TEHRAN — Iran’s National 
Financing Council has given preliminary approval to establish a non-governmental guarantee fund for the oil industry, with initial capital of €300 million and 20 shareholders from the banking, financial and oil sectors.
The approval came at the council’s 25th meeting, which was attended by Hamid Bovard, CEO of the National Iranian Oil Co., NIOC reported. The meeting reviewed the plan for the Non-Governmental Oil Industry Guarantee Fund.
NIOC described the fund as one of its initiatives to ease a major bottleneck in financing upstream projects: providing the collateral and guarantees Iranian companies need in the money and capital markets. Reviews during the fund’s design found that exploration and production companies and domestic contractors have struggled to provide the guarantees banks and financial institutions demand, making it a main obstacle to raising money for oil industry development projects.
The fund is based on Clause A of Article 6 of the Law on Financing Production and Infrastructure, which allows legal entities to create guarantee funds. Its main goal is to make it easier for Iranian companies to obtain the collateral and guarantees they need and, later, to help finance upstream oil and gas projects.
The fund’s shareholder mix is diverse and unusual, NIOC said. The 20 shareholders will include five commercial banks, 10 Iranian exploration and production companies, the National Development Fund, NIOC, the Iran Energy Exchange, the Oil Industry Research and Technology Fund and the Kish Free Zone Organization. Banks, exploration and production companies, the National Development Fund and NIOC are expected to provide most of the capital.
NIOC said Bovard’s attendance and his pursuit of the approval reflect the strategic importance of building new guarantee and financing infrastructure to develop oil and gas fields and strengthen Iranian companies’ ability to carry out upstream projects.
Iranian exploration and production companies have taken on a larger role in recent years, with more responsibility for developing and operating oil and gas fields. As a result, access to financing, and especially the ability to offer credible guarantees to banks and the capital market, has become a key requirement for increasing investment capacity in the industry. NIOC called the fund an institutional response to that need and a complementary link in the upstream financing chain.
The fund’s planned scope is broad. It would issue the types of guarantees the oil and gas industry needs, with priority for the upstream sector. These include payment commitment guarantees, bid and auction guarantees, performance bonds, advance payment guarantees, guarantees for bond issues in the capital market, foreign financing guarantees, and guarantees for technology and venture activities.
Beneficiaries will be investor, contractor and operator companies in oil, gas and petrochemicals. Banks, the capital market and other financial institutions that accept collateral can rely on guarantees the fund issues.
The fund’s founding assembly met Feb. 18, and the participants approved and signed the relevant documents, moving the licensing, registration and start-up process into the implementation phase. The preliminary approval from the National Financing Council is another step toward completing the fund’s launch, NIOC said.