Iran Sanctions
Firms Reported to Have Commercial Activity in the Iranian Energy Sector and U.S. Government Contracts Gao ID: GAO-10-721T May 12, 2010This testimony discusses our work regarding foreign firms with commercial interests in Iran's energy sector. In March 2010, we issued a report identifying 41 foreign firms that have commercial activity in Iran's energy sector. The report released today identifies which of the 41 foreign firms also have U.S. government contracts.
Based on our review of open source information, we identified 41 firms that had commercial activity in the Iranian energy sector between 2005 and 2009. Of these firms, seven had contracts with the U.S. government. From fiscal years 2005 through 2009, the U.S. government obligated almost $880 million in contracts to these seven firms. U.S. agencies obligated almost 90 percent of these funds for purchases of fuel and petroleum products overseas. Thirteen of the 41 firms listed in our March 2010 report responded to our inquiries regarding their commercial activities in Iran, including two of the seven firms with U.S. government contracts. Since the report was released, four more firms responded, including one firm that noted it had not made a decision about finalizing its commercial activities in Iran.
GAO-10-721T, Iran Sanctions: Firms Reported to Have Commercial Activity in the Iranian Energy Sector and U.S. Government Contracts
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Testimony:
Before the Homeland Security and Governmental Affairs Committee, U.S.
Senate:
United States Government Accountability Office:
GAO:
For Release on Delivery:
Expected at 10:00 a.m. EDT:
Wednesday, May 12, 2010:
Iran Sanctions:
Firms Reported to Have Commercial Activity in the Iranian Energy
Sector and U.S. Government Contracts:
Statement of Joseph A. Christoff, Director:
International Affairs and Trade:
GAO-10-721T:
Mr. Chairman and Members of the Committee:
I am pleased to be here today to discuss our work regarding foreign
firms with commercial interests in Iran's energy sector. In March
2010, we issued a report identifying 41 foreign firms that have
commercial activity in Iran's energy sector. The report released today
identifies which of the 41 foreign firms also have U.S. government
contracts.[Footnote 1]
Iran's energy sector is vital to its economy and government. In recent
years, oil export revenues have accounted for 24 percent of Iran's
gross domestic product and between 50 and 76 percent of the Iranian
government's revenues. However, Iran has not reached peak crude oil
production levels since 1978, does not produce sufficient natural gas
for domestic use, and lacks the refining capacity to meet domestic
demand for gasoline. Accordingly, Iran is seeking the participation of
foreign firms in providing financing and technical assistance in
numerous energy projects. IHS Global Insight reports that Iran's
priorities for the next 5 years are to (1) raise oil production and
exports as much as possible, (2) increase natural gas production for
domestic use, and (3) expand refining capacity. In November 2008, the
Deputy Minister of the National Iranian Oil Company stated that Iran
would need about $145 billion in new investment over the next 10 years
to build a thriving energy sector.
U.S. law restricts U.S. firms from investing in Iran's energy sector
through sanctions to discourage Iran from supporting terrorism and
developing nuclear weapons.[Footnote 2] In addition, the Iran
Sanctions Act (ISA) provides for sanctions against persons, including
foreign firms, who invest more than $20 million in Iran's energy
sector in any 12-month period.[Footnote 3] The act allows the
President, who delegated authority under the act to the Secretary of
State, to ban such persons from U.S. government procurement, including
contracts for goods or services.[Footnote 4] The Secretary of State is
responsible for determining whether a firm's activities meet the legal
criteria for an investment, and the firm could therefore be subject to
actions under the Iran Sanctions Act. The Secretary of State may waive
the sanctions if the Secretary determines it is in the national
interests of the United States to do so.[Footnote 5]
The Secretary has not determined that a firm's activities have met the
legal criteria for sanctions under the Iran Sanctions Act since 1998.
At that time, the Secretary waived sanctions on three foreign energy
firms--Total (France), Gazprom (Russia), and Petronas (Malaysia). We
did not attempt to determine whether the activities of the 41 firms we
identified meet the legal criteria for an investment under the Iran
Sanctions Act. To identify firms reported in open sources as having
commercial activity in the Iranian energy sector, we relied only on
government reports and information, about 200 energy trade
publications, and corporate Web site information and statements. We
excluded sources deemed insufficiently reliable, such as newspaper
reports, newswires and news releases from the Iranian government. We
listed a firm as having commercial activity in Iran's energy sector if
three reputable industry publications or the firm's corporate
statements reported the firm to have (1) signed an agreement to
conduct business; (2) invested capital; or (3) received payment for
providing goods or services in connection with a specific Iranian
energy project. We provided the firms on our list an opportunity to
comment on our findings.
