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Slow progress in drive to sell off state assets
Iran's move to channel additional oil money into the hands of the private sector and allowing it to invest in strategic areas like power generation and petrochemicals could suffer from the government's lack of commitment to the divestment process.
- By Anna Fifield, Financial Times
- Published: 00:08 February 18, 2008
Heidari Kord Zangeneh, the man in charge of putting Iran's huge public sector into private hands, brags that Iran is doing better than Europe when it comes to selling off state assets.
"France was the first among European countries [for privatisation] in 2007 but it sold only 9 billion euros [$13 billion]," the chairman of the Iranian privatisation organisation told the Financial Times in his office in Tehran. "During the last 10 months we have divested assets worth 10 billion euros."
Iranian authorities are seeking to sell off parts of government-owned companies, including banks such as Mellat, Saderat, Tejarat and Refah, as well as downstream oil assets such as petrochemical companies.
"Actual steps are already under way in terms not only of offering public entities," says Mohammad Nahavandian, president of the Iran chamber of commerce, "but, more importantly, we are allowing our private sector to make investments in areas that were previously unthinkable, like power generation, petrochemicals, roads, railways and air transportation."
Parliament has approved a law to permit additional oil money to be used for private-sector financing. "So, both the structural and the financial situation is ripe for having a bigger role for the private sector to play," Nahavandian says.
Ayatollah Ali Khamenei, Iran's supreme leader, has decreed that privatisation is the way to transform the economy, issuing an order in mid-2006 to sell partly all but 50 of the 1,500 companies in state hands.
There have been some successes. Mubarakeh Steel was partly sold in March last year and further tranches are expected to be sold in coming months, while last week five per cent of Fanavaran Petrochemical, worth $34 million, was sold on the Tehran Stock Exchange.
But progress has generally been so slow that Ayatollah Khamenei has reiterated his desire to see solid progress. "The supreme leader said he is very unhappy about the lack of progress in privatisation," says Hatef Haeri, chief executive of Idam Consulting Group in Tehran.
Critics accuse the government of not being committed to the process, although President Mahmoud Ahmadinejad included plans to raise $5 billion from privatisation in the 2008-09 budget.
Ahmadinejad sees privatisation as a way to realise some of his social aims. He plans to distribute 40 per cent of shares to low-income citizens and to the military and the retired, terming them "justice shares".
Another 20 per cent is supposed to remain in the hands of the government, and much of the remainder looks set to be sold to quasi-government companies. But the process of selling state assets has been hindered by lack of both domestic and foreign interest. "For privatisation, you need two to tango," says Hatef.
Individual Iranians do not seem much interested in taking part: they have been pouring their money not into equities but into real estate. The Tehran Stock Exchange index has fallen from 13,000 three years ago to about 10,000, while house price inflation has hit 100 per cent in some areas during the same period.
The US-led crackdown on Iran's financial system has not helped. "The sanctions have also been another nail in the coffin of privatisation - leading to large capital flight in the last two years," says Heydar Pourian, editor of Iran Economics, a business magazine.
"Now with high inflation and the large budget deficit, it is very unlikely that we will have any private-sector entry."
To have a proper privatisation process, foreign investment is needed. But portfolio investors are likely to be put off by the requirement to lock in an investment for three years, while strategic buyers could be deterred by the 10 per cent limit on foreign stakes in each company, putting management control beyond reach.
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