ai/5083920_1 IRAN – MONTHLY UPDATE KEY DEVELOPMENTS IN IRAN This update aims to provide a brief overview of key developments which have occurred in Iran during the past month and to highlight areas of future interest. In particular, the update covers notable developments in both the political arena and key economic sectors. Companies thinking of investing in Iran will need to start considering, as a part of their strategy, the corporate governance and compliance issues which will need to be dealt with to ensure compliance with any remaining sanctions after Implementation Day and to address the concerns of their stakeholders. 1. POLITICAL DEVELOPMENTS A number of significant political events affecting Iran have taken place in the past month: • IAEA releases reports – The International Atomic Energy Agency ("IAEA") recently published its findings from a fivemonth probe into Iran’s nuclear activities. The report states that Iran had a coordinated nuclear weapons programme until 2003 and confirms that some of these activities continued until as late as 2009. More significantly, the report concludes that there is no credible evidence that Iran has recently engaged in atomic weapons activity. Accordingly, on 15 December 2015, the IAEA Board of Governors adopted a resolution confirming that it will close its investigation into whether Iran once had a nuclear weapons programme upon Implementation Day, ie upon confirmation of IAEA verification that Iran has complied with its obligations under the Joint Comprehensive Plan Of Action (the "JCPOA"). The next step to Implementation Day – when sanctions relief will begin – is for Iran to carry out the preparatory activities specified under the JCPOA. These include exporting enriched uranium supplies and deactivating centrifuges. The IAEA Director General has said that Iran is working at high speed to complete these activities, after which the IAEA will need to verify the results. According to a separate IAEA report, Iran removed 4,530 centrifuges during the 28 days ended 15 November. Based on those work rates, Iran may be able to fulfill its part of the deal by 12 January 2016, according to the report. While the IAEA has not said when it expects Implementation Day to occur, the Director General has indicated that it could take at least three weeks to verify compliance once Iran has officially confirmed that the necessary activities have been carried out. In the meantime, Russian and Iranian officials have stated that they expect Implementation Day to take place in January 2016. 21 DECEMBER 2015 Contents 1. POLITICAL DEVELOPMENTS ……1 2. DEVELOPMENTS IN KEY ECONOMIC SECTORS……………………………2 Related Links Herbert Smith Freehills Iran Monthly Update – November 2015 E-bulletin: Russia has taken first steps to implement JCPOA E-bulletin: The new Iranian Petroleum Contract – key terms released MONTHLY UPDATE: IRAN HERBERTSMITHFREEHILLS 2 ai/5083920_1 • Russia takes first steps to implement the JCPOA – On 23 November 2015, Russian President signed Edict No. 567 suspending certain sanctions previously imposed by Russia on Iran in furtherance of the UN Security Council Resolutions (for further details please see our recent briefing) e-bulletin: Russia takes first steps to implement JCPOA. 2. DEVELOPMENTS IN KEY ECONOMIC SECTORS OIL The past month has seen some key developments in relation to the oil industry in Iran. • Key terms of new Iranian Petroleum Contract released – Around 135 energy companies from around the globe gathered at the Tehran Summit, a two day conference held in Tehran on 28 and 29 November 2015, to hear the terms of Iran's eagerly awaited new petroleum contract. Iran said that it will offer approximately 50 oil and gas development projects (in addition to 18 exploration blocks) to be developed by foreign investors with local partners under the new scheme. It is hoped that this scheme, in its initial stages, will generate over $25 billion in investments. The projects included 29 oilfields and 23 gas fields (including both greenfield and brownfield developments), of which 39 are onshore. The new Iranian Petroleum Contract ("IPC") will replace the buyback contract structure, in respect of which both foreign investors and Iranian entities have previously raised a number of concerns. Although the changes made to the previous structure may not be as substantial as some perhaps expected, it is anticipated that the new structure will be looked on more favourably by foreign investors and Iranian entities. In summary, the key considerations are as follows: - a longer term; - ability of the foreign investor