Mumbai, Maharashtra, India
The lifting of over a decade long sanctions on Iran has attracted huge international interests onto Iran. A huge domestic market characterised by a 79-million strong population adds to Iran’s geographical advantageous location in the Middle East which in turn gives it access to strategic maritime passages making it a viable market for global access and hence increased investment potential. Development of the petrochemical value chain is one of the most promising avenues that is expected to significantly add value to its non-oil economy.
“Abundance of feedstock, relatively suitable infrastructure, low cost of production and access to skilled labours are key factors that make Iran interesting for investors in the petrochemical space. The country’s natural reserves of Ethane, Propane and Naphtha are sufficient to set up new petrochemical complexes within the next ten years”, opines Ali Mirmohammad, Senior Consultant and Business Development Manager – Iran, Frost & Sullivan. He further adds that “the Government is adopting a foreign policy approach to not only strengthen local capabilities but also to increase non-oil exports to more than USD 50 billion based on downstream verticals derived from petrochemical and mining industries.”
In the past, over 75% of foreign investment on an average went to upstream oil and gas projects; today, the country plans to divert more of the foreign investment into downstream projects. As far as petrochemical capabilities are concerned, development of downstream projects is a key factor to significantly reduce dependency on an oil-based economy.
Iran Vision 2025 provides the desired impetus
According to Iran vision 2025, the country plans to emerge as the largest producer of petrochemical products along the value chain in the region. Plastics, rubbers, paints and resins, fertiliser and pesticides, chemicals and solvents, fibres and textiles, medicines, cosmetics, composites, and detergents are the various downstream petrochemical products that the country proposes to focus for development in the next 10 years.
Iran requires at least USD 70 billion of financial resources to develop the entire petrochemical industry to achieve its vision of 2025. Such an investment is expected to catalyse growth in exports of its petrochemical industry from less than USD 12 billion in the year 2015 to over USD 40 billion by the end of 2025.
Capacity augmentation aimed at strengthening position as an export base
In the post-sanction era, the country proposes to attract foreign investment to resume over 60 halted petrochemical projects that shall increase the current production capacity of 58 million tonnes (FY2015) to 130 million tonnes per annum in the next 5 years. In addition, the Government has further proposed 36 new investment opportunities which when implemented have the potential to increase the total production capacity of petrochemical products to over 180 million tonnes per annum by the end of 2025.
“Creating value-added opportunities along the entire Propylene industry value chain is one of the primary focus areas for the Government for the next 10 years with regard to the petrochemical sector. Potential to convert Iran as the largest exporter of propylene-based products in the Middle East and North Africa is foreseen. Importing high technologies and catalysts to produce various grade of Polypropylene such as pharmaceutical and food grades are other key policies in the post-sanction era”, said Ali.
Government policies, support and incentives are expected to provide the necessary thrust
To boost investment in the petrochemical industry value chain, the Government has offered many incentive plans such as offering discounts on natural gas; long-term tax-exempt savings plans, as well as 25-years, guaranteed feedstock supply agreements.
Development of petrochemical downstream projects in industrial cities near feedstock is another priority by the Government. In all industrial cities, the Government is expected to provide required facilities, land and utilities. Moreover, to localise strategic technologies and boost R&D, the Government aims to offer preferential support to know-how based enterprises across the country.
Further, through its Sixth Development Plan (FY2015-2020), the Government proposes strategic downstream development plans, aimed at removing project financing constraints and in eliminating technology obsolescence. The development of effective marketing and distribution systems are also key policies that are expected to be implemented. The Government plans to pursue the following key priorities in the petrochemical vertical during the 6th Development Plan period:
Attracting over USD 70 billion in resources (both foreign and local finance) in order to run 62 halted petrochemical projects requiring about USD 33 billion as well as for 36 new proposed projects with total Capex of USD 35-40 billion. This will allow the country to surpass the total production capacity to over 180 million tonnes per annum.
Increasing the export of petrochemical products from USD 12 billion to over USD 40 billion and increase the export of relevant consumer goods three-fold.
Boost investment in petrochemical down-stream industries by developing industrial cities near feedstock provinces such as Bushehr, Khuzestan, Kermanshah, Ilam and Kurdistan provinces.
Quick development of Railway and maritime transportation networks and facilities.
“The country also plans to develope infrastructure such as power plants, desalinated water plants, and road and rail transportation. Besides these, the Government is also cognizant of taking necessary measures to support industry growth through appropriate import duty restructuring, ensuring minimal bureaucratic processes in investment and project financing, as well as developing new free trade economic zones”, noted Ali.
Conclusion: Access to advanced technology and financial resources hold the key to growth
“Sustained and planned development of the entire value chain for the petrochemical industry with focused development of downstream markets is expected to bring significant value addition to Iran’s economy and is likely to support reduction in the country’s unemployment rate. Lifting of sanctions is expected to usher huge opportunities for the country through access to advanced technologies and international financial resources. This is expected to significantly boost Iran’s image in the global petrochemical industry landscape even as its exports grow”, Ali concluded.
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Frost & Sullivan’s Global Visionary Science Practice delivers comprehensive Growth Strategy and Implementation Solutions to Corporates, along with other consulting services related to market assessment, best practices and technology research. Our strategic approach enables companies to achieve transformational growth maximizing opportunities in petrochemicals, plastics, chemicals, materials, food and agriculture, and personal protective equipment markets in established and emerging economies. Our globally dispersed industry experts also help clients understand how Mega Trends and region-specific activities have an impact on their business, thus offering a 360°, cross-industry perspective vital to accelerating growth.
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