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Iran Economy Update
Issue 90/2016 – Wednesday August 24th
Content
China increases oil production from an Iranian field
45 percent of loans of Iranian banks become nonperforming: CBI governor
Reuters: German exports to Iran soar after removal of sanctions
Vice president criticizes unfair prevalence of public entities in economy
Economy minister says Iran has left critical conditions behind and calm is restored in economy
Vice President: This Govt. is determined to fight corruption that eats economy like termite
Reuters says oil prices go up as Iran shows positive signals to support oil freeze scheme
TPO head resigned over alleged disputes with Industry minister
Iran government guarantees private sector’s investment in Latin American countries: Zarif
China increases oil production from an Iranian field
An Iranian Petroleum Ministry official confirmed an agreement with a Chinese firm on a project for increasing oil production from the southern Masjed-Soleiman oil field, Mehr News Agency reported on Monday. Gholamreza
Manouchehri, the deputy managing director of the Petroleum Engineering &
Development Company PEDEC—
subsidiary of NIOC—said the agreement was reached during the last week visit of an Iranian oil delegation to Beijing. No details have been announced yet but the agreement is announced less than a month after PEDEC announced that Sinopec and CNPC, two major Chinese oil companies have been awarded the development of the second phases of the Yadavaran and North Azadegan oil fields1.
1 On July 27, Hadi NAzar-Pour, an executive director of PEDEC had said the
Iranian leadership has taken numerous occasions to underscore that Tehran and Beijing are going to move beyond customary bilateral relations and are going to form a strategic long- term relationship. The decision to award developing new fields to China is made while the two firms had received several ultimatums in the past years from the Iranian Petroleum Ministry when they were involved in developing the first phases of Yadavaran and North Azadegan fields.
2nd phase of Yadavaran field will be awarded to Sinopec and that negotiations are going on with CNPC for development the 2nd phase of North Azadegan field.
On October 27, 2015 and in interview with the daily Shargh, Hamid Hosseini, a member of Board of Directors of the Iranian Association of Oil, Gas &
Petrochemical Products and an ICCIM member had underscored that “In most countries, their economic benefits determine their diplomatic and political
orientation while in the case of Iran, it is vice verse as there are political priorities that determine the orientation of the economic policies.”
45 percent of loans of Iranian banks become nonperforming:
CBI governor
The governor of the Central Bank of Iran (CBI) said on Monday that about 45 percent of the loans disbursed by the Iranian banking system have turned into bad loans. According to IRNA, Valiollah Seif who was speaking in the Chinese firms to develop 2nd
phases of Yadavaran and N.
Azadegan fields despite unsatisfactory performance in deveoping the 1st phases of the fields
2 Iranian northern city of Golestan
blamed the problem on the former government of Mahmoud Ahmadinejad and explained that most of the bad loans are resulting from the [low-interest] loan
facilities extended by the former government to small industrial businesses. “Instead of spending the loans on production expenses, some used the facilities in
unrelated areas [and never paid off the loans],” said Seif.
Since balance sheets of Iranian banks are not published, there is no way of estimating the true size of the band loans but on July 11th, Deputy Economy Minister Hossein Ghazavi had said the value of the banking system’s non-performing loans amount to 100 trillion tomans (about $28.2 billion).
The Majles Research Center (MRC), the research arm of the Iranian parliament had published a report in June on the status of Iranian banks. The daily Jahan-e Sanat wrote at that time that “This is the first time that the research arm of an official body confirms the bankruptcy of the country’s banks.” Jahan-e Sanat wrote that the results of the MRC research show that the status of the Iranian banks in terms of the three criterions of balance sheet, liquidity and observing banking rules and regulations is not good.
On June 1st, Mohammad-Mehdi Reis-Zadeh, a member of the TCCIM’s representative bureau had told the daily Shargh that most of the Iranian state and private banks have accumulated toxic assets, and explained that this term refers to the amounts that the banks have spent on buying real estate and other non- cash assets, or non-performing loans (bad loans), and also the amounts they are owed by the government2.
Under the Ahmadinejd’s era, the state banks were obliged to grant low-interest loans to the do called quick-return enterprises (startups) to create jobs but most of the loan receivers proved delinquent in serving their debts.
In a separate development, Mehr News Agency published a report on Monday 22 August, claiming that the enforcement of the CBI regulation obliging the Iranian banks to reduce their interest rates in line with the downward movement of inflation has caused outflows of capital from banks.
An informed source told Mehr News that due to the reduction in the interest rates banks can offer on one-year savings (from 20 to 18%), about 7 trillion tomans ($1.9 billion) was recently withdrawn
2 According to Reis-Zadeh, the
government’s debt to the banking system amounts to about 165 trillion tomans ($47.5 billion)
alone from one of the Iranian private banks.
