RESTRICTED '0 Repor! !J4. SA=2 3 a r-- -1 Public Disclosure Authorized This report is for official use only by the Bank Group and specificaly authorized organizat.ons or perss. It n-uay not 'be published, quuoed or c-iuic Wthout Bank Group authorization. Ine Bank Group does not accept rcsponsibilhity for the accuracy or oJmpleteness of the report. INTUETNlA IONAL BANK FOR u < u'J.I. u ANND k VJ,LUVL zN INTERNATIONAL DEVELOPMElNT ASSOCIATiON Public Disclosure Authorized CURRENT ECONOMIC POSITION AND PROSPECTS OF TrD A 1MT Public Disclosure Authorized (in seven volumes) VOLUME II 'T'LT -t]- t"-~rT) T rN =rrT T I & C.c- r- m '. THEII AZ, XTE .I\. LL L VI SrC;0.,)Z.' I May 18. 1971 Public Disclosure Authorized South Aksia Depatrneiit 0! I DwDttfflV. IT QZ~" - 'btff 1! Ju uLI 'AV,y L. U . 1.J 1 -4) . J ! . i rIThTTrc i?;t<SUlM(l. U14.±L.L" V1t ! lJ h2iij ± U .S. barre'l. = 4e gLaLUJlIoL = 1~58.99 liters U.S. b,/d = approximately 364 barrels/year = approximatI.ely 50 mietric tons/year Cublc ,-oot 00.0283168 m3 Metric ton approximately 7.3 barrels Square kilometer 0.3861 square miles AdBiUdVIATIONS AND ACG?)NYJAS: NIOC National Iranian Oil Company NIGC National Iranian Jas Company NPC National Petroc he.mical Company IGAT Iran.ian Gas Trunkline API, Degree of specific gravity of oil, as defined by the American Petroleum Institutte b/d 3arrel per calender lay QCFiD Stream cubic 'oot per calender day CURRENT ECONO ru'L'i-NPOUrLLU AND PL'-ROSPECTS ±iuNI' TABLE OF CONTErNTS VOLUME I1: PEb1HULII-,E-_ SECTOR Page No. LIST OF TABLES AND MAPS SUMMARY .i .................. , . i .- ii INTRODUCTION ............................................. 1 Foreign and Domestic Operators ................ 1 Production ad Reserves ...... ........................ 1 Exports and Their Destination ......................... 5 Export of Niatural and Associated Gas .................... 9 I. THE EXTERNAL OIL SECTOR ......................... 10 Historical Background ............. 10 A. The Consortium ..... .................... 10 Production and Exports ..... ................. 12 Additional ForeiPn Exchange Receipts and Advance Payments ........... .......... 14 B=- Joint. Venture CHiI Agreenmpits - - 14 Production and Exports .................... 17 Revenue Pay.m.ents, an.d Other Foreign Exchange Receipts .................... 18 C. Recent Developments on Government Oil Revenues ................................... 21 D. Prospects for Trn.,,,,,,.,,,,,,,,,. 2 Short Run Developments ................... 23 Luong 1P.W1 V>tAV oo ............................* ................ 2_ World Energy Demand ........ 26 U±4..JuyjJ±y~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~% ULII - JAL -J iO Government Take Per Ton of Oil ........... 31 II. ASPFCTS OF DOMESTIC ENFERGY DEMAND ............... 32 InIi,rodUuuuu.i. .... A. Past Trends in Energy Demand .. ............. 32 Domestic Consumption of Oil .*...... ...... 34 Refining for Internal Requirement ........ 36 Distribution and Pricing of Oil Products 39 Domestic Consumption of Gas ..* ......... 43 Gas as a Substitute for Oil ............. 46 B. Future Energy Demand . .....................46 II:r. NATIONAL IRANIAN OIL COMPANY .. .................. 49 Historical Background and Present Structure .... 49 Production and Disposal . .................. 50 Refineries .. ........................ ....... 50 Current Projects ...... ....................... 51 NIOC's Subsidiaries ...... ....................... 54 NIOC Revenue Payments and Dividends ........... 54 Page No. IV. GOVERNMENT REVENUES AND SALE OF OIL IN GNP AND FOREIGN EXCHANGE EARNINGS ...................0 ... 56 Introdut,tion ... .56 Royalty and Income Tax Payments . ............ 56 Natural Gas Exports ........... ............... 57 Iz direct Taxes . ... .......... 57 P yment.s by NIOC . 57 Total Government Revenue . ...... 57 Contribution of Oil Sector to GNP . .60...........60 Foreign Exchange Earnings ....................... 60 APPENDICES I. THE FEBRUARY 15, 1971 AGREEMENT ...... ......... 1 - 3 II. CAkLGULATION OF' REVENUE FROM REFINERY OPERATIONS .... 1 2 TTT, THF TRANTN CrAq TRIINT.TNEP (TGAT) .... = 1-10 0...... TIV TWF T.TRYAj fnTT. AOIPPTYFNT 1 - 2 This report, which was prepared by Frank Stubenitsky, is; part of the findings of the Economic Mission which visited Iran in October/November, 1970. LIST OF TABLES AND MAPS Table ro . Page No. 1. Net Crude Oil Production .. 2 2. World Oil Producing Countries & World Oil Production: 1959-70 .... .............................. 3 3. Estimated Oil Reserves: Bv Field on 1/1/69 4........h 4. Export of Crude Oil ............................... 6 5. Consnortiim ridi nil F-nort qnd Througrhput, to.Abadan Refinery: 1960-7u ...................... 7 6. Destination of Crlde Oil E m orts by the Consortium 1964-69 ............................. 