5 January 2019 - 15:21
  • News ID: 287550
How to Counter Oil Sanctions

TEHRAN (Shana) -- We view sanctions as the conditions or the scope of project, i.e. assessing every factor, which is likely to affect the project processes and the triangle of time-quality-cost for a project.

To know when and at what cost projects are implemented, is of paramount significance from the viewpoint of management methodology. When such analysis and assessment materialize about projects it would become clear that procrastination in the implementation of the projects and their extra costs do not result merely from sanctions; rather, untimely decision-making or even no decision-making, mismanagement, empathy and integration within an organization and such factors are instrumental in the timing and the costs of implementation of a project.

It is noteworthy that international sanctions do not imply a new crisis for our country although their degree of toughness has varied during different periods following the 1979 Islamic Revolution.

The imposition and the toughening unilateral US sanctions against the Islamic Republic of Iran, particularly so-called D’Amato and the recent ones, necessitate development of new solutions to counter such restrictions.

Since these recent sanctions are mainly aimed at affecting Iran’s oil and gas industry and banking network non-application of methods to counter them, they could inflict serious harms on the country’s economy by targeting its generative sector.

Construction of oil refineries (particularly small-scale ones),building petrochemical plants to  produce and export petrochemical products, improving the quality of gasoline, gasoil and other petroleum products through sweetening and desulfurization, strengthening tie with strategic partners for the purpose of exporting crude oil and petroleum products, boosting gas trading through expanding gas transmission networks particularly pipeline construction, diversification of crude oil sales methods (swap, oil blending, sales on the oil stock exchange, boosting the capacity of shipping industry, etc.), relying on domestic potentialities in the implementation of oil and gas projects, not waiting for the presence of foreign companies, maximizing the value-added chain and preventing the waste of hydrocarbon resources (preventing the flaring of associated petroleum gas), improving productivity and reducing the energy consumption index through boosting the output of equipment and industries, are among methods which could be utilized under the aegis of  Iran's present potentialities to minimize impact of the sanctions.

Iran’s oil export is under embargo. Construction of small-scale refineries would require $20 million to $40 million in investment, which is nothing compared to the investment needed for big refineries. The necessary technical license for small refineries may be obtained from East Asian companies. An advantage with such refineries is that they would be built in a quite short period and on strategic spots located on the route of crude oil and fuel transit, which would be fed by crude oil, which Iran cannot export due to the sanctions.

The world gas reserves total 187 tcm, 18% of which belongs to Iran. Based on the current gas price, Iran’s gas reserves are valued at €7,000 billion. In addition to these God-given resources, Iran is geographically and geologically located in a golden and strategic spot - known as the regional energy intersection – vital for gas trade.

Iran’s gas transmission grid, which has 36,000 km of high-pressure pipeline, can handle 800 mcm/d of gas. This figure is planned to reach 1,100 mcm/d by 2025 once 9,000 km of extra pipeline would have been constructed. Meantime, the number of production centers will rise to 74 from the current 40, and gas compressor stations will number 130, up from the current 79.

Meantime, there are currently about 3,000 km of offshore gas pipeline only in the South Pars gas field and 310,000 km of urban gas transmission line. Gas makes up 70% of Iran’s energy mix. Gas is fed into 120 power plants generating 50 GW of electricity.

The above-mentioned figures make it clear that Iran’s economic development depends on gas. Therefore, as long as Iran remains under sanctions, gas is a relative advantage for national economy.

Petroleum Industry Dependence

In Iran, there is technical potential as well as specialized manpower and capacity for the manufacturing of petroleum industry equipment. In case necessary management legal mechanisms are worked out for the implementation of agreements and legal obstacles are removed, major objectives of petroleum industry would be achieved.

Iraq and Saudi Arabia, both major producers of oil, may never want or even be able to reach such objectives, but Iran’s petroleum industry is able to manage itself completely owing to the previously mentioned technical, scientific and engineering potentialities.

Iran’s progress is highly tied to national consensus and organized relationship between the public and private sectors. Considering the private sector as enemy will not help run the industry. Is it possible to resolve the problems of this industry (from financing to the purchase of commodities, equipment and service) by relying only on traditionally state-run clients? The government must only serve as the policymaker, supplier of infrastructure and supervisor of projects.

The monetary, financial and banking system must serve as a tool for facilitating development projects of petroleum industry. The banks are able and required to assist the petroleum industry in expanding its activities instead of making profits by converting public assets and savings into hard currency to become a paralyzing arm of the economy.

Petroleum industry is a major and strategic industry whose windows must be open so that Iranian companies and the private sector could get involved in it.

Once necessary resources have been provided, good events will occur technically, economically and commercially.

