Iranian President Mahmoud Ahmadinejad (right) shakes hands with Pakistan's Foreign Minister Khursheed Mahmood Kasuri before an official meeting in the city of Kermanshah, about 525 km (328 miles) northwest of Tehran, Wednesday. - Reuters

TEHRAN, Iran (Reuters):

Iran, OPEC's second largest producer, is having difficulties financing projects in its oil sector due to the reluctance of foreign lenders, Oil Minister Kazem Vaziri-Hamaneh was quoted as saying on Wednesday.

"We are facing problems in financing oil industry projects," the Oil Ministry's news website SHANA quoted him as saying. "The cooperation of foreign banks and financiers has declined, therefore, we are seeking solutions inside Iran."

Iranian officials have said the country needs to invest tens of billions of dollars in coming years to develop new oilfields, and squeeze production from ageing fields if it is to meet a planned increase in production capacity to 5 million barrels per day (bpd) by 2010 from what Iran says is 4.2 million bpd now.

Heavy investments needed

Iran also needs to invest heavily in boosting refining capacity if it is to reduce a growing dependence on gasoline imports.

But United States pressure over Iran's nuclear programme has forced many international banks to stop dealing with the Islamic Republic in recent months. Iran denies United States accusations that it is seeking to build nuclear weapons.

Vaziri-Hamaneh said Iran would turn to its Oil Stabilisation Fund (OSF), a rainy-day fund which absorbs oil income in excess of budgeted amounts, to finance its oil plans.

Despite the financing problems, Iran has a number of major projects in the pipeline.

New contracts signed

"In the last 15 months, US$28.4 billion worth of new contracts have been signed and some new contracts worth US$62 billion are being negotiated," Vaziri-Hamaneh said without elaborating.

He added that as per instructions from the government, the Oil Ministry was now making all of its purchases in euros, rather than dollars and was no longer accepting dollars from oil customers.

Iran's government spokesman said on Monday the country was calculating its revenues in euros not dollars, including income from oil sales, and was making changes to reflect this in its currency reserves abroad.

Bankers say most international banks have already stopped dollar transactions with the Islamic Republic because of pressure from Washington. Most funds are now transferred in euros or other currencies.