Therefore, everything started systematically in October 2014. Based on the Kala Naft steering committee's instructions and currently at the Directorate of Manufacturing Support we receive approach and methodology to be put into practice. After that phase, the first step we took was to conduct preliminary studies on the projects proposed by manufacturers who could make all ten items. In compliance with legal and statutory obligations, we issued notice in mass circulation newspapers four times. The information we received after the notice by specialized working committees comprising the representatives of the main companies and their subsidiaries were measured and scored on an equal basis over two to three months. Finally, companies that had received the minimum required score went to the next phase to take part in the tender bid.
In the preliminary assessment, more than 240 companies submitted their feasibility study data to us for the ten projects. Some 116 to 118 companies cleared the first phase.
The second report was on progress in work, shortlists and requirements for holding tender bids, which were given to Minister Zangeneh in January 2014. The minister then ordered us to first hold a tender bid for the drill bit project. If no problem occurred within one and a half month, we were authorized to hold the remaining tenders.
In line with the Petroleum Minister's order, we held the tender bid in February 2014 and in the following month based on our timeframe we announced the successful bidders. The agreements were also signed, but financial affairs were postponed to the following months.
In March 2014, we submitted a report on the tender bid and the signature of four agreements for drilling bits to Mr.Zangeneh and got permission for other tender bids. In March 2014, after the tender for the drilling bit was held, tender papers for seven other projects were also prepared and distributed. That coincided with the dissolution of Kala Naft Co. In March 2014, Kala Naft was dissolved and NIOC Directorate of Manufacturing Support and Commodity Supply was formed. However, no halt was called to the implementation of the projects and we followed up on the tender bids that we had held. The laws had been amended and the working committee was required to receive endorsement. Therefore, four more projects were finalized in the following months and after winning approval, related agreements were signed. In total, tenders were held for five projects and agreements were signed.
For which projects agreements were signed?
Project No. 1: Wellhead equipment and downhole completion string
Project No. 2: Wellhead and downhole pumps, which are high-tech items destined for increased and sustained production (currently only two or three companies are manufacturing such pumps)
Project No. 3: Drilling bits which included PDC (polycrystalline diamond compact) bits and rock bits.
Project No. 5: Pipes which are of paramount significance
Project No. 9: Drilling measurement tools which are high-tech and sensitive
Earlier foreign companies were supplying such tools and therefore the data of all wells and reservoirs were controlled by foreigners who may exploit them by denying us necessary tools and parts.
Therefore, five projects were finalized, for which 53 agreements were signed. Two agreements were cancelled due to financial shortages by the client. Currently we have 51 active contracts valued at approximately IRR 4,000 billion plus €598 million.
How many items were subject to import bans since 2014?
In 2014, under the aegis of cooperation on the part of all ministries, significant measures were taken in cooperation with the Petroleum Ministry for banning the purchase of foreign-made products whose similar domestic ones were available. The Ministry of Petroleum was among the most active ministries to cooperate with the Ministry of Industry, Mine and Trade. It is noteworthy that when we speak about domestic manufacturing, some misperceptions arise as some may think that every commodity which we may be able to produce in Iran should be banned from imports. But sometimes domestically made commodities may not thoroughly satisfy the petroleum industry demand. We may be able to manufacture 10 items, while we need 100 items. Such commodities would not be subject to purchase and import bans because we will run into troubles for the supply of the remaining 90 items. Therefore, we try to inform the Ministry of Industry, Mine and Trade of items which can meet our needs in terms of production quantum, quality as well as field, operational and pilot tests at the petroleum industry.
In light of all these issues, in 2015 we benefited from the experience and potential of Kala Naft at the Directorate of Manufacturing Support and Commodity Supply, sought views of National Iranian Gas Company, National Petrochemical Company and National Iranian Oil Refining and Distribution Company to announce the list of our commodities whose importation was prohibited to the Ministry of Industry, Mine and Trade. In that year, 66 items out of the 181 items which had been banned by the Ministry of Industry, Mine and Trade, were specially used in the petroleum industry while the remaining ones were shred with the Ministry of Defense, Ministry of Health, etc.
In 2016, again under the auspices of Mr.Moqaddam, and later on his successor HabibollahBitaraf, the Directorate of Manufacturing Support and Commodity Supply continued the process and lists were submitted. Of a total 141 items banned by the Ministry of Industry, Mine and Trade, 50 were specially used in the petroleum industry. In that year, 118 items of domestically manufactured commodities were endorsed in terms of quality and price, and were then banned.
