South Korean construction firms hit hard by Iran sanctions

A general view shows a bridge under construction on the Han river in Seoul. Korean overseas contruction orders have been hit by sanctions against Iran. (AFP)
Updated 08 November 2018

South Korean construction firms hit hard by Iran sanctions

  • Seoul imports about 12m barrels per month of oil from Iran.
  • Contractors feel impact of sanctions on overseas orders.

SEOUL: South Korea may have won an exemption from the US to continue Iranian oil imports, but major construction companies here are still reeling from the renewed American sanctions against Tehran.
Hyundai Engineering & Construction (E&C), a business arm of Hyundai Group, announced on Oct. 29 that it had scrapped a deal with Iran’s Ahdaf Investment Co. to build a petroleum refining facility in Iran.
The deal was worth $520 million — about 15 percent of the $3.4 billion construction project led by Hyundai Engineering consortium. Hyundai Engineering is an infrastructure unit owned by Hyundai Motor Group.
“We had no choice but to cancel the deal,” Yum Dong-yeon, a spokesman for Hyundai E&C, told Arab News. “We’re just sorry to lose the deal, and it is difficult now to anticipate if and when we will be able to be engaged in Iran businesses again.”
The remaining project led by Hyundai Engineering is expected to be nullified.
“It’s impossible now to carry out the deal, as a grace period of the preliminary contract has already expired,” a Hyundai Engineering public affairs official said, asking not to be named.
SK Engineering & Construction (E&C) has also been hit by the renewal of US sanctions against Iran. The firm, affiliated with South Korea’s third largest conglomerate SK Group, signed a $1.6 billion preliminary contract last year to upgrade a refinery in Tabriz, some 600 kilometers northwest of Tehran.
The firm also bagged a $3.6 billion contract to build and operate new power plants in Iran under a joint project with Turkey’s UNIT International. The contract is Iran’s largest private energy project, to produce combined generation capacity of 5,000 megawatts.
“We have yet to enter main contracts with Iranian counterparts, so we haven’t suffered any financial loss at the moment,” said Yeom Suk-bae, a senior communications manager at SK E&C. “However, it’s a setback obviously to our plan to make inroads into Iran, a new and growing market in the Middle East.”
Daelim Industrial is also one of the South Korean construction firms that have canceled projects in Iran. The company revoked a $2 billion deal in June with an Iranian oil refining company.
Kim Jong-gook, head of the Middle East and Africa business bureau at the International Contractors Association of Korea, painted a grim picture of South Korean construction projects in Iran in the long-term.
“South Korean construction firms have already been affected by the feud between the United States and Iran before the sanctions come into force,” Kim said.
The restored US sanctions, focused on banning any financial transaction with Iran, would hinder South Korean firms from going ahead with any contract with Tehran, he said.
“For South Korean construction companies, Iran is regarded as a new market with great potential,” Kim said. “As Iran’s oil exports are to be reduced in the aftermath of the restored US sanctions, energy corporations of the Middle East nation will likely suffer the shortage of foreign exchange, which will lead to the shrinkage of their construction projects.”
Oil refineries and petrochemical firms in South Korea breathed a sigh of relief about the “temporary waiver” for Iranian oil imports, but braced for risks down the road.
As one of the eight countries exempted from the US sanctions, South Korea is allowed to buy Iranian oil over the next six months on the condition that the imports volume should be reduced significantly. Any payment must be made through a bilateral Korean won currency account.
The South Korean government did not disclose the scale of reduction in Iranian oil imports, but oil refinery industry sources estimate that they are allowed to import about 4 million barrels per month, more than half of last year’s imports volume. South Korea imported an average of 12 million barrels per month of crude and condensate from Iran last year, according to the state-run Korea National Oil Corp.
South Korea in particular is a large buyer of Iranian condensate, a super light form of crude oil used by its large petrochemical industry. Of the Iranian oil imported last year, condensate accounted for some 70 percent.
“We’re trying to diversify sources of oil imports in the wake of Iran sanctions, but it’s not so easy to find alternatives for condensate,” an official of SK Innovation, the largest petrochemical company in South Korea, said on condition of anonymity.
Amid a sharp drop in imports from Iran, Qatar has emerged as the biggest export of condensate to South Korea, according to the Korea Petroleum Association. Qatar accounted for slightly more than 80 percent of South Korean condensate imports in September, with other countries such as Nigeria, Norway and Libya being considered as alternative sources.
The South Korean government is seeking to come up with measures to minimize the impact of the US sanctions on Iran.
“We’ll keep discussing with the United States and Iran over measures related to the sanctions and their effects on the Korean industry,” said Kim Jang-hee, head of the Ministry of Trade, Industry and Energy’s Americas Division.

