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FROM: DOW JONES WIRE SERVICE
Date: 13 January 2001
by Campion Walsh

(Washington) China Petroleum & Chemical Corp., or Sinopec (SNP), began work Friday on a $150 million project in Iran to upgrade two oil refineries and a Caspian Sea oil terminal and port, Iran’s official Islamicpublic News Agency reported.

Officials from Sinopec and National Iranian Oil Co., or NIOC, concluded an agreement on Friday for the Chinese company to upgrade the Tehran and Tabriz oil refineries and build an oil terminal and port at Neka on the Caspian, IRNA reported. European oil trading company Vitol SA and Hong Kong’s Federal Asia will finance the project, it said.

The project would further Iran’s plans to become a major conduit for exports of growing Caspian crude oil volumes from former-Soviet countries such as Kazakhstan, Turkmenistan and Azerbaijan. Under swap agreements, NIOC accepts Caspian crude along its northern coast to refine for domestic consumption and exchanges crude produced from the Persian Gulf, where oil is easily exported by tanker.

The Tehran and Tabriz refineries have a capacity to process 16 million tons of oil annually, which translates to about 320,000 barrels a day. Sinopec subsidiary Sinopec Engineering Inc. won the contract to upgrade the refineries and the port amid bidding from U.K., German, South Ko- rean, Spanish and French firms, the Iranian news agency said.

Could Trigger U.S. Sanctions Against Sinopec

U.S. State Department officials couldn’t immediately be reached for comment on Sinopec’s investment. Under the Iran-Libya Sanctions Act, the U.S. has the authority to impose sanctions on foreign companies that invest more than $20 million in Iran’s petroleum sector.
The unilateral sanctions, which have been waived for European and Asian companies, are based on U.S. concern about Iran upporting terrorism, opposing to Arab-Israeli peace talks and developing weapons of mass destruction.

Separately, the U.S. government has been trying to dissuade Caspian countries from exporting their oil through Iran. The U.S. is promoting an oil and gas export route from Baku, Azerbaijan, through Georgia to Turkey’s Mediterranean port of Ceyhan.

Formerly a wholly state-owned refining monopoly, Sinopec issued equity in a global offering last year. Among the investors were major international oil companies Exxon Mobil Corp. (XOM), Royal Dutch/Shell Group (RD) and BP Amoco Plc. (BPA).

The Sinopec investment in Iran will compound controversy surrounding the company’s stock offering last year, according to Roger W. Robinson, Jr., chairman of the William J. Casey Institute. “Sinopec’s initial public offering on the New York Stock Exchange was already controversial because of revelations of its past investment in Sudan’s oil sector and its eleventh-hour transfer of those assets to China National Petroleum Co.,” said Robinson, who was a National Security Council official under President Ronald Reagan.

The U.S. decision on how to respond to Sinopec’s investment in Iran may have to wait for the incoming administration of President-elect George W. Bush.

Center for Security Policy

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