In recent years, the government of Iran has defined priority for some industries in order to meet the needs of domestic demand for energy. Oil Refineries are considered among those companies through which the government has planned to reach a sustainable self-sufficiency in supplying energy for domestic use.
At the moment, the big dilemma of oil refining companies (ORC) in Iran is being dominated by NIORDC (National Iranian Oil Refining and Distribution Company), as it is the sole provider of crude and condensate for feedstock and monopolized bargainer on the bid side.
Yet decisions made by Ministry of Petroleum on the pricing of products, applying to all ORCs via NIORDC have mostly been vague and not declared at the proper time.
The latest announcement issued by Ministry of Petroleum has declared the price of crude and condensate as well as five main products of refineries, applicable from the beginning of the Iranian year started 20th March 2016.
The main highlights of supplied raw material prices and specifications as well as purchasing products are as below;
- Current pricing mechanism is determined mainly by reference to the international and FOB prices with 5% discount. Quantities of crude oil supplied by NIORDC are often measured in metric tons, regardless of its classification and grade which causes unclear cost of refineries production and cannot be calculated precisely neither by company nor by investors. The calculation of the supplied crude based on its API gravity paves the way for better judgment about cost structure, efficiency, and profitability of ORCs.
- Platts magazine has been selected as a benchmark price reference, which is mostly preferred and accepted by ORCs for pricing of both feed and production; This will bring more transparency to the complexes. Since there used to be significant conflicts between parties over price settlements, as there was not a predetermined and agreed referee for quoting.
- With the aim of decreasing the amount of imported gasoline, the government has planned to increase refining capacity of crude and condensate within the next years. To hit the target, ROCs are being encouraged to increase their gasoline products in the domestic market, an objective which leads to cut the imports of fuel in upcoming years.
- To improve the quality of fuel for domestic market, Ministry of Petroleum encourages ROCs by considering the quality of products. It has taken into account the specific characteristics of refineries productions, a procedure which will improve the quality of fuel used in domestic market.
Revising and improvement in pricing mechanism and setting stable and clear regulations are main factors which will remove uncertainty and lower the risk of investment in the industry, while the country needs urgent funds to invest for expansion and modernization.