It was not long ago when foreign companies were in charge of all offshore operations of the oil industry from small repair jobs to the implementation of major production and exploration projects while development of offshore oil and gas fields was just a dream for the Iranian companies.

The aspiration to carry out such activities by the Iranian companies reached its acme after oil extraction started in deep waters around Kharg Island because leadership of Iranian oil industry projects by foreign companies was the main factor that prevented realization of that dream. Before 1993, it seemed that Iranians could only operate machinery under supervision of foreign engineers. Establishment of Iranian contractor companies which are active in offshore operations and capable of building offshore structures for the implementation of oil and gas projects seemed impossible some 15 years ago.

Implementation of Abuzar project, as the first important offshore project whose engineering, supervision and construction operations were carried out by the Iranian offshore engineers and experts was the beginning of a road to self-sufficiency of the Iranian offshore industry.

Beginning of offshore activities by SADRA Company in 1970, Iran Offshore Engineering and Construction Company in 1994, and ISOICO in 2001, some of which were originally active in shipbuilding and engaged in oil industry project due to its lucrative market, as well as introduction of companies that were solely established to manufacture of offshore installations, increased the role of the Iranian companies in implementing offshore projects.

It should be noted that presence of the Iranian companies in offshore tender bids was based on political supports that paved the way for the participation of the Iranian companies in such tender bids. Implementation of Abuzar project was made possible through the said political backing.

A glance at performance of the Iranian offshore companies which includes engineering, purchasing, manufacture and installations operations will reveal that engineering operations on offshore structures and pipelines are very important for the beginning of such projects. Therefore, cooperation of the Iranian companies with major international oil firms on EPC (engineering, procurement, and construction) projects, which led to transfer of technical know-how to the country, led to emergence of experienced consultant companies in the country.

On the other hand, most companies active in offshore operations have done their best to obviate the need for using foreign engineers, so that, more than 85 percent of engineering operations on big platforms (decks and jackets) are carried out in the country.

The managing director of SAF (Offshore Industries Company) maintains that if clients trust Iranian offshore companies, about 100 percent of engineering operations in that sector can be carried out by the Iranian contractors.

Hashemzadeh Khameneh mentioned interaction, cost price, and speeding up engineering operations as major factors that affect cooperation with foreign companies. It should be noted that purchasing equipment is the second important part of EPC projects. In offshore oil and gas projects that have been implemented during recent years, most equipment and tools needed for the implementation of the projects have been procured inside the country.

Managing director of SAF Company maintains that, at present, 40-50 percent of needed equipment for EPC projects are supplied by domestic manufacturers and the rest of them, whose standards have not been achieved in Iran, are imported.

Construction is also an attractive part of the projects. Due to efforts made in Iran’s offshore industries, all projects that have been carried out since 1985 have been accompanied with transfer of technical know-how for manufacture of offshore platforms. At present, 100 percent of jackets for such platforms are produced inside the country.

Also, due to dire need to manufacturing decks inside the country, which was previously carried out by foreign companies, construction of that equipment started in Iran in 1996 after transfer of needed technology.

Managing director of SAF maintains that government’s supports have enabled the Iranian companies to manufacture offshore structures.

Hashemzadeh Khameneh stated that cost price of goods and equipment produced inside the country, as compared to foreign counterparts, are other instances that can promote and increase share of the Iranian companies in offshore projects. Despite efforts made by foreign companies (which were taking part in the Iranian projects) to create jobs in their countries of origin, low cost price of goods and equipment made in Iran has made authorities have Iranian contractors supply those goods and service since 1996.

On the other hand, direct role played by the Iranian contractors in offshore projects since six years ago, their participation in relevant tender bids and their direct relations with clients were major factors promoting overall role of the Iranian companies in offshore projects.

Installation of offshore structures requires unique and special equipment. Supplying big vessels with cranes is a big part of the job and has been put on the agenda of the Iranian offshore companies since 10 years ago.

Since vessels used for installing jackets, decks and other offshore structures are divided in two broad categories of vessels with heavy cranes and maintenance vessels, purchasing them has been put on the agenda of some companies like SAF, Iran Offshore Engineering and Construction Company, and SADRA.

