Why is the Total Deal Secret?

In both of his election campaigns, Hassan Rouhani pledged to boost Iran’s economy and build up the industries that had been so badly hit by international sanctions.

So the recent deal with French oil giant Total is a huge victory for Rouhani, and he and his allies have highlighted the benefits Iran will enjoy from it — a revived oil and gas industry, but also gains in technology, business and specialist skills and experience, and fresh future business opportunities with other major international companies.

But when Total’s new CEO Patrick Pouyanné signed a $4.8 billion contract with Iran, the company entered a politically acrimonious and economically contentious environment. Iran’s conservative hardliners have used the deal to attack Hassan Rouhani and his administration. They accuse his oil minister Bijan Zangeneh of corruption, and dismiss Total as a “morally corrupt” company that will exploit the deal while Iranian industry will lose out.

In this, the third in out series on the Total deal, IranWire assesses hardliners’ argument that the deal undermines Iran’s control over its own industries and  threatens its economy, and asks whether claims that national security could be at risk have any foundation.

Read part one, Why do Hardliners Hate Iran’s Deal with Total?

Read part two, Hardliners Slam Total Deal — But are Claims of Corruption and Further Sanctions Untrue?

 

Hardliners Say: A Confidential Contract is Bad News for Iran

If the deal is such a good thing, hardliners want to know, then why is there so much secrecy around it? On July 9, Member of Parliament Hossein Ali Haji-Deligani demanded that the government disclose the details of the contract. Prior to this, hardliner newspaper Kayhan called on it to publish, at the very least, a factsheet about the contract if it was not in a position to disclose the full details on grounds of security. The Rouhani administration claims that Total’s confidentiality clause is in line with good business sense and a desire to keep its competitors in the dark on the sensitive points. But Kayhan dismissed this as an excuse, saying that Total’s other contracts — with Senegal for example — can easily be found via an internet search.

Critics say that the government has also been secretive, and “monopolized” the negotiations leading to the contract. Even high-level authorities have not seen its text, they say. The reformist media claim that officials close to the Supreme Leader had been briefed on the deal, but hardliners dismiss this too.

On July 6, the website Raja News published an article that said that Ali Agha-Mohammadi, a member of the Expediency Council and a close confidant of the Supreme Leader, had participated in negotiations, but only as a representative of Resistance Economy Headquarters appointed by First Vice President Eshagh Jahangiri, a reformist, so it was wrong to imply he was representing the Supreme Leader. On the same day, Kayhan ran a headline saying that the contract was the work of a “specific group” not the “system” — meaning the Supreme Leader had effectively been left out of discussions.

The Government Says: Confidentiality is Good Business Practice

“If we were to disclose the contract’s information, then our competitors in shared reserves can use them,” said Rasoul Fallah-Nejad, South Pars’ Director of Development.

“No company in the world would make public the information inside its contracts...[but] nothing has been kept confidential from legal and appropriate authorities,” he said. And on July 8, First Vice President Jahangiri said: “I sent the text of the contract to the speaker of the parliament so that the contract would not violate the laws of the country.”

A number of reformist media outlets have pointed to two facts to prove that the authorities were kept informed: First, Ali Agha-Mohammadi’s involvement in the process, which they say means Khamenei himself must have given his consent; the reformist press also says that Ali Akbar Velayati, Khamenei’s advisor in international relations, had also been informed.

Bijan Khajehpour, founder and managing partner of Vienna-based Atieh International, a firm specializing in consulting services to international investors in West Asia, agrees, saying the deal is only a secret from a business point of view; political stakeholders such as Iran’s parliament have access to information about it. “In the past parliament had a three-member committee that supervised such contracts,” Khajehpour says. “Ayatollah Khamenei himself has a representative at the Petroleum Ministry who supervises contracts like this. So the confidentiality of the contract has two aspects.” He says it’s wrong that the most important aspects of the deal have been shrouded from Iran’s politicians. “The power structure in Iran has its own means for dealing with it,” he says.

The Iranian company due to benefit from this new deal is Petro Pars Oil field 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.

“The confidentiality of contracts’ provisions is both customary and logical,” says Khajehpour. “Neither the NIOC nor Total (or the consortium partners) want their competitors to learn what has been agreed upon so they can negotiate other contracts independently.” This is a customary arrangement in all big business, he argues.

