privatization in iran: trends &...

Chapter III

Privatization in Iran: Trends & Issues

DETAILED CONTENTS

Contents Page No.

Introduction 87-90

Iran’s Position 91

Economy of Iran 92-96

Iran’s New Economic Development Policies 97

History of Privatization in Iran 98-103

Privatization and Constitution of the Islamic Republic of

Iran 103-106

Iran’s Experience in Privatization 106

Objectives of Privatization in Iran 107

Government’s Policy Towards Privatization in Iran 107-108

Movement of Privatization in Iran 108-111

Methods of Privatization 111-120

Procedure of Transferring State-owned Enterprises 121

Stock Exchange Market (SEM) in Iran 121-125

Industrial Development & Renovation Organization

(IDRO) 125-130

Iranian Privatization Organization (IPO) 130-150

Implications of the Problems and Obstacles of

Privatization in Iran 151-157

Summary 158

Privatization of Industries in Iran: A Case Study of Tehran City

87

PRIVATIZATION IN IRAN:

TRENDS & ISSUES Introduction

Ever since human societies were formed, people have always been under

the influence of politics and economy, which have been shaped into state and

market. A reasonable combination of these two has often produced favourable

integration for countries, when balanced political leaders have tried to bring more

power to the state through nationalization or by strengthen the market through

privatization.

Privatization is on the whole a change in ownership. Many definitions have

been given for it, one of which is as follows:

Privatization includes methods which change the nature of relationships

between public and private sectors, such as denationalization, selling state

properties, deregulation and contracting products and services.1

An overview of the economic and political tendencies in different countries

in the past three centuries reveals how this combination has been decisive and

critical, shifting from market to state and to market again. Extensive

bureaucracies, inefficiency, heavy loans and disintegration of the economy under

huge public sector caused a reaction against the large state. Finally, by the late

1970s and in the early 1980s privatization was taken up as a solution to economic

problems.2

Since privatization is a strategy or policy, it should always be applied to

reach certain goals towards a balance between political and economic issues.3

1. Kay, J. & D. Thompson (1986), “Privatization: A Policy in Search of Rationale Economic Journal”, No. 96, London, Blackwell Publishers Ltd., p. 18. 2. Motawasseli, Mahmoud, (1994), “Privatization: A Desirable Combination between State and Market”, the First Edition, Tehran, Iran, Institute of Commercial Studies, p. 4. 3. Ibid, p. 196.


88

The goals of privatization which the countries of the world take into

consideration can make a long list. However, some have common strategic nature

such as: decrease in government’s activities and costs, producing competition in

the market, boost in efficiency and effectiveness of state agencies and transferring

ownership in return for the control of the economy. Other goals are of secondary

importance such as encouragement of participation, decrease in budget deficits,

state loans, subsidies, number of government employees and increase in market

investments and state revenues.

Today, most countries are practicing privatization, based on their political,

economic and social features to achieve development. Similarly, the developing

country like the Islamic Republic of Iran has also embarked upon privatization as

a part and parcel of restructuring of the Iranian economy under New Economic

Development Policy.


89

Illustration-3.1

An Introduction to Iran


90

Illustration-3.2

Map of Iran

Illustration-3.3 Map of Tehran (Capital of Iran)


91

Iran's Position

Environment:

Unique geographical and strategic position.

Border line of Europe and Asia.

Surrounded by some 20 developing countries.

Connecting bridge between the Central Asia and the rest of the world

potential market with 360 million populations.

Ample natural resources: petroleum (9% of world reserve), natural gas

(15% of world reserve), coal, chromium, copper, iron, lead, manganese,

zinc, sulphur, etc.

Fairly cheap and abundant labour and energy.

Iran at a Glance Area: 1.6 million Sq. Km

Population: 72 million (2007)

Annual population growth rate: 1.7%

Urban population: 65%

Rural population: 35%

Population density: 40 person per Sq. Km

Active population: 19.8 million

Employed population: 17.4 million

Life expectancy: 69 years

Literacy ratio:

6 Years & over: 85%

6-29 Years: 96%

Number of university students: 1.6 million


92

Economy of Iran4

The economy of Iran is dominated by oil and gas exports which

constituted 70 percent of the government revenue and 80 percent of export

earnings as of the year 2008. A combination of price controls and subsidies,

particularly on food and energy continued to weight down the economy;

administrative controls and rigidities undermine the potentials for private sector’s

growth. Some detailed information about the Iranian economy is given below:

Currency Iranian Rials

Fiscal Year 21 March - 20 March

Trade Organizations ECO, OPEC, WTO (observer) and others

Statistics

GDP US $859 billion (2008)5

GDP Growth 6.4% (real-2007)6

Note: 6.2% growth for 2009 projected7

GDP per capita US $13,100 (2007)

GDP by sector Agriculture (11%), Industry (45.3%),

Services (43.7%) (2007)

Inflation (CPI) 24.3 % (2008)8

Population below 18% (2006)

Poverty-line

Labour Forces 28.7 million (2006 est.), note: shortage of

skilled labourer

4. Wikipedia, the free encyclopaedia. 5. IMF, Iran's Entry Retrieved, December 5, 2008. 6. Iran's 2007 GDP Growth Rate at 6.9% last year Retrieved January 28, 2009. 7. The Economist/IEU: Higher economic growth this year Retrieved July 28, 2008. 8. Iran holds inflation record in ME retrieved November 30, 2008.


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Unemployment 12% according to the Iranian government

(2008)

Main Industries Artisan goods, Petroleum, Chemicals,

Petrochemicals, Car manufacturing,

Agriculture, Food processing,

Home appliances,

Telecoms, Pharmaceuticals,

Textiles, Minerals, Metallurgy,

Armaments, Electronics, Energy,

Construction and construction materials

External

Exports US $76.5 billion f.o.b. (2007 est.), world

Ranking: 39th

Export Goods Petroleum (80%), Chemical and

Petrochemical products (4%), fruits and

Nuts (2%), Cars (2%),

Carpets (1%), Technical services (11%)

Main Export Partners China 14.8%, Japan 14.2%, Turkey 7.3%,

Italy 6.4%, South Korea 6.3% (2007)

Imports $61.3 billion f.o.b. (2007 est.), World

Ranking: 43rd


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Import Goods Industrial raw materials and intermediate

Goods (46%), Capital goods (35%),

Food-stuffs and other consumer goods

and technical services ( 19%)

Main Import Partners China 14.3%, Germany 9.7%,

UAE 9.2%, South Korea 5.8%,

Russia 5.3%, Italy 5%, France 4%

(2007)

Gross External Debt US $20.68 billion

(31 December 2007 est.)

Public Finances

Public Debt 17.2% of GDP (2007 est.)

Revenues US $104 billion (2007): 45% from oil

Exports, 31% from taxes, tariffs and

fees, 20% from government properties

and holdings

(On exchange rate basis/not PPP)

Expenses $101 billion (2007): 6% health care,

16% education, 8% military, 40%

Subsidy Payments (incl. gasoline, electricity,

cement, steel, pharmaceuticals and wheat) and

grants, 23% social services (of which 50% for

pensions), 7% capital expenditures (on exchange

rate basis/not PPP)

Economic Aid $104 million (2005 estimation)


95

The Iranian GDP at Market Prices

Estimated by the IMF9 with figures in millions of Iranian Rials, for

purchasing power parity comparisons, the US dollar is exchanged at 3,149.33

Iranian Rials only.

Table-3.1

GDP at Market Price

Year Gross

Domestic Product

PPP ($ Billion)

US Dollar Exchange

Inflation Index

(2000=100)

1980 6,621,700 98.797 70.61 Iranian Rials 2.10

1985 16,555,801 186.782 207.29 Iranian Rials 4.40

1990 34,505,630 206.768 415.60 Iranian Rials 11

1995 185,927,978 206.768 2,046.80 Iranian Rials 43

2000 580,473,336 373.725 6,019.01 Iranian Rials 100

2005 1,768,665,370 554.775 9,005.01 Iranian Rials 194

9. IMF World Economic Outlook Database Retrieved, February12, 2008.


96

Illustration-3.4

Share of Iranian Oil in GDP

The share of Iran's oil-sector in the GDP increased from 15% in 2002 to

25% in 2006, mainly because of a sharp increase in the price of oil.10

10. Statistical Centre of Iran.


97

Iran's New Economic Development Policies

Economic Liberalization free market economy

PRIVATIZATION

Unification of exchange rates

Non-oil export promotion, instead of import substitution

Absolute export tax holiday

New attractive foreign investment law

Non-oil export trade balance


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History of Privatization in Iran

The Period before the Government of Pahlavi Dynasty Era

The descending course of the Iranian economy started from the late years of

the Saffavid Dynasty era and no changes occurred in this process until the end of

Qajar Dynasty's era in spite of all the attempts made by Abbas Mirza Ghaem

Magham Farahani and Amir Kabir. In the first half of the Qajar Dynasty era, the

most important factor for the failure was no protection from the reforms made by

the King and his involvement in Iran-Russia War. At the second half, in addition

to the aforementioned causes, no preventative measure was taken due to the

dominance of foreign factors in the conditions of assumed weakness of political

sovereignty.

Thus, Iran lost a very important historical opportunity for economic

development with regard to the expansion, depth and speed of the development in

European countries. In the same period which lasted for 150 years, Industrial

Revolution occurred in Europe and machinery was used extensively in industrial,

agricultural, transportation and services production. Therefore, the scientific and

technical distance and the rate of capital density in the pioneer capitalist countries

compared with countries such as Iran increased and dominance on

underdevelopment was more difficult.11

In such circumstances, according to the universality of economics, if Iran

intended to be changed into a capitalistic country, the first opponent was the

despotic government and the next factor was foreign powers which had dominance

on world market and the Iranian court.