As put by Hashemzadeh Kahmeneh Iran is now capable of installing offshore structures at any weight by using its own vessels. The country is so self-sufficient with regard to installation of offshore installations that there is no need to foreign companies in this regard. In other words, platforms weighing over 2 tons are installed by using Iranian equipment and manpower.

Promoting the role of the Iranian contractors in launching such platforms during the past six years is evidence to high profile of those companies in offshore projects.

Managing director of SAF Company has noted that, at present, apart from supplying 50 percent of needed equipment for offshore oil and gas projects from other countries, other parts of those projects are carried out by the Iranian companies.

He maintains that lack of suitable interaction with foreign companies is not a cause of honor for the Iranian companies which are planning to go international, but meeting domestic needs by the Iranian contractors and specialists in offshore oil and gas projects, is a major achievement, which has been made possible over the past few years.


Challenges Facing Offshore Contractors

Since participation in international projects as well as implementation of offshore projects is one of the major goals of the Iranian offshore companies including SADRA, SAF, ISOICO and Iran Offshore Engineering and Construction Company, high inflation rate inside the country can be considered a major problem facing those companies for competing with non-Iranian counterparts. Entry of the Iranian companies in a competitive market will increase prices and in view of the current inflation rate in the country, the law which calls for making the most of domestic capacities, will increase cost price of projects.

Most experts maintain that high inflation will cause many problems for offshore contractor companies including payment of salaries. For example, a contractor company that had won a tender bid two years ago was capable of paying 500,000 tomans per month to its engineers at that time. However, since it takes two years from winning a bid to letting the contract start operations, the payment for engineers would have increased to 1.5 million tomans per month and this will increase the overall cost of the project, sometimes making it economically infeasible.

On the other hand, high prices in global markets, which have greatly increase price of needed equipment, parts and services, is a major problem facing the Iranian offshore contractors.

Yousef Zahed, director of phases 17 and 18 of South Pars gas field at Iran Offshore Engineering and Construction Company says, “Purchasing expensive equipment for projects, especially steel parts whose price has even increased up to 30 percent over short periods of time and has caused similar increase in price of needed pipes, greatly increases the cost of projects. Apart from the long time that it takes to open a line of credit, inability of domestic banks to open big credit lines is another issue that should not be ignored. In some cases, this measure takes up three months of the project’s total time. Constant increase in parity rate of euro against dollars is another problem.”

Shortage of liquidity and lack of suitable cooperation on the part of banks for providing needed resources are other major problems nagging offshore companies. A major reason for that is lack of needed mechanisms to encourage companies rely on domestic banks. This factor will increase reliance of contractors on the client and if the client does not provide them with needed funds on time, the contractor will be short of adequate money.

Director of marketing and development of offshore installations at the Iran Offshore Engineering and Construction Company also believes that most problems faced by oil industry contractor companies, including offshore contractors, can be attributed to banks.

“Banks do not support such companies properly. For this reason, rates are not competitive and increase the cost of the Iranian companies in comparison to foreign counterparts,” he opined.

Mojtaba Mousavi added, “Our rivals in other companies are usually supported in their overseas activities and all countries have EXIM banks which support companies with regard to their export policies. However, the Export Development Bank of Iran either does not provide contractor companies with needed services, or the price of those services is so high that we cannot compete with other companies.”

The long path that should be taken to avail of financial facilities of the Oil Stabilization Fund and numerous decision making bodies that should decide on it has caused many companies active in offshore oil and gas projects discontent.

Director of marketing and development of offshore installations at the Iran Offshore Engineering and Construction Company maintains that the offshore market is quite dynamic.

“The time considered for offshore projects is usually three years and if a whole year is to be spent on financing the project alone, we would lose it. On the other hand, it should be noted that developmental operations that are economically justifiable today, many not be economical next year because the offshore market is very dynamic,” he said.

Other contractors have mentioned problems stemming from delayed advance payment as the most important challenge facing offshore projects. That factor will cause problem for the implementation of some phases of the projects including purchase of goods and equipotent and will cause the whole project to be implemented with some delay.

Challenges related to purchasing needed goods and equipment, which are most frequently the result of political disputes, should be taken into consideration. In view of the country’s situation in political terms, many foreign companies are not willing to sell their products to the Iranian contractors.

Nozar Arian, deputy director of projects at the Iran Offshore Engineering and Construction Company maintains that supplying some alloys that are also used in nuclear installations like Inconel (a light and durable alloy, which is used to make valves for offshore platforms) is a major challenge facing companies which are involved in offshore oil industry projects.

