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Iran Economy Update
WEDNESDAY MAY 31ST
How much investment is required to realize 8% GDP growth seen in 6th Development Plan?
The head of the Management & Planning Organization announced that to achieve the annual economic growth rate of 8% set forth in the 6th Development Plan (2017-2021), an annual investment of 770 trillion toman ($237 billion at the official exchange rate of 3,244 toman) is needed. According to Mehr news, Mohammad-Bagher Nobakht said that this fund would be secured through seven sources including government’s [direct]
investment, investment of state companies, loan facilities extended by domestic banks, and loans extended by the National Development Fund (a sovereign fund extending loans for long-term investment plans).
Although Mr. Nobakht has only stated the domestic sources that would provide funds for realizing GDP growth objectives, it is noteworthy to mention that the 6th Development Plan has also stipulated securing funds from foreign sources.
According to Article 4 of the Plan, the government is allowed to attract $65bn annually from foreign sources, of which
$30bn would be secured from the foreign banks’ line of credit for project finance,
$15bn through the Foreign Direct Investment, and $20bn through foreign participation contracts.
Meanwhile, the FDI Intelligence, a division of the Financial Times Ltd has published its 2017 report on “global Greenfield investment trend” which indicates that in 2016, Iran ranked second in the Middle East & Africa region, after Egypt, in attracting capital investment. In 2016, Iran attracted $12.2 billion in investment, which accounts for 9%
of the total capital attracted by this region this year.
“Iran was a new entry to the top 10 for FDI by project numbers after an increase of 556% to 59 projects. The country also ranked second for FDI by capital investment in 2016, following the announcement of two
$1bn projects,” wrote the FDI Intelligence in its 2017 report.
In a separate development, the daily Donyay-e Eghtesad on Saturday quoted Ms.
Faryal Mostowfi, head of the investment commission of the Iran Chamber of Commerce, Industry & Mine (ICCIM) as saying that one of the “serious” impediments in attracting foreign investment in Iran is the unstable foreign exchange rate.
Improper infrastructures such as road, airport, railway, water, electricity and such like was another factor Ms. Mostowfi cited as impediment for attracting foreign investment in Iran. She said the country’s banking relations with foreign banks have not been completely reestablished, which is another hindrance for foreign investment. She also criticized the fact that about 80% of Iran’s economy is owned by state and quasi-state organizations which has sidelined the [genuine] private companies.
Soaring number of bounced checks, an indication that recession still plagues Iran’s economy
The Central Bank of Iran announced that in the Iranian month of Esfand (20 Feb-20 March 2017), 10 million checks worth 638 trillion rials were traded of which, 1.4 million checks worth 123 trillion rials were bounced.
This implies that about 14 percent of checks were bounced in the last month of the Persian year of 1395 (ended 20 March), which shows a 12.6% surge in value compared with a month earlier. The CBI has not published the figures about the value of bounced checks in the whole of the last Persian year (ended 20 March).
2 On 13 May 2017, Afkar News, a news website with conservative leaning criticized the government for making the statistics on bounced checks confidential. “The growth in the value of bounced checks was so high so much so that the CBI preferred postponing its announcement to a date after the presidential elections,” wrote Afkar News.
The news website has quoted Mahmoud Ahmadi, the CBI’s director general as saying that the number of bounced checks has increased from one million in 2005 to five million in 2013 and to 6 million in 2014. The news agency uses the growth in the value of bounced checks as an indication that the Rouhani’s claim that the economy has emerged out of recession is not true.
Iranian and Russian presidents discuss emboldening economic ties
President Hassan Rouhani and President Vladimir Putin held a phone call on Saturday this week and among other issues, discussed economic ties including joint projects in oil and gas sectors and peaceful nuclear projects, Reuters reported.
In a related development, Shana, the Iranian Petroleum ministry’s news agency reported that “intensive talks” were held earlier this week in Tehran with a visiting Russian delegation and that an Iranian delegation is scheduled to visit Moscow this weekend to attend the second Iran-Russian Energy Commission. Of note, the 1st Iran-Russia Energy Commission was held in Tehran on 13 December 2016 with the participation of the Iranian and Russian deputy ministers.
Iran has so far signed MoUs with four Russian companies of Lukoil, ZarubezhNeft, TatNeft, and Gazprom, to study developing a number of oil fields including Ab-Teymour, Mansouri, Aban, Paydar-e Gharb, Dehloran, Shadegan, Cheshmeh-Khosh, and Changouleh. Shana news reports that on the sidelines of the OPEC’s 172nd ordinary session held last Thursday, Petroleum minister Bijan Zangeneh met with the managing directors of Lukoil and Gazprom.
Zangeneh also told Reuters that Iran hopes signing “groundbreaking deals” with oil majors such as France’s Total, Russia’s Lukoil, Danish Maersk, and maybe Indonesia’s Pertamina this year. Talks are focusing on the development of fields such as South Azadegan, Yadavaran, West Karoon, Mansouri and Ab-Teymour and oil layers in the giant South Pars gas field.
