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Blow to US sanctions against Iran

By Robert Corzine
Financial Times
July 28, 2000

Iran signed its biggest deal so far with a foreign energy group on Thursday when it concluded a $3.8bn agreement with Eni of Italy to develop the South Pars natural gas field in the Gulf.

The project with Eni is the latest blow to US attempts to limit foreign investment in Iran's energy sector, which provides much of the country's hard currency earnings and the overwhelming proportion of government revenues.

With reserves estimated at 12 trillion cubic feet of gas, South Pars is one of the biggest gas fields in the world. Its development is a priority for Iran, as it needs large quantities of additional gas to boost production at ageing onshore oil fields. Tehran also hopes eventually to export gas from South Pars, either by pipeline or in the form of liquefied natural gas.

Vittorio Mincato, Eni's chief executive, criticised US efforts to isolate Iran: "The (US) legislation is a joke. The only thing it has succeeded in doing is preventing American companies investing in Iran."

Under the "buyback" contract, Eni is responsible for overseeing and paying for the development of the field, which is then turned over to the National Iranian Oil Company to operate.

The capital investment is then paid back to Eni along with an agreed rate of return from proceeds from the field's production.

Many foreign companies are unhappy with the "buyback" contracts, as they are inherently inflexible and potentially confrontational. But they have proved to be the only contractual format that is politically acceptable to Iran.


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