To determine the extent to which the firms we identified also had
contracts with the U.S. government, we searched the Federal
Procurement Data System-Next Generation (FPDS-NG) for references to
the firms.[Footnote 6] We verified that the firms in FPDS-NG were
matches to firms on our list by using the U.S. government central
contractor registration to confirm identifying information. We took
steps to corroborate key FPDS-NG information by obtaining U.S.
government documents and public statements that confirmed the firms'
U.S. contracts.
We conducted our work from September 2009 to April 2010 in accordance
with all sections of GAO's Quality Assurance Framework that are
relevant to our objectives. The framework requires that we plan and
perform the engagement to obtain sufficient and appropriate evidence
to meet our stated objectives and discuss any limitations in our work.
Summary:
Based on our review of open source information, we identified 41 firms
that had commercial activity in the Iranian energy sector between 2005
and 2009. Of these firms, seven had contracts with the U.S.
government. From fiscal years 2005 through 2009, the U.S. government
obligated almost $880 million in contracts to these seven firms.
[Footnote 7] U.S. agencies obligated almost 90 percent of these funds
for purchases of fuel and petroleum products overseas. Thirteen of the
41 firms listed in our March 2010 report responded to our inquiries
regarding their commercial activities in Iran, including two of the
seven firms with U.S. government contracts. Since the report was
released, four more firms responded, including one firm that noted it
had not made a decision about finalizing its commercial activities in
Iran.
Background:
Iran seeks commercial investments to increase its oil and natural gas
production, refining capacity, and pipeline and tanker infrastructure.
Iran has the world's third largest oil reserves, or about 140 billion
barrels, and produces about 4.2 million barrels per day. However,
Iran's oil production has remained virtually flat in recent years and
will likely stagnate in the medium term due to insufficient
investment, according to the International Monetary Fund. Iran
requires increasingly modern and advanced oil recovery technologies to
stop natural declines of oil production, but has found advanced
technology difficult to import due to international sanctions and high
costs.
According to DOE, Iran does not currently have sufficient refining
capacity to meet its domestic demand for gasoline. Iran imported
approximately 130,000 barrels of gasoline per day in 2009, as well as
other refined products such as diesel fuel. Iran's nine refineries are
operated by the National Iranian Oil Refining and Distribution
Company. With the potential participation of foreign companies, Iran
plans to add capacity at eight refineries to fully meet domestic
demand for gasoline by 2013 or 2014, according to DOE officials.
Iran has one of the world's largest natural gas reserves, second only
to Russia. Iran's domestic consumption of natural gas has increased
rapidly over the past 20 years, and development of natural gas
resources would better position Iran to meet domestic demand.
According to U.S. officials, between 20 and 25 percent of Iran's
natural gas is currently reinjected into mature oil fields to enhance
oil recovery. Iran plans to expand its development of liquefied
natural gas, but this plan requires significant investment from
international partners.[Footnote 8]
Iranian officials have stated that Iran needs large investments in its
natural gas infrastructure, including pipelines. In addition, while
Iran has over 40 tankers, Iran purchased additional tankers for
shipping crude oil in 2009.
Forty-One Foreign Firms Had Commercial Activity in Iran's Oil, Gas, or
Petrochemical Sectors from 2005 to 2009:
Based on our review of open source information, we identified 41
foreign firms that had commercial activity in the development of the
Iranian oil, gas, and petrochemical sectors from 2005 to 2009. We
define commercial activity as having signed an agreement to conduct
business, invested capital, or received payment for the provision of
goods or services in Iran's energy sector. We did not review the
contracts and documents underlying these transactions and did not
independently verify these transactions. These firms are listed in
table 1. Open source information stated that these firms supported
activities throughout Iran that involved the exploration and
development of oil and gas, petroleum refining, or the construction of
pipelines and tankers for the transport of oil or gas. The firms
provide technical expertise, equipment, or funding that enables Iran
to increase the productive capacity and profitability of its oil, gas,
and petrochemical sectors.