8 7 nq+.inq+r,n nr Oil Prn-iiit. FmwI-c 1w fhA Consortium 1964-69 ............................. 13 8Q. Additional Foreign vcchange P.cit frm h Consortium and other Foreign Oil Companies ...................................15 9. O011l E.=orts cand P.evenues ............................................ 19 10. Oil Revenue Projections .......................... 20 ±J . ruosUL,U L.LIttd ALUL U)Y 1LIkUti 1C.Y IL4L+ .. .q 12. Inter-Area Oil Movements - 1969 .30 13. Domestic Energy Demand: 1960-69. 33 14. Income Elasticity of Demand for Energy 1960-69 35 15. Domestic Conswrption of Oil Products .............. 37 16. Refining of Crude Oil: 1964-69 ..... .............. 38 17. Changes in the Output of Transportation System Compared with Real Consumption of Oil Products 1960-69 .................................... 40 18. Average Rate of Transportation of Crude Oil and Oil Products, by Mode of Transport: 1960-69 ...... 4i1 19. Breakdown of Main Petroleum Product Prices: 1970 42 20. Produiction and Consumption of Gas ....... .......... 45 21. Projected Internal Energy Demand: 1972-82 h........47 22. NIOC Investment Program - Revised Fourth Five-Yeair Plan .......... .................................. 52 23. Direct Investment by the Consortium, Other Foreign Oil Companies and NIOC .......... ....................... 53 24. Government Income From Oil Sector: 1965-69 ......... 55 25. Taxes and Dividends Paid by NIOC to the Government 1965-69 ................................ .0.................58 26. Government Revenue and Income from the Oil Sector ... 59 27. Contribution of Oil Sector to GDP and GNP ....... 61 28. Contribution of Oil Sector to Foreign Exchange Ear Earnings .... ... 62 Map 1: The Agreement Area Map 2: Off-Shore Concessions of NIOC's Joint Venture Agreements SUMMARY i. Iran continues to rely heavily on the oil sector. In 1969/70 the GNP contribution of oil amounted to 13.9 percent, and oil revenues represented some 54 percent of total Government revenues, a share that has remained at roughly the same level during the past five-year period. The foreign exchange contribution of the oil sector also reached an extremely high level; in 1969/70 some 82 percent of foreign exchange receipts from exports of goods came from oil, and for the year 1970/71 the share is expected to increase to 82.5 percent. ii. Three types of operators are active in the Iranian oil sector;: (1) th,e Consortium, a group of European and U.S. oil comDanies that took over the exploration and exploitation from the nationalized Anglo-Iranian Oil ComEnnnv (2) the National Trania n-Oil Gompan;v responsible for over1l exploitation of oil resources in Iran, and also for domestic distribution and sale of oil (rtoducts,(3 the fonreiogn oil comnanies, opTating since 1957 in joint venture with NIOC. iii. The Consortium is the most important operator in Iran; its share is0 ovec,r °,O Ypercent of04 Troucio&' In-- -c -- porti4- of4- -It oil. a:Lso--' operates the Abadan refinery both for export and internal consumption OJ oil products. Reven.ues from Consortium operations represent some 96 percent of total income from the oil sector accruing to the Government. iv. NIOC is mostly operating in the domestic market, and is responlsible for supplying internl deman-Lu d for petroleuLm productis. To thiLs end, it operates several refineries, a pipeline network, and road transportation and retail out- lets. NI'CU is also engageu in exploration and exploitation, both on it.3 own account, and in conjunction with foreign partners. Several of' NIOC's joint ventures are in full operation now, producing about 10 percent of Iran's overall output; the majority however, are still in the exploration stage. v. Two wholly-owned subsidiaries of NIOC are responsible for petro- leum related fields, the National Iranian Gas Company for the distribution and sRle of gas, and the National Petrochemical Company; the activities of the latter company are fully discussed in a report by the Industrial Mission which visited Iran in early 1971. The NIGC will ultimately assume respon- sibility for the Iranian Gas Trunkline (IGAT); its activities at present are limited. vi. Short- and long-term prospects for continued growth in the oil sector in Iran are quite good. Exports are expected to grow by 10 to 12 percerLt annually, and per ton revenue around 4 percent. This would result in 14 to 16 percent yearly increases in overall revenues to the Government, which is roughly the same growth rate achieved during the past decade. The year ]-971/72 however, shows a'sizeable discontinuity in the series due to agreements ccncluded in November 1970 and February 1971. Government revenue from the external oil sector will increase by almost 60 percent over the level obtained in 1970/71. - ii - vii. The