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Why do Hardliners Hate Iran’s Deal with Total?

July 25, 2017
IranWire
11 min read
Why do Hardliners Hate Iran’s Deal with Total?

On November 11, 2013, not long after that momentous telephone conversation between President Obama and President Rouhani, the French oil company Total announced it was considering its return to Iran.

But it took more than 1,300 days for the plan to be confirmed, when Total’s new CEO Patrick Pouyanné — he’d replaced CEO Christophe de Margerie, who had made the initial announcement back in 2013 — signed a $4.8 billion contract in Tehran on July 3, 2017.

Problems between Total and Tehran go way back. Total stopped operations in Iran on October 17, 2010, in line with sanctions regulations. Now, 70 months later, the company has returned to Iran, at the same time entering a politically acrimonious and economically contentious environment.

Despite the oil giant’s absence from Iran, hardliners have not let it stop them from persistently using Total to attack political enemies and other figures they don’t like. They have accused Mehdi Hashemi, the son of the late president and key political figure Akbar Hashemi Rafsanjani, of accepting bribes from Total. Mehdi Hashemi is currently serving a 10-year prison sentence, along with his oil dealer accomplices. Hardliners have also accused President Rouhani’s oil minister Bijan Zangeneh of supporting the people behind this high profile corruption case. In August 2013, when President Rouhani presented his cabinet for parliament’s approval, hardliner representatives spoke out against Zanganeh publicly, insisting they were worried about a repeat of the Total corruption case.

But, despite conservative opposition, Zangeneh’s appointment as oil minister was confirmed. Defying his critics, he promised to bring giant oil companies, including Total, back to Iran. And now he has.

The Iranian company due to benefit from this new deal is PetroPars Oilfield Services Company, a subsidiary of Naftiran Intertrade Company (NICO), which, in turn, is fully owned by the National Iranian Oil Company (NIOC). Working under the Iran Petroleum Contract (IPC) model, PetroPars is one of the eight sub-contractors permitted to work with foreign companies to develop oil and gas. And PetroPars successfully reached an agreement with Total and China National Petroleum Company (CNPC) to  develop and produce Phase 11 of South Pars (known as SP11). Total’s share of the contract is 50.1 percent, while 19.9 percent goes to PetroPars and 30 percent to CNPC.

The South Pars field, located offshore in the Persian Gulf, is jointly owned by Iran and Qatar. The field holds 8 percent of the total world gas reserves and borders on the Qatari field North Dome, forming the largest oil field in the world. When the SP11 project goes online, it will be able to produce as much as 56 million cubic meters of gas per day.

Even before the contract was signed, conservative hardliners were critical of the deal. But Rouhani’s government took no notice. This has further angered Rouhani’s opponents, who have now launched an all-out attack against the government from many different angles — in fact, we can count at least 14.

In the first in a three-part series, IranWire looks at some of the key points raised by the critics, with a focus on the country’s relationships with the West, Iranian conservatives' worry that Iran is set to do badly out of the deal, while Total and other investors are set to make a fortune, and supporters of the government, who say the deal is good for the country.

 

Hardliners Say: The Deal will Only Serve Western Interests

Hardliner critics believe that the Total contract is a result of the Rouhani government’s western-oriented predispositions. In an editorial on July 6, Hossein Shariatmadari, the managing editor of the ultra-conservative newspaper Kayhan, accused the Rouhani administration of not defending the interests of the Islamic Revolution. According to him, Rouhani has repeatedly insisted on rewarding western countries, despite Iran having to face repeated humiliation in its dealings with the West.

“Western countries invest in third world countries only because of their natural resources and cheap labor,” conservative analyst Shahriar Zarshenas told the website Raja News [Persian link] in an interview, also on July 6. He implied that the country had been forced into a situation that had given the Rouhani administration no option but to be “happy about being exploited and welcome it.”

Supporters of the Deal Say:

On July 7, the oil minister Bijan Zangeneh indirectly rejected such criticisms, dismissing them as being inspired by Islamic Marxism. “International relations are very complex and there is no way that you can solve [the complexity] by using [simple phrases like] good or bad or good or evil,” he said.

The next day, this time writing in Kayhan under a pseudonym, Shariatmadari called Zangeneh’s statements “unbelievable.” Zangeneh was trying, he wrote, “to throw the nation under the boots of foreign and domestic predators and to sacrifice all the achievements of the revolution,” returning to a time when the country was without its independence and reliant on others.

A conspiracy was effectively underway, the editorial argued. “In practice, they give a contract like Phase 11 of South Pars to Total (even though many similar projects have been completed by domestic specialists with much lower prices than this) to pave the way for 21st-century colonialists. In other words, they are justifying the 19th-century colonialism.” By supporting such ideas, westerners hoped to set off events like those that took place in “the former Soviet Union in the 90s” and “through Perestroika and Glasnost,” bring down the Islamic Republic system from within.

 

Critics Say: The Timing is all Wrong

Conservative media and politicians have been outraged by what they say is the completely inappropriate timing of the deal. They point to the fact that just a few days before the contract was signed, the opposition group the People’s Mojahedin Organization (MEK) — which has advocated violent overthrow of the Iranian regime and is regarded as a terrorist organization by the Iranian government — held a big rally in Paris. This, critics say, was proof that France had malicious intentions. Mohammad Nabi Habibi, Secretary General of the Islamic Coalition Party, asked on July 9: “Is the confidential contract with Total a reward for such a subversive gathering?”