11. Razzaghi, Ebrahim (1996), “Selection of the Iran’s Economics”, Tehran, Iran, Amir Kabir Publications, p. 7.


99

Pahlavi Era (1921-1978) Although the Pahlavi Dynasty inherited despotism from the Qajar, but with

regard to the changes in Iran situation especially the important role of foreign

factors, Reza Shah was not dependent on tribal power, but on the contrary, he

shattered the tribal powers. He only relied on the Cossack Force. He used the

powerful financial lever although it was still in the preliminary stages of its

growth.12

The early years of the government of Pahlavi Dynasty was accompanied

with expansion, modernization and centralization of the army, bureaucracy and the

complementary operations of such policy like road and railway building,

development of communication means, higher education, etc.13

Since the establishment of the first state-owned enterprise (Iranian Bank) in

1921 till 1975, these enterprises increased remarkably, especially due to increase

in oil income they flourished rapidly. The reasons for establishment of these

enterprises were carrying out duties such as job creation, aiding the process of

country development, reduction of dependence on oil incomes, protection from the

domestic industries, protection from the domestic consumers, establishment of the

financial resources for the government, increasing the export capacity, failure of

private sector and increase of national security. The studies indicate that most of

the state-owned enterprises founded in Iran were not as successful in doing their

entrusted duties as expected. 14

12. Razzaghi, Ebrahim, (1997), “A critical Appreciation to Privatization of Iran”, Resa institute of Cultural Services Publications, Tehran, the Islamic Republic of Iran, p. 46. 13. Ibid, p. 48. 14. Neely, Mas’ood (1997), “Iran’s Economics”, Institute of Higher Research in Programming and Development, Payam Publications, p. 32.


100

The policy for transferring shares of the companies to employees and

farmers was ratified in 1974 under the title of Article 13 of the King and Nation

Revolution. The implementer of this policy was the Organization for Production

Units Property Development.15

It was determined that the industrial and mineral units and other production

units which have been established till May 1975, must change into public joint

stock and to be sold to the workers and employees of the companies and other

people on the basis of the standards except the Parent Industries and some others

which deem advisable to remain state-owned property.

In Iran, except in certain cases, such as the period after the establishment of

the Parliamentary Monarchy System for a short term and the period of the

movement for the Nationalization of Oil Industry, the private sector, especially,

the national capitalist private sector has never constituted the social caste of the

government.16

In fact, the history of privatization in Iran in general, dates back to the law

ratified in 1975 pertaining to the expansion of transfer of manufacturing units. The

above law provided that up to 99 percent of the government’s ownership in

nonbiased industries, as well as 49 percent of the stocks of the private sector is

transferred to the Blue-collar workers as well as other segments of the

population.17

15. Saffarzadeh, Gholamreza, (2002), “Evaluation of Privatization Policy during Years 1989-2001 in Iran”, Capital Journal, 2002, p. 54. 16. Heydari, Gholamreza, (2001), “Designing Privatization Model in Iran”, Iran Khodro Message Publications, Tehran, the Islamic Republic of Iran, p. 112. 17. Ettelaat (Afternoon Daily News Paper), 2001, “What are the privatization achievements in Iran?” January 2001, No. 22118, p. 5.


101

Post-revolution Period After the victory of the Iranian Islamic Revolution (February 1979), the

dependent structure of the economy of the country displayed its real picture. The

bankruptcy of the banking system due to irregular payment of credits and severe

capital outflow of the country were the first predictable reaction of the sick and

dependent economy in the critical conditions. The dependent capitalists, feeling

insecurity, sold their own moveable and immovable assets and caused the lockout

of production units.

The nationalization of banks, insurance companies, some heavy industries,

and transfer of the industrial, agricultural and service units belonging to a large

group of capitalists to the revolutionary foundations although were strong shocks

but they did not cause basic changes in the dependent structure of Iran.

The continuous attempt of Imperialism during one century, especially

during the 57 years reign of Pahlavi Dynasty and the implementation of exogenous

development have had such influence on the economy of the country that victory

of revolution, establishment of national sovereignty and removing the intervention

of aliens as well as decreasing the influence of dependent capitalists could not

divert Iran's economy from its previous course.18

In a research done about the economy of Iran by Ranani19 it was found that:

the economy of Iran is an inefficient market-directed economy that on one hand,

while enjoying extensive establishment of foundations and market mechanism is

incapable in achieving the efficiency of allocation and on the other hand, despite

the extensive intervention of government, there is no continuous and improving 18. Razzaghi, Ebrahim (1996), “Selection of the Iran’s Economics”, Tehran, Iran, Amir Kabir Publications, p. 38. 19. Ranani, Mohsen (1997), “Market or non market? Evaluation of Constitutive Obstacles of Efficiency in Market Economy Regim in Iran’s Economcis”, Programming & Budgeting Organization Publications, p. 409.


102

procedure for better distribution of incomes in it. Both of these problems are in

special cases originated from lack of legal protection of the property rights and in

general, from the heavy exchange expenditures in economy of Iran, both of which

are resulted from lack of paying enough attention to the expenses associated with

the traditional and classic tasks in the structure of the government budget.

After the Islamic Revolution, the government property expanded widely. A

series of political, social, cultural and economic considerations played roles in

determining the scope and speed of nationalization of the enterprises belonging to

the private sector. According to “Industries Protection and Development Law", the

companies which received considerable loans from banks for establishment or

development, (Clause C) were transferred to the government. On the basis of

clauses A and B of the same law, the shares of the owners of private enterprises

which were affiliated to the Royal Court or had gained their wealth from unlawful

transactions or their land-owners had escaped from the country, were confiscated

and nationalized. Moreover, the oppressed war also caused the increase of

government intervention in the economy in such a way that till the end of the year

1991, about 1875 state-owned companies were identified and audited, the book

value of which was about 28000 billion Rials ($1=Rls.10,000).20

Therefore, three factors account for this tendency in Iran. Firstly, in

February 1979, the Islamic Revolution with its goal of Social Justice, secondly,

the income from oil which is exclusively owned by government and thirdly, the

Iraq imposed war against Iran (1980-1988).

The Iran-Iraq war caused a large increase in subsidies of basic food and

public utilities. Items such as bread, sugar, rice, eggs, butter, red meat, milk,

vegetable oil, public transport, water, electricity, gas and gasoline were among

20. Taghavi, Mehdi (2000), “Specialization in Un-specialization: Who Perform Privatizing

Program?”, Teraberan Journal, No. 15, pp. 8-10.


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those subsidized. So, were many agriculture and manufacturing inputs. To

guarantee nationwide access to low price bread, a huge amount of wheat was

imported annually, which imposed a server burden on the government budget as

well as on the balance of payments.

The state’s exclusive access to income from oil, the equity goals of

revolution and Iraq war against Iran, facilitated widespread subsidies and

encouraged state intervention. Shortly, after establishing the new regime, a new

constitution was prepared by a body of elected experts and was immediately

approved by a referendum.

The intervention of the governments in economy and the consequent

implications such as improper allocation of resources, monetary, financial and

managerial problems and the prevalence of various kinds of economic favour and

financial corruption during the recent decades have caused the expansion of

privatization in many countries including the developed and underdeveloped ones.

Privatization is the most widely debated issue at global, national and at

regional levels. It is the main spring of the open economy under liberalization.

Since two decades, the focus has been on the economic benefits of privatization.

However, the global meltdown has become a big block to privatization and many

transient economies are redesigning their development strategy.

Privatization and Constitution of

the Islamic Republic of Iran Article 44

According to the Article 44 of the Constitution of the Islamic Republic of

Iran, the economy of Iran consists of three main sectors: State, Co-operative and

Private sector and is to be based on systematic and sound planning.


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The State Sector includes all large-scale industries, foreign trade, major

minerals, banking, insurance, power generation, dams and large- scale

irrigation networks, radio and television, post, telegraph and telephone

services, aviation, shipping, roads, railroads and so on. All these will be

publicly owned and administered by the state.

The Co-operative Sector includes cooperative companies and enterprises

concerned with production and distribution in urban and rural areas, in

accordance with the Islamic Criteria.

The Private Sector consists of those activities concerned with construction,

agriculture, animal husbandry, industry, trade and services that supplement

the economic activities of the state and co-operative sectors.

A strict interpretation of the above has never been enforced in the Islamic

Republic of Iran and the private sector has been able to play a much larger role

than is outlined in the Constitution. In recent years, role of the private sector has

been further on the increase. Furthermore, an amendment of the article 44 in 2004

has allowed 80 percent of state assets to be privatized.21

Ownership in each of these three sectors is protected by laws, such that this

ownership does not go beyond the Islamic Law, contributes to economic growth

and does not undermine public interest. The scope of each of these sectors, as well

as the regulations and conditions governing their operations, are specified by law.

Article 45 The public wealth such as barren lands or wastelands, mines, seas, lakes,

rivers and other public waters, mountains, valleys, forests, canebrakes, natural

groves, the ranges which are not restricted, inheritance whose heirs are not

identified, the properties of unknown owners and the public property which are

21. bbcpersian.com, Ref, Note C, Article 44 of the Constitution of the Islamic Republic of Iran.


105

confiscated from the usurpers are under the control of the Islamic Government in

order to take the necessary measures in accordance to the public interest. The

details and procedure of using each of them is determined by the law.

Article 46 Anyone is owner of the gains he obtains from his lawful job and no one is

entitled to prevent the other person from doing his job.

