Construction of a refinery requires the collaboration of several organizations, and not just the Oil Ministry or its subsidiaries.

Iran holds 125.8 billion barrels of proven oil reserves, roughly 10 percent of the world’s total, up from 90 billion barrels announced in 2003.
In 2004, Iran produced about 4.1 million barrels per day (bpd) of oil. Its sustainable crude production capacity is estimated at around 3.9 million bpd, which is 100,000 bpd lower than the latest OPEC quota of 4.03 million bpd.
With sufficient investment, Iran could increase its crude production capacity significantly. It plans to increase output to 4.5 million bpd by the end of 2005, over 5 million bpd by 2009 and 7 million bpd by 2024. The country is counting on billions of dollars in foreign investments to accomplish this, which experts say is unlikely without a significant change in investment policies.
Interestingly, OPEC’s second biggest oil exporter imports millions of dollars worth of gasoline annually due to poor demand management and smuggling to neighboring countries.
“We use 50 million liters of fuel each day, 10 percent more than just a year ago“, Reza Kasaizadeh, the National Iranian Oil Refining and Distribution Company’s (NIORDC) director for planning, told the press a few months ago.
“To meet demand, Iran must now import 22 million liters a day.“
As long as a liter of gasoline costs 800 rials (0.09 dollar), Iranians are not worried about fuel consumption or wastage.
Deputy oil minister for refinery and distribution of oil by-products, Mohammad Aqaie-Tabrizi, also said state subsidies on oil derivatives are costing the economy dearly, more than what it would cost the government to build refineries. “Demand management must precede supply in a bid to regulate the market,“ he told ISNA in a recent interview. Excerpts follow:

How do you assess the Oil Ministry’s performance over the last eight years?
Maintaining the maximum production level and running an efficient transfer and distribution network are the highlights of the ministry’s activities. Today, except for gasoline, all other oil derivatives are produced domestically.
More specifically, some 250 million liters of various oil derivatives are produced and distributed daily to every corner of the country, thanks to the tireless efforts of the ministry and its affiliates.
Presently, 70 million liters of gasoline, 100 million liters of kerosene, 30 million liters of furnace oil and 10 million liters of liquefied gas are consumed domestically, of which only 26 million liters of gasoline are imported.
Sustainable development, efficient production and quality services form the bedrock of the Oil Ministry’s policies.
The highlight of our activities in the past eight years includes construction of 16 auxiliary units at Bandar Abbas Refinery, a catalyst processing unit for producing gasoline in Laran Refinery and special solvent units in Isfahan Refinery, as well as completion of Phase I of Abadan Refinery and execution of a project for processing and transferring crude to Persian Gulf states. Some of the other major projects are establishment of 23 MTBE reservoirs with a 200-million-liter capacity, 112 reservoirs for storing oil by-products with a capacity of one billion liters, 28 new crude inventories with a 5.5-million-barrel capacity, 2,000 pipelines in 15 projects, three pumping stations and 10 fueling stations in airports at a cost of $2 billion.

Does storage capacity compare with 1997?
Storage capacity has risen from nearly 7 billion liters in 1997 to 8.5 billion liters at present.

Why does furnace oil production, which has a meager value-added, constitute 31 percent of total refinery output?
You have to consider the fact that old refineries such as those in Abadan and Kermanshah, which produce high amounts of furnace oil (almost 40 percent of their total output), were established at a time when demand for this particular product was high. Furnace oil was eventually replaced by gasoline through a gradual change in energy consumption patterns.

Has the situation changed for production of oil derivatives?
A review of production trends during 1980-2004 shows that for example, total production of gasoline, kerosene, diesel, furnace oil and liquefied gas stood at 113 million liters per day which increased to 187 million liters last year and now stands at 223 million liters. This indicates a twofold increase.
Consumption rose from nearly 75 million liters in 1980 to 178 million liters in 1996 and further increased to 206 million liters per day last year.
Energy production and consumption levels during 1980-2004 increased by 97 percent and 174 percent respectively, indicating that demand has outpaced output.
While consumption of furnace oil, kerosene and liquefied gas registered a negative growth, liquefied gas only had a 3-percent increase. This shows that the 16-percent rise in oil product usage mostly pertains to gasoline.

The Oil Ministry is often criticized for not building a single refinery during the Third Five-Year Economic Development Plan (2000-05), which led to a sharp rise in the import of a strategic product like gasoline.
The Oil Ministry’s responsibility is limited to supply rather than demand management, which needs a parliamentary mandate.
Construction of a refinery requires the collaboration of several organizations, and not just the Oil Ministry or its subsidiaries.
Renovation of the public transport fleet, taking dilapidated cars off the streets, manufacturing dual-fuel cars as well as channeling state subsidies toward target groups were among objectives enshrined in the Third Plan. These measures raised the possibility of restraining annual gasoline consumption growth to 4.5 percent and reducing the supply-demand gap.
Accordingly, the government was given the green light to use the private sector’s capacities to realize these goals.
Was the government placing too much hope on the private sector?
A well-targeted supply system coupled with proper rates would have increased investment profitability for embarking on construction of refineries.
Failure to realize the objectives mentioned above led to an increase of nearly 12 percent in gasoline consumption.
As long as the ministry has no control over key parameters such as demand management, its main concern will be to devise mechanisms for curbing consumption. This calls for raising production by up to 40 percent. We are now producing 12 million liters more than in 1997 which is akin to setting up two refineries with a capacity of 200,000 barrels.
Construction of a refinery with a production capacity of 300,000 liters will take minimum five years, while crude exports would decline during this period. As long as oil consumption continues to grow at the current rate, trying to raise production by setting up more refineries would not help.
Our main concern at this point should be the hefty sums spent on gasoline imports.