to be involved in operating the fields during production; - no cap on recovery of capital costs; - a remuneration fee set as a $/bl or $/scf amount, linked to production rates and an "R factor", with the ability to adjust the fee against market prices; - incentives for higher risk fields, brownfield projects and smaller fields, as well as IOR/EOR projects; and - requirements and incentives for the transfer of technology and know-how, as well as participation of Iranian entities in all phases of the project. For further information please see our recent briefing note here e-bulletin: The new Iranian Petroleum Contract – key terms released. • Iran to build oil refineries across the globe – It was reported earlier this month that Iran plans to embark on an ambitious downstream strategy which will see it building refineries in a number of regions around the globe. - Europe: Iran has conducted negotiations to construct refineries and sell its oil products in several European states. Reports have emerged that some of these negotiations have been finalised and a number of European parties are ready to start building refinery units in partnership with Iran once sanctions are lifted; - South east Asia: similar negotiations are underway with India and Indonesia on the construction of refineries; - Africa: Iran is also reportedly in negotiations with Sierra Leone to construct oil storage facilities there, a senior energy official announced earlier this month. The project will be executed in two stages. In the first phase, facilities for the storage of Iran's oil in Sierra Leone will be constructed with the next phase involving construction of the refinery itself; and - South America: Brazil is also reportedly in negotiations with Iran to construct a 300,000 bpd refinery. It is planned that Iran's oil will be sent to the refineries and will be sold in host countries after being refined. MONTHLY UPDATE: IRAN HERBERTSMITHFREEHILLS 3 ai/5083920_1 • Increasing Russian presence in Iranian oil market –This month has seen various heavyweight Russian oil companies hold talks with senior Iranian officials to explore the possibility of greater participation in Iran's oil sector. - Rosneft: Iran's Minister of Petroleum, Bijan Namdar Zangeneh, and the visiting Executive Chairman of Russian oil company Rosneft, Igor Sechin, met earlier this month to review investment in Iran’s development projects. This followed on from meetings in November 2015 between Iranian officials and a delegation from Rosneft where co-operation in the oil and gas industry was discussed and a joint committee was set up to continue the talks between the two sides. - Lukoil: Reports emerged earlier this month that the head of Russia’s Lukoil company, Vagit Alekperov, and Bijan Namdar Zanganeh are discussing the possibility of the company returning to Iran’s Anaran oil project. GAS This month also saw Iran continue with its efforts to establish and entrench its position as a key player in the global gas market: • Third Gas Exporting Countries Forum ("GECF") conference held in Tehran – Tehran hosted the third GECF late last month. The aim of the conference, attended by eight foreign heads of state (including Russian President Putin), was to develop further a strategy of cooperation among member countries of the 14 year old GECF. Encouraging the member countries to help stabilise global natural gas prices was another stated objective of the conference. • Iran and India set to launch seabed gas line – Ali Reza Kameli, Managing Director of the National Iranian Gas Export Company, stated that Iran and India are seriously negotiating construction of a transIndian Ocean pipeline to transfer gas to India’s western Gujarat port. Kameli stated that talks are underway with the pipeline construction company, South Asia Gas Enterprise, which has experience of laying deepwater gas pipelines. Construction of the pipeline may be completed as early as two years after the parties enter into the relevant contract. • Potential return of Italian firms to North Pars Gas Field – Italian companies have indicated an interest in returning to Iran's North Pars gas field and constructing the field's infrastructure once sanctions against Iran are lifted. Statements to this effect were made following meetings between Mehdi Yousefi, Managing Director of Pars Special Economic Energy Zone ("PSEEZ"), and executives of a number of Italian energy companies. • Ensuring stability of gas supply to Turkey – Iran has recently launched phase II of the Tabriz pressureboosting project to ensure stability of its gas exports to neighbouring