Privatization and Article 44 According to the Article 44 of the Constitution, Iran’s economy comprises

three sectors: State, Co-operative and Private. In fact, Article 44 stresses that no

monopoly should be exercised by any economic sector.22

The 1979 constitution has undergone significant amendments, but the main

factor, which strengthened the state’s role in the national economy, was the Iraq

imposed war against Iran (1980-1988). The war broke out almost one year after

the constitution was devised, forcing the state to expand its presence in the market

and the economy in order to protect the economic balance during the 8 years

conflict. So, the state presence was because of the war and should change when

the conflict is over.

The government is obliged to boost the private sector’s share in the

economy under Note C of the Iranian Constitution’s Article 44. To this end, state-

owned organizations and ministries have taken extensive measures, while experts

debate the pros and cons of privatization of all fields.

22. Iran Daily Newspaper (2006), “Privatization and Article 44”, January 22, Tehran, the Islamic

Republic of Iran.


106

The highest ranking body in the country, namely the Iranian Supreme

Leader, (Ayatollah Seyyed Ali Khamenei) took the initiative to issue the directives

regarding general policies of the Article 44.

Iranian Experience of Privatization Like many other countries of the Third World, Iran began its extensive

economic development in 1960s and 1970s. The large oil income which was not

based on a self-reliant production process caused heavy demand and threatened

domestic products and services. At the same time, assembly factories were

established and imports vastly increased.

After the Islamic Revolution was triumphed (February 1979), the problems

caused by the imposed Iraq war against Iran in September 1980, together with the

international pressure on Iran, hindered economic development. In the early stages

of the Revolution, the new government had no choice but to nationalize certain

industrial centres and found an almost closed, centralized economy. At this stage

the price of oil in the international market decreased and inflation grew while the

size and number of government agencies continued to go up. After Iran-Iraq war

(1988), it was felt that new strategies had to be formulated. The first Economic

plan (March 1990-1995) was the first fulcrum for adopting privatization policies

in Iran and later through the law of 1991 and the measures translated in the Second

Economic, Social and Cultural Development Plan (March 1995-2000),

privatization of state industries and services was introduced.


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Objectives of Privatization in Iran Economic efficiency has been declared to be the main objective of

privatization. The following objectives are important enough in order to improve

the planning of future activities of privatization in Iran.

1. To create economic competition in the market.

2. To increase labour productivity and job opportunities.

3. To reduce size of the government with privatizing state-owned enterprises.

4. To expand production and diversification.

5. To reduce the economic oil dependence.

6. To reduce payment of subsidiaries and decrease in budget cost of the

government.

7. To optimize allocation of the resources and expansion of investment.

8. To establish appropriate conditions for economic development.

9. To attract people’s capital and involve people in the national production.

The new cycle of privatization in Iran began in 2001 with the establishment of

Iranian Privatization Organization (IPO) in Iran and this process is underway

seriously till date.

Government’s Policy towards Privatization in Iran The amendment of the Article 44 in 2004 has officially adapted a much

more liberal interpretation and allows a significant part of the state-owned sector

to be effectively privatized. The Iranian Supreme Leader Ayatollah Khamenei

ordered that 80 percent of state-run economy should be privatized according to the

constitution.


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Scope of Privatization in Iran and the Supreme Leader’s Directives23 According to the article 44 of the Iranian constitution, the leader has

ordered the heads of three branches of power, namely the Executive, Legislature

and Judiciary, as well as state Expediency Council to implement these directives.

These strategic directives which indicate the scope of privatization will cover the

following sectors:

State-owned entities involved in the fields of major mining and heavy

industries, excepting for National Iranian Oil Company and gas and oil

exploration and production companies.

Banks, excluding Central Bank of the Islamic Republic of Iran, Melli

Bank of Iran, Sepah Bank, Industry and Mines Bank, Keshavarzi Bank,

Maskan Bank and Export Development Bank of Iran.

Insurance Firms, except for Central Insurance Authority of Iran and Iran

Insurance Company.

Aviation and Shipping firms, excluding Civil Aviation Organization of

Iran and State Ports and Shipping Organization.

Energy Supply Centres, Post and Telecommunication Companies.

Privatization Movement in Iran

In Iran, privatization wave started since 1988, after ceasing the long drawn

Iran-Iraq War. The Iranian government decided to implement the Structural

Adjustment Programme (SAP), since its First Five-year Plan (March 1990-1995).

The second, the third and the fourth Plans (March 2005-2010) have been

continuing till date. This Plan sets the guidelines and points the direction in which

the trade sector will be taking over the next five years. The focus of the

government has been on expanding trade interaction with the global community

and pursuing an active presence in international markets. Achieving this, would 23. Iran Daily News Paper (2006), “Privatization and Article 44”, January 22, Tehran, Iran.


109

require raising exports substantially. Another area of focus has been to develop

free-trade zones and turning them into gateways to international markets.

Recent measures taken by the leadership of the country in a formal

directive in 2007 calls upon the government to speed up the implementation of the

policies outlined in the amendment of the article 44 of the Constitution and

moving faster towards privatization. This amendment of the article 44 in 2004 has

allowed 80 percent of state assets to be privatized, 40 percent of which will be

conducted through “Justice Shares” scheme and the rest through the Bourse

organization, the government will keep the title of the remaining 20 percent.

The leadership also suggests that the ownership rights should be protected

in courts to be set up by the Judiciary. This is hoped to boost the sense of

economic security and encourage private investment in the economy.

Procedures of Privatization: the Supreme Leader’s Clarifications

The leader also clarified the procedures of privatization in detail as follows:

Prices of shares will be determined in the stock markets.

Public notices will be issued to encourage public participation and

prevent monopoly and insider dealings.

Share pricing should follow trade laws.

Expert studies must be conducted prior to cede shares.

Experienced, specialized and efficient managers must be employed in

privatized firms.

The government should make policies and supervise the national

economy.

A portion of privatization proceeds can be invested in high-tech

industries. Private sector consists of agricultural, animal husbandry,

industrial, trade and service activities that supplement the economic

operations of the state and co-operative sectors.


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Thus, the procedure methods, approaches and framework of privatization in Iran

are very clearly spelt out which throws light on the management of privatization in

the country. Furthermore, the identified areas for diverting the privatization

proceeds clearly indicate shift of the economic power from state to people,

especially co-operation and civil society organization.

Justice Shares Programme

The current administration has introduced the “Justice Shares” programme,

under which the government has to offer shares of the state-owned companies to

low-income families across the nation, starting with the poorest in the least

privileged provinces. Millions of families are to receive shares of the state-owned

companies, the value of which will be reimbursed in twenty years (primarily from

the revenues of those shares). A holding period of two years is provisioned for the

shares offered under this scheme.

Besides, the wealth distribution measures provisioned along with

privatization of the economy, policies are being designed to facilitate further

globalization of the economy and to create a more favourable environment for

private business and investment. The privatization drive, among other things, is

expected to gain momentum by investments coming from Iranian expatriates.

These Iranian nationals are assumed to hold significant assets of estimated value

of thousands of billion dollars. Influx of capital by these Iranians to their

motherland is expected to boost the economy and vitalize the country’s capital

market significantly.

In February 2008 the Iranian Ministry of Economic Affaires and Finance

announced that some 15 million rural people out of 23 million are entitled to

receive Justice Shares during the Iranian (Persian) year, starting March 21 (10

million Justice Shares to be ceded by March). In November 2008, Iran announced


111

that some 22.5 million people have received Justice Shares.24 More than seven

million people have been categorized in the lowest income bracket.25

Methods of Privatization

There are numerous and different methods for transferring shares of the

enterprises and institutions of the public sector to private ones, but it should be

noted that the general objective (national goals), economic plans, goals of

privatization, facilities, restrictions, problems and practical bottlenecks are the

factors which determine the methods of privatization in any country. The method with which privatization is practiced both in industry and

services is an important element. Some methods include transfer of the ownership

such as selling shares to the public or privately selling the states properties, private

sectors investment in state agencies, etc. Others include no ownership transfer

such as giving up the management of departments to the private sector or leaving

the departments to the agency’s personnel.26

Privatization methods are decided with regard to the factors which affect

them. These are of two types: some work at the macro or national level such as the

state’s strategic goals, socio-political environment, national security, income per

capita, industrial development status, characteristics of the private sector, etc.

There are also some factors which rule over the internal environment of each

agency including type of industry, organization and size of the agency, cost and

benefit statements, labour relations and productivity.

24. http://www.iran-daily.com/1387/3269/html/economy.htm 25. http://www.iran-daily.com/1387/3300/html/economy.htm 26. Nassirzadeh, Gholamreza, (1990), “On the Privatization of Public Enterprises”, Tehran, Iran, Kamal-e-Elm Cultural, Research and Publishing Co.


112

A: Privatization through Transferring Ownership

1. Offering the stocks of the units which are due to be transferred to the

Public.

2. Offering the stocks of the units which are due to be transferred to

specific group.

3. Selling the government assets to the persons and private enterprises.

4. Partitioning the unit to be transferred to the smaller ones.

5. Attracting the partnership of private sector in new investment required

by the governmental units.

6. Selling governmental units to the managers or the staff of the same

units.

7. Making contracts for assigning management or leasing assets of the

unit.

The details of all the seven methods of privatization through ownership transfer

are discussed in tabular forms in the following pages.


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Table-3.2

Privatization through offering stocks of the units which are due to be

transferred to the public

Specifications

Offering stocks freely and without any condition to the public.

