INTERNATIONAL ISLAMIC UNIVERSITY H-10, ISLAMABAD

Petroleum Industry of Iran

By Malik Saad Noman

2012

ACKNOWLEDGEMENT All Praises to ALLAH Almighty, WHO guided us throughout this project and helped us in making it possible successes. We are very much thankful to our Respected Teacher Mr. Imran Qurashi Who gave us direction and directed us in the completion of the project.

Contents Sr. # 1 2 3 Topics Introduction and History of Iran Economy of Iran Iranian Industries Oil and Gas Industry Textiles Industry Other Major Industries Industry Sectors and Statistics Country Comparative Advantage (CCA) Porter Dimond Model Firm Strategy Structure and Rivalry Related Support Industries Supply Conditions Demand Conditions Krugman theory of trade Internal Economies of Scale Oil in Iran between the Two World Wars The 1957 Petroleum Act and the Joint Venture Agreements The Joint-Structure Agreements of the mid-1969s The Sale and Purchase Agreement 1974 Petroleum Act and Risk Service Contracts External Economies of Scale Reconstruction and Development National Iranian Oil Refining & Distribution Company Profile of Company Mission & Strategies Organization Chart Expansion Projects Main Products Country of Expansion: - Egypt Why we select Egypt History of Egypt Economic History of Egypt and Statistics Laws for investment in Egypt Law 8 of Investment Oil & gas agreements laws and regulations Oil & gas agreements financial regulations Advantages granted to petroleum Mode of Entry/ Expansion Project of Company for Expansion of Business Page #

4 5 6

10 11

Introduction and History of Iran

Islamic Republic of Iran, republic is bordered on the north by Armenia, Azerbaijan, Turkmenistan, and the Caspian Sea, on the east by Afghanistan and Pakistan, on the south by the Persian Gulf and the Gulf of Oman and on the west by Turkey and Iraq. The Shatt al Arab forms part of the Iran-Iraq border. Tehran is the capital, largest city and the political, cultural, commercial, and industrial center of the nation. The country's name was changed from Persia to Iran in 1935. Iran is home to one of the world's oldest continuous major civilizations, with historical and urban settlements dating back to 4000 BC. The Medes unified Iran as a nation and empire in 625 BC. The Achaemenid Empire (550330 BC) was the first of the Iranian empires to rule from the Balkans to North Africa and also Central Asia. They were succeeded by the Seleucid Empire, Parthians and Sassanids which governed Iran for almost 1,000 years. The Islamic take control of Persia (633656) ended the Sassanid Empire and was a turning point in Iranian history. Islamicization in Iran took place during 8th to 10th century and led to the eventual decline of the Zoroastrian religion in Persia. However, the achievements of the previous Persian civilizations were not lost, but were to a great extent absorbed by the new Islamic polity and civilization. After centuries of foreign occupation and short-lived native prominent and powerful families, Iran was once again reunified as an independent state in 1501 by the Safavid dynasty which established Shi'a Islam as the official religion of their empire, marking one of the most important turning points in the history of Islam. Iran had been a royal family ruled by a shah, or emperor, almost without interruption from 1501 until the 1979 Iranian revolution, when Iran officially became an Islamic Republic on 1 April 1979.

Economy of Iran
Despite an increasing desire to privatize the economy, private sector activity in Iran is typically limited to small-scale workshops, farming, and services while rapidly expanding industries such as oil and natural gas are typically State owned. Price controls and subsidies also burden the economy, undermining its potential for private sector-led growth. The rial is the currency of Iran The Iranian government is sensitive on foreign investment. However Iran ranks among the bottom 10 states in the 2011 Economic Freedom Index and 69th out of 139 states in the Global Competitiveness Report. In the midst of an uncertain business climate and threats of international sanctions, US$7.584 billion worth of FDI was pumped into Iran in 2010, particularly in Irans oil and natural gas industries. The investment boosted Iran's FDI 86 percent and ranked the countrys 6th in the world as the most attractive country for investment.

Iran has historically been a significant country in global trade owing to its location in the Middle East and Central Eurasia. Countries including Azerbaijan, Armenia, Turkey, Iraq, Pakistan, Afghanistan and Turkmenistanlie are situated along Irans borders. Iran also has access to four seas: the Caspian Sea in the north and the Persian Gulf, the Gulf of Oman and the Arabian Sea in the south. Earliest to 1979, Iran's economic development was rapid. Traditionally an agricultural society, by the 1970s the country had undergone significant industrialization and economic modernization. This pace of growth had slowed dramatically by 1978 just before the revolution. After the Revolution of 1979, Iran's government proceeded with 4 reforms: First they nationalized all industries, including the NIOC, and all Iranian banks. The new Constitution divided the economy in 3 different sectors, namely "State", "Cooperative" and "Private", with the majority being state-owned businesses. The Government started using central planning to control the economy, having the Supreme Leader, the President and Majlis creating 5-year socioeconomic plans. The State took control of setting Prices and Subsidies. The government's long term objectives since the revolution have been economic independence, full employment, and a comfortable standard of living for citizens, but at the end of the 20th century, the country's economy faced many obstacles. Iran's population becomes more than doubled between 1980 and 2000 and grew increasingly younger. Although a relatively large number of Iranians are farmers, agricultural production has consistently fallen since the 1960s. By the late 1990s, Iran had become a major importer of food. At that time, economic hardship in the countryside resulted in vast numbers of people moving to cities. The eight year war with Iraq claimed at least 300,000 Iranian lives and injured more than 500,000. The cost of the war to the country's economy was some $500 billion. After hostilities with Iraq ceased in 1988, the government tried to develop the country's communication, transportation, manufacturing, health care, education and energy and began the process of integrating its communication and transportation infrastructure with that of neighboring states. Since 2004, Supreme Leader Khamenei and President Ahmadinejad have tried to implement reforms that will lead to the privatization of Iran but they haven't worked out yet, making Iran a command economy in transition towards a market economy. The economy of Iran is a mixed and transition economy with a large public sector. Some 50% of the economy is centrally planned. It is dominated by oil and gas production, although over 40 industries are directly involved in the Tehran Stock Exchange. It is the world's seventeenth largest by purchasing power parity (PPP) and twenty-fifth by nominal gross domestic product. The country is a member of Next Eleven. A unique feature of Iran's economy is the presence of large religious foundations, whose combined budgets represent more than 30% of central government spending.

Price controls and subsidies, particularly on food and energy, burden the economy. Illegal trade, administrative controls, common corruption, and other restrictive factors weaken gradually private sector-led growth. The legislature in late 2009 passed President Mahmoud Ahmadinejad's bill to reduce subsidies. This is the most extensive economic reform since the government implemented gasoline rationing in 2007. Due to its relative isolation from global financial markets, Iran was initially able to avoid recession in the aftermath of the 2008 global financial crisis. Most of the country's exports are oil and gas, accounting for a majority of government revenue in 2010. Oil export revenues enabled Iran to come together well over $100 billion in foreign exchange reserves as of 2010. Increasingly strict sanctions imposed by the international community as a result of the country's nuclear program, oil exports fell by half, allowing Iraqi oil exports to overtake Iran's for the first time since the 1980s. Exports aided self sufficiency and domestic investment, although double digit unemployment and inflation remain problematic. Iran's educated population, constrained economy and insufficient foreign and domestic investment prompted.