The source whose name wasn’t given by Mehr News said senior managers of some banks have recently issued a letter to the CBI governor to protest against their obligation to reduce interest rate on deposits and complained that this has caused “an extensive movement of funds from the banks to other places.” The bankers have warned the CBI that this could be a dual-threat of causing the banks to be bankrupted on the one hand, and shifting the funds to other places such as the real estate and foreign exchange and gold markets on the other.
This claim was denied by Abbas Kamarei, the CBI director general for supervising banks and credit institutions. In an interview with Fars News Agency on Tuesday, Kamarei said the banks haven’t issued any letter in this respect to the CBI and defended the central bank’s policy of reducing interest rates on savings in the banks. He also said he hasn’t received any report concerning the exit of people’s funds from the banks in reaction to the lower interest rates paid on their savings.
CBI claims huge accumulated bad loans are inherited from former administration
Unhappy with obligations to decline interest rate, Iranian bankers issue letter to CBI warning on adverse repercussions
3 Reuters: German exports to Iran
soar after removal of sanctions Reuters; August 22nd –
German exports to Iran, mostly machines and equipment, jumped in the first half of 2016 following the removal of sanctions against Iran, official trade data showed on Monday. Exports to Iran surged by 15 percent year-on-year in the first six months of 2016 to 1.13 billion euros, the Federal Statistics Office said. "There is a huge demand in Iran for plant and equipment", said Michael Tockuss, head of the German-Iranian Chamber of Commerce, adding that chemical products and electrical engineering were also doing well.
"There is growing demand for technology from the renewable energy sector, mainly wind power stations," Tockuss said, adding that the reluctance of banks to finance bigger deals between German and Iranian businesses was slowly eroding. Tockuss said exports to Iran would further pick up in the coming months and are expected to rise by as much as 25 percent in the whole of 2016 and by 30 percent in 2017.
Vice president criticizes unfair prevalence of public entities in economy
Vice President Eshagh Jahangiri on Tuesday morning criticized the enjoyment of some sort of economic rent by the so-called
“public entities” in Iran and said economic conditions should be equal for both the public entities and private sectors.
According to the daily Shargh, Jahangiri made the comments during a visit to a laying hens hatchery factory in Abyek County, Ghazvin Province, north-west of Iran, and said “There is nothing wrong with the public entities being involved in economic activities that constitutes the country’s progress but concerns are raised when the economic conditions are set in a way that is favorable to the public entities and against the private sector.”
“It is common in all around the world that the public entities like pension funds and social security orgs are involved in economic activities but what important is that this doesn’t make hurdles for the private sector,” added
Jahangiri.
As the introduction to the report on Jahangiri’s comments, the daily Shargh wrote that “the public institutions and quasi-state
organizations dominate a major part of Iran’s economy and have turned into a rival to the country’s private sector.” “Their huge financial strength, coupled with their unresponsiveness to the government have led to the formation of a government-within- a-government,” added Shargh.
The powerful financial base along with their affinity to some
conservative power and military centers has caused the Iranian public entities being shielded from queries or criticisms by the media outlets or the governments. A number of state officials of the Rouhani government have taken several occasions to criticize the tax-exempt status of such
foundations and institutions that according to some private
calculations, control more than 40 percent of the coutnry’s economy through their subsidiaries and affiliated companies.
Vice President: This Govt. is determined to fight corruption that eats economy like termite Vice President Eshagh Jahangiri said that this government is determined to fight the
“systematic corruption” that has plagued the country, Mehr News Agency reported. The vice president who was speaking on Tuesday evening at the Ghazvin City Azad University Building said there are lots of cases of economic corruption of some who are plundering the country. He said if all such things being told to the German official: the
reluctance of banks to finance bigger deals between German and Iranian businesses is slowly eroding.
Vice president says public entities in Iran are unfairly enjoying Iran’s economic conditions
4 people [in details], they would be
worried. He warned that “if we not be serious in fighting corruption, it will eat the economy like termite.”
Jahangiri who was speaking on the occasion of the Government Week in Iran said he admits that we are still far from the ideal conditions but ensured that the government is able to regulate and improve the status of the country’s economy.
Economy minister says Iran has left critical conditions behind and calm is restored in economy Minister of Economic Affairs &
Finance Ali Tayyebnia said on Tuesday afternoon that in the past three years, the government has left the critical conditions plaguing the economy behind and that the country is now experiencing a relative calm, Mehr News Agency reported on Tuesday. Speaking at a session with managers and business executives of the southwestern Chaharmahal &
Bakhtiary Province, the minister tried to explain the bright picture of the economy achieved under this administration and said the economic growth rate has grown from (-6.8%) under the former government to 3%, the inflation rate has dropped from the once- 40-percent rate to less than 10%, the country’s Doing Business ranking has improved from 152 to 118, and the value of non-oil exports has soared by 20%.