Table 1: Foreign Firms Publicly Reported to Have Commercial Activity
in the Iranian Oil, Gas, or Petrochemical Sectors:
Firm: ABB Lummus;
Country[A]: Not applicable;
Sector: Refining, petrochemicals.
Firm: Amona;
Country[A]: Malaysia;
Sector: Oil exploration and production.
Firm: Belneftekhim;
Country[A]: Belarus;
Sector: Oil exploration and production.
Firm: China National Offshore Oil Corporation;
Country[A]: China;
Sector: Natural gas.
Firm: China National Petroleum Corporation;
Country[A]: China;
Sector: Oil exploration and production, natural gas.
Firm: Costain Oil, Gas & Process Ltd.;
Country[A]: United Kingdom;
Sector: Natural gas.
Firm: Daelim;
Country[A]: South Korea;
Sector: Natural gas.
Firm: Daewoo Shipbuilding & Marine Engineering;
Country[A]: South Korea;
Sector: Oil tankers.
Firm: Edison;
Country[A]: Italy;
Sector: Oil exploration and production.
Firm: ENI;
Country[A]: Italy;
Sector: Oil exploration and production.
Firm: Gazprom;
Country[A]: Russia;
Sector: Oil exploration and production, pipeline.
Firm: GS;
Country[A]: South Korea;
Sector: Natural gas.
Firm: Haldor Topsoe;
Country[A]: Denmark;
Sector: Refining.
Firm: Hinduja;
Country[A]: United Kingdom;
Sector: Oil exploration and production, natural gas.
Firm: Hyundai Heavy Industries;
Country[A]: South Korea;
Sector: Oil tankers.
Firm: INA;
Country[A]: Croatia;
Sector: Oil exploration and production, natural gas.
Firm: Indian Oil Corporation;
Country[A]: India;
Sector: Natural gas.
Firm: Inpex;
Country[A]: Japan;
Sector: Oil exploration and production.
Firm: JGC Corporation;
Country[A]: Japan;
Sector: Refining.
Firm: Lukoil;
Country[A]: Russia;
Sector: Oil exploration and production.
Firm: LyondelBasell;
Country[A]: Netherlands;
Sector: Petrochemicals.
Firm: Oil India Ltd.;
Country[A]: India;
Sector: Natural gas.
Firm: Oil and Natural Gas Corporation;
Country[A]: India;
Sector: Oil exploration and production, natural gas.
Firm: OMV;
Country[A]: Austria;
Sector: Natural gas.
Firm: ONGC Videsh Ltd.;
Country[A]: India;
Sector: Natural gas.
Firm: Petrobras;
Country[A]: Brazil;
Sector: Oil exploration and production.
Firm: Petrofield;
Country[A]: Malaysia;
Sector: Natural gas.
Firm: Petroleos de Venezuela S.A.;
Country[A]: Venezuela;
Sector: Natural gas.
Firm: Petronet LNG;
Country[A]: India;
Sector: Natural gas.
Firm: PGNiG;
Country[A]: Poland;
Sector: Natural gas.
Firm: PTT Exploration & Production;
Country[A]: Thailand;
Sector: Natural gas.
Firm: Repsol;
Country[A]: Spain;
Sector: Natural gas.
Firm: Royal Dutch Shell;
Country[A]: Netherlands;
Sector: Natural gas.
Firm: Sinopec;
Country[A]: China;
Sector: Oil exploration and production, refining.
Firm: SKS Ventures;
Country[A]: Malaysia;
Sector: Natural gas.
Firm: Snamprogetti;
Country[A]: Italy;
Sector: Pipeline.
Firm: StatoilHydro;
Country[A]: Norway;
Sector: Oil exploration and production, natural gas.
Firm: Tecnimont;
Country[A]: Italy;
Sector: Petrochemicals.
Firm: Total;
Country[A]: France;
Sector: Natural gas.
Firm: Turkish Petroleum Company;
Country[A]: Turkey;
Sector: Natural gas.
Firm: Uhde;
Country[A]: Germany;
Sector: Petrochemicals.
Source: GAO analysis of open source information.
[A] The country listed is the physical location of the firm.
[End of table]
The 41 firms listed in table 1 represent a minimum of firms with
commercial activity in Iran's energy sectors (see GAO-10-515R for
details on our methodology). We provided the 41 firms an opportunity
to comment on our findings. Thirteen firms responded before we issued
the March 2010 report, and confirmed our findings.[Footnote 9] Four
firms responded after we issued the report. An official from Statoil
stated that the information in our March 2010 report was accurate.