Iranian Industries
Iran has been ranked 39th for producing $23 billion of industrial products in 2008. From 2008 to 2009 Iran has jumped into 28th place from a 69th place in annual industrial production growth rate. A recent report by the World Fact Book ranks Iran 3rd among emerging industrial powers in the world (after China and India) in terms of its industrial growth. According to the report, Irans industrial sector grew by 4% in the year 2009. Iran was ranked 13th among emerging economies in 2006. Overall, Iran is ranked 31st in the world in terms of its industrial production growth rate. The government of Iran has plans for the establishment of 50-60 industrial parks by the end of the Fifth Five-Year Socioeconomic Development Plan by 2015. Iranian contractors have been awarded several foreign tender contracts in different fields of construction of dams, bridges, roads, buildings, railroads, power generation, and gas, oil and petrochemical industries. As of 2011, some 66 Iranian industrial companies are carrying out projects in 27 countries. Iran has exported over $20 billion worth of technical and engineering services over 2001-2011. The availability of local raw materials, rich mineral reserves, experienced man power have all collectively played important role in winning the international bids. Of the variety of natural resources found in Iran, petroleum (discovered in 1908 in Khuzestan province) and natural gas are by far the most important. The chief oil fields are found in the central and southwestern parts of the Zagros Mountains in West Iran. Oil also is found in North Iran and in the offshore waters of the Persian Gulf. Domestic oil and gas, along with hydroelectric power facilities, provide the country with power.

Oil and Gas Industry Principal industries are oil refining, petrochemicals, steel, and copper. In 1987, there were six primary refineries at Abadan, Bakhtaran, Tehran, Shiraz, Esfahan, and Tabriz with a potential capacity of 950,000 barrels per day. Refineries are located in Abadan (site of the country's first refinery, built 1913), Kermanshah, and Tehran. Pipelines move oil from the fields to the refineries and to such exporting ports as Abadan, Bandar-e-Mashur, and Khark Island. The Abadan plant for the production of plastics, detergents, and caustic soda was completed in the 1960s. Since then, the petrochemical industry has expanded considerably. It has been the main element of the post-war industrialization program. In late 1980, Iraqi bombing forced the closure of the Abadan refinery, which had a total capacity of 600,000 barrels per day and was one of the world's largest refineries. Several other refineries suffered lesser damage during the war. The Kharg Island oil terminal also was severely damaged by bombing in 1985. Construction by a Japanese consortium of a $4 billion petrochemical complex at Bandar-e Khomeini, near the Iraqi border, was halted by the war; by mid-1983, the installation, which was 85% complete, had already been attacked six times. In September 1984, the Japanese withdrew their technicians from the site because of a renewed Iraqi bombing. Iran has taken on much of the financial responsibility for the plant, and the ending of all payments of Japanese credits and loans in February 1986 most likely meant that the plant would never be completed according to the original plans. After the ceasefire in 1988, Iran began to rebuild its damaged oil export facilities, concentrating mainly on the rehabilitation of Kharg Island. A 500,000-barrel reservoir terminal on Uhang Island was put into operation in March 1993. The oil complex on the southern island of Lavan was reopened after reconstruction at the end of April 1993. The Abadan refinery became again operational at 200,000 barrels per day in May 1993. The Isfaran's oil production unit became operational in 1992/93, while the construction of a new refinery at Bandar Abbas was underway. Major refinery products are motor fuel, distillate fuel oil, and residual fuel oil. Oil refining manufacturers had a combined capacity of 1.47 million barrels per day in 2000. The petroleum industry is Iran's economic mainstay; oil accounts for 80% of export revenues, and Iran is a member of the Organization of Petroleum Exporting Countries (OPEC). In the late 1990s, Iran's state-owned oil and gas industry entered into major exploration and production agreements with foreign consortiums. The natural gas industry has boomed in Iran, with the third-largest proven reserves in the world. At 1990, the site was appraised at oneeighth of its true size, which was discovered in 1996. In 1998, Iran produced 1.9 trillion cubic feet of natural gas.

Iranian oil and gas fields infrastructure

Textiles Industry Textiles are the second most important industrial product; Tehran and Esfahan are the chief textile-producing centers. Traditional handicrafts such as carpet weaving and the manufacture of ceramics, silk, and jewelry are also important to the economy. The textile industry has prospered in recent years with increased production of cotton, woolen, and synthetic fabrics. The making of hand woven carpets were a traditional industry in Iran that does well unexpectedly acute competition from machine-made products. However, carpet exports declined throughout the war years. Other Major Industries Besides crude and refined petroleum, Iran's chief exports are carpets, fruits, nuts, hides, and iron and steel; its chief imports are machinery, metals, military supplies, food, and chemicals. There is an iron and steel plant at Esfahan and a fertilizer plant at Shiraz. The heavy metals industry began in 1972 with the start of steel production at Esfahan National Steel Mill in Esfahan. Manufactured goods include diesel engines, motor vehicles, television sets, refrigerators, washing machines, and other consumer items. Other major industries are sugar refining, food processing, and the production of petrochemicals, cement and other building

materials, and machinery. To promote self-sufficiency, Iran has encouraged development of the food processing, shoemaking, paper and paper products, and rubber, pharmaceutical, aircraft, and shipbuilding industries. Other industrial products include cement, nitrogenous fertilizer, phosphate fertilizers, and refined sugar. Iran's chief trading partners are Japan, Germany, and Italy. Khorramshahr, on the Shatt al Arab, is the country's chief general cargo port; Bandar-e Anzali is the chief Caspian port. A network of roads links the villages to the larger cities; most of the principal routes are paved. The Trans-Iranian RR links N Iran with the Persian Gulf.

Industry Sectors & Statistics

Iran's industry and service sectors contributed 44.3 percent and 44.9 percent to Irans GDP in 2010 respectively. In comparison, the agriculture sector contributed 10.8 percent to Iran's GDP. Irans current industries include: Petroleum and petrochemicals Fertilizers and caustic soda Textiles Cement and other construction materials Food processing (particularly sugar refining and vegetable oil production) Ferrous and non-ferrous metal fabrication Armaments

Despite diverse industries, Iran remains reliant on oil and natural gas revenues. The oil industry alone accounts for 60 percent of the governments budget. The country also possesses rich and have large mineral. The Iranian government has begun to develop its mining industry through foreign investment. Exports: $109.5 billion (2011) Country comparison to the world: 37 $109.3 billion (2010)

Exports commodities: Petroleum and crude oil 80%, chemical and petrochemical products, fruits and nuts, carpets Exports partners: China 21.4%, Japan 9.1%, Turkey 8.8%, India 8.1%, South Korea 8%, Italy 5.3% (2011)

Imports: $74.41 billion (2011) Country comparison to the world: 42 $74.04 billion (2010)

Imports commodities: Industrial supplies, capital goods, foodstuffs and other consumer goods, technical services Imports partners: UAE 30.9%, China 17.4%, South Korea 7.1%, Germany 4.8%, Turkey 4.2% (2011) International sanctions have had an impact on Iran's trade and foreign investments, especially from the US. As a result, Iran expanded its economic cooperation and trade with other developing countries such as China and India. GDP - composition by sector: Agriculture: 10.3% Industry: 40.2% Services: 49.5% (2011)

Labor force - by occupation: Agriculture: 25% Industry: 31% Services: 45% (June 2007)

Agriculture - products: Wheat, rice, other grains, sugar beets, sugarcane, fruits, nuts, cotton; dairy products, wool; caviar Industries: Petroleum, petrochemicals, fertilizers, caustic soda, textiles, cement and other construction materials, food processing (particularly sugar refining and vegetable oil production), ferrous and non-ferrous metal fabrication, armaments. Industrial production growth rate: -2.7% excluding oil (2011)

Energy: IRAN Sector Electricity Production Consumption Import Export 213.7 billion KW 173.1 billion KW 2.068 billion KW 6.154 billion KW (2010) (2009) (2009) (2009) Country Country Country Country comparison to the comparison to the comparison to the comparison to the world: 19 world: 21 world: 48 world: 26 Crude oil 4.231 million bbl/day (2011) Country comparison to the world: 5 151.2 billion bbl (1 January 2012) Country comparison to the world: 5 *Reserves (Not Consumption) Refined petroleum 1.801 million 1.694 million 187,200 products bbl/day (2008) bbl/day (2011) (2008) bbl/day 246,500 (2008) bbl/day 0 bbl/day (2009) 2.295 million bbl/day (2009) Country Country comparison to the comparison to the world: 201 world: 4