Can the use of national assets for current expenditures be justified?
Since two years ago, while global oil prices have been on the rise, refinery construction has come to a standstill worldwide because it lacks economic justification.
I repeat: building a refinery requires the involvement of several organizations in the framework of macro development plans. The legislature is in charge of demand management while the ministry is responsible for supply.
And as long as demand patterns do not improve, changes in production and supply equations will not have any impact.

By the end of the fourth national development plan (2005-10), cement production capacity will reach 80 million tons

Cement, which has been around for the past 200 years, was first used in building the British Parliament. Iran’s cement industry, however, only dates back to 80 years ago when the first cement factory was built in Shahr-e Rey.
There are now 36 cement factories in Iran, but some need to be renovated by means of revenues earned through liberalization of cement prices. The industry also plans to build new factories through allocation of funds from other sources.
Statements released by officials reveal that pricing and distribution decisions might not be in line with market projections, the Persian daily Donya-ye Eqtesad reported.
Abbas Sharafi, director general for cement affairs at the Organization of Mines Development and Reconstruction, said liberalization of cement prices will not take place in the manner predicted by some insiders.
“It will not happen in the next three to six months either, as I am in charge of announcing the final decision. The price of cement will be gradually increased every few months and this is different from an overnight decision. For instance, it is possible to increase it by 10-15 percent in each phase in order to adjust it with the international market price in the next two years,“ he said.
Asked to confirm that the Commerce Ministry will endorse cement price liberalization in the next three months, he said, “The ministry agreed to increase the price of cement two months ago and ended government subsidy for the commodity. However, it is the Ministry of Industries and Mines as well as the Cement Association that have to agree on the price increase under the supervision of Management and Planning Organization.“
Sharafi noted that a month ago, cement price went up by 15 percent while it had remained stable since last two years.
“For the same reason, it is early to predict when the second phase of price hike will begin. That is because we take the initiative based on free market prices,“ he said.
Even when cement was subsidized, the price hike had been stipulated in the comprehensive plan. However, there has been a huge gap between the previous two price hikes.
In fact, the plan to increase cement price every three months failed to materialize because producers did not fulfill their commitment to supply the cement needed in the domestic market through imports.
Commenting on the failure of producers to fulfill their commitment, Sharafi said, “It was a new development. In addition, cement prices in the world markets went up significantly last year and it was too expensive to import. Producers thought they would incur huge losses even with government subsidy. That is why they decided not to import cement, which was priced at $60 per ton in the world markets while it was only $20 per ton in Iran. In my opinion, it was wrong to hand over the responsibility of importing cement to the producers. They cannot produce and import cement at the same time because this will make them compete with themselves.“
The price of imported cement now stands at around $63-75 per ton whereas domestically it costs 300,000 rials per ton. Because of the price difference, middlemen pocketed nearly 3 trillion rials per year.
However, with the liberalization of cement price, 20 trillion rials in profit will be pocketed by producers and shareholders.
Sharafi pointed out that the plan had specified where the surplus revenues will be spent on.
“Factories committed themselves to spend the income on improving and renovating their facilities or building new production lines, and also guaranteed that there would be no shortage in cement supply. They also promised to pay the government’s share of profit. Under the circumstances, it is logical that the profit will only be for the industry and used for building new capacities for cement production,“ he said.
Since the cost of cement production is less in Iran, the price hike is also favored by producers as most consumers purchase cement from the free market.
It costs some 200,000 rials to produce one ton of cement, which is sold at 300,000 rials per ton in the market. This is while the world market price is 650,000 rials. And domestic adjustment with this price will lead to a fourfold increase in profits.
Because of economic justifications, the private sector is keen to participate in the production phase. However, they are still unable to compete with the state-run sector and face a great deal of bureaucratic hurdles.
Sharafi rejected the bureaucratic aspect of the matter and claimed that the private sector has to deal with less administrative difficulties than its public counterpart.
“The competition is fair and moderate. For instance, the private sector has requested authorization for 40 million tons as against 12 million tons by the state-run sector. Some 2 billion rials have been allocated from the Forex Reserve Fund for this purpose with a bigger share going to the private sector,“ he said.
Another issue that deserves attention is renovation. Of the 64 production lines or 36 factories, nearly 20 are more than 20 years old and use outdated technology though they have high production levels. These factories control 30 percent of the market and if renovated could improve their performance by another 30 percent and increase output by 40 percent.
To build a new factory with a production capacity of one million tons per year, one trillion rials are needed. However, renovation of an old production line with a similar capacity would need less that half of that figure.
According to Sharafi, by the end of the fourth national development plan (2005-10), cement production capacity will reach 80 million tons, of which 10 million tons should be exported.
Iran ranks 15th in terms of cement production in the world, but is struggling to make its mark in the export sector. The situation is expected to improve in the next two years.
Some 95 percent of factories produce good quality cement as per world standards. However, only five types of cement are produced in Iran, since priority has been given to increasing output. Efforts should be made to enhance variety.