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Local content in existing projects

The following, while not exhaustive gives some indication of the extent to which existing projects meet or exceed contractual/legislative requirements for local content in buy-back projects:

Soroosh & Norooz - 30% of Capital Costs
Balal - 20% of Capital Costs
Dorood - 30% of Petroleum Costs
Darquin - 30% of Capital Costs
South Pars - 4 & 5 40% of Petroleum Costs
Sirri A&E - 30% Petroleum Costs

Salman - 51%
F&E - (excluding drilling activities) - 51%
Azadegan - 51%
Masjed Soleiman - 51%

Contractual vs. Actual Iranian content of selected projects

In many cases, the actual volume of local content (as a percentage of capital expenditure) exceeds the contracted requirement significantly, for example, in the following projects:

Contractual/Actual

• Darquain (Phase 2) 30%/51.56%
• Darquain (Phase 1) 30%/52.99%
• Salman 30%/69.87%
• Dorood 30%/51.47%

Relevant authorities

In addition to the HCE, the following authorities are relevant to parties seeking information, guidance or permissions relating to their local content obligations:

NIOC Kala Company
The NIOC Kala Company is a first port of call for information relating to materials, facilities and equipment produced in Iran. Using this company as a source in identifying Iranian subcontractors will also guarantee that the chosen subcontractor has the “pre-qualification” of NIOC itself;

The Management and Planning Organization (MPO)
The organisation provides an information service regarding the capabilities of local contractors and sub-contractors and their ability to carry out technical projects. Furthermore, the MPO has a grading system that is necessary for some engineering and consulting work conducted in the industry;

Ministry of Labour and Social Affairs
The Ministry can advise on employment of experienced and qualified Iranian personnel

Ministry of Industries and Mines
For a fee, the ministry can provide information on Iranian manufacturers and suppliers. The information is available on a computer disc, and can be purchased on presentation of a letter by the NIOC.

The Iranian Organization of Scientific and Industrial Research
The organisation can advise on the current status of local technological expertise.

The Supervisory Working Group (“SWG”)
The SWG was established in accordance with the Declaration of Board of Ministries, 2002. It consists of:

• The head of the Management and Planning Organization and the Ministry of Industries and Mines,
• The Deputy Coordinator of Economic and Technical Affairs of the Presidential Office, and,
• The Minister or Highest Officials of the concerned executive body.

Supervision and reporting of local content requirements

Government entities are obliged to send Quarterly Reports to the Secretary of SWG (located in the Industries and Mines Office of the Management and Planning Organization), detailing how Article 3 of the Utilization Act was observed and performed in each project.

In addition, the Central Bank of Iran is obliged to send Quarterly Reports to the Secretary of Supervisory Working Group on all letters of credit opened and operated for relevant projects, while the Management and Planning Organization and its offices, provincial branches, Supervision and Assessment Offices must also send Quarterly Reports to the Secretary of the Supervisory Working Group on the performance of concerned projects under article three.

In 2006 the Board of Ministries made the following declaration regarding the
Supervision of Article 2(2) and 3 of MUICA: that state entities should submit all the following documents to the Inspector or Delegation of Inspectors, or directly to the Management and Planning Organization in order to investigate whether the relevant articles of MUICA were properly executed:

• Scope of the works
• Documents showing that the list of technical and material requirements have been forwarded to the Scientific and Industrial Research Organization.
• The value of work awarded
• Qualifications of Iranian company
• Qualifications of foreign partner

Reality check

As noted in the introduction, research undertaken by Menas Associates indicates a variety of responses to Iranian local content requirements on the part of the IOCs currently in operation in the country. Chief amongst the concerns are those relating to the availability of skilled staff.

Companies generally report that while they do not object to the existence of the local content requirements, it is difficult to both meet a 51% requirement and to meet deadlines, but that officials within the NIOC are, in the main appreciative of these challenges.

Foreign participants in the industry have engaged with the skills transfer aspect of local content, in general with some enthusiasm, initiatives including:

• sponsored training programs
• joint research programs with the NIOC
• on the job training

Penalties threatened

While the NIOC has threatened to penalize companies based on non-fulfilment of local content provisions, there have been no cases of penalties actually being imposed –as even within those projects which have been finalized (e.g. Sirri A & E, Soroush and Norooz, South Pars phases etc.), there is still a financial transaction between NIOC and IOCs that has yet to conclude.

In fact, IOCs report, the emphasis on the 51% figure is now much reduced, with contracts referring not to a percentage quota - but to maximisation of local or national content only.