In January this year Iranian news agency IRNA reported that Iran and Malaysia had signed a USD 16 billion memorandum of understanding on the development of two gas fields, Golshan and Ferdows, as well the establishment of LNG production units.
Gholam Hossein Nozari, managing director of the National Iranian Oil Company (NIOC) is reported to have said :
"Development of the upstream section of the two gas fields will be implemented by Malaysia's SKS Ventures based on a buyback contract.
"Another long-term 25-year contract is expected to be inked on the downstream section of the fields," he added.
Nozari said that once developed, Golshan gas field will produce more than 70m cubic meters of gas daily.
Meanwhile, he put the expected daily gas production from Ferdows gas field at 25m cubic meters.
(See http://www.iran-daily.com/1385/2753/html/economy.htm)
SKS Ventures is a company controlled by Malaysian businessman Syed Mokhtar al-Bukhary.
Sources in Malaysia have indicated that he will not be able to raise the financing required for the project. Neither is it expected that any of the listed companies he controls would be capable of being used as vehicles via which to finance the project.
While wealthy in his own right, his wealth is primarily in his listed shareholdings and not in cash or near cash assets; and he is not known to have any significant cash-generating assets that might be tapped to finance the project.
(see http://www.forbes.com/lists/2007/10/07billionaires_Syed-Mokhtar-AlBukhary_KZFR.html)
The project involves the shipment of gas to the northern Malaysian state of Kedah, from where it is to be transported via pipeline to the east coast state of Kelantan, and from there to be shipped to China and Japan (see http://www.ibtimes.com/articles/20070417/malaysia-oil-pipeline.htm).
Quite apart from the not insignificant questions of cost, there is also the question of geography , for a mountain range lies in proposed path of the pipeline.
Then , there is a political problem. The entire project requires approval of the Opposition held Government of the State of Kelantan, for in Malaysia, land use is a state matter. Held by the Islamist Pan Malaysian Islamic Party (PAS) , the state's leadership is understood to be unwilling to give its approval for the laying of the pipeline, notwithstanding the project’s advantages to the Islamic Republic of Iran.
The award of the project to a private company whose plans appear to be in the realms of fantasy , raises questions as to whether Iran’s oil and gas reserves are being mismanaged.
It also raises questions as to whether the Iranian leadership is suffering financial difficulties that are forcing it to consider seriously proposals that would normally be dismissed without further thought.
There have been a number of reports that support the view that the Iranian Government might be acting out of desperation.
In March 2007 The Guardian UK reported :
Mr Ahmadinejad is under fire for making an unprecedented six supplementary budget requests in the past year that economists say have drained the country's foreign currency reserves. The criticism has come amid rising inflation and high unemployment.
(http://www.guardian.co.uk/iran/story/0,,2027929,00.html)
According to Economist Intelligence Unit
Economic growth in Iran will remain closely tied to the level of its oil revenue. With oil output remaining more or less flat over the forecast period (2007-2011) , and oil prices declining but staying strong, the current account is expected to remain in surplus until fiscal year 2008/09 (ending March 20th), when, because of a further fall in revenue, the external account will move into deficit. Real GDP growth, reflecting prospects for oil output and revenue, is likely to ease but remain firm during the forecast period, declining from 4.6% in 2007/08 to an average of 3.5% in 2009-11.
(http://www.economist.com/countries/Iran/profile.cfm?folder=Profile-Economic%20Data)
According to the CIA’s World FactBook:
Iran's economy is marked by a bloated, inefficient state sector, over reliance on the oil sector, and statist policies that create major distortions throughout. Most economic activity is controlled by the state. Private sector activity is typically small-scale workshops, farming, and services. President Mahmud AHMADI-NEJAD has continued to follow the market reform plans of former President RAFSANJANI, with limited progress. Relatively high oil prices in recent years have enabled Iran to amass nearly $60 billion in foreign exchange reserves, but have not eased economic hardships such as high unemployment and inflation.
(https://www.cia.gov/cia/publications/factbook/print/ir.html)
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