Reuters says oil prices go up as Iran shows positive signals to support oil freeze scheme Reuters reported on August 23rd that the price of oil went up on Tuesday after Iran sent positive signals to possibly support joint OPEC action to push prices up.
Reuters has quoted a source familiar with Iranian thinking after a visit by Venezuelan Oil Minister Eulogio Del Pino to Tehran on August 15th as saying that "Iran is reaching its pre-sanctions
production level soon and after that it can cooperate with the other."
A previous oil-freeze attempt by some OPEC and non-OPEC
members such as Russia in April to stabilize production and boost prices failed after Tehran refused to attend a meeting held in Doha, Qatar. Now, sources in OPEC and the Iranian oil industry have told Reuters that Tehran is more willing to support such talks scheduled to be held in September in Algeria.
Of note, Petroleum Minister Bijan Zangeneh is scheduled to visit Algeria to attend the 15th International Energy Forum (IEF15). Meanwhile, OPEC has announced that it will have an informal meeting in late
September about whether actions are needed to lift oil prices.
Of note, NIOC Director for International Affairs Mohsen Ghamsari had declared last
Wednesday that the country’s total oil and condensate exports in July amounted to 2.740 million bpd of which, 600,000 bpd was condensates (hence 2.140 mm bpd of oil). According to ISNA, Ghamsari said the country’s exports of oil are in a good state but are still below the pre-
sanctions level of 2.350 mm bpd.
According to OPEC’s latest report published in August, Iran’s oil output in July 2016 was 3.629 million bpd compared to 2.925 million bpd in January when the JCPOA started being implemented.
TPO head resigned over alleged disputes with Industry minister Head of the Trade & Promotion Organization (TPO) Valiollah Afkhami-Rad has resigned from his position, Tasnim News Agency reported on Tuesday. This is the third time since he assumed this position in October 2013 that Afkhami-Rad submits his resignation, over his alleged disputes with Minister of Industry, Mine & Trade Mohammadreza Nematzadeh. (TPO is affiliated to the ministry of Industry).
There is some unconfirmed news that Nematzadeh has appointed Vice Minister Mojtaba Khosrowtaj as the new head of the TPO.
Iran government guarantees private sector’s investment in Latin American countries: Zarif Pressed by continued foreign economic restrictions and internal
5 pressures from hardliners who
question JCPOA economic
achievements, the government of President Rouhani tries to
consolidate relations with the Latin American nations to mitigate its international isolations on the one hand, and embolden the Iranian private sector by encouraging the export of its engineering and technical services.
Minister of Foreign Affairs Javad Zarif who accompanied by a delegation of 120 members including 60 business executives has said the Iranian government supports investment and
implementation of several projects by the Iranian private sector in Latin American countries including in Nicaragua.
According to IRNA, Zarif made the comment in a speech he delivered on Tuesday at a conference on economic investment
opportunities in Managua. He also hailed “the resistance of the Iranian and Nicaraguan people against external pressures” and said “the two nations have always been standing beside each other in political and international arenas and this cooperation should also be strengthened in the economic sphere.”
Meanwhile, in an interview with IRNA reporter in Managua, Samuel
Santos Lopez, the Nicaraguan minister of Foreign Affairs said
“the far geographic distance has always been an impediment in developing bilateral relationships between the two countries but now and every time that our business and cooperation between private sectors get improved, this distance gets smaller.” He said his country was waiting for this high- profile Iranian delegation since a long time ago and expressed satisfaction that the relationship of his country with Iran has always been “excellent” since 2007.
At the outset of his Latin American tour on Monday, Foreign Minister Zarif said the US has failed to advance its agendas by exerting pressures on Iran and Cuba. He also told his Cuban counterpart that the two countries have proved being able to overcome sanctions through “resistance.”
According to Asr-e-Iran Persian news website, during his visit to Havana on Monday, Zarif attended the Iran-Cuba Joint Economic Commission and said there are extensive areas for bolstering economic cooperation including in nanotechnology, medicine and so on. He said he is accompanied by representatives of Iranian private companies in industrial, mining, agriculture, energy, construction, health & medical treatment, business and service sectors and that such cooperation could be
“an appropriate opportunity for emboldening ties between the two
countries’ private sector and realizing the objective of the
‘economy of resistance’ policies in Iran on the one hand and
rebuilding the Cuban economy on the other.”
Zarif hails resistance of Nicaraguan and Iranian people against external pressures