Implementation

method

If the unit which is due to be transferred needs any modification in organization in order to be changed into a private unit, such a modification should be done before offering the stocks to the public; otherwise, only the usual processes and formalities should be done for offering the stocks to the public.

Pricing

The price can be fixed, pre-quoted, variable, and through tender.

Cases and objective

of application

This method is recommended in the cases that the texture and structure of the company which is due to be transferred is intact and its profitability and revenue making is reliable.

Our objective from using this method is ownership distribution expansively.

Requirements for

implementation

Availability of the stock market and negotiable instruments.

Executive issues

and problems

The company which is due to be transferred to the private sector may need to be reconstructed and reorganized. This matter should be studied about any unit separately and the method of ownership distribution must be reviewed carefully as an executive subject and a specific mechanism should be invented and proposed for distributing the offered stocks.

Advantages

Transparency and traceability, publicity of ownership and stockholding as well as the development of the facilities for providing saving resources for capital needs of the economy.


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Table-3.3 Privatization through offering stocks of the units which are expected to

be transferred to the private sector to specific groups

Specifications

Offering the whole or part of the state-owned stocks to one or several natural or legal entities-Private offering the stocks for selling the stocks to the basic investors is classified in this category.

Implementation

method

Mutual negotiations or tender may be accomplished. The work process may be pre-arranged or flexible that depends on special standards through which bids are studied.

Pricing

The price may be fixed and pre-quoted or variable and through tender. The payment may be done wholly or in instalments.

Application cases and

objective

When there is no capital market and negotiable instrument, this method will be attractive. Concerning the organizations with weak financial structure, selling privately is better than public offer. In cases that the unit is small and can not be offered to the public, private sales is more optimal. Meanwhile, the new owner(s) may be identified and their potential may be evaluated for administering the transferred unit before. The flexibility existing in the process of negotiations and the possibility to haggle increases the optimization of this method.

Required conditions

for implementation

All the assets of the unit are sold and all its liabilities are transferred. A buyer with the purchasing potential should be available in the private sector.

Executive issues and

problems

In some cases, the financial system of the organization, which is due to be transferred, should be reconstructed before conveyance. During the work process, some instructions should be prepared so that the conveyance is tangible and evident and no place for any misuse is available.

Advantages

Effectiveness of ownership and occurrence of the circumstances in which the entrepreneur can control the operations.


115

Table-3.4

Privatization through selling the assets of the unit

which is expected to be transferred

Specifications

The government sells the assets of the unit, which is due to be transferred to the private sector and gains the revenue obtained from selling them. No stock is transferred in this method.

Implementation

method

Direct selling of assets by the government, selling some of the assets by the company which is due to be transferred and declaration of winding up of the company subsequent to selling all its assets.

Pricing In most cases through tender.


objective

In the event that selling of the stocks of the unit, which is due to be transferred, is not possible or the government is going to gain financial resources through transferring the company or in the case that the government’s intention is selling the assets of the unit which is due to be transferred and the problems of the company’s staff is negated, selling of assets is recommended. In these cases, the account of assets should be distinguished from the account of debits of the company.


problems

When the assets of the company is sold, whether the company is to be dissolved or in other cases, the liabilities of the company and their liquation procedure is raised. Considering the fact that in most cases, the purchasers do not undertake the liabilities of the company and only buy its assets, the problem of the company’s liabilities should be solved during the process of implementation the policy of selling the assets of the unit.

Advantages Gaining revenues quickly by the government.


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Table-3.5

Privatization through dividing the unit

which is expected to be transferred to smaller units

Specifications The unit which is due to be transferred is divided into several subsidiary ones and any of the subsidiaries is transferred as a separate one.

Implementation

method

The procedure is determined by considering the primary structure of the unit which is due to be transferred and the targeted final structure and there is no certain principle and rule for it.


objective

In the event that the goal is the conveyance of a part of the state-owned enterprise to the private sector, this method is recommended. In the cases that the state-owned unit is exclusive in that field, dividing it into several subsidiaries can provide an appropriate ground for competitive market. In the case that the market is not able to attract all the units due to be transferred, dividing the company into several subsidiaries provides the possibility for the market to attract them.


problems

These issues depend on the method chosen for transferring the subsidiaries to the public sector.

Advantages

Application of dividing the larger company to smaller ones provides the possibility to use different transferring methods for various parts of the unit which is due to be transferred.


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Table-3.6

Privatization through attracting participation of the public sector

in new investments required by the state-owned units

Specifications Primary issuance of the new stocks saleable to the private sector for establishing a mixed unit in which the share of the government declines gradually.

Implementation

method

New stocks will be sold publicly and privately and the sales procedure will be on the basis of the standards which are coined for issuance and offering new stocks in the country. In some cases, the title deeds of the public sector are also sold in this process.


objective

This method is used when it is intended to transfer a new ownership to the private sector and the share of ownership of the private sector increases in economy, in general.


problems

These issues are dependent on the procedure selected for transferring new stocks.

Advantages

The government avoids political challenges for losing the ownership in the public sector.


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Table-3.7

Privatization through selling the unit

which is expected to be transferred to the managers or staff

Specifications

The managers or a staff of the company, which is due to be transferred, purchases a percent of the stocks of company; thus, they control the company. Purchasing the stocks in instalments by the managers or staff provides the possibility for the individuals who are able to administer the unit but lack sufficient financial facilities, to manage the company which is due to be transferred.

Implementation

method

Negotiating with the managers or staffs who are interested in purchasing the unit or the financial institution that should provide the financial resources for both parties.


objective

In the cases that the managers or staff of the unit are very skilful and efficient and the workforce show a great deal of studiousness in doing their entrusted duties, selling the unit to the managers and staff can finally led to increase of the efficiency of the production unit. In the event that the sale is done in instalment, the problem of this group’ insufficient financial facilities will also be solved. In some cases that the implementation of this procedure can result in solving the workforce’s problems.


problems

In instalment sale, guarantee of the transferring process should be done carefully. The unit may confront with insufficiency of liquidity. The risk that is accepted in this process has a great importance.

Advantages Great probability of efficiency increase.


119

Table-3.8

Privatization through making contracts for assigning management

or leasing the assets of the unit which is expected to be transferred

to the private sector

Specifications

The ownership of the unit will not change at all and the government remains as the owner of the unit as before. The rental is paid to the owner. The lessee collector or the director who administers the unit bears all the business risks.

Implementation

method

There is no fixed and accepted general method.


objective

In cases that the government does not agree with the transfer of the ownership to the private sector, assigning the right of administration of the unit or leasing its assets may be a helpful method. This can be used as midterm solutions for achieving the situation that the transfer of the operations to the private sector is fulfilled completely.


problems

Financial debts of the government due to the continuation of the ownership of assets will remain as before. The obligations of the owner about the maintenance and renovation of machinery and equipment will be borne as before. The owner should inject new financial resources to the leased unit.

Advantages

Efficiency of unit in comparison with the period in which it has been administered by the government.


120

B. Privatization without Transferring Ownership Some of the economic enterprises which are known as specific and strategic

ones, by different reasons, were often kept in the public sector. The most

important reasons for taking these decisions are:

1. The government is not interested in transferring ownership by any reason.

2. The government intends to create a source of personal income.

3. The government is going to experience efficiency of the private sector

before transferring ownership.

4. In the case that the government intends to transfer the ownership but there

are no applicants.

5. In the event that it is identified that insufficiency is due to mismanagement.

In such cases, the government can increase efficiency by improving operational

methods which may be done through employing financial management and

discipline governing the market by the following procedures:

1. Concluding contracts for assigning management.

2. Leasing enterprises to the private sector for a specific period.

If for any reason, the government faces with problems of transferring

ownership of the enterprises and only intends to assign administration of the

enterprises, the methods of concluding contract for assigning management or

leasing the enterprises to the private sector will be used.

In these methods, the government through making a certain contract during

a specified period in lieu of the determined wage enters the management,

technology, discipline governing the market units, skills and experiences of the

private sector into state-owned enterprises. Therefore, in these methods, no

ownership is transferred and only assignment of the management is sufficient.


121

The Procedure of Transferring State-owned Enterprises to

Privatized Sector in Iran

Stock Exchange Market: In Iran, among the procedures of transferring

shares (auction, negotiation and stock market), the procedure of transferring

through stock exchange market enjoyed the highest percentage of shares

transferred to the private sector, i.e. up to 81.4 percent. (Appendix-3.1)

Transferring Organizations: Industrial Development and Renovation

Organization (IDRO) and Iranian Privatization Organization (IPO) are considered

as two standard means for privatization in Iran. Even though Iranian privatization

organization (IPO), since 2001 has been the most important governmental

organization for privatization and was appointed as a specialized holding company

to take action for offering and sales of its own shares in sub-companies according

to the rules and regulations.

The Stock Exchange Market in Iran The idea for a capital market in Iran dates back to 1936. World War II and

the subsequent economic and political events in Iran delayed the introduction of a

formal capital market until 1966. In 1967 the Iranian parliament ratified the stock

exchange act. Therefore, Tehran Stock Exchange (TSE) opened in April 1968.

Tehran Stock Exchange27 became the only formal capital market in Iran.

During its first year of operations, only six companies were listed on the TSE.

Nevertheless, government bonds and other government backed certificated were

actively traded on TSE.

27. Moghimzadeh, Mahmood and Ziemnowicz, Christopher, “The Stock Market in Iran”, Overview, Moghimzadeh’s Interviews with Tehran Stock Exchange (TSE), officials including Shadi Sedghinejad, Counsel & Director, Department of International Affairs & Hossein Abdoh Tabrizi, Secretary General.


