Petroleum Bank a Must
Application of cutting edge technologies with a view to enhanced recovery from oil and gas fields requires well balanced contracts. In international oil contracts, the general terms and conditions are often subject to fluctuations; therefore, bidder companies have their own interpretation of the conditions. Therefore, the general conditions of the contacts must be clarified so that foreign companies and investors could make up their minds as quickly as possible. That would cut the time spent on negotiations before the contracts are signed.
In the light of the significance of the legal aspects of oil contracts and the necessity of clarifying legal, banking and insurance challenges of contracts between National Iranian Oil Company (NIOC) and foreign parties, “Iran Petroleum” has interviewed Ali-Akbar Mahrokhzad, director for legal affairs at NIOC.
Q: What are the legal, banking and insurance challenges the NIOC is facing in its negotiations with foreign parties? What are your solutions to them?
A: In this regard, I have to say that the NIOC is still grappling with post-JCPOA (Joint Comprehensive Plan of Action) problems in different sectors, particularly banking transactions. Unfortunately, major banks still refuse to offer services to NIOC and regardless of highlights at the JCPOA for the removal of sanctions related to the petroleum industry and the delisting of the NIOC, top banks and financial institutes still refuse to reestablish their ties with the NIOC for fear of [penalties by] the US Treasury's Office of Foreign Assets Control (OFAC).
As a long-term solution, it seems that regardless of political issues blocking any cooperation, the NIOC and the entire petroleum industry must think of establishing a specialized bank. Today, other sectors of the economy like industry and mine, agriculture and housing have their own banks. But the petroleum industry, which is so big in terms of financial transactions, lacks any bank.
Q: What are the legal, banking and insurance aspects of the newly drafted oil contracts?
A: As far as the legal aspects of this new model of contracts is concerned, we can refer to the preservation of the government's sovereignty over oil and gas resources and reserves, no guarantee for the contract obligations on the part of the government, the Central Bank of Iran and state-run banks, maximum use of domestic potential in different sectors related to the petroleum industry, maximum efficient recovery from hydrocarbon reservoirs, transfer and upgrade of technology and indigenization of technical knowhow in the oil and gas industry. Meantime, the banking and insurance issues in the new contracts are almost the same as those in the former buyback deals.
Q: What guarantees do foreign parties give for the implementation of projects under new oil contracts?
A: Generally speaking, under the new contracts the foreign party commits itself to financing at the scale of billion dollars. The objective is to have a contract with legally reasonable balance and equilibrium so that both parties would be assured about the balance of the contracts and mutual obligations. As the client, the NIOC will try to include transparent mechanisms in the contracts for supervision on the performance of contractors. For instance, almost all decisions of the Joint Steering Committee are referred to the NIOC and all key decisions about the project need the approval of the NIOC. There are just examples of mechanisms the NIOC would incorporate in the terms of contract for each project.
Q: Would you please explain how Iran collects oil money owed by other countries?
A: As far as the collection of crude oil buyers' debts to the NIOC is concerned, we have to highlight this issue that in long-term contracts necessary mechanisms are envisaged for the repayment of debts. In such contracts, relevant obligations are noted under take-or-pay clauses.