Iran to hold tender for developing Azadegan field soon; 29 qualified oil majors are expected to attend
Tasnim news agency reported on Sunday that the tender for developing the Azadegan oil field will be held this week, and invitations have been sent to 29 foreign oil majors that previously were qualified by the NIOC. NIOC Managing Director Ali Kardor has said the projects aims increasing oil production as well as the recovery rate of the field.
In a related development, Iranian English- Language news website Press TV on May 27 quoted Zangeneh as saying that a deal with France Total on developing South Pars Phase 11 gas field will be signed before summer. Zangeneh and Patrick Pouyanne, Total’s chief executive met in Vienna last week on Friday the sidelines of the OPEC meeting. “The signing of the contract with Total is very close and will be done in less than a month,” Zangeneh told reporters.
NIOC and Total signed Head of Agreements in November 2016 for developing South Pars phase 11 but on 9 February, Patrick Pouyanne said a final decision on the $2 billion gas project hinges on renewal of US sanctions waivers. Mr. Zangeneh’s declaration that the deal with Total is signed soon is announced ten days after the Trump administration gave a nod to continue waiving some sanctions against Iran.
TCCIM president met with German ambassador in Tehran
Massoud Khansari, the president of the Tehran Chamber of Commerce, Industry &
Mine (TCCIM) met with Michael Klor- Berchtold, Germany’s new ambassador to
3 Tehran and discussed barriers for developing bilateral ties, the daily Donyay-e Eghtesad wrote on Tuesday. The German Ambassador said banking issues are still one the most important impediments for developing relations, and promised stepping up efforts to convince German banks to establish relations with the Islamic Republic.
In a separate development, a local newspaper wrote that in a letter issued by the Iran’s ministry of Foreign Affairs to the TCCIM, it has been noted that Italian Banca Popolare di Sondrio has established relations with 20 Iranian banks, with a commission (transaction cost) of 1.5 euros per 1,0000 euros.
IRNA: An Int’l business firm to invest € 22 billion on Iran road projects
The representative of an international business company in Iran announced that this company is going to invest $22 billion in Iran by financing road projects, IRNA reported on Tuesday. The Islamic Republic News Agency (IRNA) which has published the news story wrote the name of the company is VNS, and elaborates that “VNS is a combination of international business companies which provide financial facilities of more than 50 billion euros to help develop infrastructure and construction projects in other countries.” The news agency has quoted Mohammad-Taghi Norouzi, the representative of VNS in Iran as saying that
“The bank facilities, expected to be paid in the form of finance agreements, will go to the projects conceived by the Ministry of Roads and Urban Development.” “The company, based on the finance agreements and memorandums of understanding signed between the VNS and Iran, is expected to invest more than 22 billion euros on road projects across the country,” Norouzi said, according to IRNA. Norouzi added that €8 billion of the bank facilities are expected to go road projects in West Azerbaijan.
Iran exports natural gas to Turkey free of charge for past debt
The Iranian English-Language newspaper Iran Daily wrote on May 27 that Iran is exporting natural gas to Turkey free of charge since January in order to clear the debt it owes to this neighboring country after an international court ruled that Iran is fined
$1.9 billion on a gas pricing dispute.
Speaking to reporters on Saturday this week, Petroleum minister Bijan Zangeneh confirmed this news and explained that in 2012, Ankara had filed a lawsuit against Iran in International Arbitration Court saying the price of Iran’s gas supplies is too high, and called for a 62.5-percent decrease in the gas price it receives from Iran but the court eventually ruled that the price reduction be 13-percent. (Of note, in the international conventions for long-term contracts, the two sides are given the opportunity to discuss prices regularly and consider revisions.)
The ministry of Petroleum issuing a statement on Tuesday and claimed that such media campaigns against the government are masterminded by those who are trying to twist the point of attentions and push blame away from themselves and the role they had in thwarting the Crescent Petroleum deal.
“The fact is that in 1996, the Islamic Republic signed a gas export deal with Turkey. After a while, Turkey criticized the gas price in that deal and negotiations were held in this regard but eventually, Turkey filed a lawsuit against Iran in 2005 which ended up ruling against Iran in 2009 based on which, Iran should have reduce gas export prices by 12.5% and give Ankara a partial refund which amounted to about $1 billion, which was completely paid by the then [conservative] government of Mahmoud Ahmadinejad without facing the fanfare of the media.” Reads the statement released by the Petroleum ministry of Tuesday.
“In 2012, Turkey again criticized the price and quality of the Iranian gas and asked for a 25% fine for the [low] quality and a 37.5%
reduction in prices [totally 62.5% price reduction]. The International Arbitration Court
4 ruled out the request for a 25% fine and in regards to price decline, only accepted a 13.3 percent reduction. The time for enforcing the this ruling was designated nine months and hence, the amount Iran is owed to Turkey is the additional sums Tehran has received from this country,” added the statement.