Turkey. Following completion of this phase, Iran will have the capacity to supply nearly 60mcm/d to its neighbours Turkey and Armenia. PETROCHEMICALS • Turkish investors express interest in building $6billion petrochemical project – Earlier this month Hossein Forouzan, Managing Director of the Maku Free Trade Zone, confirmed that Turkish companies have expressed their interest in constructing a $6 billion petrochemical project in the Iranian northwestern city of Maku. AVIATION MONTHLY UPDATE: IRAN HERBERTSMITHFREEHILLS 4 ai/5083920_1 • Iran to co-operate with Luxembourg in the aviation sector – A meeting took place earlier this month between Luxembourg's Foreign Minister, Jean Asselborn, and the Head of Iran's Civil Aviation Organization, Ali Abedzadeh, to explore opportunities for the expansion of aviation co-operation between the two countries. It has also been reported that the parties agreed to enter into an air transport contract and MoU. • Iran plans to launch new airliner – Reports have also emerged that Iran plans to launch a new airline company, "Tehran Air", which may become operational as early as April 2016. Abbas Akhoundi, the Iranian minister of roads and urban development, commented that steps towards launching the company started two years ago adding that Iran was currently looking to acquire new airliners from leading plane manufacturers. ENERGY • Iran to build solar power capacity – Iran's Ministry of Energy recently entered into a deal with a German company for the latter to build solar power plants across Iran. It is planned that 500MW of plants will be built in Tehran and 750 MW of projects will be constructed in the central Isfahan and north-western Tabriz regions. • Other renewable energy projects – The above reports are among many which highlight the global interest being expressed in Iran's largely under developed renewable energy sector. For example, it has been reported that a $10 billion energy park is to be constructed in the Khuzestan region with 1 GW of solar power capacity. Reports have also emerged that German companies are to begin building wind farms in Iran in 2016. OTHER • Iran approves $33.33 million bonds for joint oil and gas fields – Earlier this month, Iran's cabinet approved issuing government-guaranteed bank bonds worth $33.33 million (approximately 100,000 billion Rials) for the development of oil and gas fields jointly owned by certain neighbouring countries. The decision was made by ministers during a review of the general terms of the next year’s budget bill. • Strengthening economic ties between Iran and Russia – The strengthening allegiance between Iran and Russia was bolstered further by talks, held in Tehran, between Russian President Putin and senior Iranian officials, including the Supreme Leader of the Islamic Revolution, Ayatollah Seyed Ali Khamenei. Following on from this, the officials entered into seven cooperation Memoranda of Understanding (“MoU”) in the presence of President Hassan Rouhani and Russian President Putin. Measures endorsed by the officials included eased visa requirements for reciprocal visits by the two countries' nationals. The other MoU relate to the health, railway, banking, insurance, electricity, power, water and energy sectors. More recently, Mehdi Sanayeee, Iran's ambassador to Russia, confirmed that "The two countries are serious about implementing an economic MoU which has been recently signed at the joint economic commission which amounts to $70 billion". Economic ties may be strengthened further by the establishment of a joint bank between the two countries, which will allow trade exchanges to be conducted in the national currencies of the respective countries. The possibility of this was discussed in a meeting held earlier this month between the Iranian Communications and Information Technology Minister Mahmoud Vaezi and Elvira Nabiullina President of the Russian Central Bank. MONTHLY UPDATE: IRAN HERBERTSMITHFREEHILLS 5 ai/5083920_1 • Ambassadors of 20 European, Asian, Latin American and African countries visited PSEEZ – Mehdia Yousefi, Managing Director of the PSEEZ, explained that the visit was aimed at assessing investment opportunities in the region. © Herbert Smith Freehills LLP 2015 The contents of this publication, current at the date of publication set out above, are for reference purposes only. They do not constitute legal advice and should not be relied upon as such. Specific legal advice about your specific circumstances should always be sought separately before taking any action based on the information provided herein. 10/45284411_1 5