Country Country Country Country comparison to the comparison to the comparison to the comparison to the world: 14 world: 15 world: 29 world: 26 Natural gas 146.1 billion cu m 144.6 billion cu m 6.85 billion cu m 8.42 billion cu m (2010) (2010) (2010) (2010) Country Country Country Country comparison to the comparison to the comparison to the comparison to the world: 6 world: 5 world: 31 world: 25

Other Information: Population (million inhabitants) Land area (1,000 sq km) Population density (inhabitants per sq km) GDP per capita ($) GDP at market prices (billion $) Value of exports (billion $) Value of petroleum exports (billion $) Current account balance (billion $) 75.86 1,648 46 6,360 482.45 130.54 114.75 51.43

Proven crude oil reserves (billion barrels) Proven natural gas reserves (billion Cu. M.) Crude oil production (1,000 b/d) Refinery capacity (1,000 b/d) Output of petroleum products (1,000 b/d) Oil Consumption (1,000 b/d) Crude oil exports (1,000 b/d) Exports of petroleum products (1,000 b/d)

154.58 33,620 3,576 1,772 1,770.2 1,777 2,537 441.3

b/d (barrels per day) Cu. m. (Cubic meters)

Country Comparative Advantage (CCA)

The comparative advantage of Iran is a petroleum industry (refined petroleum products). They are exporting oil and petroleum in other countries. The share of export of these products is almost 80% in revenue of the country. And all companies are under the government of Iran. Iran is exporting 441300 barrels per day of petroleum products and 25, 37, 000 barrels per day crude oil. And refinery capacity of Iran is 17, 72, 000 barrels per day.

Iran is the 2nd largest exporter of petroleum products in the Organization of Petroleum Exporting Countries (OPEC). As described in following graphs:

Naphtha, gasoline, diesel fuel, asphalt base, heating oil, kerosene, liquefied gas, Motor Oil, Paint and Jet fuel which come from crude oil, are known in the energy industry as Petroleum Products. Across the Gulf Coast region area is busy refining the ingredients that touch every part of our lives. Considerable changes in the form of the life of human and their huge needs to the more products led into this fact that natural materials must be replaced by artificial ones. One of the industries which have a considerable role in this area is the petroleum industry. It is of substantial significance to the Iranian economy, and a key component of the country's industrial base. It is high growing industry of Iran because Iran has enough resources of Oil, Coal, Chemicals and other Minerals. It promotes education and R&D for high technology industry by providing direct financial support to public and nonprofit institutes, universities, and other educational institutions, primarily through the Ministry of Science and Technology, Iranian Ministry, the Ministry of Commerce of Iran. It is responsible for the development and operation of the country's and petroleum sector. According to the government of Iran, it is the third largest country in the world at approximately 150 billion barrels (24109 m3) as of 2007, although it ranks second if Canadian reserves of unconventional oil are excluded. This is roughly 10% of the world's total proven reserves. Iran is the world's fourth largest oil producer and is OPEC's second-largest producer after Saudi Arabia. As of 2009 it was producing an estimated 4.172 million barrels per day (663.3103 m3/d) of crude oil. At 2006 rates of production, Iran's oil reserves would last 98 years if no new oil was found. Yet the country is one of the most important mineral producers in the world, ranked among 15 major mineral rich countries, holding some 68 types of minerals, 37 billion tonnes of proven reserves and more than 57 billion tonnes of potential reservoirs. The most important mines in Iran include coal, metallic minerals, sand and gravel, chemical minerals and salt.

Iranian Industry is at par with world standard. Iran shares a good portion of business in world market. It is on significant geographic location, low cost labor and highly skilled human capital, the country is rapidly attracting foreign investment in the sector, which is significantly helping the government to achieve its production and export targets each year. The West is trying to disrupt Irans oil sales and exports by exerting different pressures [on the country] and keep Iran away from global markets. But Irans oil staff has thwarted these attempts. Due to these policies, Irans oil industry is currently at its best.

Porter Model Application

Firm Strategy Structure and Rivalry Strategy Strategic plans of Iranian oil industry are towards expansion. Their serious attention is to develop human resources, they are doing research for new productive ways and for technological development. They are paying attention to national technologies and products made in the country and safeguarding gas reserves and revising the load coefficient, Safeguarding crude oil reserves. Exporting technical/ engineering services and granting energy transit way, optimizing the fuel consumption, looking at oil units as economic units and creating structural reforms in view of decentralization to improve productivity. They are exploring and installing more refineries for the production of petroleum products. The national oil industry is moving on with full strength and confidence, utilizing up-todate technology, powerful and innovative management, highly skilled and creative manpower and a futuristic approach to development projects. The Iranian economy is heavily dependent on the profitable oil and gas sector. But the unpredictable change of the oil markets and Irans dependence on a single resource for most of its income has discouraged to develop a more diversified and globally integrated economy. Its oil sector is one of the oldest in the world. Iran has one of the worlds most mature oil sectors. Policy makers believe that active participation of the private sector, both local and foreign, is essential for sustained growth of the industry in Iran. Production capacity is likely to increase because of geological and domestic technical capacity, but also likely to fall due to financial constraints and international sanctions. In the last few years, Tehran has increasingly looked east to attract national oil companies in the Iranian upstream industry. The greatest activity has been to China, which has held talks on major projects in 2007. Irans refineries are operated by the National Iranian Oil Refining and Distribution Company (NIORDC). The position of NIOC managing director was established in 2000 as a separate post. It operates nine refineries with a combined refining capacity of 1.775 million

barrels per day. Capacity has almost doubled since the early 1990s and considerable work has been done on upgrading the refineries. In early 2006, NIORDC announced plans for a $16 billion program to expand and upgrade its refineries, with a goal of doubling its capacity to around 3.3 million barrels per day. As of mid-2010, several projects were underway, but the bulk of the program will not be completed in the next several years because of Irans financial constraints and international sanctions. Machinery tools, equipments, constructions and so on can be assumed as the capital stock of the industry. They are importing almost 40% of it, another 60% machinery they are producing in their own country. Privatization of production and exporting companies and obliging banks to invest in private companies. They are giving training managers in order to change their attitude to working at the international level. Iran plans to invest $500 billion in the oil sector until 2025. As of 2010, $70 billion worth of oil and gas projects are under construction. Iran's annual oil and gas revenues will reach $250 billion by 2015. Ministry of managing the oil industry, the producer of oil and petroleum products. MOP is in charge of all issues belongs to exploration, extraction, exploitation, distribution and exportation of crude oil and oil products. In addition, according to the "Imports and Exports Regulation Act", issuing import licenses for such products is also among the functions of the Ministry of. The state owned National Iranian Oil Company (NIOC), under the supervision of the Ministry of, is responsible for all upstream oil projects, encompassing both production and export infrastructure. The National Iranian South Oil Company a subsidiary of NIOC accounts for 80 percent of oil production covering the provinces of Khuzestan, Bushehr, Fars, and Kohkiluyeh and BoyerAhmad. Nominally, NIOC also controls the refining and domestic distribution networks, by way of its subsidiary, the National Iranian Oil Refining and Distribution Company (NIORDC), although functionally there is a separation between the upstream and downstream sectors. The Iranian constitution prohibits foreign or private ownership of natural resources. The government permits buyback contracts that allow international oil companies (IOCs) to enter into exploration and development contracts through an Iranian affiliate. The contractor receives a remuneration fee, usually an entitlement to oil or gas from the developed operation, leaving the contractor to provide the necessary capital up-front. Once development of a certain field is complete, however, operator-ship return in discussion to NIOC or the relevant subsidiary. Structure Irans oil industry has had a unique performance after the Islamic Revolution, especially in recent years. Industry of Petroleum of Iran is vertically integrated because it drilled for oil, refined crude oil into usable products and then transported those products to retail outlets. By

vertically integration they minimize their own costs while being able to affect competitors costs. They made their process efficient with the help of modern technology.

