Iran Economy Update
Issue 104/2017 TUESDAY DECEMBER 26TH
MP confirms suspension of LNG agreement with Norwegian company
The head of the Majles Energy Commission declared that the contract with Norwegian IFLNG company on turning natural gas into LNG has been put on hold because of some missing legal provisions, Mehr news agency reported on Monday. Elaborating on the legal defects, Fereydoun Hassanvand explained that it should have been approved by the cabinet of ministers in order to be enforceable, but it didn’t. He also said that another formula should have been used for selling natural gas to this Norwegian company. In a confidential letter to the Petroleum Minister Bijan Zangeneh, the Majles Energy Commission had notified four or five defects in this contract and the ministry promised correcting them. Hassanvand underscored that what the NIOC and IFLNG had signed was an MoU and not a binding contract, and that the ministry has for now suspended arrangements for turning the agreement into a contract.
On Oct 26, local media reported that the first “contract” for selling natural gas for turning into the liquid form (LNG) was signed between NIOC and IFLNG (owned by the Khark Gas Refining Company and Norwegian Hemla). Under this 20-year contract, the Caribbean FLNG (a floating liquefaction and storage facility) will be placed in Pars Port Complex in the middle of the next Persian year to receive and transform 2.3 million cubic meters per day of natural gas to LNG.
Local daily challenges govt. for mismanagement in handling quake and air pollution The magnitude 5.2 tremor jolted Tehran last Wednesday presented the leading Iranian economic daily Donyay-e Eghtesad with an opportunity to criticize the state of mismanagement of handling the crises in the country. “Tehran in the trap of incompetent managers” was the title of an article penned to challenge the two big urban challenges facing Tehran last weekend.
“Last weekend, the residents of the Capital saw the real face of a fatal metropolis, and suffocated 48 breathtaking hours. In early hours of Wednesday, Tehran’s air quality entered into the hazardous range and then, in the final hours of the day, a 5.2 magnitude earthquake shook the western areas of capital, which inflicted a new type of crisis as the streams of people pouring into streets with their cars locked in traffic jams deteriorated the air pollution status.”
“The combination of the two crises of the ‘peak of air pollution’ and ‘nightly earthquake’—that each alone could be sufficient to cripple a country—is the result of incompetency of the city and state authorities,” added the newspaper.
Latent crisis of pension funds may end up with public outrage
The headline of the front page of Jahan-e Sanat (means the Industry’s world) was on the expanding crisis plaguing the Iranian pension funds. “The Social Security on the verge of bankruptcy” was the headline the daily chose last Wednesday to discuss an “imminent”
prospect of bankruptcy the pension funds will face. “As the biggest insurance fund in the country, the Social Security Organization is facing looming bankruptcy. Some MPs believe that this organization will go bankrupt in two years but its CEO believes that since the organization is backed by the government, its bankruptcy is out of fear,” wrote Jahan-e Sanat.
The daily refers to a report released by the Majles Research Center (MRC) which states that the possibility of the bankruptcy of the Social Security Organization in the next ten years is high and that the crisis would be such big that the government cannot handle and intervene. The MRC
report cautions that due to the extension of the geographic coverage and variety of pensioners, the bankruptcy of the social security pension fund may result in public outrage and protests.
Ali Dehghan-Kia, the vice president of the Tehran Workers Pensioners Association told the media press last week that out of the 16 pension funds in the country, only two newly established ones are in a appropriate conditions. He said that next year, the Social Security Organization will face a 31 trillion toman deficit ($7.4 billion at the open market exchange rates) which has emerged as the outflow of the pension fund has been by 2.5% more than its inflow.
In October 2017, the daily Shargh cited the pension fund crisis as one of the super-challenges facing the Iranian economy, resulted from billions of dollars of accrued debts. The report stated that the Social Security Fund affiliate with the Social Security Organization is owed some 145 trillion toman by the Rouhani government, up from 63 trillion toman under the presidency of Mahmoud Ahmadinejad (2005-2013), and 5.6 trillion toman under Mohammad Khatami (1997- 2005). “The social security pension fund pays 1,800 billion tomans monthly to the pensioners that are receiving pensions without having fulfilled the years of contribution required to receive such pensions. We owe 23 trillion tomans to the Refah Bank as loans were borrowed from this bank for paying monthly dues to the pensioners. The social security fund’s monthly expenses amounts to 6,500 billion tomans, and it is owed by 145 trillion tomans by the government,”
Dehghan-Kia told Shargh on October 19.
Mohammad-Gholi Yousefi, an Iranian economist and university lecturer penned an article published in the Tuesday edition of the Jame’e Farda (Tomorrow’s Society) newspaper, and argued that the crisis plaguing the pension funds is the result of mismanagements and political interventions as such funds have made governments sturdy and became weak themselves.