INTERVIEW: Philip Morris International mideast chief on using hi-tech to progress toward a smoke-free future

Updated 18 August 2019

INTERVIEW: Philip Morris International mideast chief on using hi-tech to progress toward a smoke-free future

  • Tarkan Demirbas tells Arab News how smart technology will woo 9 million Gulf smokers and reduce risk

Alongside politics and religion, there is one other dinner party subject virtually guaranteed to push people to opposing extremes: Smoking.

In much of the world — especially the West but increasingly in the Middle East and other emerging markets — tobacco has been marginalized to the point where smokers feel shunned and lonely in many social environments, banished to pavements or poorly ventilated kiosks in airports.

After a series of multi-billion dollar lawsuits around the globe for the undoubted bad effects smoking has on health, Big Tobacco — the giant multinational companies that made billions out of the nicotine habit but neglected to say exactly how bad it was — is nowhere near as big as it once was.

All of which leaves Tarkan Demirbas with something of a challenge. He is vice president for the Middle East of one of the biggest tobacco companies, Philip Morris International (PMI).
Think Lucky Strike and the Marlboro Cowboy, legends of the industry and of marketing before grim, litigious reality overtook
the business.


BORN • 1968, Erzurum, Turkey.

EDUCATION • Bogazici University BSc Industrial engineering. • University of West Georgia, MBA.

CAREER  • Senior management positions at PMI in Hungary, Colombia, Malaysia, Singapore, Switzerland. • Vice President Middle East.

Demirbas is on message for the new anti-tobacco era. “There is no doubt that the best way to reduce the risks of smoking is to not smoke or use any nicotine product at all,” he said recently at an event in Dubai’s Capital Club, an oasis of tobacco-friendliness in the anti-smoking desert of the Dubai International Financial Centre.

On the surface, that seems a strange line from somebody who for the past 15 years has been promoting PMI’s products around the world, from southeast Asia through Budapest and on to Bogota with a stint at PMI’s Swiss HQ along the way.

But it coincides with a new direction PMI has taken. The new buzz-phrase in the company is “a smoke-free future.”

PMI launched the initiative with a “commitment and ambition to replace cigarettes as soon as possible with better alternatives to smoking for the millions of men and women who would otherwise continue to smoke.”

That might sound like turkeys voting for Christmas, but there is a sound business logic, as Demirbas explained. “The reality is that the vast majority of smokers simply do not quit. Even the World Health Organization’s own predictions forecast that there will continue to be more than 1 billion smokers by the year 2025,” he said.

“This is why a growing number of experts believe that public health policies should not be based solely on discouraging initiation and encouraging cessation, but need to leverage the potential of scientifically substantiated smoke-free products for the benefit of smokers and public health,” he added.

Technology is key to the campaign, and the product that PMI has come up with is IQOS. The Dubai event marked its regional launch. Imagine a slim mobile phone with a stubby cigarette sucking out of one end, encased it in a stylish carrying case-cum-charger, and you have an idea of IQOS.

Unlike other electronic smoking devices which vaporize nicotine juice, avoiding the harmful effects of the pathogens produced by burning tobacco, IQOS stays with the weed but does not burn it.

By heating tobacco sticks — called Heets — that look like mini-cigarettes to 350 degrees Celsius, the nicotine that smokers crave is released, but the tobacco is not burnt. Demirbas cites respected scientific sources as well as PMI’s own research indicating that 95 percent of the harmful by-products of tobacco are avoided.

Amid jokes that the Marlboro Cowboy would find it hard to use IQOS and ride his horse at the same time, nicotine-hooked cigarette smokers at the event said the result was pretty close to the “real thing.”