Rivalry Petroleum industry of Iran is quite destructive because all companies are under government and if any new company wants to come in, it has to come through government of Iran. Governments have shared in all companies. In addition, Iran is expanding its refining capacity to meet domestic and international demand and reduce reliance on foreign refined products. Related Support Industries Related and supporting industries include Related Raw materials suppliers, Equipment and tools, Distributors and retailers, Research organizations, Drilling & Completions Transportation Field engineering Fabrication

Related industries are providing input to the petroleum industry. New methodology, technology and advance machineries are provided by relating industries. That increase production efficiency of products. Supporting Financial Institutions (such as banks and stock market, transportation systems) Technical Education Institutions (Large number of science and engineering graduates) Increased number and quality of training facilities Engineering, consultancy and design Governmental policies

Supporting industries are helping the industry for their constant growth. The governmental policies support the process of production. They introduce the advantages of investing in industry to financial organizations such as banks, as they are also investing more in that industry. Iran's other major potential is its educated youth. More than 70% of the Iranian population are under 32 years; there are currently 20 million people at schools and 2 million in universities. The combination of human skills and mineral resources near the natural gas fields of the Persian Gulf makes an ideal investment opportunity in energy based industries. And now Iran is attracting foreign investments. They also have a close relationship and collaboration with supporting industries in order to increase the quality of products. They are doing Comparative study of similar industries in foreign markets. Another important thing is the Government doing is research and development facilities and institutions for Iranian students to learn about different aspects of the oil and gas industry. Although the National Iranian Oil Company has had its own research center for some time and a few universities recently have opened study courses, they are developing link or cooperation between the oil and gas industry and higher education institutions. Supply Conditions Crude Oil is extracted from underground reserves; then it is cracked or refined into end products for various uses. The industry thus has two parts: an oil exploration and production industry upstream and a refinery industry downstream. Factor conditions include raw materials, knowledge resources, physical resources, human resources, technological resources, capital resources, infrastructure, innovation power and managers capabilities. Specialized resources are often specific to an industry and important for its competitiveness. Homegrown resources Low cost labor Equipments Highly skilled workforce

Highly specialized resources Usage of innovative process Expansion of existing relationships Availability of more technical work force

Oil industry supply condition is easily available to the industry. Which includes parts, skilled labor and equipments. And overall supply condition in the economy is also available. Import facilities made easy, and overall supplies in the world are easily accessible. The industry in the Gulf is no longer simply operating facilities to produce products; it is becoming a key enabler of other industrial activities. The Gulf regions advantages are based on geography, natural resources, and an already well developed production, refining and chemicals manufacturing infrastructure. In this regard, it is strategically and economically in the best interest of Iranian producers to develop and expand their domestic markets. A vibrant and growing domestic market that provides stability of demand also reduces costs for transportation and mitigates the effects of trade barriers. Iran has a productive and trained workforce. They continue to provide training to further upgrade and burnish the skills of his workforce, and looking for ways to separate themselves from competitors through the development of proprietary technology and markets. One of the factors of the comparative advantage is the comparative enormity of the production factors. Since the supply of the petroleum industry is the oily hydrocarbons. And because of their huge resources, availability in Iran and cost of production is low it is a good comparative advantage of the export of the petroleum products. Iran has the capacity of competition in domestic production. Technological change has affected all segments of the industry and generally has resulted in moderate but stable increases in productivity in most industry segments in recent decades. Productivity measures for the crude oil production, refining, and retailing segments of the industry. Labor productivity in crude oil production shows a peak in the early 1970s. This is largely the result of labor inputs being frontloaded into the production process, the peak productivity occurred at a time of maximum domestic production, but much of the labor associated with that production occurred when the reserves were first discovered. A more appropriate measure of labor productivity of exploration would define output as the increase in proving reserves per unit of labor, but such productivity data are not available. By using appropriate production and financing strategies in order to bring down the prices and by using advanced technology and educated labor Iran to promote its efficiency is enhancing the capacity of competition. Iranian industries are now pioneering the use of industrial automation technology as is evident in their use of 'Field Bus' control system instead of the DCS' system. On the world energy map the location of Iran is very strategic, due to its access to both the Caspian Sea and the Persian Gulf, a region where most of the world's energy is stored. This

country owns about 9%of the world's crude oil and 18% of its gas reserves. The Iranian government desires to move away from an economy based on oil exports and to put the development of its gas resources, (with proven reserves of 23 trillion cubic meters) at the top of the official agenda. Iran has created its own important factors such as skilled resources and technological base. Iran is also being upgraded / deploying resources over time to meet the demand. These advantages include not only reliable, affordable supply of feedstock but also location and port facilities. Local technical and operational expertise and immediate access to Persian Gulf ports Demand Conditions Demand conditions determine the circumstances of domestic demand for products of an industry. Increase in demand has a great influence on competitiveness. Big growing domestic market encourages the producers to develop technology and efficiency. Smaller domestic markets have a low economic growth rate and therefore they encourage the companies to look for exporting possibilities. Domestic demand has both qualitative and quantitative aspects of market. The size of the domestic demand determines the minimum rate of economic activities of domestic firms and also allows them to have a stable domestic demand. Customers expectations for the quality of products and services can be an important incentive for the competitiveness of firms or countries. The demand of products is high mainly because of its competitiveness and usage of those products in daily life. Iran's low cost and high end products refined or production expertise coupled with developing world class infrastructure is the main leveraging factor for the rise of this industry. Iran is now offered at a substantial discount than its competitors while delivering the same grade of output. They are increasing the public information about the quality of products. Competition in Exports Iran is in a neutral condition in international market. Due to economic, trade, scientific and military sanctions imposed by the U.S. government against Iran, demand of Iranian products is clearly down. But still Iran is exporting its products to China, India and Japan. Relationships and changes over time for energy and total oil demand with respect to income and population are examined for each of the countries and presented graphically. Future increase in oil products will ultimately be slowed by rising prices unless alternative energy sources become an increasingly greater part of the mix.

Due to high energy density of petroleum, easy transportability and relative abundance, it has become the worlds most important source of energy since the mid-1950s. Petroleum is also the raw material for many chemical products, including solvents, fertilizers, pesticides, and plastics; the 16% not used for energy production is converted into these other materials. The daily world demand today is 12 million barrels higher than it was a decade ago, an increase equal to the combined production of Saudi Arabia and Iran. As a further complication,

there are indications that the global production of oil may reach its peak relatively soon, whereupon the price will rise and never settle back down. If this comes to pass, unprecedented global economic chaos will follow. Demand condition of the product is very high. Products are satisfying customer needs and requirements but demand of is increasing now. Demand in the country and globally is also high. And Iran is also increasing its exports.

