Silence as Consent?
(A Commentary on the Critics of the IPC Model)
Oil and gas contracts have always attracted public sensitivity and scrutiny. Several years ago, during the transition from buy-back contracts to the new Iran Petroleum Contract (IPC) framework, significant debate arose across political and technical circles.
After the Cabinet issued the decree titled “General Conditions, Structure, and Model of Upstream Oil and Gas Contracts” on 6 August 2016, followed by two subsequent amendments dated 31 August 2016 (No. 69978/T53421) and 17 June 2017 (No. 34862/T54407), a new pathway was outlined for Iran’s upstream petroleum sector. From that point onward, field development contracts were required to comply with this model.
The IPC model, however, faced extensive criticism from diverse political constituencies.
Contrary to expectations within the oil and gas community regarding the likely policy orientation of the Ministry of Petroleum under the Thirteenth Administration, a new amendment was unexpectedly issued on 18 October 2023, halfway through the presidential term. This amendment introduces changes only to four specific provisions, addressing limited technical deficiencies. In effect, the absence of revisions to all other sections signals implicit approval of the original IPC framework.
Under the current policy direction—except for joint fields, where the Seventh Development Plan has recently referenced production sharing—the Ministry of Petroleum continues to favor service contract structures as the principal contractual mechanism for field development.
we will examine the latest amendment in detail.
Amendment Clause 1
Given the current conditions in which the inflow of capital into upstream oil industries is very low, the Ministry has inevitably turned toward domestic downstream companies or non-oil entities (including holdings and financial groups). Naturally, these investors expect to have a visible role in the contracts. Therefore, the amendment provides:
“Article (1) is amended as follows:
- a) In paragraph (R) after the phrase ‘oil competency’, the phrase ‘or their partnership with investors’ is added, and the following texts are added as Notes (1) and (2):
Note 1 — The governance and execution of the project within such a partnership must remain under the authority of the oil-competent company.
Note 2 — The legal and contractual framework for partnership with investors shall be communicated by the Minister of Petroleum.”
b) In paragraph (gh) the phrase “upon the proposal of the Minister of Petroleum and approval of the Cabinet”* is replaced with “upon approval of the Minister of Petroleum”.
The first note preserves the technical governance of the project within the competent E&P company and therefore alleviates concerns about non-technical decision-making entering the upstream sector. However, one unresolved issue remains: the joint and several liability of the partners. If the competent E&P company becomes unable to continue mid-project, how can the second partner—whose role is merely financial and who is not an E&P operator—assume operational responsibility?
Paragraph (b) also shortens the procedure for approving the Depletion Baseline. Previously, this baseline had to first be approved by the Supreme Reservoir Engineering Council and then submitted by the Minister to the Cabinet for final approval. Given that depletion baseline is a purely technical petroleum-engineering concept, such a high-level approval was unnecessary.
Amendment Clause 2:
Earlier versions of the regulations imposed very strict requirements for bank guarantees and did not address guarantees issued by private banks, leading to practical difficulties. The amendment now states:
“Article (3) is amended as follows:
a) The following text is added as a note to paragraph (b):
Note — “Guaranteeing the obligations of the second party (contractor) by non-state banks is permissible within applicable laws and regulations, provided that no obligation is created for the Central Bank of Iran.”
In paragraph (ch) of Article 3, the previous rule stated that all assets from the contract’s effective date belong to the employer (NIOC). This created major obstacles for the contractor when procuring goods under sanctions. The amendment now provides:
b) At the end of paragraph (ch) the following text is added:
“In cases where the contractor procures goods and equipment from outside Iran, the contractor may purchase such goods in its own name, and must, upon entry into Iran and as per contractual provisions, transfer ownership to the National Iranian Oil Company. In all contracts, NIOC is obligated to explicitly state that goods and equipment during this period cannot be pledged or used as collateral.”
This final sentence resolves concerns that—during the period when assets are still registered in the contractor’s name—the contractor might hypothetically use them as pledged collateral.
Amendment Clause 3:
It is well known that certain IPC contracts are concluded with an Iranian counterparty, in which case the technology-transfer obligations stipulated in Clause (a), Article 4 of the Technology Annex are essentially inapplicable.
To address this, the amendment provides:
> Article (4) is amended as follows:
> a) In Clause (a), after the phrase “shall be incorporated into the contract,”
* the following phrase is added:
> “This clause applies only to contracts in which the second party is a foreign company.”
> Likewise, in Note (2) of the same clause, after the phrase “as applicable,”
* the following phrase is inserted:
> “This Note applies only to contracts in which the second party is a foreign company.”
Article 11(a) stipulates the presence of an Iranian Operating Company (IFO) during the operations phase, while maintaining the responsibilities of the second party. To remove ambiguity, the amendment clarifies Article 4, Clause (t):
> b) In Clause (t), after the phrase “shall be specified,”
* the phrase “between Iranian and foreign nationals” is added.
In essence, managerial positions (where agreed and applicable) will rotate between Iranian and foreign personnel, thereby removing legal obstacles to fair participation of the foreign contractor during the operations phase.
Amendment Clause 4 :
The final clause of the amendment expands the contractor’s discretionary authority in spending.
Expenditures below 0.5% of the Direct Capital Cost (DCC)—as defined in the main decree—no longer require approval from the Joint Management Committee (JMC).
The contractor may make such decisions independently, subject to an overall ceiling of 10% of total OPEX + DCC over the contract period.
Accordingly, the amendment states:
> Note — Based on the agreed work packages and within the framework of the annual Operational Financial Program, the contractor is authorized—pursuant to the conditions of the main contract—to independently decide on awarding second-tier subcontracts costing less than 0.5% of the estimated ceiling of the direct capital cost, and shall report such decisions to the employer.
> The total amount of expenditures for which the contractor may independently make decisions during the contract period shall not exceed 10% of the combined estimated ceiling of direct capital and operating costs.
> For second-tier subcontracts exceeding 0.5% of the estimated ceiling of the direct capital cost, referral to the Joint Management Committee for review and approval is mandatory.
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