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Mon 28 May 2007 09:51 AM

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Iran eyes outside fund to skirt sanctions

The country plans to finance its South Pars gas field through outside funds based in Dubai or Bahrain.

Iran is planning an investment fund outside the Islamic Republic to raise finance for its huge South Pars gas field and circumvent a financial squeeze by Washington, a top Iranian energy official said on Sunday.

As the United States pushes for tighter U.N. sanctions on Iran over its atomic work, Akbar Torkan, head of the Pars Oil and Gas Company, said Tehran would base the fund in Bahrain or Dubai, both regional financial centres.

"It's a reaction against the financial sanctions on Iran," said Torkan, a former defence minister. "There are no sanctions against an investment fund."

The proposal for the fund -- open to all -- needs government approval but Torkan said he was confident the South Pars Investment Fund would get official backing in about a month.

The cash would be assigned to development phases of the field and would ensure the government would not have to dip into its own coffers as it recently did for some other phases.

The United States is leading efforts to isolate Iran over its atomic programme, which Washington says involves a covert plan to make bombs, a charge Iran denies. Washington has slapped sanctions on two Iranian banks. U.N. sanctions targeted one.

Iranian officials have brushed off the impact but Torkan said the measures had deterred several foreign banks.

"No European bank is ready to prepare new financing for us. The U.S. is putting pressure on all European banks," he said, adding U.S. pressure extended to oil companies such as Statoil and Total.

Two of Iran's European investors -- Royal Dutch Shell and Total -- have indicated publicly political concerns could influence any new investment plans.

The fund idea was prompted by Societe General's withdrawal from phases 17 and 18 of the South Pars gas field.

"SocGen has stopped their financial support because of pressure from the U.S.," said Torkan, adding the government had allocated $720 million from reserves for the project, still a small fraction of the $5 billion cost of the project.


Investors would be guaranteed a minimum rate of return of 8% by the National Iranian Oil Company (NIOC), he said without giving a time frame. The maximum would be 15.9%.

Despite sanctions, Iran says foreigners are still keen to invest in Iran's gas reserves, the world's second biggest.

Torkan is now negotiating with local Petropars and Italy's Eni for a buy-back contract for South Pars phases 19-21.

Buy-backs are standard development contracts in Iran, where investment in developing a field is rewarded with a share of production for a short period before the state repurchases the field. Foreign firms often complain about the terms, however.

Torkan said a $25 billion deal with China National Offshore Oil Corp (CNOOC), parent of Hong Kong and New York-listed CNOOC Ltd, would be signed by the end of August.

"China is working very seriously for this project. We just need a few months to finalise everything," Torkan said.

Similar big deals have taken years to finalise in the past.

Malaysia is discussing a $20 billion deal to develop gas fields and build liquefied natural gas (LNG) terminals.

Achieving South Pars' full production potential of 700 million cubic metres per day will require 24 phases. The first five are finished and pumping 135 million cubic metres per day and the next five are due to come on stream later this year.

The $2.5 billion development of phases 6-8, operated by Statoil, was to start pumping in early May but will not begin for another month. "We have some delays because of the Iranian contractors," said Torkan.

The first stage of phases 9-10, led by Korea's LG to produce 50 million cubic metres per day, will come on stream by March. Total is working on phase 11. Shell and Repsol are considering taking phases 13 and 14.

Ghorb Khatam, a business arm of Iran's elite Revolutionary Guards, won the deal to develop South Pars phases 15 and 16.

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