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Thursday, June 29, 2006

Iran set to award lucrative gas deal to elite militia

The Wall Street Journal

June 29, 2006; Page A7

TEHRAN -- Iran is about to award a lucrative gas deal to the country's Revolutionary Guards, a senior Iranian oil official said, in the latest sign of turbulence in the nation's huge but underfinanced energy industry.

The official said Iranian contractor Ghorb will be awarded a $2.3 billion pact to develop two future phases of Iran's South Pars gas field. Ghorb is an affiliate of the Revolutionary Guards, Iran's elite militia. The official was unable to give the timing of the signing of the deal.

The Guards, who played a crucial role in the nation's Islamic revolution a quarter-century ago, hold sway over a range of enterprises in Iran, particularly those involving exports and imports. The Guards also were involved in closing down Iran's new international airport last year after only a single day in operation. The airport was reopened after an Austrian-Turkish consortium that had been contracted to operate the facility was ousted, and Revolutionary Guard-linked enterprises play an important role in the airport's operations.

It isn't clear what role Ghorb might play in the South Pars field, which is located in the Persian Gulf. The two Pars phases in the contract were originally awarded to a consortium of international and domestic companies led by Norway's Aker Kvaerner ASA, but were later retendered, according to the U.S. Energy Information Administration. The Pars gas projects are complex, and so far, Iran has been contracting European and Asian companies with offshore gas-drilling expertise, including Total SA of France and Eni SpA of Italy.

The Guards-related contractor's entry into the South Pars field, if consummated, would mark the latest twist in two decades of turbulence for the Iranian energy sector. Iran has the world's second-largest gas reserves after Russia, and South Pars is believed to be the world's largest gas field. Iran shares the field with Qatar.

Iran's energy sector is struggling. The country is the second-largest oil producer in the Organization of Petroleum Exporting Countries after Saudi Arabia, with capacity of about four million barrels a day, but that is down from a peak of more than six million barrels a day reached in the 1970s. Saudi Arabia and several other members of the cartel have been increasing their oil-production capacity, while Iran has been stuck around its current rate for nearly a decade. Domestic suspicion of foreign investment, U.S. sanctions and rapid depletion in some of its old fields have all played a part in keeping Iranian output stagnant.

Meanwhile, Iran's domestic use of oil has been expanding.
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