companies from operating fields or holding an equity stake, Eni and others argued they could not give such guarantees.
For more than a year, negotiations were bogged down over the concept of "modified buy-backs", where penalties and incentives would be linked to performance but with a limited foreign operating role.
Other oil majors, namely BP, Shell and Total, see the Darkhoein contract as an important benchmark for other fields out to tender.
But industry officials said the eventual Darkhoein deal would not be substantially different from past buy-backs. Output would be targeted, but not guaranteed, to reach a modest plateau of 160,000 barrels per day. This represents a climbdown by the oil ministry that is likely to be seized upon by hardline opponents of Mr Khatami's pro-reform administration.
Conservatives are furious with the reformist majority in parliament for launching an investigation into the finances of Irib, the state broadcast network controlled by hardliners. Their response has been to demand publication of buy-back contracts while alleging foul play in signing deals with foreign and domestic partners.
"Oilfields have been transformed into political and factional battlefields," Isna, a pro-reform news agency, reported.
Reformist MPs are resisting demands for new buy-backs to be individually approved by parliament and past deals investigated. But a call by the supreme leader, Ayatollah Ali Khamenei, to tackle corruption means that the oil sector is likely to come under close scrutiny.