China Investing In Iran Refineries

Early Monday, Iran has reportedly sought investment from Chinese oil majors to make up the country’s shortfall in refineries. The most notable ones invited are PetroChina (PTR), Sinopec Corporation (SNP) and CNOOC Ltd. (CEO). The National Iranian Oil Company (NIOC) said that these initiatives are part of Iran’s 20-year oil sector revival plan with a total investment of approximately $130 billion.

Despite being the world’s fifth largest crude oil exporter, Iran lacks refining pace and has been importing a significant amount of gasoline to run the country. Iran wants to build these refineries to keep its gasoline import level to a minimum.

The Chinese companies will get an 8-year tax holiday for investments made in Iran’s free trade zones as well as a 5% off for raw materials purchased in Iran. Though these companies already have investments in Iran’s exploration and production businesses, they have yet to enter into the refinery sector.

We view these investment opportunities as positive for the Chinese players as they have been exploring expansion and acquisition opportunities abroad to reduce their exposure to mature domestic areas. These players — especially PetroChina and Sinopec — also have a vast experience in the refining business. Together, they hold a total of 59 refineries in China.

While rising costs and high operating expenses remain an issue, a special discount on crude oil purchase in Iran and the 8-year tax holiday will no doubt benefit these Chinese majors. We continue to recommend PTR and SNP as Holds and CEO as a Buy.

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Comment by Dr Sebastian Uremadu

2009-07-14 11:46:08

I think it is in order that China pursues a productive asset investment in Iran in oil sector in Iran to rise its global capital formation world wide in a bid to raise world growth in these times to help reduce ongoing global recession. I also counsel China to thoroughly the instability that has just errupted in its enclave to be sure that some other world economic powers are not behind the Chinese minority tribes’ insurrection in their country because they jealous of her wealth of accumulated savings being used to shore up global financial illiquidity ravaging world economies as at present. I am seeing Jacob’s hands in the present Chinese instability.
I only infer. Thank you. Dr SO Uremadu is Nigeria’s Financial Economics seer/ Banking & Finance Experts.

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