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Iran Economy Update
Issue 77/2017
THURSDAY AUGUST 10TH
President Rouhani proposed nominees to parliament for vote of confidence
President Rouhani on Tuesday introduced 17 ministers for his new cabinet. He‟s made slight changes in key ministers, as several key ministers such as Petroleum Minister Bijan Zangeneh, Road & Urban Development Minister Abbas Akhundi, Labor, Cooperative & Social Welfare Minister Ali Rabiei, Intelligence Minister Mahmoud Alavi, Agriculture Minister Mahmoud Hojjati, Foreign Affairs Minister Javad Zarif, Interior Minister Abdolreza Rahmani-Fazli, Health &
Medical Education Minister Hassan Hashemi, and Youth & Physical Exercise Minister Massoud Soltani-Far will retain their position. Among the economic-related ministers, Minister of Industry, Mine & Trade Mohammadreza Nematzadeh, Energy Minister Hamid Chitchian, and Minister of Economic Affairs & Finance Ali Tayyebnia will be replaced. The CVs of the nominees for these ministries are presented below:
Ministry of Industry, Mine & Trade
Mohammad Shariatmadari Born in 1960
Political leaning: Centrist/reformist
Education: Master‟s degree in management
Current position: President Rouhani‟s deputy for executive affairs
Former positions:
Vice minister of Commerce (1989-1992)
Executive officer at Supreme Leader‟s office for supervision/auditing affairs (1990-1997)
Member of the Board of Trustees of the EIKO1
Former minister of Commerce (1997-2004)
Member of the Strategic Council of Foreign Relations (Since 2005)
President Rouhani‟s deputy for executive affairs (Since 2013)
Ministry of Energy
Habibollah Bitaraf Born in 1956
Political leaning: Reformist
Education: Master‟s in Civil Engineering
Current position: Petroleum minster‟s deputy for engineering, research and technology
Former positions:
Governor General of Yazd Province (1986-1989)
Energy Ministry‟s deputy for educational affairs (1990-1994)
CEO of the Construction & Education Organization (1991-1994)
Member of Board of Iran Water & Power Resources Development Co (1994-1997)
Energy Minister (1997-2005)
Head of the Tehran Construction Engineering Organization (2015-2016)
Petroleum Minister‟s deputy for Engineering, Research and Technology (2016-present)
1 Executive Order of Imam Khomeini (also known as Setad)
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Ministry of Economic Affairs & finance
Massoud Karbasian, 61 years old, Isfahan Political leaning: Reformist
Education: PhD in Commercial management
Current position: Deputy minister of Economic Affairs &
Finance and head of Islamic Republic of Iran‟s Customs Administration
Former positions:
The economic and commercial deputy of the ministry of Heavy Industries (1982-1989)
The Commerce Ministry‟s deputy for planning (1989-1992)
The Foreign Affairs deputy of minister of Commerce (1992-1997)
The commercial affairs deputy of Minister of Petroleum (1997-1998)
The commercial affairs deputy of Minister of Commerce (1998-2001)
The Head of the Islamic Republic Iran‟s Customs Administration (2001-2005)
The urban service deputy of Tehran Municipality (2005-2009)
Head of Islamic Republic of Iran‟s Customs Administration (2013 to present)
Rouhani’s nominee for key Economic ministries presented outlines of plans Bijan Zangeneh (Petroleum Ministry)
Bijan Zangeneh, 65, has published his plans. Zangeneh had served for eight years as the petroleum minister from 1997 – 2005) under the cabinet of former reformist president Mohammad Khatami, and before that, he was Iran‟s Energy minister for nine years under the cabinet of Late centrist president Akbar Hashemi-Rafsanjani (1989-1997).
In this report, Zangeneh said that under his ministerial supervision from 2013-2017, Iran‟s oil production reached 3.9 million bpd in April 2017 from 2.7 million bpd four years ago. Also, oil exports raised twofold and reached 2.86 million bpd in March 2017 from 1.2 million bpd four years ago. Gas production capacity from the South Pars field grew twofold and reached 575 million cubic meters per day in March 2017 from 280 million cubic meters per day four years ago. He said that he managed to recapture Iran‟s lost share from the global oil markets, and also managed to increase the country‟s crude production from shared oil fields fourfold. Similarly, the production of petrochemical products under his term registered a 24% increase and reached 50.5 million tonnes in 2017 from 40.6 million tonnes in 2013. As such, the export of petrochemical products reached 17 million tonnes in 2017 from 12.8 million tonnes in 2013, indicating a 33%
increase. Also, along with signing a contract for developing South Pars Phase 11 with a foreign company, 26 MoUs and 2 Framework of Agreement for developing oil/gas fields have been signed under the new oil contractual models (known as IPC). In this report, Zangeneh has cited the (1) declining recovery rate of oil fields, (2) the serious financial shortfalls and accumulated debts of the NIOC to the banking system (3) depreciation of petroleum industry equipment2 and (4) low prices of energy carriers and high energy intensity as the main challenges facing this industry in Iran.