Tecnimont noted that the contract we described had never entered into
force due to a lack of financing. Repsol stated that it had not yet
made a final investment decision on the project that we identified.
ENI neither confirmed nor denied the information that we reported.
Seven of the Foreign Firms Also Had Contracts with the U.S. Government:
From fiscal years 2005 through 2009, the U.S. government obligated
almost $880 million in contracts to seven of these 41 firms. U.S.
agencies obligated almost 90 percent of these funds for purchases of
fuel and petroleum products overseas. The firms are presented in table
2 in order of magnitude of obligations, as reported in FPDS-NG.
Table 2: Firms Reported in Open Sources as Having Both Commercial
Activity in the Iranian Energy Sector and U.S. Government Contracts:
Firm/country[A]: Repsol/Spain;
U.S. Government obligations: FY 2005: $40 million;
U.S. Government obligations: FY 2006: $37 million;
U.S. Government obligations: FY 2007: $110 million;
U.S. Government obligations: FY 2008: $81 million;
U.S. Government obligations: FY 2009: $51 million;
U.S. Government obligations: Total: $319 million.
Firm/country[A]: Total/France;
U.S. Government obligations: FY 2005: $0;
U.S. Government obligations: FY 2006: $27 million;
U.S. Government obligations: FY 2007: $0;
U.S. Government obligations: FY 2008: $154 million;
U.S. Government obligations: FY 2009: $131 million;
U.S. Government obligations: Total: $312 million.
Firm/country[A]: Daelim Industrial Co./South Korea;
U.S. Government obligations: FY 2005: $0;
U.S. Government obligations: FY 2006: $0;
U.S. Government obligations: FY 2007: $0;
U.S. Government obligations: FY 2008: $0;
U.S. Government obligations: FY 2009: $111 million;
U.S. Government obligations: Total: $111 million.
Firm/country[A]: ENI/Italy;
U.S. Government obligations: FY 2005: $9 million;
U.S. Government obligations: FY 2006: $88 million;
U.S. Government obligations: FY 2007: Less than $100,000;
U.S. Government obligations: FY 2008: $0;
U.S. Government obligations: FY 2009: $0;
U.S. Government obligations: Total: $97 million.
Firm/country[A]: PTT Exploration and Production/Thailand;
U.S. Government obligations: FY 2005: $21 million;
U.S. Government obligations: FY 2006: $4 million;
U.S. Government obligations: FY 2007: $6 million;
U.S. Government obligations: FY 2008: $1 million;
U.S. Government obligations: FY 2009: $3 million;
U.S. Government obligations: Total: $35 million.
Firm/country[A]: Hyundai Heavy Industries/South Korea;
U.S. Government obligations: FY 2005: $1 million;
U.S. Government obligations: FY 2006: $2 million;
U.S. Government obligations: FY 2007: $1 million;
U.S. Government obligations: FY 2008: $0;
U.S. Government obligations: FY 2009: $0;
U.S. Government obligations: Total: $5 million.
Firm/country[A]: GS Engineering and Construction/South Korea;
U.S. Government obligations: FY 2005: Less than $100,000;
U.S. Government obligations: FY 2006: $0;
U.S. Government obligations: FY 2007: $0;
U.S. Government obligations: FY 2008: $0;
U.S. Government obligations: FY 2009: $0;
U.S. Government obligations: Total: Less than $100,000.
Firm/country[A]: Total;
U.S. Government obligations: FY 2005: $71 million;
U.S. Government obligations: FY 2006: $158 million;
U.S. Government obligations: FY 2007: $117 million;
U.S. Government obligations: FY 2008: $236 million;
U.S. Government obligations: FY 2009: $296 million;
U.S. Government obligations: Total: $879 million.
Source: GAO analysis of Federal Procurement Data System-Next
Generation records and other government records.
Note: Totals may not add due to rounding.
[A] The country listed is the physical location of the firm as
reported in open sources.
