Analysis of Challenges Ahead in Attracting, Financing Petchem Capital

Analysis of Challenges Ahead in Attracting, Financing Petchem Capital
(Monday, February 12, 2024) 14:43

TEHRAN (NIPNA) -- The investment manager of the National Petrochemical Company emphasized the necessity of changing the capital market's perspective regarding the appropriate returns of petrochemical industry projects.

One of the most important challenges facing the petrochemical industry, which is capital-intensive, is the attraction and timely provision of financial resources for projects. The negative impact of sanctions on financing petrochemical projects cannot be denied.

However, in contrast to this challenge, the advantages of this industry were highlighted, including the sustainability of Iran's petrochemical exports during the peak years of sanctions (from 2010 to 2013), exporting $16 billion worth of products in 2022, easy and inexpensive access to feedstock, incentives and export-import exemptions in special economic zones, a large domestic market, skilled workforce, and supportive laws for foreign investment (FIPPA).

Commencement of a New Chapter in Collaboration between the National Petrochemical Industries Company and the Capital Market for Financing Petrochemical Projects

To overcome challenges and obstacles in the financial supply field, after holding the first Investment and Financing Conference for the Petrochemical Industry at the Koushk Conference Center of the Ministry of Petroleum, specialized task forces (including capital market, banking, and foreign exchange) were formed at the initiative of the National Petrochemical Industries Company.

The first meeting of the Expert Task Force on the Capital Market for financing petrochemical projects, with the participation of the managers of the National Petrochemical Industries Company and capital market activists, was held on Tuesday, February 6.

In this meeting, the National Petrochemical Company and capital market managers discussed challenges, solutions, and innovative investment methods and financing in Iranian petrochemical projects.

Reza Nikouei, the investment manager of the National Petrochemical Company, stated, "There are 123 projects with various progress levels in the country, requiring $93 billion in investment."

He emphasized the crucial role of the capital market in financing development projects in Iran's petrochemical industry, stating, "After the successful first Investment and Financing Conference for the Petrochemical Industry held in December of the current year, task forces were formed to facilitate the financing and investment process in industrial projects."

One of these task forces is the Expert Task Force on the Capital Market, which aims to utilize the existing capacity and potential of the capital market to attract the necessary resources for petrochemical projects.

Another initiative undertaken by the National Petrochemical Industries Company is the establishment of a Financial Clinic to accurately identify the issues, challenges, and financial problems of projects and provide comprehensive and actionable solutions to expedite their financing process.

This clinic, depending on the identified challenges, will refer the matter to relevant specialized task forces, including the Capital Market Task Force, for in-depth examination and solution proposals.

He added, "There are currently 75 active petrochemical complexes in the country, with a production capacity of about 96 million tons. This capacity is expected to reach around 200 million tons in the next 10 years, requiring approximately $7 billion in annual investment in petrochemical projects."

The investment manager also addressed concerns about the capital market and the imbalance in gas feedstock and its impact on the activities of petrochemical companies. He stated, "At present, the issuance of permits for gas-fed projects is limited, with 19 permits issued for a total investment of $5.7 billion in 2023. Most of these permits are for downstream projects with limited gas consumption."

He added, "Moreover, permits issued for gas-fed projects in previous years are under review, with some being canceled and others undergoing changes in project scope. Petrochemical holdings have also committed to guaranteeing feedstock for upstream oil projects to alleviate feedstock shortages for petrochemical projects."

The investment manager emphasized the need for a change in the capital market's perspective regarding the appropriate returns of petrochemical projects, stating, "The goal of holding meetings in various task forces is to engage experts and present perspectives, prevent hasty decisions, and prevent capital flight from petrochemical projects."

Challenges Identified by Senior Capital Market Managers

The main challenges facing the petrochemical industry, as raised by experts and specialists in the first meeting of the Expert Task Force on the Capital Market, are as follows:

  • Imbalance and noticeable shortage of natural gas as the main feedstock in the coming years.
  • Creating desirable transparency regarding feedstock and petrochemical project product conditions and rates.
  • High-interest rates, financing, and return affected by risk.
  • Non-issuance of foreign exchange securities.
  • Lack of project prioritization system.
  • Non-systematic access to centralized utilities.
  • Difference in perspective between investors and financial providers on the value chain compared to regulatory perspectives.
  • Inadequate financing of petrochemical projects considering the available resources in the capital market.
  • Exchange rate shocks.
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