The Export and Import Bank of Korea (Eximbank) said Aug. 25 that it signed a facility agreement (FA) with the central bank of Iran to facilitate the provision of 8 billion Euro (10.6 trillion won) in loans to Korean firms operating in Iran.
The funds will be loaned to Korean firms working on Iranian government projects with Iranian government guarantees, which are repayable in five to seven years.
The state-run bank said the FA was signed in line with the agreement between the Korean and Iranian governments when former President Park Geun-hye visited Tehran in May, last year.
The FA signing has been delayed due to the time needed to reach an agreement on the reversal of the nuclear agreement between Korea and Iran. Eximbank officials said if such as reversal happens, the two countries will take care of the situation in a friendly manner, but Iran will pay back the loans early if the agreement is not reached.
But some fear that the agreement may not be workable as the U.S. might have to strengthen its sanctions against Iran. But Eximbank said it cannot do anything about it because the agreement was reached between the two governments, Korea and Iran.
The state-run Export-Import Bank of Korea, or Eximbank, said recently that it will help Korean construction companies with financial services when they re-enter Iran after economic sanctions imposed by the United States are lifted.
With the sanctions set to be lifted following the recent Iran nuclear deal, governments are restoring business ties with the country. The deal, if approved in the U.S., will lift the sanctions in exchange for Iran curbing its nuclear ambitions for years to come. Eximbank said it had invited 10 major builders, including Hyundai Engineering & Construction, Daelim Industrial, Doosan Heavy Industries & Construction and LG International, to explain to them the overall investment environment in the Islamic state.
Lawyers from Shearman & Sterling, a New York-based international law firm, were brought in to provide a briefing on the nuclear deal, the status of Iran's major industries, ways to deliver financial and legal services, it said.
Lawyer John Inglis said the Iranian government will seek bidders for $160 billion worth of projects, including plants and infrastructure, next year. And the National Iranian Oil Company (NIOC) plans to start 45 projects next year, utilizing foreign investments, he said.
The NIOC is proposing to replace the buy-back agreement with the Iran Petroleum Contract (IPC) this year to woo foreign investors. The IPC is intended to tackle perceived drawbacks of the buy-back agreement and to be more attractive to foreign investors, the bank said.
In the existing buy-back agreement, foreign companies are allowed to search for and develop oil and gas fields, but not allowed to produce the natural resources. The ownership of an oil field is not transferred to the foreign company. Instead, it is allowed to buy back oil and gas from the fields it develops, an Eximbank official said.
"The IPC will likely be released by NIOC in London in mid-December," the official said without elaborating.
Under the IPC, the NIOC and a foreign company set up a joint venture to explore, develop and produce oil and gas. The foreign company recovers what it invested in their joint project and additional gains, he said.
Iran was one of the major countries Korean construction firms won orders from to build plants and other facilities until Korea joined the U.S. in imposing economic sanctions.
"Iran's financial conditions have worsened due to the long-standing sanctions," the bank said. "So it will initially need financial support from a bank when it places an order to a Korean builder. We will provide financial services to Iranian projects."