There is potentially a big market to go for, globally as well as regionally. Worldwide, some 150 million people use PMI’s tobacco products, still overwhelmingly traditional cigarettes. By 2025, he aims to get 40 million of those onto heated tobacco products like IQOS.

“This year, our priority is to go deeper into existing launch markets. We are encouraged by the results to date, including that there approximately 8 million smokers who have completely abandoned cigarettes and switched to IQOS. Japan is the best example of IQOS’ success, where we have achieved nearly 17 percent of the national share of the market,” he said.

IQOS is currently in nearly 50 markets, including Japan, Korea, Canada, a number of European countries such as Germany, the UK and Spain, as well as Russia, Ukraine and Colombia.

PMI passed a significant milestone in its campaign to go global with IQOS when the American Federal Drug Administration authorized IQOS and other variants. It will market its products in the US in partnership with Altria, the big investor which has made a commitment to the “smoke-free future” with multibillion dollar funding of Juul, the market leader in the worldwide vaping craze.

 “There are 40 million American men and women who smoke. Some of them will quit, but most won’t, and for them IQOS offers a smoke-free alternative to continued smoking,” Demirbas said.

Progress towards smoke freedom remains elusive in China, the world’s biggest market, where PMI markets Marlboro and in turn promotes traditional Chinese tobacco brands around the world.

The UAE joined the list of countries heading smoke-free last year when an IQOS stand appeared in Dubai International Airport’s duty free section. The UAE was ambivalent about the value of trying to lure smokers off tobacco and onto safer products, with the Emirates’ health authorities warning against the use of e-cigarettes and vaping devices. 

But the IQOS airport stand was a sign of a change of heart, and was followed by public pronouncements that vaping would also be made legal. Users in the UAE had previously resorted to some pretty furtive measures to get their nicotine fix, but non-tobacco nicotine products appeared to be here to stay, judged by the large numbers of people seen sucking on devices in many outdoor public places.

After the UAE launch, non-cigarette nicotine is going mainstream. The Heet sticks will be on sale for around DH20 (SR20) per pack — roughly the same as a pack of Marlboro — in most traditional smoking shops, while the devices — retailing at around Dh250 — will be sold in Carrefour supermarkets and, eventually, branded flagship stores.

Demirbas sees the UAE as a testing ground for expansion into other Middle Eastern markets, with Saudi Arabia high on the list of targets. PMI already knows there is an appetite for its device in the Kingdom from the large numbers of Saudi citizens buying them at Dubai airport.

At the airport, they have to present national ID cards or passports as proof of age — 18 is commonly the age limit for buying tobacco products in the Gulf region — as well as making a declaration that they are already smokers who wish to quit cigarettes. “I stress that we are trying to convert existing smokers, not trying to get anybody started on nicotine,” Demirbas said.

“From a public health standpoint, we see great potential for reduced risk products in Saudi Arabia. In our view, it is important to set the right regulatory framework to ensure companies adhere to best practices and comply with local legislation with the adult consumers of these products in mind, particularly as alternative forms of nicotine consumption are being recognized in leading global markets, including Saudi Arabia,” he said.

“Our ultimate goal is to convert all the 9 million adult smokers across the GCC, who would not otherwise quit, to IQOS,” he added.

PMI faces significant competition in its mission. Juul, the trendy but controversial device that has grabbed a big slice of the global market as the “iPhone of the vaping business.” Several other vaping products already have a foothold and a cachet that could be challenging for PMI.

At the Capital Club, the test audience for the IQOS launch was a mixed band of cigarette and vape users who gave the new product serious consideration. Some were sold on it straight away, others said they would give it a try and were gifted samples by PMI. The stylish look of the new product was a big selling point for the tech-style savvy consumers.

Others were put off by the charging process that has to be carried everywhere and used between smokes. One complained that the taste was simply too similar to the cigarettes he had been trying to kick for years.

As Big Tobacco seeks to reposition itself in the new anti-smoking age, the multibillion dollar nicotine industry will always be controversial. Maybe IQOS will be the hi-tech product that helps millions finally kick the smoking habit. Demirbas hopes so.

“We’ve invested $6 billion in it. It’s the most advanced technology there is,” he said.