[End of table]
According to FPDS-NG, the Department of Defense (DOD) obligated funds
to:
* Repsol of Spain for the purchase of fuel for naval and aviation
purposes;
* Total of France for the purchase of fuel, including jet fuel,
gasoline, and diesel;
* Daelim Industrial Co. of South Korea for the construction of family
housing at a U.S. Army base in South Korea;[Footnote 10]
* ENI of Italy for the purchase of petroleum products;
* PTT Exploration and Production of Thailand for the purchase of jet
fuel and other petroleum products;
* Hyundai Heavy Industries of South Korea for the purchase of power
transformers;[Footnote 11] and:
* GS Engineering and Construction of South Korea (then known as LG
Engineering and Construction) for the construction of office buildings
in South Korea.
According to DOD, these firms are qualified to contract with the U.S.
government based on reviews of the Excluded Parties Listing System and
the Office of Foreign Assets Control Specially Designated Nationals
List, maintained by the Departments of State and Treasury. DOD also
stated that these contracts are critical to support mission
requirements of worldwide military operations.
Mr. Chairman, this concludes my statement. I would be pleased to
answer any questions that you or other members may have at this time.
GAO Contacts and Staff Acknowledgments:
Should you have any questions about this testimony, please contact
Joseph A. Christoff at (202) 512-8979, or christoffj@gao.gov. Contact
points for our Offices of Congressional Relations and Public Affairs
may be found on the last page of this statement. Individuals who made
key contributions to this statement include Tet Miyabara (Assistant
Director), JoAnna Berry, Colleen Candrl, Jon Fremont, Julia Kennon,
Grace Lui, Lauren Membreno, and Pierre Toureille.
[End of section]
Footnotes:
[1] See GAO, Firms Reported to Have Commercial Activity in the Iranian
Energy Sector and U.S. Government Contracts, [hyperlink,
http://www.gao.gov/products/GAO-10-639R] (Washington, D.C.: May 3,
2010) and Firms Reported in Open Sources as Having Commercial Activity
in the Iran's Oil, Gas and Petrochemical Sectors, [hyperlink,
http://www.gao.gov/products/GAO-10-515R] (Washington, DC.: Mar. 23,
2010)
[2] See e.g. Exec. Order 13,059, 62 Fed. Reg. 44,531 (Aug. 19, 1997).
[3] Iran-Libya Sanctions Act of 1996, Pub. L. No. 104-172, § 5, 110
Stat. 1541, 1543 as amended. The act also allows for sanctions against
persons providing goods, technology, or services to Iran knowing that
such provision would contribute materially to Iran's ability to
acquire or develop chemical, biological, or nuclear weapons or related
technologies; or acquire or develop destabilizing numbers and types of
advanced conventional weapons.
[4] Pub. L. No. 104-172, §§ 5-6; Memorandum: Delegation of
Responsibilities Under the Iran and Libya Sanctions Act of 1996, 61
Fed. Reg. 64,249 (Nov. 21, 1996). Other sanctions include a denial of
Export-Import Bank assistance, a ban on issuing licenses to export
controlled technologies to the sanctioned firm, and other sanctions to
restrict imports with respect to the sanctioned person in accordance
with the International Emergency Economic Powers Act.
[5] Pub. L. No. 104-172, § 9; 61 Fed. Reg. 64,249.
[6] FPDS-NG is the primary governmentwide contracting database. More
than 60 government agencies, departments, and other entities submit
contract data to FPDS-NG. FPDS-NG can be accessed at [hyperlink,
https://www.fpds.gov/fpdsng_cms/]. Reporting requirements for FPDS-NG
are in Federal Acquisition Regulation (FAR) subpart 4.6. FPDS-NG data
are described in FAR 4.602.
[7] An obligation is recorded when a government agency enters into a
binding agreement to purchase services or goods.
[8] Iran has three major liquefied natural gas (LNG) projects in
various stages of development--Iran LNG, Pars LNG, and Persian LNG--
all of which are associated with a phase of the South Pars
development. The South Pars natural gas field has a 25 phase
development scheme spanning 20 years.
[9] See [hyperlink, http://www.gao.gov/products/GAO-10-515R] for
summaries of these firms' comments.
[10] The U.S. Army Corps of Engineers has announced that it has
contracted with Daelim Industrial to construct family housing at a
U.S. base in South Korea. See [hyperlink, http://www.army.mil/-
news/2009/08/09/25673-corps-of-engineers-awards-contract-for-new-
family-housing-at-usag-humphreys/].
[11] According to FPDS-NG, DOE also obligated funds to Hyundai Heavy
Industries of South Korea for the purchase of power transformers.
[End of section]
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