Sounds to me like they won't actually be managing the VM, just using it to write their code.
The organization offering the service is maintaining the VM, making this a Platform as a Service.
Most (if not all) cloud services will run on a vm somewhere, IAAS is just when you get to set up that VM for yourself instead of just getting access to what that VM does (PAAS or SAAS). As others have said the answer here is PAAS since the virtual machine will be used as a "platform" to develop code on.
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