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Iran Economy Update
Issue 15/2018 THURSDAY MARCH 8TH
Content
Road Ministry says disclosing terms of contract inflicts legal consequences to Boeing
217 out of 290 MPs support motion to prevent rise in tariffs on automotive imports
Iran and China signed deals on road construction and metro car supplies
Iran pledges providing LC for reconstruction of Iraq
Road Ministry says disclosing terms of contract inflicts legal consequences to Boeing In reaction to the recent call of a US court on Boeing to disclose details of the $16 billion contract with Iran Air, Iran‟s Vice Minister of Road and Urban Development said Iran has no concern over this issue, and that Boeing should adhere to its commitment in keeping such information confidential. According to ILNA, Asghar Fakhrieh-Kashan said those who‟ve referred to the court to get a ruling about disclosure of the confidential information aim to realize and block the path through which the money was supposed to be paid. “But the contract has been formed in a way that the path is not easily recognizable,” added Fakhrieh-Kashan. He said disclosing the contractual terms would inflict legal consequences to Boeing and this company needs Iran‟s consent before doing so.
217 out of 290 MPs support motion to prevent rise in tariffs on automotive imports
In an article titled “An unprecedented alliance in parliament”, the daily Shargh wrote on Wednesday that 217 MPs (about 75% of the legislators) have signed a double-urgency motion which calls for reducing tariffs on automobile imports in the shortest possible time. The plans that are signed with double-urgency (which requires signatures of at least two-third of the lawmakers) will be put on the parliament‟s immediate agenda in 48 hours. The motion has faced strong opposition of some domestic car and auto-part producers including Mohammadreza Najafi-Manesh, a board member of the Iranian Auto-Part Manufacturers Association.
According to Shargh, Najafi-Manesh said the lawmaker‟s move in easing car imports is against the objectives of strengthening domestic production, which was outlined by Supreme Leader Ali Khamenei in naming the current year as the year of „Economy of Resistance, Production and Employment‟. He also ruled out the explanation that the domestic vehicles are responsible for air pollution in the country.
In December 2017, the government had approved a proposal submitted by the Ministry of Industry, Mine & Trade on increasing import tariffs on foreign hybrid cars, which is summarized in the table below. According to the cabinet‟s ratification, the customs‟ ceiling price for imported vehicles was set at $40,000, and the importation of the vehicles with the engine capacity of above 2500 CC was kept forbidden.
vehicle engine capacity former import duty new import duty
engine capacity ≤1500 CC 40% 55%
1500 CC ≤ engine capacity ≤2000 CC 40% 75%
2000CC≤engine capacity≤2500 CC 55% 95%
2 According to the government‟s ratification, foreign suppliers of cars are also required to establish official representative office in this country.
In support of levying higher import tariffs on foreign cars, TPO Head Mojtaba Khosrowtaj had said in December that it should not be allowed that our market be glutted with foreign cars. Also, Vice President for Economic Affairs Mohammad Nahavandian supported imposing higher tax on car imports in order to support the domestic carmakers. “The government’s policy in car industry is supporting the local producers using the tariff instrument, and the newly-imposed tariffs seem appropriate for this purpose,” he said, adding that this does not imply that the government is against car imports.
Meanwhile, Government Spokesman and Head of the Management & Planning Organization Mohammad-Bagher Nobakht said on December 18 that that government will soon submit a bill to the parliament on increasing import tariffs on cars and some other goods in order to strengthen national products. He said some high-profile senior ruling officials have called on the government to put restriction on car imports, without giving any name.
Less than two weeks after Nobakht‟s remarks on the government‟s emphasis on restricting car imports, MP Bharam Parsaee threatened on January 1st that the lawmakers will inhibit this move using a double-urgency plan. He said since the domestic car producers have failed to improve the quality of their products in terms of air pollution and fuel consumption, increasing tariffs on importing foreign cars inflicts burden on the domestic consumers who prefer using high-quality foreign cars. Parsaee also expressed opposition to the government‟s ratification in obliging foreign car suppliers to establish representative offices office in Iran saying it is illogical because
“none of the major foreign car manufacturers have formal representative office in our country and their representatives are operating in Iran through intermediates.”
With mounting opposition against the government‟s ratification on increasing import tariffs on cars, the Administrative Justice Court of Iran suspended the government‟s ratification on 10 February. According to the Administrative Justice Court‟s ruling, the government was supposed to revoke the ratification on increasing car import tariffs until a later time.
Iran and China signed deals on road construction and metro car supplies
Iran and China signed a deal on Thursday on cooperation for construction of the Shiraz- Bushehr rail line, Mehr news agency reported . Minister of Road and Urban Development Abbas Akhundi said this project will be effective in developing the coutnry‟s transit potential, reducing road tolls, reducing fuel consumption, increasing safety and protecting the environment. He explained that the project is being carried out through cooperation between a private Iranian company and a Chinese firm and is financed by the Chinese side. He explained that under the finance deals, the Iranian partner should undertake 15% of the investment, and explained that this money is secured from the coutnry‟s sovereign wealth fund (National Development Fund).
The managing director of the Iranian Construction & Development of Transportation Infrastructures Company (CDTIC) was another speaker at the signing ceremony. Kheirollah Khademi said the project will cost $700 million and China will provide 5 billion yuan in finance to this project. He explained that developing the coutnry‟s rail networks is among the government‟s priorities and in this regard, seven rail projects with total length of 2,270 km and an estimated cost of about $3 billion have been defined.
3 In a separate development, a 500 million euro contract was signed on Wednesday between Chinese Puzhen and Iranian IDRO for supplying 450 metro cars for Ahvaz, Tabriz and Shiraz cities. The Chinese company will provide 85% of the required finance, and the remaining 15%
will be secured from domestic sources.
This is the third contract/agreement Iran signs with foreign companies for supplying metro cars.
A major structural deal with Swiss Stadler Rail was signed on March 1st in Tehran on the sidelines of the 1st Iran-Switzerland Joint Economic Cooperation Commission for supplying 960 metro cars for Tehran and Karaj lines. Also, in August 2017, IDRO and Russian Transmashholding had signed a $2.98 billion finance Joint Venture (80-20) deal to produce rolling stock using Russian financing.
Iran pledges providing LC for reconstruction of Iraq
A major high-profile Iranian delegation comprising Vice President Jahangiri, Foreign Minister Zarif, and CBI Governor Valiollah Seif are in Iraq onn a three-day mission. Duirng après conference Iraqi Prime Minister Haider al-Abadi thanked Iran for its “stand with Iraq against terrorism until victory” and announced that Iran is committing $2 billion to Iraq‟s reconstruction and that the contract for Iran to supply 1,000 MW of electricity to this neighboring country has been extended for another year. "Talks with the Iranian side included trade, border demarcation, Shat al-Arab, water, economic and trade cooperation, and transfer of funds," he said, added.
Speaking at a joint press conference, First Vice President Eshagh Jahangiri said Iran is ready to provide up to $3 billion line of credit for the reconstruction of Iraq, and said the two sides need to overcome banking issues which are still a major problem.
