Monday, July 03, 2006

Iran to Privatise But Cling to Big Oil Companies

Negar Roshanzamir, The Financial Times:
Iran on Monday issued an executive order for the privatisation of 80 per cent of several state-owned companies, but retained firm control over the upstream oil sector and key banks. Ayatollah Seyed Ali Khamenei, supreme Leader of the Islamic Revolution, said in his order thatceding 80 per cent of the shares of large companies will serve to bring about economic development, social justice and the elimination of poverty.

The decree is also an effort to revive Iran’s stalled privatisation programme and kick-start the country’s many uncompetitive industries, which are heavily protected by subsidies. READ MORE

“By putting into practice the action plan, the government’s role will undergo a shift from direct involvement in ownership and running the large companies to supervising and guiding different sectors of the economy to meet the regulations of the World Trade Organisation,” the Supreme Leader said. Iran has not begun any accession negotiations with the WTO.

Ayatollah Khamenei said the privatisation process would help reinforce the private sector in the national economy and would encourage companies to compete in international markets.

Iran attempted to shake up its moribund economy in 2004 by overturning Article 44 of the constitution which decreed core infrastructure should remain state-run. But there has been little interest in shares of state companies. Tehran tried to sell $2.5bn of government assets in the year to March 2005, but only managed to offload less than 30 per cent.

Foreign investors can bid in Iranian privatisation tenders, but need permission from the Economy Ministry on a case-by-case basis.

Analysts have blamed international fears about Tehran’s nuclear programme and an absence of transparency for the lack of enthusiasm for state assets. Local investors also argue state industries are overvalued.

The Supreme Leader said the downstream oil and gas sectors would be privatised but excluded the upstream oil and gas industry, the National Iranian Oil Company, the state companies involved in exploration and the production of crude oil and gas.

Most smaller state banks will be open to flotation, but excluded key banks including the Central Bank of Iran, Bank Melli of Iran, Sepah Bank of Iran, Bank of Industry and Mines, Bank of Agriculture, Housing Bank (Bank Maskan) and the Export Development Bank of Iran.

All airline companies except for Civil Aviation Organisation as well as Ports and Shipping Organisation should be ceded to the people.” Mr Khamenei said.

This covers flag carrier Iran Air and its affiliate Iran Aseman. The fast-growing Islamic Republic of Iran Shipping Lines has been lobbying for more independence.
Sounds like Iran is attempting to follow the Chinese model. But it will need significant foreign investment, which is unlikely any time soon.