Sara Vakhshouri, senior fellow at the Atlantic Council’s Global Energy Center, agrees that the confidentiality of the deal is nothing out of the ordinary. “Perhaps you can find the general outlines of contracts on the internet but the full details of any contract are never disclosed to the public...Such a public disclosure is against the interests of both parties. If the full details of the contract were made public, then Iran would have to follow the same provisions and [provide] the same terms to other parties in future contracts. This is the case for most countries. For example, you cannot do a search on the internet and find details of upstream investment contracts for developing Saudi Arabia’s oil fields.​"

Vakhshouri says the NIOC would have possibly supplied copies of the deal to “various agencies,” including the representative of the office of the Supreme Leader, but full public disclosure would have been out of the question.

 

Critics Say: Classified Information will get into the Wrong Hands

Those wanting to block the Total deal also claim that vital information about Iran’s oil and gas industry will be handed over to Qatar or other governments — data that should be protected and kept secret. “This company held us up for 11 years so that Qatar would get the biggest share”, said Nader Ghazipour, who represents Urmia in parliament, on July 20.

“Total is an agent of America charged with taking over the [South Pars gas] field,” said Asghar Ebrahimi Asl, former Deputy Oil Minister under President Ahmadinejad, on July 9. It’s for this reason, he said, that Total was given the go-ahead on the project.

And there’s more serious criticism: Some opponents to the deal say, contrary to the wishes of the High National Security Council, Total has not signed a confidentiality agreement with Iran, and this is a disaster. On June 12, former member of parliament Ahmad Tavakoli wrote a letter to First Vice President Eshagh Jahangiri, demanding that the implementation of the contract be suspended pending the approval of this confidentiality agreement. “The foreign side must be informed,” he wrote, “that without [signing a confidentiality agreement] the signature on the Iranian side is invalid.”

Although both Khajehpour and Vakhshouri say this understanding falls short of what the Total contract actually allows for, Vakhshouri does say that if new information were to arise during the course of working on the project, it would not be subject to contract. "Total could not and would not share the exact data and the information that it has received from the NIOC with other parties. However, it could share any analyses or estimates that was concluded and generated by itself to others. Nobody can stop this."

 

But Rouhani’s Oil Minister Says Worries About Information Security are Misguided

Oil Minister Zangeneh has said that if Total provides Qatar with information, Iran can file a complaint against the French company. And Rasoul Fallah-Nejad, South Pars’ Director of Development, said that “it is in Total’s own interest to produce as much as it can for the Iranian side because this company’s profits depend on the production.”

Bijan Khajehpour says claims that Total would give Qatar secrets are “baseless — because geological and technical data about oil and gas fields are too well-known for a foreign company to bother with providing them to a neighboring country.” Sara Vakhshouri agrees. “The confidentiality and non-disclosure agreement to safeguard information is part of any contract. Depending on the duration and terms of the non-disclosure agreement, this information cannot be divulged to others. This is a legal issue and a matter of credibility for a large company like Total.” If Total were to divulge this information it would be a breach of contract.

While Vakhshouri acknowledges that if new information emerges out of the working process on the South Pars field project, Total would be within its right to disclose that information, this is somewhat different than what Iran’s ultra-conservatives claim: That Total can pass any information on to any other country or company it likes.  

“It is not difficult for Qatar to have its own estimates and technical evaluations of what is happening on the Iranian side. Total working on Phase 11 of South Parks will give the company a clear understanding of the reservoir on Iran's side and this could be very important and helpful for its work on the other side of the border in Qatar,” she says. However, the NIOC’s main interest should be to "develop and produce resources from this shared field and fast and as much as possible," despite the risks involved, she says. "To accomplish this, it needs technology and capital of international oil companies. Under the current status quo, international companies are hesitant and slow in moving to Iran, so the NIOC didn’t have other options besides Total."

 

Hardliners Say: The New Contract Model Ignores the Wishes of the Supreme Leader

Hardliners claim that the Supreme Leader has not had access to all aspects of the Total contract, but also that it was signed before Khamenei could approve and sign the new Iran Petroleum Contract (IPC) model.

Critics say such contracts lack proper oversight. Arguments over the IPC model have been going on in Iran for more than two years. Anti-Rouhani conservatives and the Supreme Leader Ayatollah Khamenei say the model, drawn up by Rouhani’s government, does not adequately protect the country’s interests.

Speaking about new oil contracts on July 2, 2016, Khamenei said “nothing had been ratified.” He said the contracts and reports related to them had been edited “16 times” but were still missing corrections he and his office had insisted on before. “As long as this task is not in line with the interests of the country in the real sense of the word...no contract should be signed.”