A major competitive factor in global investment markets is oil and its related services and utilities. Iran’s oil and gas reserves have naturally high rates of return on investment (RRI). For instance, the South Pars gas field has an RRI of 70-80%, which means that if we sell gas and condensate at global prices, we will recoup 50-70% of the money spent in the project in one year. Therefore, the necessary ground is prepared to raise RRI for Iranian companies under the aegis of national consensus so that banks would be interested in funding such projects. Cooperation between banks and companies for the development of petroleum industry projects requires the parties to contracts to respect their obligations. In other words, in addition to appropriate investment, development projects are required to be acceptable while companies are required to have an effective project management structure. When a project is agreed to come online in five years, it should not be delayed for a decade because delaying the startup of a project will harm both the client and the contractor. Another issue that could result in the growth and excellence of these companies is their increased international interactions. Definitely, without communicating with their foreign counterparts, which are highly capable and without partnership with financers, these companies will not be able to grow satisfactorily. Furthermore, they can seek the advice of foreign experts and senior advisors in other sectors. In fact, Iranian companies are able to operate projects beyond borders while increasing their interactions at different levels. According to a veteran petroleum industry official, “We do a project alongside experienced foreigners once, but next time we will do it on our own at a better quality and in a more complete form.”

Strategy is the tool for realizing objectives. We have to work out our strategies such that they would attach great significance to the strategic approach vis-à-vis society, system, management and organization.

Primarily, national and international conditions, facilities, potentialities and resources should be studied. Then we need to make plans and move ahead. Whatever we do in practice is required to be in conformity with our capacities, objectives, capabilities and resources or we need to develop plans for capacity building, financing and provision of facilities.

Strategic View of Projects

The main crisis striking the petroleum industry, as well as public and private organizations is the absence of strategic view of organization and management. Strategic view of a project is as vital as strategic view of business and organization. Such an attitude should be reinforced in the approaches of senior managers. Meanwhile, convergence between this issue and organizational empowerment, motivation and health result in a better performance and competitive advantage. Capabilities, potentialities, resources, capacities, motivational system, transparency system and organizational health are required to be viewed from a high level. Then they should be prioritized before authorizing projects.

Lack of a strategic view would lead to the squandering of national resources due to ignorance of restrictions of resources and capacities and lack of attention to priorities.

A strategic and important result, which is needed to come out of a strategic attitude, is synergy.

In light of Iran’s special conditions in the oil, gas and petrochemical industry, numerous companies have been established. Assessing the strengths and weaknesses of project management among engineering and contracting organizations involved in Iran’s oil, gas, petrochemical and refining industries and building capacity for the development of the petroleum industry is a must. Management, control and supervision on the performance of projects and application of project management software tools, as well as developing a standard methodology for project management could facilitate access to the objectives of the golden project triangle, i.e. time, cost and quality, in the best quality and according to timeframe.

Should the client meddle with the least significant aspects of the project it would be useless to name a contractor. The reason for a client to assign a project to a contractor is that the client lacks sufficient potentiality, specialty and human resources for doing it and it has only necessary resources to spend. Therefore, it chooses a competent contracting group.

Iran is now familiar with EPC-style execution of projects. Under such framework, the general roadmap is given to the contractor as the basic plan and then the contractor provides a detailed plan to be executed step by step. A monitoring committee is also engaged to exercise control over the implementation of the project.

Now, the paradigm of project has changed. In light of conditions prevailing over our country and many others, the client is just a regulatory body. In other words, the client specified what products or services are needed, but it does not have even the necessary money for the project.

Today most projects are EPCF or EPC+F, where for instance in the development of a gas field a consultant is hired, but the implementation of the project and necessary financing are assigned to a competent company involved in such sectors. Project management brings together management of discipline and methods. If project management is implemented properly, the possibility of an acceptable output will increase. It is noteworthy that project management is the only way to convince us about the successful implementation of the project.

Project management is an effective method in management for dealing with the unique phases of new projects and striking a balance to the processes and activities related to the project, expenditure and quality within the framework of time and in an environment fraught with diverse risks.

Decision-makers and project managers have yet to find a new analysis of knowledge management, foresight and competence and meritocracy. When it comes to the implementation of projects in the country, most choices in project management have a traditional basis while this branch of science is progressing rapidly.

The most significant issue, which the client has to take into consideration, is to learn lessons from what he has learnt. It is necessary to prepare a team to transfer the experience of each project to the next project to prevent the repetition of the past mistakes and in a way that the procedure of implementation of the project would improve.

Project management is an indicator in assessing the capabilities of a company. The ability to manage a project makes clear whether or not a company would be able to handle a project.

Last but not least, while it is believed that the organization cycle is like a human being, I have to say that an organization is born and then is developed to reach maturity. Every industrial, manufacturing or service organization will experience the same process. When an organization reaches the stage of maturity if no fundamental development is made for its survival that organization is doomed to fail. In other words, if at this turning point, the strategy of the organization is not coordinated with environmental changes the relevant organization will definitely fail. Based on the Greener Model’s seven phases, after each stage of growth, a crisis will happen. Therefore, managers are required to identify the crisis before its emergence and find a proper solution to counter it with a view to proceeding with their own survival and growth. If not, they will be down on the path towards failure and destruction.

News ID 287550


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