Minister of Economy visited China this week to resolve repatriating petrochemical sale proceeds
The daily Shargh wrote on Sunday this week that the purpose of the visit of the minister of Economic Affairs & Finance Ali Tayyebnia to Beijing was to resolve the problem of the Iranian petrochemical exports’ proceeds that have been blocked in Chinese accounts.
Tayyebnia’s visit to China take place after one of Iranian petrochemical industry associations issued a letter to the first vice president in mid April and expressed concerns about the problems facing domestic petrochemical companies in repatriating their export proceeds. According to Shargh, the letter states that 40% of Iranian petrochemicals are exported to China but for some reasons such as the changes in Chinese domestic regulations, many problems have occurred in exporting the products and receiving the proceeds.
Hamid Hosseini, a member of the Iranian Association of Exporters of Natural Gas, Petrochemical & Oil Products told Shargh that the problems have emerged due to the changes in Chinese banking system and their obligation to observe anti-money laundering regulations. He said that a similar problem was faced two years ago in regards to the UAE when about 4,000 to 5,000 accounts belonging to citizens of Iran, Afghanistan, Oman and Saudi Arabia were blocked because the emirate banking system was behaving cautiously about the origins of the money in accounts, based on the “Know Your Customer” due diligence process stipulated in the Anti-Money Laundry regulations. “At that time, rumors ran that it was the result of sanctions but later it became clear that it had nothing to do with
sanctions and was because the account owners had not made the origins of money transparent,” said Hosseini. He said that the problem in China is of the similar type. “The Chinese banking system has become sensitive to the origins of bank accounts. So far, the petrochemical products went to the Chinese customs and were released on entry documents after which the money was transferred to Iran by payment order. Now, the Chinese banking system has been obliged to observe the anti-money laundering
& combating terrorism regulations. Under this system, many Iranian exporters are not able to submit documents in accordance with the anti-money laundering regulations and hence, the Chinese purchaser cannot pay money to them,” Hossein told Shargh on Sunday.
Meanwhile, Hossein Yaghoubi, the CBI’s director general for international affairs has provided some explanations and underscores that in line with implementing the anti-money laundering regulations, the Chinese banks want to authenticate the originality of the certificates issued for the freights. He said that formerly, China used to accept the certifications for the freights issued by the companies but now this country requests the certificates be authenticated by a certificate authority.
Yaghoubi ensured that the problem is being under resolution and that similar cases have been observed for business players from Turkey and a number of the Persian Gulf littoral states such as the UAE.
Mehdi Nik-Nafas, the managing director of the Iranian state Petrochemical Commercial Company has said that “Iranian petrochemical export proceeds have not been blocked in Chinese banks and rather, in order to implement the anti-money laundry regulations, they take more strict measures in transferring petrochemical export proceeds.” He said that the “interruption” in money transfer has taken place since early May when anti-money-laundering regulations started being implemented by the Chinese banks.
5 Petroleum ministry signed $550 million deal on CRA pipeline building with a Spanish-Iranian consortium
Last Wednesday, Petroleum Minister Bijan Zangeneh attended a ceremony on signing a CRA1 building contract worth $550 million between NIOC and a Spanish-Iranian consortium. According to the official website of the Ministry of Petroleum, Zangeneh underscored that Iran wants to have
“interaction and amicable relations” with the world. He said the under sanctions, Iran was facing tough times in securing the CRA pipelines and if sanctions were still in place, we couldn’t sign this contract today.
Zangeneh said that signing this contract enables Iran to have 100 percent of the pipeline construction processes in the country and export the products to the regional markets. “The foreign partner of this contract will be able to exploit the domestic and regional CRA markets,” said Zangeneh.
The official website of NIOC has cited the deal as “the most important contract signed in the post-sanctions era”, which is as part of a bigger picture of localizing the consecution of ten groups of petroleum industry equipment inside the country.
Meanwhile, Shana, the Petroleum ministry’s news agency has quoted Asadollah Gharakhani, the spokesman of the Majles Energy Commission as saying that the contract with this Spanish-Iranian consortium
“is one of the appropriate role models could be used for attracting foreign investment in association with technology transfer.” The success in transferring technology of building this pipeline is one of the most important achievements of the Petroleum Ministry, added the lawmaker, according to Shana.
NPC will soon sign a technology transfer contract with a European company
One of the executive managers of the National Petrochemical Company of Iran (NPC) announced that an agreement
1 Corrosion Resistant Alloy
between Iran and a European company will soon be signed on technology transfer, ILNA reported on Monday. The agreement is on establishing a joint license in petrochemical industry, explained Hossein Ali-Morad, the NPC’s investment deputy, and said details will be announced soon. “The issue of technology transfer is of high importance to us,” said Ali-Morad, adding that foreign companies are very interested in cooperation with Iranian petrochemical holding companies.
In a related development, Shana news agency reported on May 29 that the Maroun Petrochemical Company will soon sign two separate contracts with Royal Dutch Shell and two Italian companies including Tecnimont to implement two petrochemical projects. Rahim Sharif-Mousavi, the managing director of the Maroon Petrochemical Company has said that the contracts will be signed in the next coming weeks but did not give further details.