122

During 1970s, a rapid economic expansion and requirement for new capital,

led to more listings on TSE, number of the listed companies on the TSE rose to

105 in 1978. In 1979, the economic reforms in the wake of the Islamic Revolution

reverted control of the economy to the public sector. This moreover, led to

considerable contractions of the private sector with a lesser need for private

capital.

As consequences of the Islamic Revolution and Iran-Iraq War (1980-1988),

trading in many companies was suspended and turnover reduced to almost zero.

However, in 1989, the passage of the first Economic, Social and Cultural

Development Plan (March 1990-1995) initiatives by the government heavily

promoted the private sector. Since then, the TSE has been in a permanent rise in

trading and market capitalization.

Today, company shares, participation certificates and exchange settlement

certificates are traded on the TSE. The total market capitalization amounts to $6.5

US billion in 2005 and this is up from $3.2 US billion in March 1999. In 2005,

almost 300 companies were listed. The average TSE monthly turnover was around

$80 US million. During 2005, fifty-three brokerage companies were admitted at

TSE and they handed about 431,000 transactions, worth an average of $1400 US

million. Among the ten largest companies, including three petrochemical

companies, two automobile manufacturing firms and a cement producing

company. The top 10 companies have a market capitalization of about $2.4 billion,

or almost forty percent of the total market capitalization of the TSE.

The Unique Characteristics of the TSE Includes the Following Points: Since 1990, the share price index is the main indicator of the share price

movement in TSE.

The TSE has a fifteen day freeze on the upward movement of the price.

This is to allow for a cooling period to help combat pent-up demand for


123

shares. This was a result of non-availability of new issues by the Iranian

Privatization Organization that were originally a part of the overall

government’s economic reform plan.

The TSE introduced a uniformed daily price fluctuation to more five

percent either downward or upward from the previous day’s closing price

for any given share.

To protect small investors, if there was an active volume of trades on the

day before, the opening price will not be the price of the last transaction.

The volume weighted average price for the trading sessions is used as the

closing price for a given day.

For newly listed shares, the TSE allows the market to determine the price

for the first ten days. Furthermore, the price fluctuations for the ten trading

days for that given share will not be reflected in any of the indices. After

this period, the price setting mechanism applicable for other shares would

govern.

In return, for financing provided by selling common stock, management

must provide concessions to stockholders that may restrict corporate policies.

Corporations are required by law have an annual meeting at which stock-holders

have a right to vote in person or by proxy. The common stock-holders elect the

board of directors and they must approve major changes in corporate policies.

There has been too much effort for expanding the stock exchange market activities

in Iran; therefore, presently people can have transaction of stocks in many

important cities of Iran. The Central Bank and Ministry of Economic Affairs and

Finance in Iran have tried to prepare appropriate laws of stock exchange market.

In 1993 when the transaction system of stock market was started again, according

to the size of transactions, it was suitable, but after passing a period of time and

increasing size of the transactions and trading stocks, the efficiency of this system

reduced. So, enterprises classification in boards, separation of supervision area and


124

execution are the positive actions that have been done in stock exchange market of

Iran. Appendix-3.2 declares the government companies transferred during

March 2007 to February 2008.

The following table and illustration show the comparative analysis of the

performance through Stock Market and Auction methods in the process of

transferring SOEs to private sector by IPO during the years 2002–2005.

Table-3.9

Transferred companies to private sector

by IPO

based on transferring methods Annual performance

Transferring method 2002 2003 2004 2005 2002–2005

Transferred companies through

Burse method 11 41 49 98 199

Relative shares of Burse method

(percent) 100% 93% 83% 62% 73%

Transferred companies through

Auction method 0 3 10 60 73

Relative shares of Auction

method (percent) 0% 7% 17% 38% 27%

Grand total transferred

companies 11 44 59 158 272


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Illustration-3.5

Transferred companies to private sector based on Burse & Auction

transferring methods during 2002-2005

0102030405060708090

100

Per

cent

age

2002 2003 2004 2005 2002 – 2005

Relative shares of burse method (percent)Relative shares of auction method (percent)

Industrial Development & Renovation Organization (IDRO)30

With more than thirty years of experience, IDRO has gained sufficient

expertise and technology of implementation projects during development and

execution of various industrial plants. Now, in its fourth decade, IDRO is

determined to be more involved in industrial projects development as the largest

General Contractor (GC) in the country and the region to undertake large national

and regional, oil, gas, petrochemical, power generation and other industrial

projects in various fields. This plan is based on IDRO’s potential and capabilities

in the project management, engineering, manufacturing and construction and in

consideration of numerous future large national projects to be implemented.

30. Industrial Development & Renovation Organization (IDRO), http://www.idro.org


126

The government companies transferred by IDRO are shown in

appendix-3.3. The mentioned appendix indicates clearly IDRO’s connection

with Iranian privatization.

Organizational Chart of IDRO

The establishment of IDRO was aimed at accelerating the industrial

development of the country to which some of the present large industries owe their

existence as its first two decades of operation. The responsibility of IDRO weighs

even heavier with the outlook of the country’s growing trend towards globalisation

and attracting the modern technology. The achievement towards developing the

industry of the country is not actually possible unless we rely on the creative and

innovative minds of our people. That is why IDRO tries and is willing to increase

the capacity of the private enterprises. The organizational chart of IDRO is shown

in the next page.


127

Illustration-3.6

Organizational Chart (IDRO)31

31. Ibid.


128

Investment Guide

Introduction

Since the third five-year Economic, Social and Cultural Development

Plan (March 2000-2005) has considered the diminution of governmental

incumbency and the increase of private sectors activities, the government has

prepared the ground for entrance of the private investors and entrepreneurs.

IDRO's strategies are also towards creation of a suitable ambient for growth and

support of the private sector and are particularly following its strategy

of investment, technical and technological support to the private sector.

Partnership Purposes

IDRO intends to co-operate with private sector in priority issues in order to

develop the industrial capacities of the country.

Partnership Method

A joint venture private stock company will be created with the private

sector. IDRO share will be the minimum to obtain the right to nominate one

member of the board of directors and the maximum of 40 percent, 70 percent of

the investment will be raised from bank facilities in Rials and currencies and the

repayment guarantees will be given according to the shares of each of the share

holders. The balance of the capital should be paid in cash in proportion of the

shares. It should be noted that IDRO will facilitate the loan procedure. IDRO’s

share can be raised up to 49 percent in Hi-Tech projects.


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Partnership Procedure The private sector proposal has to be analyzed and the final technical and

economical evaluation of the project should be approved by the organization prior

to the joint venture company foundation. Otherwise both parties will sign a letter

of understanding and the final evaluation procedure will be done by a consultant.

IDRO will pay for the related fees which will be divided according to the share

between partners after the start of mutual co-operation. In case the studies

regarding technical and economical justifications of the project exceeds 500

millions Rials ($1=Rls.10000), both parties should pay their shares from the

beginning.

Industrial Investment Department, which IDRO considers as being pivotal

to its operations, contributes greatly to the achievement of the organisation’s goals

in several ways; by increasing private sector capacity to invest in industrial

ventures, by fostering foreign investment with the possibility of advanced

technology transfer, by identifying investment impediments and bottlenecks and

by providing appropriate relevant guidance for investors. Investment development

strategy in High-Tech by IDRO is aimed towards investment in order to use the

appropriate technology and attraction of the private sector. Appendix-3.4 shows

the investment clusters programme.


130

IDRO’S Strategies Development of industrial investments.

Development of private sector capacity.

Development of advanced technologies.

Development of general contracting.

To provide technical, managerial, financial, marketing and research

supports.

Products development and increased competitiveness among industrial

sectors.

Promotion of industrial exports.

Participation in the renovation of the country’s privatized industries.

Iranian Privatization Organization (IPO)

In the beginning of 1990s when the idea of privatization was first initiated

in Iran, the absence of an organization in charge of the issue had prevented the

expansion of privatization within a statistical scope. The Iranian Privatization

Organization has practically commenced its activities with the new objectives and

tasks since June 2001. The Iranian Privatization Organization is a governmental

company affiliated to the Ministry of Economic Affairs and Finance, having legal

entity and financial independence and the director of executive board and its

managing director is the Deputy Minister of Economic Affairs and Finance.

The secretariat of the High Commission of Divestiture is located in

Privatization Organization and based on the ministerial order of the Minister of

Economic Affairs and Finance, the managing director of organization is

considered as the secretary of the High Commission of Divestiture.


131

The economic growth, promotion of economic efficiency and productivity

of materials and human resources , increment of compatibility and partnership of

private sector in economic activities and rationalization of size of the government

and reduction of financial and management burden in handling the economic

activities are some of long-term objectives of the Iranian Privatization

Organization.

To perform suitable operations and services for execution of the plan for

divesting shares and management of governmental companies and privatization in

the context of rules and regulations are specifically important and the objectives of

the Iranian Privatization Organization reflects these requirements.

Objectives of IPO

The objectives for execution of privatization plan in Iran according to

provisions of article 9, 3rd and 4th Economic, Social and Cultural Development

Plan of the Islamic Republic of Iran, inter alias are economic growth, promotion of

economic efficiency and productivity of materials and human resources, increment

of compatibility and partnership of private sector in economic activities and

rationalization of size of the government and reduction of financial and

management burden in handling the economic activities. So, this organization is

active for materialization of the abovementioned objectives aiming on goals

stipulated in its legal articles of association based on execution of government

privatization policies through divesting and sales of the governmental companies’

shares to the private and co-operatives sectors.