It is noteworthy that as sanctions against Iran are tightened, purchasing some equipment and tools will become increasingly difficult. This will sometimes, greatly increase their price and prolong their delivery time by foreign manufacturers. Of course, the limited choice of non-Iranian manufacturing companies which are willing to work with the Iranian companies, in view of the extant political conditions is another problem.

Problems related to customs and adaptation of customs regulations with other countries, are other hurdles that bother domestic manufacturers and contractors. Those problems become more pronounced with regard to offshore industries. Since installations related to offshore oil industry projects are usually located away from the coastal line and about 30 km from the sea border, discharging some goods for the implementation of such projects become problematic.

Most company officials involved in offshore projects complain about the problems related to presenting letters of guarantee for taking loans and other bank facilities. In other words, a major problem facing such companies for implementing oil industry projects pertains to obtaining letters of credit and letters of guarantee for the implementation of the said projects. Also, they should mortgage a valuable title deed to be given a letter of guarantee.

In view of the abilities of offshore companies, the need to divide labor by senior managers is a must and will ensure the country’s interests. In other words, huge investments in offshore projects will intensify competition among the Iranian contractors and, in some instances, that competition is not healthy. Therefore, some contractors offer financial proposals that are lower than the cost price of the project and this will ultimately lead to shortage of liquidity, using nonstandard equipment, giving the job to subcontractors and overall delay in the implementation of the projects.

Managing director of SAF Company maintains that division of labor through assessment of the capacities of offshore contractors can greatly reduce unhealthy competition for winning tender bids and secure both the interests of contractor and the client.

It should be noted that handing over offshore projects to Iranian contractors on time, is a task for clients, which has been ignored in some instances. In other words, delivering projects to contractors has been on the fall during the past 2-3 years, so that, most contractors are not working at full capacity. At the same time, in some instances, a number of projects are handed out hastily. Creating a balance in this regard needs high-level management of projects.

Due to new interpretation of Article 44 of the Constitution about transferring shares of state-run organizations and companies to the private sector, privatization of offshore companies, some of which like Iran Offshore Engineering and Construction Company and SADRA are totally state-owned, can greatly influence their progress.

Bijan Zanganeh, the former Iranian minister of petroleum, believes that offshore contractor companies should be privatized because it would be in line with the new interpretation of Article 44 of the Constitution that has been presented and approved by the Supreme Leader and there is no need for those companies to remain state-owned. He argues that if those companies remained state-owned, they would not be able to go international.

It should be noted that privatization is the most important way for the realization of the 20-Year Perspective Plan and, for this reason, due attention should be paid to this issue by offshore contractor companies.

In conclusion, transition from the time that all affairs related to offshore projects such as laying oil and gas pipes and installing offshore installations, up to the present time when apart from purchasing some equipment from abroad, all phases of offshore projects are carried out by the Iranian specialists, is a major breakthrough. That progress has provided the Iranian contractors with a good opportunity to take part in overseas offshore projects and increase their revenues. Taking part in offshore oil and gas projects in India (including RSPPM), Qatar, Venezuela, and Nigeria is evidence to that claim.

Implementation of those projects can earn the country millions of dollars. Therefore, it is an obligation for the government and senior managers of oil industry to support offshore contractor companies and solve their problems.

The solution is not to threaten the contractor with taking legal action on the basis of letter of guarantee or refusing to give the job to it. If the government is supposed to create jobs, contractor companies shoulder part of that responsibility. Therefore, they should be backed by the government.

Government’s realistic approach with regard to such problems as inflation, economic sanction and political matters as well as high international prices, for which domestic contractors are not to blame, will pave the way for defending such companies against unnecessary serious harm, especially those companies that are active in offshore projects.

It should be noted that the attention paid by the ninth government to giving projects to domestic offshore companies, which has been on the rise during the past two years, indicates the important role of politicians in supporting the Iranian contractors. In other words, giving offshore part of oil and gas projects, including construction of offshore structures for phases 15, 16, 17, and 18 of South Pars gas field, development of the oil layer of North Pars gas field, construction of offshore drilling rigs and negotiations on development of South Pars phases 19 to 21 by the Iranian contractors are good examples in this regard.

News Code 105480

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