Krugman theory of trade

Economies of scale means production on a larger scale (more output) can be achieved at a lower cost (with economies or savings). When production within an industry has this characteristic, specialization and trade can result in improvements in world productive efficiency and welfare benefits that accrue to all trading countries. Internal Economies of Scale Oil in Iran between the Two World Wars On May 28th, 1901 that Mozafar-OD -Din Shah (of Qajar) granted the British subject William K. D'Arcy a 60-year oil license/right for use on all areas of the country except the five Northern provinces bordering Russia. The right of usage provided its holder the exclusive option to explore, exploit and export petroleum. Oil was discovered in commercial quantities in the southwest of the country in late May 1908. The Anglo Persian Oil Company (Anglo- Iranian Oil Company from 1935) was formed in London in April 1909. It was formed with an initial capital of 2 million pounds to assume all the D'Arcy's rights and responsibilities. The first royalty agreement was in 1913. On 20 May 1914, an agreement was signed between the British government and the APOC by which the British government became the major shareholder of APOC owning 51% of the shares. The agreement gave the British government the right to appoint two directors on the Board who would have the power of veto on any questions relating to British national interests. Also on the same day, a contract was signed between APOC and the British Admiralty by which APOC guaranteed the supply of oil to the Admiralty for 30 years at fixed prices. The contract would really affect the relations between Tehran and APOC in so far as the royalties were concerned. Tehran did not protest until August 25th, 1920 when it ordered its financial advisor (Sydney Armitage-Smith) to negotiate with APOC on royalties. Talks started in London and an agreement was signed on 22 December 1920 as a result of which APOC paid one million pounds in settlement of Iran's claims on royalties. The Pahlavi dynasty replaced the Qajar ruler in late 1925 and started talking about the revision of the agreement in London in late July 1928. But before the talks started, the new establishment strongly attacked the legality of the 1920 agreement on the basis that, it had never

passed the Majles. In London, the Court Minister Abdol-Hoseyn Teymourtash told Sir John Cadman (the APOC's chairman) that the Iranian government would grant APOC a new 60 year agreement if, in return, APOC would agree to reduce the area of the land subdivision, with a complete cancellation of the exclusive right of transportation, to give the Iranian government a substantial block of the shares, to register itself in Tehran as well London, to be exempted from tax by both governments. The talks continued in Lausanne (French speaking part of Switzerland) in August 1928. In Lausanne, Teymour-teas made it clear that his government should be given 25% of the APOC's total shares. "If this had been a new agreement, the Persian Government would have insisted not on 25% but on a 50-50 basis", he said. He also demanded a minimum guaranteed interest of 12.5% on dividends out of the shares. Also he specified that 50 to 60% of the existing area should be relinquished at the time of the approving of the new agreement and 60% of the remaining area should be reduced in three years. In order to make strong his position in any further talks with the British, Teymour-Tash took action soon after he returned to Tehran. Tumor-Tash himself threatened that if by the following movements he found his demands made in London and Lausanne had not been met, he would then turn against APOC and fights it. At its meeting of 20 November 1928, the British Cabinet agreed with 20% of the shares for Iran. Cadman, who had attended this meeting, was told of the following principles as the basis for any further talks with Teymourtash. 1. Under a new agreement for a long period of time, extension of the contract between APOC and the British Admiralty should be sure and guaranteed. 2. The controlling position of the British government in the shares should be maintained. 3. Shares to the Iranian government should be nontransferable.

In 1930, Teymour-Tash adopted a policy to extract more money from APOC, this by imposing taxes on its operation in Iran. Nothing had been worded in the agreement to prevent him from doing so. He submitted a bill to the Majles by which APOC would pay a tax of 4% on its profits earned in Iran, as from 22 March 1930. The bill passed the Majles on the same day. APOC offered a guaranteed consolidated payment in return for exemption from any tax. Tumorteas did not agree. "The Company must show the amount of its profits earned in Persia". Tehran was under extreme financial pressure in March 1931. The inflation rate had risen to nearly 45% and the shah needed a huge sum to go further with his railway and the army. In such a situation, APOC requested a new longer agreement in return for a royalty of 4s per ton plus 10% of the net profits. Teymour-tash was incompatible. He was entirely against the idea of a new longer agreement.

The talks started in Paris and continued in London in November 1931. The main concern for both sides was to find the real amount that would cover all the claims relating to the royalties and tax in the past. Teymour-tash agreed on 20% (16% as royalties plus 4%) and the Iranian Cabinet approved. Tehran officially refused to accept its royalties. Teymour-tash asked APOC to increase the royalties and prepared himself to "offer to overcome year 1929 differences". It was not a successive move. APOC responded that it could not see any other possible arrangement. In the Security Council of the League on February 3rd 1933, the Rapporteur Edvard Benes, Foreign Secretary of Czechoslovakia proposed that both Iran and APOC to negotiate a new agreement, which was accepted by both parties. One week passed but Taqizadeh put nothing on the table. Cadman met the shah on April 11th and realized that the shah had no wish to go back to the League. Under the shah's pressure, Taqizadeh deployed his demands a summary of which is as follows: The area should be reduced to 15%. The exclusive right of transportation should be completely cancelled. APOC should give 20% of its total shares, free of charge, to the Iranian government. A royalty of the oil produced should be paid to Iran. Iran should enjoy the right of veto in the board. APOC should attempt to minimize the number of its non-Iranian employees.

The new agreement would not be longer that the rest of the D'Arcy agreement (28 years). As it became clear that Taqizadeh and his colleagues would not agree to a new 60 year agreement, Cadman, on 23 April 1933, stated that he and his colleagues would leave Iran as soon as possible. This meant that the dispute over the cancellation would, once again, be taken before the League of Nations. Shah did not want to withdraw the cancellation announcement, then the only solution for not facing opposite agreement. Two meetings were held in the palace and the Shah agreed to a new 60- year agreement in return for: A minimum guaranteed payment (of 750.000 pounds annually) plus a royalty of 4s (gold) per ton of oil produced. 4% as tax to Iran Iran's representation on the board Payment of one million pounds (by APOC) as settlement of all past claims Investment by APOC on Iranians so that this would minimize dependency on skilled foreign employees Reduction of the area of 100.000 square miles Full cancellation of the exclusive right of transportation of oil 20% of the share in Iran

 Cheaper oil for Iranians The greatest achievement in the reduction of the area and the cancellation of the exclusive right of transportation provided the opportunity for the shah to develop possible oil fields out of the southwest in the hands of non-British. Germany showed interest in acquiring an oil agreement. The Germans might have had the technology, money and the equipment needed, but the Americans were seen as politically an altogether better proposition. Talks with Americans started and resulted in an agreement in mid-January 1937. Americans were granted a 60- year oil agreement on 100.000 square miles in the east leaving a huge buffer zone between them and the British. They were also granted the right to build a pipeline to the Sea of Oman. This agreement was similar to that of the 1933 agreement to the British. No progress was made until July 1938 when Americans notified that they had lost interest in their contract/agreement. They had acquired more beneficial agreements with the Arab countries, which meant for easier transportation to the Persian Gulf. It is noteworthy that there were disputes between Tehran and AIOC on their new contract in the years followed until 1941 when the shah resigned. These are as follows: The dispute in the Iranianisation process of the company's technical staff The APOC's foreign technical staff was 8% of the total employees, in 1933. According to the agreement APOC should "recruit its artisans as well as its technical and commercial staff from among Persian national". But in same agreement it had stipulated that both parties "except as the principle, the supreme necessity of maintaining the highest degree of the efficiency and of economy in the administration and the operations of the company in Persia". They negotiated and as a result of which an agreement was made on 2 April 1936. By this agreement, APOC (now AIOC) promised to replace its "foreign artisans, technical and commercial staff by Iranian" in a progressive manner to extend that as this would be "compatible with the attainment of the highest degree of efficiency". The company's foreign staff decreased in percentage in accordance with the 1936 agreement, this from 14.84% in 1936 to 11.36% in 1941, but increased in numbers from 2050 in 1936 to 2457 in 1941. The dispute on the oil exports The oil export increased to its highest level of 10.16 million tons with the highest royalties of 3.54 million pounds in 1937. It dropped in 1938 and Shah threatened Cadman that it is not good for Irans development. Cadman told him that the drop was due to over production of oil by Americans and Russian. Cadman stated that he could arrange 5 million pounds from the British government in a manner that, it would be liquidated out of the future royalties. The shah agreed. Talks were undertaken by the two governments in London and resulted in an agreement on 16 February 1940. Tehran cancelled this agreement in July as a result of another drop in oil exports.