132

Fundamental Tasks and Duties of (IPO)32

To issue suitable approaches for prompt and facile access to development

of general partnership for materialization of efficiency promotion and

increment of material and human resources efficiency and development of

capabilities of private and co-operative sectors and its submission to High

Commission of Divestiture (HCD) and other concerned authorities.

Procurement by proxy in divesting shares of the state companies which

their duties have been determined based on related rules and regulations.

Price fixation and offering and assignment of the shares of qualified

companies for divesting according to the approved time scheduled plan.

Execution of the determined policies by High Commission of Divestiture.

To perform any suitable operations and services for execution of the plan

for divesting shares and management of governmental companies and

privatization in the context of rules and regulations.

Supervision on exact execution of the provisions of the contracts

concerning divesting, management and lease and to perform the affairs

entrusted to the organization according to the contracts.

To perform any other tasks and duties for divesting the shares and

privatization that is borne to the organization in the context of five-year

Development Plans.

32. Iranian Privatization organization (IPO), http://www.ipo.ir


133

Privatization Procedures Adapted by IPO

Stage 1: Before Divestiture

1. The public entities are organized in the context of the specialized holding

companies. The specialized holding companies, if requires, restructure the

public entities and render the proposal to the secretariat of High

Commission of Divestiture for determining the status.

2. The High Commission of Divestiture shall consider, confirm and

recommend list of the companies which could be sold, dissolution,

integration and their time scheduled plan and sales method and shall offer

the same to the Council of Ministers.

3. The Council of Ministers shall study and approve the said list including

amount of divestiture, sales method and time scheduled plan.

4. The Specialized Holding Company (SHC) shall submit the power of

attorney to Privatization Organization for meeting the divestiture stages and

shall hand over the financial papers and documentation accompanying the

required information, accordingly.

5. To obtain the required documentation, the Privatization Organization shall

study and consider the ways and means for shares classification, shares

basic price, ways and means for obtaining the transaction price and also the

amount of preferred shares which could be divested to the employees of

that company in accordance with the governing rules and regulations and

shall take action for obtaining the required permission including the shares

base price from High Commission of Divestiture.


134

Stage 2: Within Divestiture 1. The approved companies for divestiture are divided into two types in view

point of admission or non-admission to Exchange Market. Divestiture of

the companies admitted in Exchange Market is fulfilled necessarily by

exchange method and divestiture of the other companies is performed

through auction. Therefore, selection of exchange method or auction is

subject to proportionate of company status in view point of its admission or

non-admission in exchange. The Privatization Organization does not

absolutely use negotiation in divestiture.

2. Gradual sales of shares to the public in exchange method are performed at

the same price as stipulated on the board. In other words, Privatization

Organization observes the rules and regulations of Exchange Market and

the said shares do not need the separate pricing. Sales of classified (block)

shares of the Exchange Companies are performed in accordance with the

by-law approved by the Council of Ministers by taking advantage of the

company shares transaction average price at proposal of Privatization

Organization and approval by High Commission of Divestiture.

3. Sales of the non-exchange companies’ shares are done by publishing the

notice in widely circulated dailies, through auction and by fixing the base

price, in accordance with the by-law approved by the Council of Ministers.

The official experts to Justice Administration assess the base price of the

shares by taking advantage of the standard and professional method

mentioned in the by-law approved by the Council of Ministers and based on

the same, the base price is offered and approved by the High Commission

of Divestiture.

4. In any methods of exchange or auction, the Privatization Organization,

fulfils shares offering through publishing the shares sales notice in widely

circulated dailies for public notice and in two instances. In the said sales


135

notice, the followings are stipulated: The base price of the shares, amount

of preferred shares, terms and conditions for payment of transaction price

and other cases stipulated in the act. Therefore offering the shares is done in

a fully compatible atmosphere.

Stage 3: After Divestiture

1. The Privatization Organization in major divesting, including auction or

exchange, divests the shares in cash and on instalments basis based on the

published notice and pursuant to the application of the purchaser. In this

condition while taking the required bonds, shall hand over the envisaged

shares at bond of the Privatization Organization, so there is possibility for

supervision on purchasers after divesting.

2. The Privatization Organization while concluding the divesting contract,

shall supervise on provisions and conditions stipulated in the contract and

shall take action for obtaining the instalments of the purchaser on due time

and in case of non-payment on time , shall make the required legal actions

and measures.

3. The Privatization Organization supervises on the ways and means for

convention of the company general assembly during re-payment of the

instalments by the purchaser according to the concluded contract and any

sales of company assets and properties shall be possible exclusively by

written permission of the Privatization Organization.

4. The Privatization Organization, shall take action for rendering the facilities

including discount in profit of the sales on instalments basis and

prolongation of the instalments re-payment period for maximum another

two years in case of effective and suitable measures by the purchasers

including employment increment, production increase, sales and

profitability and the new investments as well.


136

5. The Privatization Organization shall render the required supervision reports

to the authorities dealing with and policy-makers like High Commission of

Divestiture, Council of Ministers, the esteemed president and the esteemed

Islamic Consultative Assembly, within the duration for transfer and

assignment of shares.

Preparation of Shares of 757 Companies Divestible to the Private Sector

by IPO

The IPO executive director reported of the preparation of shares of 757

companies to be divested to the private sector. In his talks with Mehr News

Agency,33 Heidari Kord Zangeneh, the IPO executive director, also added that

attempting to find scientific frameworks for the share pricing of the SOEs,

revising the executive by-laws and directives, legislation of the reductions by-law,

examining the instalments of the previously divested companies are only some of

the steps taken by the IPO.

According to Mr. Kord Zangeneh, plans for spending financial resources

from the SOEs shares divesting include the provision of self-sufficiency for the

deprived families and for the families covered by the social security

system. Payment of 30 percent of these resources to the co-operatives throughout

the country for poverty removal and establishment of economic infrastructures

with the priority for less deprived regions are also considered in this arena.

Among other plans for spending such resources, he mentioned granting

loans aimed at upgrading the co-operatives improvement of the governmental

sector investments, promotion of the Co-operative Bank, maximum 49 percent

participation of the governmental companies in the less developed regions,

completion of semi-finished projects, development of the new technological

33. http://www.mehrnews.ir


137

domains, restructuring of companies, reduction of the human resources of

companies, preparation of enterprises for their divesting.

Referring to the strategy of reconstructing and divesting of the unprofitable

companies with these resources, he expressed that even for removal of any

problems of these companies for the private sector, the government reduces their

human resources and undertakes to pay the salaries and wages of the employees,

support them, provide for their early retirement, voluntary retirement and covering

them with unemployment insurance. Dr. Kord Zangeneh also reminded that

“…related projects shall be defined and taken into account in the budget.”

Talking of the all Banks Societies, Mr. Zangeneh said that we should soon

witness the supply of 5 percent of the Banks’ Shares for the price discovery in the

stock exchange and then their rest of shares shall be divested in blocks. The

second phase of their share divesting depends on the government decision, the

Supreme Divesting Council and the Divesting Delegation. “Mellat Bank or Tejarat

Bank may be the first Banks whose shares are to be supplied.” Mr. Zangeneh

added.

The IPO executive director reminded that there exists no problem with the

divesting of the societies of the divestible insurance companies and approving the

entry of the shares of these companies to the stock exchange.

Concerning the request of the Stock Exchange Market to increase 5 percent

of the original divestible shares of the SOEs to 10 percent, he said that for now, we

begin with supply of the 5 percent of shares of the companies, subject of the

preamble of the Article 44.34 He said to the reporters that for the allocation of

Justice Shares, no orders have been notified to the IPO yet. One of the important

aspects of the privatization programme is that it began with sale of the profit-

making companies in order to attract investors.

34. Constitution of the Islamic Republic of Iran.


138

The following table reveals the trends pertaining to proceeds of privatization

by the Iranian Privatization Organization (IPO).

Table-3.10 Ministry of Economic Affairs & Finance,

Iranian Privatization Organization (IPO)35

Proceeds of Iranian Privatization, during 1991/92-2006/07*

(Values in fix price)

Year Proceeds

in fix price (Million $ US)

Percentage

1991-92 793,7 4.9 1992-93 534,5 3.3 1993-94 514,6 3.2 1994-95 1161,3 7.2 1995-96 405,4 2.5 1996-97 684,3 4.2 1997-98 99,0 0.6 1998-99 372,7 2.3 1999-00 924,9 5.7 2000-01 591,1 3.6 2001-02 65,7 0.4 2002-03 929,2 5.7 2003-04 2439,0 15.0 2004-05 1532,7 9.5 2005-06 180,8 1.1 2006-07 4977,1 (30.7)36

Total 16205,8 100.0 * Each Persian Year starts & finishes at 21 March. ** All the values have been adjusted based on the values in 1997-98. *** US $1 = Rials 1752, which the published official currency rate in 1998-99, by Central Bank of the Islamic Republic of Iran. 35. http://www.ipo.ir 36. Iranian Supreme Leader (Ayatollah Ali Khamenei) on July 3rd, 2006 had ordered a major privatization of state-owned industries outside the enterprises in crucial oil and gas sectors.


139

The following illustration shows the proceeds of Privatization in Iran by IPO

during 1991 – 2007.

Illustration-3.7

Proceeds of privatization in Iran by IPO during 1991-2007

0

5

10

15

20

25

30

35

Per

cent

age


140

Details of 218 $ US Billion of Investment in Iran

by the First Eight Economic Powers

The American International Enterprise detailed the foreign investment

contracts amounting to 218 billion US dollars of the first eight economic powers

of the world, including the US, China, France, Russia, Germany, Italy, Japan and

the UK in Iran during the years 2000-2007.