“Our governments have considered the funds as an instrument to serve as their coffers and not independent institutions to secure prosperous future for the pensioners,” argued Yousefi.
Govt. continues distributing food baskets next year among needy Iranians
Minister of Labor, Cooperative & Social Welfare Ali Rabiei ensured that the subsidy cash payment to the needy Iranian people will not discontinue in the next year, and added that the government will also continue distribution basket of food to the low income families next year.
Rabiei made the remarks in order to allay concerns following the spread of different speculations on the government’s plan to reduce the number of subsidy cash receivers into a half, from above 70 million to below 30 million individuals. “I believe that no needy people should be excluded from the list of subsidy cash list. Our strategy is that the amount of cash payment to the needy people should increases provided that it become clear to us that they are in real need,” Rabiei told Mehr news on Saturday.
Note: Since 2014 and amidst the recessionary economic conditions in Iran and pressing concerns of unemployment and inflation, the ministry of Labor, Cooperative & Social Welfare has been tasked with identifying the poor Iranian families to provide them with supplementary food baskets for free.
Yahya Al-e Eshagh, the former chairman of the TCCIMA and Iran’s former minister of Commerce (1993-1997) has warned that excluding 30 million Iranians from the subsidy cash payment list, along with the increase in the price of gasoline may cause panic in the society.
Industry minister says Iran needs $54bn investment yearly to realize 8% growth rate In order to realize the projected annual economic growth rate of 8%, Iran requires attracting at least $54 billion in foreign investment per annum, said the minister of Industry, Mine & Trade
according to Tasnim news agency. Mohammad Shariatmadari said the country needs to facilitate the regulations for attracting foreign investment.
On 14 December, Ahmad Jamali, the director general of the OIETAI’s investment office declared that in the current Persian calendar year (ending 20 March 2018), some $8 billion in foreign investment is expected to be attracted, a major portion of which has come from China.
According to Tasnim, Jamali made the remarks on the sidelines of the Chinese machineries and home appliance exhibition in Tehran.
In a separate development, Shariatmadari announced on Sunday that to develop the infrastructures for the country’s steel industry, some €19 billion financial resources are required.
According to Mehr news, in an address to the 8th Seminar on the prospect of Iran’s steel & mine industry, Shariatmadari said our steel production has registered an 11% increase compared with 2015. “In this field, we’ve taken promising measures and managed to increase our contribution to the global steel market to 1.1%, but we still need doing more,” he said. He added that most of the required €19 billion fund is projected to be spent on developing electricity and railways as the infrastructures for the steel industry. In the projected Comprehensive Steel Industry we plan generating 5,000MW electricity which requires €5 billion investment, said Shariatmadari. Water provision is another requirement for developing steel industry in Iran, he said. We also need to increase the capacity of using railways from the current 28 million tons to 101 million tons by 2025, which requires €10 billion in investment, he added.
Hyundai Heavy to deliver one ship per 45 days starting Mar. 2018
Mehr news– 23 Dec-- CEO of Islamic Republic of ran Shipping Lines (IRISL) said that Korean Hyundai Heavy Industries will begin delivering one ship per 45 days starting March 2018 under a contract signed with Iran in 2016. Mohammad Saeedi said the first delivery will take place in March 2018, and the remaining nine vessels will be delivered every 45 days. He explained that four of the ten ships are containers and the rest are tankers. The capacity of these container ships amounts to over 14,500 containers. “At the moment, Iran’s Shipping Lines has more than 150 large commercial ships with a total capacity of carrying 5.2 million tons of commodity,” he said, adding “Iran’s Shipping Lines ranks 20th globally in maritime transport. The delivery of the ten new vessels will improve our ranking to 16th or 17th.”
RAI official gives more details of finance deal with Korean Hyundai Rotem
The CEO of the Islamic Republic of Iran Railways (RAI) gave some information about the €720 million finance contract with Korean Hyundai Rotem for rail-bus building, and said its difference with the previous deals is that the Iranian side has a greater contribution, and that the license of this technology will be transferred to the IRICO (the Iranian Rail Industries Development Company). According to the daily Jahan-e Sanat, Saeed Mohammad-Zadeh said the contract to buy 450 railbus stock from Korea is in line with the government’s policy of developing suburban transport system. He said the contract’s duration is 78 months and the first set of wagons will be delivered in less than 1.5 years. The ownership of the manufactured fleet would belong to Iran in the end, added Mohammad-Zadeh.
Iran Air official says Airbus accepted financing airplane purchase deal
The managing director of Iran Air declared that Airbus has accepted financing the Iranian purchase of aircrafts, the daily Jahan-e Sanat reported on December 18. “We are in negotiations with foreign leasing companies but Airbus has also accepted financing the deal,”
said Ms. Farzaneh Sharafbani. She confirmed that Iran Air has signed deals for the purchase of 80 Boeing, 20 ATR and 100 Airbus.