France continues to adhere “to the principle of overthrowing Iran’s political system,” wrote Sadollah Zarei, an analyst close to the Revolutionary Guards, writing in Kayhan on July 6. “Total’s contract with Iran’s Oil Ministry has not changed France’s strategy toward Iran. From this point of view, we could have at least delayed the signing of the contract to tell them that our economic agreement was done by choice and not under duress.”

But Government Officials Say:

“This terrorist group is too insignificant,” said government spokesman Mohammad Bagher Nobakht, and reassured people that Iranian officials had criticized the French government for hosting the MEK rally. But Nobakht said the French government would not have even considered the gathering as being in any way linked to the Total deal or any other relations with Iran.

Hardliners Say: Total and Foreign Companies Will Make a Fortune, but Iran will Lose out

The new contract gives Total 50.1 percent of the shares, a figure the deal’s critics view as scandalous. “Why must Iran’s share be 19.9 percent,” asked Mashhad Friday Prayers Leader Ayatollah Ahmad Alamolhoda on July 7, “when it is our property, it will be carried out on our land and we will contribute as much as that foreign company?”

Iran’s hardliners argue that, with more than 50 percent of the shares, Total is in a position to control everything.

And they say that other foreign companies will clean up too, and that between 50 to 70 percent of the profits will go directly to the foreign companies listed in the contract.

But this is way off the mark, say officials

“PetroPars could not afford to pay for more than 19.9 percent,” Ali Kardor, managing director of the NIOC, told the government newspaper Iran. And Rouhani supporters point out that critics of the contract have confused the share of the profits with the share of investments. Under the agreement, the NIOC will receive 50 percent of the profits without having invested a penny, they say. Total will receive 25.5 percent of the profits, a Chinese company will get 15 percent and PetroPars 9.95 percent. And since PetroPars belongs to the NIOC, this means Iranian state-owned companies will get close to 60 percent of the profits.

Bijan Khajehpour, founder and managing partner of Vienna-based Atieh International, a consulting firm specializing in consulting services to international investors in West Asia, says that, under the new Iran Petroleum Contract (IPC) model, a partner can only share in the profit if it agrees to invest in the project.

By doing this, he says, this investment partner “enters into a partnership with the NIOC to develop and exploit an oil or gas field.” Khajehpour says the NIOC has signed a contract with a consortium made up of three companies: Total, CNPC and PetroPars. “We have two Iranian partners: First, the National Iranian Oil Company, which owns the project, and then PetroPars, a partner in the consortium.”

Khajehpour warns against confusing the two roles, and adds that the claim that Iran will receive only a 19.9 percent share of the profits is “completely baseless.” He explains that PetroPars is required to invest in 19.9 percent of the project. “It must work with the consortium to develop the project until it reaches production and then the entire consortium gets a share of the production to pay for the costs of its investment, plus profits, fees and bonuses that had been agreed upon,” he says. “The initial investment and all the expenses that have been agreed upon will be amortised by the output from South Pars field (for example by the sale of the field’s condensate) in the first seven to 10 years depending on the price of condensate. After that, all proceeds from the project will belong to Iran. Of course, if the consortium continues to manage the field’s production, then there will be a compensation as a “production management fee”.

Hardliners Say: "Rouhani's Oil Minister is Wrong"

Oil Minister Bijan Zangeneh has strongly denied the claim that foreign companies will make all the profits. On July 4, he told reporters that, based on current prices, during the project’s predicted 20-year lifetime, Iran would get $84 billion. Total, on the other hand, would make around $12 billion —“meaning less than 15 percent,” he said, and emphasized that these estimates have been endorsed by Iran’s High Economic Council.

In a report on July 15, Fars News Agency claimed that the oil minister was wrong when  and “the consortium’s share will be something between 22 to 23 percent.”

Experts Say Iran Could Control 85 Percent of the Reserves — and Gain Valuable Knowledge 

Khajehpour also explained how the situation emerged when the old contract model, called the “buyback” model, was in place. “All buyback investments that were initiated in the late 1990s and early 2000s are now completely at Iran’s disposal. Iran receives 100 percent of the proceeds. This means that the costs of all primary investments have been paid off and they are now run by companies that belong to the NIOC family of companies.”  

It’s too early to know exactly what Iran’s real share will be, says Khajehpour. It can only be determined “once we know how much of the oil or gas in place can be recovered. The level of the recovery rate depends on the technology used, as well as the project and also production management. For example, it has been estimated that in the case of Phase 11 of South Pars 15 percent of the value of the total gas and condensate recovery will cover investments and necessary expenses. In other words, 85 percent of the field’s recoverable reserves will be Iran’s.”

Sara Vakhshouri, senior fellow at the Atlantic Council’s Global Energy Center, also says there needs to be greater understanding about how the consortium works and how each company will benefit, bringing greater understanding of how the project will be controlled. “Here the consortium is playing the role of a bigger company that is a party to the contract with the NIOC. No matter how big Total’s share is, it is the NIOC that as the contract owner has the overall control of the project.” The consortium as a whole decided how the process would work. “The dominant share of Total means that this company has the first word but the whole consortium works for the Iranian National Oil Company.”

Vakhshouri says that Iran’s PetroPars can learn a lot from the deal with Total. Iranian companies working with foreign companies “lack both sufficient capital and high technology,” Vakhshouri says, but they can gain expertise.  She said, for Iranian companies, it was worth getting involved in the deal because of the resulting technology transfer, which would benefit Iran in the long term.

If PetroPars was entitled to over 50 percent of the shares, Vakhshouri says, then it would have to bring in “a comparable amount of capital and technology” — something she says would have been very impractical.

 

 

In part two, IranWire asks: Why is the contract a secret, and does it matter? 

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