According to Fars News Agency,37 the American Enterprise Institute

introduced China as the greatest foreign investor in Iran during the last eight years,

with an FDI exceeding 101 billion dollars.

The Chinese FDI in Iran includes 96.7 billion dollars in oil, gas and

petrochemical industry, 620 million dollars in banking and exports, 3.38 billion

dollars in power and construction and more than one billion dollars in the

transportation sector.

The greatest Chinese FDI in Iran includes the 70 billion dollars contract

with the Chino-Pack company for the development of the Yadavaran oil-field.

This report estimates the French FDI in Iran during the recent eight years at

minimum value of 29 billion and maximum 900 million dollars, out of which the

share of oil, gas and petrochemical industry is 18.5, banking and exports credits

9.12, power generation and construction 1.15 billion dollars and transportation 600

million dollars.

German FDI in Iran was announced to be 25.400 billion dollars during the

period. Germans concluded FDI different contracts with Iran including 9.82

billion dollars in oil, gas and petrochemical industry, banking and exports credits

2.14 billion dollars, power generation and construction 3.38 billion dollars,

telecommunications 245 million dollars and transportation 9.86 billion dollars.

37. http://www.farsnews.ir


141

American Enterprise Institute introduced Italy as one of the greatest foreign

investors in Iran, which during 2000-2007 concluded investment contracts with

the value of at least 24.7 billion dollars in oil, gas and petrochemical industry,

banking and exports credits, power generation and construction and

transportation.

The greatest Italian FDI in Iran was concluded by the ENI oil company for

the development of Phases 4 & 5 of the South Pars oil-field amounting to 3.8

billion dollars.

This report continued with the Japanese FDI contracts with Iran during the

period, which amounted to 16.9 billion dollars. It added that the Japanese FDI in

Iran included 9.33 billion dollars in oil, gas and petrochemical industry, as well as

banking and exports credits 5.9 billion dollars, power generation and construction

1.69 billion dollars.

The International American Enterprise Institute announced that FDI

contracts were concluded in different sectors of oil, gas, petrochemical, power

generation, construction, military and transportation. The greatest FDI was related

to the 1.6 billion dollars of the Gas prom for the development of the Phases 2 & 3

of the South Pars oil-field.

The Americans had a 3.6 billion dollars share of the FDI in Iran, which was

related to the oil, gas and petrochemical industry.

This American Institute published this report, when according to most

experts of this country; the US unilateral sanctions against Iran during the recent

years were not effective and the American companies were the main losers,

gaining the least share from valuable contracts with Iran.


142

Transferring of Five State-owned Banks through Stock Market

Iranian Privatization Organization (IPO) deputy announced the

timetable for the divesting of shares of five Banks, namely, Mellat Bank, Saderat

Bank, Tejarat Bank, Refah Kargaran Bank and the Post Bank. In his talks with the Fars News Agency, 38 Mehdi Oghdaei announced that:

“We held a meeting with the banks managers and the representative of the MEAF

Deputy for Bank Affairs, Insurances and the SOEs, during which the decision was

made for the timetable for divesting the banks shares.”

He added that based on this timetable, firstly, the dates of November 25,

2007, December 5, 2007 and December 16 are determined for the divesting of the

shares of Mellat Bank, Saderat Bank and Tejarat Bank, respectively in the Stock

Exchange.

“Shares of the both Refah Bank and the Post Bank shall be divested in

January 2008” Mr. Oghdaei added.

He also reminded that taking into account the huge size of these Banks, up

to 5 percent of the shares of these banks shall be divested in the Stock Market, in

order for the price discovery to be duly made.

The government companies transferred until July 2007 by IPO are

manifested in appendix-3.5. This appendix indicates the importance of IPO in

the Iranian Privatization process.

38. Ibid.


143

Illustration-3.8

Organizational Chart of the Iranian Privatization Organization39

39. http://www.ipo.ir


144

Privatization of the Commercial Banks40

On the strength of the decisions made recently by the senior authorities of

Iran and in the application of the major policies notified by the Iranian Supreme

Leader regarding the Article 44 of the Constitution, the divesting of four Iranian

commercial banks were put in the agenda of the Iranian Privatization

Organization. Since the government intends to divest these four enterprises

through the stock exchange market, the preparatory formalities for admissions of

these four banks need to be duly undertaken in the stock exchange. Currently, the

specialized preparation committees for financial, legal and technical purposes are

formed under the supervision of the Ministry of Economic Affairs and Finance

(MEAF) to pave the path for the admission of these four commercial banks to the

stock exchange market. The government recently approved the list of these four

commercial banks, including Mellat Bank, Tejarat Bank, Saderat Bank and Refah

Bank. Consequently, their shares shall be promptly supplied in the stock exchange

market and the divesting of 5 percent of their preferred shares to their employees

and managers shall be started very soon.

Subsequently, the divesting to the foreign or domestic strategic investors of

the managerial blocks of these banks, shares shall be duly taken into account. It is

mentionable that Iran intends to privatize 100 percent of shares of Mellat, Tejarat,

and Saderat Banks. Moreover, approximately 7 percent of the Refah Bank shares

are owned by the state, which shall be privatized totally. It is also mentionable that

no particular decisions have been made yet to prioritize the potential domestic

purchasers over foreign investors. Undoubtedly, foreign interested persons may

apply for the purchase of shares from the government, enjoying the same

conditions of domestic private sector applicants. The IPO hopes that with the

progress of the new national program of privatization and based on the new

Privatization act, widespread divesting of major SOEs, including these four

authoritative banks is realized. 40. Ibid


145

Table-3.11 Report of the shares sales operations by the Iranian Governmental Organizations through different

transferred methods during 1991-200241

(In Billion Rials) US $1=Rials 10000

Year

Industrial Development & Renovation Organization

( IDRO)

National Industries Organization ( NIO)

Iranian Privatization Org. ( IPO)

Other Organizations

Total

Grand Total

Stock

Market Auction Negotiation Stock

Market Auction Negotiation Stock

Market Auction Stock

Market Auction Stock

Market Auction Negotiation

1991 29.7 - 4.9 197.1 18.2 9.7 6.0 - - - 232.8 18.2 14.6 265.6 1992 41.3 4.6 49.3 76.7 42.5 21.8 2.6 - - - 120.6 47.1 71.1 238.8 1993 80.3 27.2 11.5 91.2 11.4 63.8 2.2 - - - 173.7 38.6 75.3 287.6 1994 110.8 0.5 2.2 145.0 126.2 531.0 8.0 - - - 263.8 126.7 533.2 923.7 Total 262.1 32.3 67.9 510.0 198.3 626.3 18.8 - - - 790.9 230.6 694.2 1715.7 1995 110.6 - 164.4 47.0 - 38.0 156.3 - - - 313.9 - 202.4 516.3 1996 739.4 3.8 7.3 71.0 5.0 134.0 130.5 - - - 940.9 8.8 141.3 1091.0 1997 58.0 9.3 1.5 - 11.0 36.0 57.6 - - - 115.6 20.3 37.5 173.4 Total 908 13.1 173.2 118.0 16.0 208.0 344.4 - - - 1370.4 29.1 381.2 1780.7 1998 557.0 18.7 - 130.3 - - 56.0 - - - 743.3 18.7 - 762.0 1999 1799.1 208.7 - 177.7 65.5 - 97.0 - - - 2073.8 274.2 - 2348.0 2000 1215.0 20.0 - 105.4 51.0 - 217.0 - 8.4 105.5 1545.8 176.5 - 1722.3 Total 3571.1 247.4 - 413.4 116.5 - 370.0 - 8.4 105.5 4362.9 469.4 - 4832.3 2001 - - - - - - 201.0 - - - 201.0 - - 201.0 2002 890.0 - - - - - 950.2 0.1 53.5 1237.4 1893.7 1237.5 - 3131.2 Total 890.0 - - - - - 1151.2 0.1 53.5 1237.4 2094.7 1237.5 - 3332.2

Grand Total

5631.2 292.8 241.1 1041.4 330.8 834.3 1884.4 0.1 61.9 1342.9 8618.9 1966.6 1075.4 11660.9

41. Iranian Privatization Organization (IPO)


146

The following illustrations clarify the previous table.

Illustration-3.9 Transferred shares based on transferring organizations

0

1000

2000

3000

4000

5000

6000G

rand

tota

l of

trans

ferin

g sh

ares

IDRO NIO IPO OtherOrg.

Stock market Auction Negotiation

Illustration-3.10

Transferred shares based on the methods of privatization

0100020003000400050006000700080009000

Gra

nd to

tal o

f tra

nsfe

ring

shar

es

Stockmarket

Auction Negotiation


147

Table-3.12

Daily Performance of IPO

The following table shows the performance of shares transferring by IPO in

20/08/2007

Row Company’s

Name

Company’s

Activity

Field

Transferring

Method Transferring Type

Proceeds of Transferred Shares (US $ Million)

Stock Exchange

Market

Auction

Block1

Gradually2

Preferred3

1

Niroo Trans

Production of different

kinds measuring

circuit voltage,

importing raw

materials & parts

1/77

Source: Iranian Privatization Organization (IPO)

($1US = Rials 8900)

1. Block: A block of company’s shares which has been transferred through Stock

Exchange Market or Auction and needs “Notice” includes “Base Price” in

advance.

2. Gradually: Company‘s shares which are transferring gradually through Stock

Exchange Markets.

3. Preferred: Enterprise shares which have been transferred to the enterprise

employees. These shares could be at the maximum of 5 percent of the

transferable shares.


