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China, Iran to discuss energy deal

* If sealed, officials say the agreement would mark one of the biggest foreign contracts ever for Iran

TEHRAN: A Chinese delegation is in Tehran to revive negotiations on a major oil and gas exports deal worth more than 100 billion dollars, state television said Saturday.

If sealed, officials say the agreement would mark one of the biggest foreign contracts ever for Iran, which holds the world’s second-largest oil and gas reserves and is often cautious about making significant trade deals with other countries.

Chinese oil ministry officials are aiming to refresh talks for the sale of 250 million tons of liquefied national gas (LNG) and crude oil to China over a 25-year period, Iran’s deputy oil minister in charge of international affairs, Hadi Nejad-Hosseinian, was quoted as saying.

Iran signed in October 2004 a memorandum of understanding with Chinese Sinopec, Asia’s largest oil refiner, for exports of LNG and crude oil as well as development of Iran’s onshore Yadavaran oilfield in southwestern Iran.

The deal gives Sinopec the right to purchase half of Yadavaran’s peak oil output — estimated at 150,000 barrels per day — over the contract’s span.

Exploration wells in Yadavaran oilfield have led speculators to believe the reservoir holds more than 118 billion barrels of oil and 85.5 billion cubic meters of gas. Iran has strict energy sector contract regulations, and the Islamic republic’s constitution stipulates the “prevention of foreign economic domination over the country’s economy.”

The energy sector is placed within the state sector, and foreign companies are barred from concession agreements and restricted to “buy-back” contracts.

With concessionary basis or direct equity stake production-sharing agreements ruled out, the government worked out the buy-back formula — under which foreign companies were to be repaid their development costs and given an agreed rate of return from initial production.

Although Iran’s new Oil Minister Kazem Vaziri-Hamaneh recently proposed removing the country’s adopted buy-back formula, Nejad-Hosseinian said any deal with Chinese will be based on buy-backs.

“The main existing problems with our buy-backs can be modified by some slight changes without taking much time, given using any new model will lead to delays in contracts under negotiations,” Nejad-Hosseinian told the state news agency IRNA.

The deputy oil minister noted that the Chinese side is also expected to welcome the changes. Earlier this month, Hamaneh said he considered the country’s most common buy-back oil and gas formula as “problematic”.

If signed, the China-Iran deal would not only mark China’s biggest deal ever with Iran but may also yield political benefits for the Islamic republic far sooner than commercial ones, as Iran is courting China’s favor on the UN Security Council.

As a permanent member of the council, Beijing holds a veto over any potential action against Iran’s nuclear program.

Tehran is under the threat of a referral before the council because the United States accuses it of using a civilian nuclear program to hide a quest for atomic weapons, charges Tehran vehemently denies. afp

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