Zangeneh has underscored that in the next administration and in the oil and gas sectors, he will give priority to finalize contracts for developing Azadegan, Yadavaran, Yaran, South Pars oil layer, Azar, Dehloran, Paydar-e Gharb, Arvand, Sohrab, Farzad A and B, Esfandyar, Balal, Forouzan, Salman, and the Caspian Sea oil and gas fields. He
2 (pipelines, pumping houses, injection structures...)
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said that the contracts aim at increasing oil and gas production by 1 million bpd, and 100 million cubic meters per day, respectively, and enhancing the recovery rates of oil fields, and that they will be signed with the best international oil companies in partnership with the domestic firms.
Finishing the development of all south Pars 24 phases, renovating the old and worn out petroleum industry structures through the involvement of the private sector, construction of the Goureh-Jask oil pipeline project, and construction of oil storage facilities were some other projects that Zangeneh said the ministry will pursue in the next four years. In the petrochemical sector, Zangeneh has promised making about $32 billion in investment to produce $26 billion-worth products through implementing 23 new projects.
In the refinery sector, Zangeneh has promised increasing the country‟s oil refining capacity to 2.7 million bpd from the current level of 1.7 million bpd. Implementing the „No Flare‟ plan to reduce gas flaring in oil production processes, and launching the long- delayed „Iran LNG‟ plant have been among other projects he would pursue by 2021.
According to Zangeneh, the country‟s petroleum industry requires some $200 billion in investment within the 6th Development Plan (2017-2021) and for this purpose, his ministry will support attracting domestic/foreign investment and advanced technologies.
Massoud Karbasian (Ministry of Economic Affairs & Finance)
Massoud Karbasian has cited the four problems he believes are plaguing the Iranian economy namely (1) Budget‟s heavy reliance on unstable oil revenues (2) the government‟s outsize role in the economy (3) the non-transparent and undisciplined structure of the economy and (4) the prevalence of an increasing politicized economy.
He plans to (1)empower the private sector, (2) improve the business environment, (3) facilitate access to financial resources (4) improve the coutnry‟s economic relations with outside world using an economic diplomacy instrument, (5) enhance the country‟s share in global markets especially markets of the neighboring countries, (6) attract foreign investment (7) facilitate financial, trade and investment relations with foreign countries (8) issue international bonds (9) make the economy transparent (10) establish disciplinary financial regulations (11) improve the government‟s revenue-expenditure structure and (12) reform the banking system ...
Mohammad Shariatmadari (Ministry of Industry, Mine & Trade)
Shariatmadari has placed the following points as his priorities as the next minister of Industry, Mine & Trade:
Improve the business and investment environment
Develop domestic and foreign investment
Eliminate barriers for empowering the private sector
Develop non-oil exports
increase the contribution of mineral products in GDP growth
Improve and develop trade relations with the world
Enhance efficiency of production factors
Promote technology, innovation and R&D
Develop infrastructures for production sector
Develop import management strategies and combat smuggling
Improve human resource skills and capabilities
Abbas Akhundi (Ministry of Road & Urban Development)
Enhancing the coutnry‟s insertion in international transit, and realizing the objective of 10.5 million ton transit of non-oil freight per annum
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Improving inter-border tourism and freight transport, and developing infrastructures to materialize this objective
Coordination with tourism agencies to establish marine, air, land and rail lines within the Iranian and Islamic world community
Completing projects to increase the length of rail lines to 13,000 km through clinching foreign finance contracts, increasing the length of freeways to 7,500 km, increasing the capacity of commercial ports‟ cargo loading/discharging to 263 million tonnes and increasing the capacity of airports to hande 144 million passengers by the end of 2021
Turning Iran‟s air into an international traffic bridge among the Europe-Asia Pacific, and Europe-Middle East
Equipping and developing ports with new equipments, developing rail lines within ports, developing hinterlands
Implementing the logistic parks plan and installing other facilities for domestic and international transportation
Attracting domestic/international investment for developing the Imam Khomeini International Air Port and seven other international airports and activating the existing small-scale airports
Developing startups in the transportation and housing sectors to create jobs
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Unlike previous car sector deals, Iran’s contract with Renault is not in JV form
The front page of the Tuesday edition of the leading economic daily Donyay-e Eghtesad has focused on the car manufacturing contract signed on August 7th between French Renault Group and Iranian IDRO. After the three previous deals Iran signed namely with (1) Total on gas field development, (2) train coach construction with a Russian company, and (3) railway electrification with a Chinese firm, this is the fourth big contract Iran signs with a foreign country post sanctions, wrote Donyay-e Eghtesad.