From 1949 on, sentiment for nationalization of Iran's oil industry grew. In 1949 the Majlis approved the First Development Plan (1948-55), which called for comprehensive agricultural and industrial development of the country. The Plan Organization was established to administer the program, which was to be financed in large part from oil revenues. Politically awareness Iranians were aware, however, that the British government derived more revenue from tax agreement, the Anglo-Iranian Oil Company, than the Iranian government derived from royalties. In November 1950, the Majlis committee concerned with oil matters, headed by Mosaddeq, rejected a draft agreement in which the AIOC had offered the government slightly improved terms. These terms did not include the fifty-fifty profit-sharing provision that was part of another new Persian Gulf oil agreements. Oil production came to a virtual standstill as British technicians left the country, and Britain imposed worldwide prohibitions on the purchase of Iranian oil. In September 1951, Britain banned export of goods to Iran. It challenged the legality of the oil nationalization and took its case against Iran to the International Court of Justice at The Hague. The court found in Iran's favor, but the dispute between Iran and the AIOC remained unsettled. Under United States pressure, the AIOC improved its offer to Iran. The excitement generated by the nationalization issue and anti-British the government to reject all offers. The economy began to suffer from the loss of foreign exchange and oil revenues. This led to an economic crisis and a move against the Mussadeq government by the Shah in the summer of 1952, which was met by huge and violent attacks in July. Iran broke off diplomatic relations with Britain in October. Mussadeq was driven to ever confusions and by August 1953 was proposed to abolish the Majlis and remove the Shah. The Shah fled the country, but a military coup backed by the American Central Intelligence Agency and British MI6 (Operation Boot) swiftly restored him to power and arrested Mussadeq. The oil situation was not resolved until late in 1954, when agreement was reached with the oil companies and the British, and the National Iranian Oil Company took over the industry. The Anglo-Persian Oil Company (APOC) was founded in 1908 following the discovery of a large oil field in Masjed Soleiman, Iran. It was the first company to extract petroleum from Iran. In 1935 APOC was renamed the Anglo-Iranian Oil Company (AIOC) and in 1954 it became the British Petroleum Company (BP), one of the antecedents of the modern BP PLC. The 1957 Petroleum Act and the Joint Venture Agreements In the years immediately following the signing of the 1954 combined members Agreement, the inexperienced national Iranian Oil Industry received an unusually large moral boost from the exploration activities conducted around Qom. The discovery of the Alborz oilfield and the Sarjeh gas field by the Iranian Oil Company, a company set up during the First Plan to explore and exploit petroleum, not only proved Irans growing technical capacity but it also helped to give Iran a glamour not hitherto enjoyed by any other oil producing and exporting

country. Against this background it is therefore hardly surprising that when Enrico Mattei, the Chairman of ENI (the Italian State Oil Company), decided to look for oil supplies in the Middle East by offering new contractual terms, he should turn to Iran and that the government of Iran and the NIOC should greet him with open arms. What had prompted Mattei to come forward with the participation formula was his resentment at the treatment he had received from the major oil companies by being excluded from the combined members Agreement. Since access to crude oil resources was of utmost importance for Italy and ENI, a way had to be found for entry into the Middle East oil scene. NIOC and ENI thus pioneered a new form of contractual relationship, thereafter known as 75/25 profit sharing, breaking the hallowed fifty-fifty arrangement and heralding a new era in international oil agreements. While negotiations were being conducted between NIOC and AGIP Mineraria (the upstream arm of ENI), the first Petroleum Act was drafted and submitted to the Parliament. It was ratified by it and was promulgated on 31st July, 1957. The SIRIP Agreement between NIOC and AGIP Mineraria became effective a short while later on August 24 1957. NIOC was to divide the country into petroleum districts, each with an area not exceeding eighty thousand square kilometers. NIOC was further directed to protect from harm at all times at least one third of the total exploitable areas including the continental shelf as national reserves and permitted to enter into contractual relationships, on the basis of a specimen Agreement Form, with successful qualified bidders chosen from amongst applicants. The act envisaged a detailed bidding procedure. The Joint-Structure Agreements of the mid-1969s Based on the success and experience gained by NIOC with the implementation of the Agreements, and given the ambitious nature of the Governments development plans and economic growth objectives, a decision was taken to open a part of the continental shelf of the Persian Gulf for international bidding. However, this time round, NIOC decided to carry out, at the expense of those interested in bidding, a marine seismic program in the area in question and to make the information so obtained available to bidders, as a part of the technical file. This approach proved to be an enormous success. Not only did this Iranian First concept become a translator to be widely followed by other countries, it also resulted in the payment of more than $180 million in cash bonuses by five groups of oil companies who concluded joint structure agreements with NIOC in 1965. The significance of this round of bidding went well beyond the figures associated with bonuses and exploration obligations. Major oil company Shell, had broken ranks with other major companies and accepted the concept of participation. This, too, proved to be the forerunner of many new agreements leading eventually to OPECs Resolution and Participation in September 1971. The five agreements concluded in 1965 were based on a modified and improved Agreement Form presented by NIOC. The Sale and Purchase Agreement

The fact is that the 1954 Agreement failed to achieve the main objective of the 1951 oil nationalization, which was the complete control and management of the oil industry by NIOC, there were many weaknesses and shortcomings in the Agreement, many of which were unavoidable due to severe economic problems in the country, the weak bargaining position of Iran, and the usual policies and practices in the international oil business. In early 1973, the NIOC gave an ultimatum to the oil consortium that unless a new arrangement was agreed upon, Iran would not extend the 1954 oil agreement beyond 1979 (the original 25 years), and that the combined members would then be treated as ordinary buyers of Iranian oil. In the circumstances, the combined members choose alternate for a new arrangement to become privileged customers of the Iranian oil in return for giving up the management and control of the oil industry in the Agreement Area. Consequently a 20-year Sale and Purchase Agreement was signed between the parties on 19th July 1973 (with retroactive effect from 21st March 1973) replacing the 1954 Oil Agreement. 1974 Petroleum Act and Risk Service Contracts In order to further enhance its control and management of the petroleum operation carried out on its behalf by qualified operators, the NIOC drafted a new and innovative Petroleum Act in 1974, which was approved by the Council of Ministers and enacted by the Parliament. This new law considers that exploration and production agreements with foreign oil companies could only be concluded on the basis of Risk Service Contracts under which the contractor had no ownership right either to the reserves discovered or to the production from the agreement area. It was stipulated that The Petroleum resources and the Petroleum industry of Iran belong to the Nation. The exercise of sovereignty right of Iranian Nation over the Petroleum resources of Iran with respect to the exploration, development, production, exploitation and distribution of Petroleum throughout the country and its continental shelf is entrusted exclusively to the National Iranian Oil Company who shall act thereupon directly, or through its agents and contractors. The text of the Act was published by Public Relations Affairs, Iranian Oil Industry in 1974. In the years following nationalization, the exercise of effective control over the exploitation of petroleum resources had been at the forefront of NIOCs agenda and had shaped its approach to international petroleum agreements. The 1957 Petroleum Act initially provided the vehicle for the achievement of these objectives. The process was evolutionary but careful. It followed a pace proportion with the maturation of NIOC. In its search for enhanced control and better terms and conditions, NIOC created several important events in the contractual relationships between the international oil companies and the host country. Many of the agreement forms pioneered by NIOC eventually found wide application in other producing countries. Finally with de facto changes in the contractual relationship with the combined memberships and signing of the Sale and Purchase Agreement in 1973 followed by the

enactment of a new Petroleum Act and the conclusion of several Risk Service Contracts in 1974, NIOC had, at last, reached its long cherished objective of full and complete control of the Iranian Oil Industry and resources.And industry reached to the point of internal economy of scale.

