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Tokyo — The signing of a bilateral investment treaty between Japan and Iran, and Tehran's debt guarantee of up to $10 billion investments by Japanese companies, could be a tailwind for companies considering investments, including midstream petroleum businesses in the Islamic Republic, a source at the Japanese Ministry of Economy, Trade and Industry said Monday.

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Officials at Japan's Mitsui, Itochu and Inpex welcomed the signing of the investment treaty and a $10 billion debt guarantee framework Friday for alleviating risk if they are considering businesses in Iran.

The investment treaty, signed by Japan's Minister for Foreign Affairs Fumio Kishida and Iran's visiting Minister of Economic Affairs and Finance Ali Taiebnia, is designed to protect investments by Japanese companies across various sectors of the Iranian economy.

The investment treaty was signed following Japan and Iran's "substantial agreement" of the treaty in October, and Japan's lifting of key sanctions against Iran, including bans on making new investments in the oil and gas sector using export credits, following the US and EU's lifting of nuclear- related sanctions against Tehran in January.



Possible Japanese investment in Iran could include petroleum, natural gas resource developments, refinery upgrades, petrochemical plants and distribution systems, according to industry sources.

Separately last Friday, METI Minister Motoo Hayashi signed a finance facility framework with Taiebnia, under which Iran will guarantee up to $10 billion investments by Japanese companies, using export credits by the Nippon Export and Investment Insurance or syndicated loans arranged by the Japan Bank for International Cooperation.

Under the $10 billion finance facility framework, Japanese companies could secure up to around Yen 1.2 trillion finance needed for considering investments in Iran, the METI source said.

Securing large export credits as well as finance in Japanese yen, this finance facility framework could be helpful for Japanese companies considering investments in Iran as US dollar payments are still banned even after the lifting of sanctions, sources said.

COMPANIES REMAIN CAUTIOUS

Japanese companies largely remain cautious about considering upstream opportunities in Iran amid prolonged uncertainty over details of new oil contracts in the country, coupled with low global oil prices, industry sources said.

Iran has called off a February 22-24 conference in London to introduce its redesigned upstream contracts model to international companies due to visa issues for Iranian participants but still plans to start issuing tenders in April-May for dozens of oil and gas developments using the new model.

Iran's old buyback model did not appeal to foreign investors due to its short-term involvement in projects and poor rates of return, and its failure to confer ownership of reserves on to contractors.

The unattractive terms of the model and the later introduction of stringent sanctions forced European companies to abandon Iranian projects.

Japan's largest upstream company Inpex had a 10% stake in Iran's giant Azadegan oil field but withdrew in 2010 following a Japanese cabinet decision to approve additional sanctions on the Islamic Republic.

--Takeo Kumagai, takeo.kumagai@platts.com
--Edited by Wendy Wells, wendy.wells@platts.com