The daily underscores that although with its Iran X90 car venture plan, Renault has been present in Iranian car market since ten years ago, this is the first time that under a deal, a foreign automotive manufacturer produces car in Iran independently without formation of partnership with the two Iranian major car manufacturers of Iran Khodro Co and Saipa. The price of the produced cars, Renault New Duster and New Symbol would be less than 100 million tomans. “This would be a historical and exemplar development in Iranian automotive industry, implying that Renault will produce in Iran the same models of cars that it manufactures in other countries,” wrote Donyay-e Eghtesad. “The fact that Renault will produce cars in Iran independently is of importance from two standpoints.” “First, this renowned European carmaker can manufacture cars in Iran without partnership with the two domestic major carmakers and hence weans itself away from the associated troubles of working with them. This way, it can repeat the successful experience it had in producing cars in Turkey and Romania.” “Second, the independent and successful presence of Renault can in future pave the way for the direct and independent investment of other major carmakers in the world.” “This will help building a more competitive automobile market in Iran,” concludes the newspaper.
According to Donyay-e Eghtesad, IDRO CEO Mansour Moazzami has said that in this contract the two sides have agreed not to include a clause on suspending activities in the event of sanctions‟ snapback, something the French party was insisting to include, which caused procrastination in negotiations for more than a year. Moazzami has explained that under this
€660 million worth deal for producing 300,000 cars in Iran, a car manufacturing complex in Saveh City, Markazi Province, has been purchased for Renault. At the initial phase, the domestic capacity utilization would be 40% that will increase to 60% in 1.5 years.
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Minister of Industry, Mine & Trade Mohammadreza Nematzadeh who‟d attended the signing ceremony said that Renault will build an R&D and a technological engineering center in Iran. He said that the products of domestic auto part manufacturers can be used by Renault provided that they are conforming to global standards. The minister also said that based on this contract, a production line for manufacturing engines will be installed.
Industry Ministry publishes list of domestic products subject to ‘51% Local Content Law’
The ministry of Industry, Mine & Trade has published the list of the “domestic production capabilities” in 10 different production sections so as in line with implementing the law of maximum utilization of domestic products, the country‟s state companies/organization use domestic products and services they need for their projects.
Of note, according to Article 3 of the Law of “Maximum Utilization of Domestic Technical, Engineering, Manufacturing, Industrial & Executive Capability for Implementing Projects and Provision of Facilities for Exporting Services” which is briefly called the “51%-Local Content Law”, materials, equipment and services which are produced or can be produced and supplied in Iran should be used for implementing projects, and at least 51% of the total value of each contract should be supplied from domestic resources. According to this law, if domestic resources/producers/contractors couldn‟t meet the requirements, the state organizations subjected to this law are allowed to use foreign resources to carry out their projects or meet their demands. The following table shows the list of ten groups of domestically-made products/equipment the ministry of Industry has prepared and made available to the public, which should be updated twice a year.
Sector Product
Automotive heavy and light vehicles, motorcycle, car parts, rail, air and marine industries
textile and clothing nylon filament yarn, leather products, footwear, non-textured textiles, propylene sacks, machine woven rugs, clothing, cotton fabrics, artificial fiber fabrics, woolen and woven fabrics
machinery and equipment oil/gas/petrochemical refinery equipment, elevators and transfer equipment, agricultural machinery, production line machinery, thermal exchangers, power plant equipment, metal structures metal/ home appliance home appliance, metal pipe fitting, cooling and heating
equipment
metal mineral industry steel products, aluminum, lead and zinc, copper products, sponge iron and pellets, raw steel
non-metal mineral industry Ceramic and tile, concrete products, fiberglass phosphate fiberglass, sodium sulfate and rock wool, sand, refractory products, cement and plaster, moisture insulation, concentrate, lime, calcium carbonate, industrial powder
food/pharmaceutical/health -- electronic/telecommunication/
medical equipment
electricity, medical equipment, telecommunication equipment, electronic equipment
chemical and cellulose industries
paper and paperboard, wood and wooden artifacts, plastic products, software industry, polymer industry
software industry --
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Donyay-e Eghtesad wrote that preparing this list is in line with the policy of controlling imports on the one hand, defining investment priorities and identifying the potentials of domestic industries on the other.
Three European countries to separately sign petrochemical deals with Iran, totally worth
$5 billion
The Iranian petrochemical industry will attract $5 billion in investment in the near future from three European countries, the Petroleum Ministry‟s official website Shana reported on Sunday.
Hossein Alimorad, the investment director of the National Petrochemical Company has not given the name of the three countries or details of their investment program. “In the past few weeks, negotiations with these three countries have entered a new stage and it can be said that the entry of new investment in this sector in Iran is getting realized,” he said.