In the current year, there are 84 items on the blacklist. Purchase of wellhead equipment and well cap, desalting package, anti-corrosion materials, sulfur recovery catalyst, and wellhead control panel is banned for the petroleum industry.
Among measures undertaken by the NIOC Directorate of Manufacturing Support and Commodity Supply based on the law requiring maximum use of domestic anufacturing in 2016 and 2017, something like 10 to 12 directives and circular letters were served on the subsidiaries of NIOC to ban the foreign purchase of all items which may be manufactured domestically as mentioned in the portal of the Ministry of Industry, Mine and Trade. Meanwhile, in the last directive served, foreign purchase for all subsidiaries and their contractors is banned. The CEO of NIOC also enforced a ban on the purchase of any items which could be manufactured domestically. That was among the most important action taken by NIOC in line with resilient economy and supporting domestic manufacturing.
How much has the manufacturing of the ten groups of commodities progressed this year?
The average progress in the implementation of the 51 agreements has so far been 47%. Of course, some projects have had 70-80% and some others 20-30% progress.We have also filled 17% of orders. In some agreements, delivery has been done fully and in some others our delivery rate has been at 80%. However, due to financial and other issues, in some agreements the progress has been at 10% and no production has thus far started. Of course, that matches our projections because we needed to import foreign technology to build some of this equipment. But over the two years since the implementation of project started, we have seen 47% progress in the projects.
What has the Ministry of Petroleum done to support domestic manufacturers after banning the purchase of similar foreign commodities?
The basic measure which has been taken over the past four months by NIOC to support domestic manufacturing for future increase in oil and gas production was that in the tender documents submitted to the contractor we listed all domestically manufactured basic items (a total of 27) whose imports would be costly and announced the names of companies. That was a big step which blocked any attempt by domestic or foreign EPC companies to purchase foreign commodities and required them to purchase from domestic manufacturers. Given the potentiality of domestic manufacturers, the only challenge which they are grappling with is that they cannot receive any international certificate or bid for international projects.
To what extent has foreign currency spending been contained after the implementation of the 10 projects?
In2015 and before that, we put out to tender the CRA pipe manufacturing project, each meter of corrosion-resistant alloy pipes cost the country on average €1,480. After the tender was held, the global price declined 20-30% and when the agreement was signed the average price was down to €900. In case the previous round of sanctions had continued and Mr. Zangeneh did not assume such a risk to pay for €560 per meter from domestic-foreign companies, we had to pay €900 to €1 billion for each meter of CRA pipes. Therefore, in this contract only, about €300 million was saved. Another significant result came in the drilling bits project. That helped the country save about IRR 4,000 billion because we used to purchase all drilling bits from foreign companies.
Furthermore, NIOC purchased 80% of wellhead and downhole equipment from domestic suppliers, but none of contractors were involved in the projects and every purchase was done from abroad.
Regarding downhole completion string, 14 agreements were signed with three companies and we tried to prevent any monopoly in the contracts. In other words, we would have at least two companies active in each sector except for several cases where the volume of demand was insufficient and was not commercial, for instance building two pipe manufacturing plants in Iran while the mills we already have can meet national need by running at half capacity, and the rest of their products has to be exported. Therefore, at present, in all sectors, two to four companies are active and so far 14 agreements worth about $1,300 billion have been signed (according to calculations, 50% of this figure would mean saving hard currency). Meantime, the issue of banning the purchase of commodities with domestically manufactured prototype by private and EPC contractors led companies to turn to domestically manufactured wellhead and downhole equipment, all of which contributed to saving the country hard currency and striking deals using the Iranian currency.
Which arrangements has the Ministry of Petroleum made to make up for losses inflicted on manufacturers due to foreign exchange fluctuations?
Domestic manufacturing companies have hit a major problem due to the foreign exchange fluctuations because in one case, steel producers calculate the price of their products based on the free market conversion rate of the dollar and the euro. We are currently seeking to resolve this challenge faced with by manufacturers. Our manufacturers have been wronged. We held tender bids based on the 2014 prices. In 2015 the prices were set and one year later in 2016 the manufacturers were paid. There were still no problems by March 2018, but now if I say that these companies sell at the price they have spent, I may be exaggerating because they are even suffering losses.