External Economies of Scale Iran still provides nearly 5% of the world's oil needs. It is strange then, that an industry of such global importance should be so isolated. But the Americans have had sanctions in place since the 1979 Islamic revolution, and European companies have become increasingly opposite to invest. The French company Total is the latest to put its projects on hold, saying it just could not raise the billions of dollars needed to finance them. The Chinese, Indians and Russians are moving in but they cannot yet fill the gap. To some extent the isolation is self-imposed. The Islamic Republic retains a hidden mistrust of foreign involvement in the oil business; international companies describe how difficult it is doing business here. It is not just the history of British involvement that makes the Iranians wary. In the IranIraq war from 1980-88, Saddam Hussein targeted the Iranian oil industry dramatically reducing production. He had at least a degree of Western support. Some of the biggest Iranian oil fields run along the border with Iraq, almost in sight of British and American forces. So a degree of psychiatric disorder is understandable. And Iran argues that it does pretty well on its own maintaining or increasing oil production, and working on petrochemicals and gas. Reconstruction and Development Reconstruction job started after the end of the war. Refining, production and export capacities surpassed the pre-war era levels. Despite restrictions and sanctions imposed on Iran by the U.S. and its allies, the Ministry of Petroleum pursued oil industry development plans. Oil industry development plans were based on 5 major approaches: Expansion of the petrochemical industry, in light of its value-added products in global markets, and requirements of domestic downstream industries; Giving priority to the extension of the gas network to industrial centers, power plants, and the residential areas; Making investments in the upstream sector of the oil industry, and executing exploration projects to strengthen Irans position as the second oil producer among OPEC member states, and as the worlds second holder of huge natural gas reserves. Discovery of giant fields of Azadegan, Tabnak, and Homa have been some of the results of such efforts; Playing an active role in OPEC and other international organizations to help bring stability to world markets; To secure financial resources required for development projects through buyback contracts, as a practical approach to implementation of development projects, while

placing emphasis on the utilization of domestic expertise and investment potentials, and the transfer of technology.

After the revolution and Iraqi War Development and Expansion of Petroleum Industry of Iran Started.

Best Company in the Industry

National Iranian Oil Refining & Distribution Company The company has been formed more than one decade ago and started its activities in a new framework and structure. Nevertheless, this company can be truly known as the inheritor of 90 years experiences in Iran oil industry in the fields of refining, oil products transportation and distribution and oil establishments engineering and construction. After being formed from March 8, 1991 , this company has performed National Iranian Oil Companys duties in the area of all activities related to crude oil transfer to the refineries and export jetties, processing, production and distribution of numerous oil main products and byproducts throughout Iran, marketing and exporting special products surplus, construction of refineries, marine platforms, pipelines and communication networks, ensuring internal and long distance, industrial and official headquarters of Oil Ministry communication with extreme capability. Profile of Company National Iranian Oil Refining & Distribution Company (NIORDC) was established in 1991, as one of the four main subsidiaries of the ministry of petroleum.

NIORDC as part of the National Iranian Oil Company (NIOC) was established on the principle of separating up-stream activities. It has 19 subsidiaries and affiliated companies, including 9 oil existing refineries. It offers its services using 22,000 experienced employees. In view of the increasing demand of petroleum, NIORDC is up to perform expanding, upgrading and optimizing projects for the existing refineries, and constructing new refineries. In addition to crude oil refining, NIORDC, activities are also focused on engineering, construction and transportation which embodied into three major subsidiaries: NIOPTC, NIOPDC and NIOEC. Mission & Strategies Mission Crude Oil Refining Crude Oil & Product Transfer Products Distribution Export & Import of Oil Products

Strategies Employing advanced technologies to boost efficiency Expanding Refining Capacity to give added-value to our crude oil Upgrade the quality of products to meet new environmental requirement Growing presence in regional markets & collaborating with neighboring countries Attracting the participation of local and foreign private sectors in refining projects Expanding pipeline and storage networks to meet our import/export requirements

Organization Chart

Expansion Projects In line with the Ministry of Petroleum policy and its vision to expand the capacity of the existing refineries, NIORDC during the last two years had conducted a comprehensive study and embarked upon implementing them accordingly. Objectives Improvement of manpower structure and economizing the refinery operations Qualifying of oil products to meet 2005 Europe Standards Optimization of the refining patterns Reducing production of low value products as fuel oil Increasing production of high value products as gasoline Reducing energy consumption Reducing fuel consumption and wastes Improvement of control systems

Among the nine existing refineries, the contract for six of this expansion program had been awarded. The details of each project are as below: Abadan Refinery Name of the Project: Construction of New Units: Sulphuric Acid Cat Cracker Cat Cracker, Alkylation, Isomerization, Sulphur,

Recovery, Amine, LPG treatment Gasoline Capacity after Expansion : 70000 bpd EPC Contract Signing Date: May 13th 2006 Contractor: Abb Lummus, PIDEC, ECC

Arak Refinery Name of the Project: Construction of New Units: CCR, GHDS, Gas Oil treatment, Naphta Gasoline Capacity after Expansion : EPC Contract Signing Date: Contractor: ODCC Expansion and Product Upgrading Atmospheric Distillation , Naphta treatment, Kerosene treatment, Izomerzation, 100000 bpd July 30th 2006 UOP, Axens, Technip KTI, RIPI, SEI, Sazeh,

Bandar Abbas Refinery Name of the Project: Increasing Gasoline Production

Construction of New Units: Heavy & GHDS, Sulphur recovery, Sour Water, Izomerization Gasoline Capacity after Expansion : 80902 bpd EPC Contract Signing Date: November 19th 2006 Contractor: Abb Lummus, PIDEC, ECC

Light Naphta, Amine, CCR,

Esfahan Refinery Name of the Project: Construction of New Units: Izomerization Gasoline Capacity after Expansion : EPC Contract Signing Date: Contractor: Riz. Increasing Gasoline Production Naphta hydrotreating, octanizing( CCR ), 75400 bpd October 17th 2006 Namvaran, Hyundai Engineering Co., AKPG, Dor

Tabriz Refinery Name of the Project: Increasing Gasoline Production Construction of New Units: Heavy Naphta treatment, Catalytic conversion Gasoline Capacity after Expansion : 23270 bpd EPC Contract Signing Date: December 12th 2006 Contractor: SEI, EIED, Tanavob

Tehran Refinery Name of the Project: Increasing Gasoline Production Construction of New Units: Light Naphta , Izomerization Gasoline Capacity after Expansion : 23270 bpd EPC Contract Signing Date: November 8th 2006 Contractor: Axens, Chegalesh, Petrolinvest, Radira

Other Projects: These projects are either at the tender stage or tender document preparations. Lavan Expansion Shiraz Expansion Kermanshah Expansion Persian Gulf Star Oil Refinery Co. Hormoz Oil Refinery Co. Khuzestan Oil Refinery Co.

Main Products: i. ii. iii. iv. v. vi. vii. viii. ix. x. LPG Gasoline Light Naphtha Heavy Naphtha Kerosene Gas Oil Petrochemical Feedstock Lube Oil Fuel Oil (Strict & Cracked) Bitumen

Country of Expansion: - Egypt

Why we select Egypt Egypt is our country for expansion. Demand of petroleum products in Egypt is more than production. There are 9 refineries in Egypt but production in current years is low then consumed. Egypt is importing petroleum products from other countries (See following Graphs). Current energy resources are not enough to fulfill their demand. National Iranian Oil Refining & Distribution Company is not working in Egypt.

Sanction on Iran by USA and British government is a barrier to the expansion of his oil and petroleum industry. India, Japan and Korea are cutting off their imports in the next year. But Egyptian government said that they have no objection on import of Iranian oil (Sep4, 2012). So Iran has an opportunity to expand its petroleum industry towards Egypt. It will boost the economy of both countries. Because of the recent increase in demand for petroleum in Egypt, National Iranian Oil Refining & Distribution Company should work in Egypt. Iran has enough resources to work in Egypt.