The Government Says: The Supreme Leader Agrees with the Deal

After numerous discussions between government officials, members of parliament and representatives for the Supreme Leader, Speaker of the Parliament Ali Larijani finally announced that most of Khamenei’s views had now been taken into account.

“A supervisory committee has been set up,” said Deputy Oil Minister Ali Kardor, “to endorse the text of the contract and its 14 addenda. Committee members are all well-known figures.” Oil minister Bijan Zangeneh confirmed that the committee has seven members, including “four former oil ministers and representatives from the president’s office, the High National Security Council and the Audit Court.”

The names of the committee members have not been published, but on July 20 Speaker of the Parliament Ali Larijani told a public session of the legislature that an oversight committee has been formed “to supervise the contract with members from the judiciary and chairmen of the parliamentary committees for energy and for budget and planning.” It is not clear whether he was talking about the same committee or, if they are different, which committee has the legal authority to deal with potential issues.

Rouhani’s government insists that the new IPC model does not violate the law. “For the critics of the new model, the problem has nothing to do with oil contracts,” said Jalal Mirzaei, a member of parliament’s Energy Committee. “Their aim is to get these petroleum projects for themselves and for their friends. Now that they have discovered that they will not been getting them, they are trying to arrange it in a way [to ensure] foreigners are kept out.”

 

Hardliners Say: Technology Transfer is a Myth

Critics deny the government’s claim that the contract will lead to technology transfer for Iran. According to Mohammad Ali Khatibi, former Director of OPEC affairs at the Oil Ministry, technology transfer will happen only if the level of gas field falls — and this might be 15 years away. The newspaper Javan, a subsidiary of the Revolutionary Guards, published an article that claimed in every area of decision making, from budget to subcontracting to managing the project, PetroPars will be a “passive partner” and will not play an active role in technology transfer, “the most important aspect of the contract.”

The Government Says: Iran will Benefit From Technology Transfer

“Considering the features of the [gas] field,” said Fallah-Nejad, South Pars’ Director of Development, “we needed a superior technology that has never been employed in the Middle East. Total brings in this technology.”

And PetroPars CEO Hamid Akbari emphasized that Total is preparing a separate program specifically to transfer technology and knowledge to PetroPars.

Bijan Khajehpour says technology transfer will take place at three levels. “First, PetroPars, as the partner in the project, must learn new things and improve its capabilities. A fair assessment would show that a considerable part of current technological capabilities of PetroPars and companies like it come from their past partnerships with foreign companies, especially with European ones.”

According to Khajehpour, the second level of technology transfer will happen through domestic subcontractors, and Iranian law requires those implementing the projects to use these subcontractors for “a considerable volume of their work.” He says these subcontracts are “a good opportunity for Iranian companies to learn new things about oil management, and especially about project management.”

Thirdly, there will be knowledge transfer through training.

“The Oil Ministry and other ministries must take advantage of this opportunity and learn new methods and approaches,” he says.

Vakhshouri says the way the way this technology transfer will work is not specific to the new oil contracts. “We had similar cases with “buyback” contracts, which was the previous model for Iranian oil deals. The same PetroPars worked with Total in phases 2 and 3 of the South Pars project, and with the Italian oil company Eni in phases 4 and 5, and subsequently PetroPars was able to do Phase 1 of development by itself. So during these years there has been one successful experience.”

Vakhshouri also says critics of the deal have not acknowledged the fact that the benefits will be long term. “Technology transfer does not happen overnight and it’s never 100 percent,” she says. PetroPars’ work on Phase 1 of the South Pars Project took a long time and the quality of the work did not always meet the high standards desired, but that PetroPars still gained knowledge.

“On the other hand we must take into account that certain technologies that companies like Total use are American. They fall under [American] sanctions and cannot be transferred. We must recognize that technology transfer is not measurable.The question of technology transfer in the Total contract is neither a sign of its weakness nor a sign of Total’s wickedness. Technologies are changing all the time and you cannot expect a high level of technology transfer in a timeframe that resembles a semester in school.”

Vakhshouri says the knowledge gained in the current project could lead PetroPars to complete  a similar project in the future, but it is “unrealistic” to to assume that PetroPars can turn into another Total at the end the end of the contract. “You cannot study with a pottery master for a short while and become a master yourself,” she says. “You can only learn some of it.”

Read part one in the series

Read part two in the series