Barter: The savior of Iran’s urea industry amid liquidity crunch and advantageous laws

According to Energy Press, Kermanshah Petrochemical Company has a living experience from the front lines of this crisis and is offering its own rescue plan with a combination of economic logic and legal capacity: offsetting the urea producers’ claims with their debts to the government.
According to the public relations of Kermanshah Petrochemical Industries Company and quoting Engineer Zahir Heydarinejad, CEO of the company; Kermanshah Petrochemical Company produces about 660,000 tons of products annually, 75 to 80 percent of which is exported. Despite the heavy shadow of sanctions, these exports have not only led to full sales of products but also generated an income of about 200 to 220 million euros for the country, and all of its currency has entered the domestic banking network.
However, these export successes pale in comparison to a serious challenge: more than 3 trillion tomans of debt from the Agricultural Support Services Company for urea delivered to the domestic market, which is calculated at the due price and incomplete cash payment, and the rest remains as accumulated debt. At the same time, the company’s debts to institutions such as the National Gas Company are quickly subject to enforcement and account blocking, property seizure, etc.
Last year, Kermanshah Petrochemical faced 102 days of gas outages; equivalent to nearly 100 million euros in lost profits. This is while the price of gas feedstock has increased from about 4,800 tomans per cubic meter to more than 13,500 tomans, effectively pushing urea producers’ profits to the brink of danger. The decline in global urea prices has also put additional pressure on the financial balances of these companies, and Heydarinejad’s warning is simple but worrying: “If this trend continues, urea producers will be dragged from profitability to loss-making.”
The proposed solution, according to the CEO of Kermanshah Petrochemical, is simple and tried and tested: our claims from the government should be offset with our debts to state-owned companies such as gas. This mechanism, from a legal perspective, is based on Articles 295 to 303 of the Civil Code, which consider offset as one of the reasons for the cancellation of obligations. According to Article 295, whenever two people are debtors to each other at the same time, the obligations are canceled to an equal extent. Also, the provisions of the annual budget and Article 60 of the country’s public accounting law allow the possibility of offsetting debts and claims between the government and the private sector.