History of Egypt
Egypt is situated mainly within North Africa. It is bordered by the Mediterranean Sea to the north, the Gaza Strip and Israel to the northeast, the Red Sea to the east, Sudan to the south and Libya to the west. Egypt is one of the most populous countries in Africa and the Middle East, and the 15th most populated in the world. The great majority of its over 82 million people live near the banks of the Nile River, an area of about 40,000 square kilometers (15,000 sq mi), where the only arable land is found. The large regions of the Sahara Desert, which constitute most of Egypt's territory, are sparsely inhabited. About half of Egypt's residents live in urban areas. Egypt has membership in the Common Market for Eastern and Southern Africa. Egypt and Iran are the members of the Organization of Islamic Cooperation and Developing 8 (D-8).

The Egyptian Revolution of 2011 (Revolution of 25 January) took place popular uprising. It was mainly a campaign of non-violent civil resistance, which featured a series of demonstrations, marches, acts of civil disobedience and labor strikes. Millions of protesters from a variety of socioeconomic and religious backgrounds demanded the overthrow of the regime of Egyptian President Hosni Mubarak. On 24 June, the State Election Commission announced that Islamist Mohammed Morsi had won the presidential election. On 30 June, Morsi was inaugurated as the 5th President of Egypt. The Iranian government is ready to support and help Egypt in several areas. Iran listed tourism, petrochemicals, agriculture, the auto industry, the development of the oil industry and establishing industrial cities as areas for assistance in Egypt.

Economic History of Egypt

The economy of Egypt was highly centralized under President Gamal Abdel Nasser. In the 1990s, a series of International Monetary Fund arrangements, coupled with massive external debt relief resulting from Egypt's participation in the Gulf War coalition, helped Egypt improve its macroeconomic performance. Since 2000, the pace of structural reforms, including fiscal, monetary policies, privatization and new business legislations, helped Egypt move towards a more market oriented economy and prompted increased foreign investment. The reforms and policies have strengthened macroeconomic annual growth results which averaged 5% annually but the government largely failed to equitably share the wealth and the benefits of growth have failed to trickle down to improve economic conditions for the broader population, especially with the growing problem of unemployment and underemployment among youth under the age of 30 years. A youth protest demanding more political freedoms, fighting corruption and delivering improved living standards forced President Mubarak to step down on 11 February 2011. After the revolution Egypts foreign exchange reserves fell from $36 billion in December 2010 to only $16.3 billion in January 2012, also in February 2012 Standard & Poors rating agency lowered

the Egypts credit rating from B+ to B in the long term. The Egyptian pound is the currency of Egypt. Egypt experienced the global economic crisis Egyptians made significant growth, steady progress and exports even tripled from 9 billion to 25 billion. Furthermore, Egypts foreign investments considerably increased from 4 billion to 11 billion and even unemployment fell. Egypt is considerably an attractive market for international business. Multinational corporations play a huge role in globalization. Some good advice to MNCs would definitely be to look at their budgets and organize how managing in the marketplace would be in Egypt. This would help predict total return. Another good idea would be for a MNC to consider are the political and economic factors. Labor force: 26.5 million (2011) Industries: textiles, food processing, tourism, chemicals, pharmaceuticals, hydrocarbons, construction, cement, metals, light manufactures Agriculture products: cotton, rice, corn, wheat, beans, fruits, vegetables; cattle, water buffalo, sheep, goats Exports Partners: Italy 8.7%, India 7.3%, Saudi Arabia 6.1%, US 5.2%, Turkey 4.9%, Spain 4.2%, France 4.2% Imports partners: US 10.7%, China 9.1%, Germany 6.3%, Italy 5.1%, Kuwait 4.7%, Turkey 4.4%, Saudi Arabia 4.3% Laws for investment in Egypt There are many laws in Egypt for foreign investment. Law 8 of Investment Guarantees are against deduction sequestration and nationalization. It grants the following: The right to own land The right to maintain foreign currency bank accounts The freedom from administrative attachment The right to repatriate capital and profits Free hiring of Egyptian staff Absence of price control or restrictions Equal treatment regardless of nationality

Oil & gas agreements laws and regulations Oil and gas investments in Egypt are allowed

 Oil and gas agreements are approved based on agreements set between the government of Egypt and the Egyptian General Petroleum Corporation (EGPC), and a foreign oil company, usually known as the contractor. A special law is specified for each agreement agreement, where the contractor is responsible for all the exploration risks. The agreement between the contractor and the government specifies a certain period of time of 4 years for exploration. The time specified could be extended based on the contractor's desire for maximum 2 years. This agreement automatically ends if no exploration has been achieved by the contractor, with 6 month extension enabling the contractor to complete drilling of a previously explored well during the permitted phase. The agreement specifies the number of wells to be explored at each phase. A certain amount of work is specified for each phase with the completion of exploring at least one well. Oil & gas agreements financial regulations The contractor provides all the necessary financing within the exploration stage in freely convertible currency. A minimum amount of spending is specified for the contractor to be spent during the allowed exploration period. If the contractor failed to spend the amount previously mentioned it should pay for the Egyptian General Petroleum Corporation (EGPC) the fall back amount of money. The money transactions are handled by a bank specified by EGPC for guarantee, which is reduced according to the amount of money spent by the contractor. The money spent by the contractor is recoverable in the case of a commercial discovery, the cost recovery crude oil. In case no money was spent the contractor cannot maintain any amounts of money spent by EGPC. Advantages granted to petroleum projects are: There are no restrictions on the nationality and the volume of the capital. Egyptian, Arab or foreign capitals can hold alone, or share with any percentage in the investments of the free zone projects. Projects may be wholly owned by foreigners. There are guarantees against nationalization and expropriation of projects. There is no limit on the volume of the capital, as the law gives the owners of the project the freedom to determine the volume of the capital in the light of the nature, size & the estimated production capacity of the project. There is freedom of choice with regard to the legal form of the project.

 There is freedom of transferring the profits & the invested money and re-exporting it. There is freedom in giving operations to others in order to utilize their excess capabilities. There is freedom of determining the prices of products as well as the percentage of profits. Foreign investors are given facilities in residence, and the foreign workers are given residence licenses upon the project request. There is no limit on the volume of the capital, as the law gives the owners of the project the freedom to determine the volume of the capital in the light of the nature, size & the estimated production capacity of the project.

Mode of Entry/ Expansion

The Egyptian Government is encouraging International Oil Companies (IOC) to participate in the activity of exploration and exploiting oil and natural gas. The petroleum industry in Egypt is managed by the Ministry of Petroleum, under this Ministry four companies function as government agencies. One of these is the Egyptian General Petroleum Corporation (EGPC), which concludes the agreement agreements in cooperation with the foreign oil companies on the basis of a production sharing agreement (PSA). This corporation is also acting as the agreement holder and the foreign oil investor (IOC) acting as a Contractor on the other side. Our mode of entry will be FDI Green Field Investement because resources are available as well as market also. And many other countries are also established there.

Project of Company for Expansion of Business

JV for the firm is a good option to invest in Egypt, in this company can use managerial and marketing capabilities as its sources of success. But Iran has enough resources for Foreign Direct Investment. The availability of several resources in the Egyptian market represents a major source of attraction to FDI. Egypt has natural resources of oil (crude oil) and gas. But have not enough refineries and companies which can fulfill his increasing demand of petroleum products. We decided to build our production plant in Egypt by using their own resources. It will be low cost and easy way as compare to others; labor of Egypt is low cost easily available. Crude oil we will use in Egypt. We will also establish marketing companies (Petrol Pumps). It will also give full ownership of company to Iran. And production unit will work under National Iranian Oil Refining & Distribution Company. The government is also giving agreement and there is no limit of production or share of Government. In FDI we also have the opportunity to export of petroleum.

Thank You By Malik Saad Noman