148

Basic Statistics of Comparative Operation of IPO during 2005-2008

Comparative operation of transferred shares from State to the Private

Sector, Non-governmental Public Sector and Co-operation Sector (Justice Shares),

based on transferred shares’ value and number of transferred enterprises

during 2005-2008.

1. Based on transferred shares’ value, the biggest sum of the transferred

shares’ value belongs to the Co-operative Sector (Justice Shares), then

Private Sector and at least to Non-governmental Public Sector.

2. Based on number of the transferred enterprises, the greatest number of

transferred enterprises belongs to Private Sector then Co-operative Sector

(Justice Shares) and at least to Non-governmental Public Sector.

The following table and two illustrations coming in the two next pages will

clarify the comparative operation of IPO based on transferred shares’ value

and number of the transferred enterprises during 2005-2008.


149

Table-3.13

Comparative operation of IPO based on transferred shares’ value and

number of the transferred enterprises

during 2005-2008

Source: Iranian Privatization Organization (IPO)

Amount in Billion Rials ($1US =Rials 10000)


150

The following illustrations clarify this issue.

Illustration-3.11 Transferred shares based on shares’ value during 2005-2008

0

50000

100000

150000

200000

250000

Tran

sfer

red

Sha

re's

val

ue

duri

ng 2

005-

2008

(Am

ount

in

Bill

ion

Rial

s)

Private sector Non-GovernmentalPublic sector

Co-operativesector (Justice

Shares)

($1US =Rials 10000)

Illustration-3.12 Transferred shares based on number of transferred enterprises 2005-2008

0

50

100

150

200

250

No.

of t

rans

ferr

ed

ente

rpri

ses

duri

ng

2005

-200

8

Private sector Non-GovernmentalPublic sector

Co-operativesector (Justice

Shares)


151

Problems of and Obstacles to Privatization in Iran

The policy of privatization has not been successful enough due to the different

reasons such as the economic and cultural obstacles. Following are some very

important problems and obstacles of privatization in Iran.

1. Blurred Objective of Privatization Privatization as a policy has its own unique rules and regulations. In other

words, the objective of privatization should be specified on the basis of which the

targets and approaches should be determined. For example, if our purpose of

privatization is increasing efficiency, the stocks of the companies should be sold in

a minimum price to the persons who have the capacity to operate it with high

productivity.42

2. Lack of a Comprehensive Plan and Impetuosity

Preparing a comprehensive plan for privatization or applying the step-by-

step approach depends on the specific situation of any country; it seems that lack

of a comprehensive plan and impetuosity in implementing the privatization plan

has been one of the factors that make privatization unsuccessful in Iran.

3. Privatization with No Reconstruction

The select state-owned enterprises should be reconstructed before

transferring to the private sector for a successful privatization. Most of the great

state-owned enterprises are faced with serious financial and operational problems.

It seems that reconstruction of the enterprises has not been accomplished in Iran

which is to some extent one of the factors of not welcoming the offer of stocks in

the stock market by people.

42. “Six Reasons for Misfortune of Privatization” (2002), Abrar Economics Magazine.


152

4. Insufficient Specialty

In Iran, there is not enough efficient man-power to implement the

privatization plan. The essential economic studies have not been carried out and

the best methods of transfer have not been chosen from among different

procedures. The prices of the offered stocks were low at the beginning as a result

of which their primary purchasers gained a high profit. The numerous problems

which the privatization plan is faced with at present are to some extent due to lack

of enough efficient man-power in this field.

5. Problems of the Capital Market Perhaps one of the most important problems to privatization in Iran is the

underdevelopment of capital market in the country and inefficiency of the stock

market. Stock market can be efficient when it continuously can absorb a regular

flow of financial resources to itself and offer to the applicants of capital. It deems

necessary that such conditions should be created in which the applied pressure on

stock market is not so much that a severe shock is applied to the success of stock

market in economy.

Tehran Stock Market lacks the tools that exist in the international stock

markets at present. New methods of exchanging, negotiable instruments and using

the swift communicative instruments are not common in Tehran Stock Market. In

Tehran Stock Market no pamphlets and publications are distributed commonly that

contain matters such as stock market function, characteristics of brokers, the

procedure of stock market hall and the procedure of calculating the indices, etc.

The low price of shares means bringing much windfall profit for the purchasers

and the extreme low price causes the stoppage of transferring process.43

43. Taghavi, Mehdi (2000), “Specialization in un-specialization, who perform privatizing program?” Teraberan, Journal No. 15, pp. 10-11.


153

6. Social Problems

Different societies usually expect that the shores, waters, mines, dams,

forests, wild animals, airports and roads… are under the supervision and control of

the government. The transfer of any of the aforementioned issues causes

deprivation of some parts of the community.

7. Political Problems

The state-owned economic or industrial institutions are considered as the

national power symbols. Some political parties or nationalist groups or parties

which consider the sovereignty of government in the community necessary for

some reasons, consider privatization against the national interest and as a factor of

weakening the public sector as well as the reinforcement of private sector and

finally against the interest of the society.

Although the military industries of the government usually are not within the

circle of privatization due to the national interest and political pressures, but in any

way, risk of the dominance of private sector in economy and industry and the

decrease of the influence of government in these areas may bring certain political

aftermaths in long term.44

44. Moghbel, Abbas, (1993), “Objectives, Benefits and Problems of privatization in governmental Industries”, Knowledge of Management Magazine, No. 21, summer 1993.


154

Despite this, the political atmosphere of the country and the improper

competition of the political parties, associations and powerful groups with each

other which to some extent makes the political future of the country insecure is

one of the reasons for lack of interest in investment through purchasing the shares

of the state-owned companies.45 The political incidents such as 11th September

event and the same examples also can be considered as the obstacles for

privatization and cause the decrease in shares transferring.46

8. Cultural Problems of Privatization After the Islamic Revolution of Iran (February 1979) due to the specific

situation of the early years of revolution, the term "Capitalist" entered in the

society and the political literature of the country with a negative connotation. The

term “Capitalist" which could be meant as job creator was propounded in the

literature as the blood-sucker and usurer, etc… Now, this has brought a negative

impression that the capitalists have come back to purchase the companies, perhaps

this is the cause of negative attitude towards privatization in communities

especially the labourer’s societies.

9. Feeling Insecurity in Private Sector

Elongation of settlement of some of the cases in the Judiciary and the

subsequent hubbubs which once a while raises by resorting to factors such as

campaign against economic corruption and windfall wealth, have caused that the

capitalists feel insecurity and consequently, to reduce their clear presence. The

increase of the Iranians' investment abroad especially the countries situated on the

south part of the Persian Gulf confirms this claim.

45. “Six Reasons for Misfortune of Privatization” (2002), Abrar Economic Magazine. 46. Aliakbar, Medhi, “There is no volition for privatization”, Hamshahri Newspaper, 3rd Sep, 2002.


155

10. No Interest among the Domestic Capitalists for Purchasing the

State-owned Companies

The present domestic capitalists prefer to operate in more secured sectors

such as brokerage or in a more optimistic view, saving in banks, purchasing bonds,

etc. instead of investment in other sectors such as the industry.

11. Resistance of the Managers of Supervising Departments

This kind of resistance may be resulted from factors such as fear from

subsequent investigation by the Supervising Departments. The other reason for the

resistance can be losing the facilities that their companies receive from the

affiliated companies which operate outside the auditing and Budget Law.47

12. Inefficient Laws and Regulations

Another important obstacle which faces the implementation of privatization

is the inefficient laws and regulations which have been created due to lack of true

understanding. As an example, Article 16 of the 3rd Five-year Development Plan

the executive by-law of which has also been composed gives priority to the job-

creator managers, groups, co-operative companies, professional and trading

associations, etc. But it is not clear that how it can be executed and operated in the

competitive marketplace of Stock Exchange Market Organization.48

47. Shahidi, Mohammadreza, “Obstacles of Privatization in Iran”, Aftab Yazad Gazette, 13th May 2002. 48. Ibid.


156

13. Lack of Participation of the Public Sector in Decision and Policy

Makings to Privatization

By privatization law, it is specified that the government is responsible for

privatization and its executor and controller is government. Probably, it is better

that when we were going to do a job that half of its decision-makers and

purchasers are from the private sector, some representatives from the private

sector participated in planning and transfer commissions and foundations at least

as the observers in order to propose appropriate approaches for planning and

composing by-laws through expressing their problems and the authorities took

better decisions by considering the purchaser’s views.49

14. Double Nationalization

At present, a remarkable part of the stock purchase is done by the

Investment Companies, Banks, Retirement Fund and Social Security Organization.

Considering the notes of the Iranian Budget Law which proposes the

compensation of the government liabilities to the Retirement Fund and Social

Security Organization through selling shares, a remarkable part of the stocks of the

companies has been transferred to the investment organizations and companies for

which no better productivity is predicted compared with the period which they

were governed by the government and are within the scope of public sector in

another form. In fact, privatization in these organizations is transferring of

management from one government organ to the other one.50

49. Ibid. 50. Ibid.


157

15. Violation in Transferring

Violation in transferring is another obstacle to privatization in Iran.

Apparently, in transferring that has mainly been carried out through negotiation,

violations have also occurred. For example, a large government organization, has

sold its profitable companies to the certain individuals as much as possible.51

16. Monopoly in Production and Distribution

Monopoly in production and distribution brings net profits for the

companies and prevents them from operation in competitive scenes.52

17. Weakness of Supervision on Transferred Units The weakness of supervision on transferred units and function of some

authorities and managers are among the deterrent factors of privatization.53

18. Blurred Procedures of Transferring the State-owned Companies The main reason for inefficiency of privatization in Iran is blurred

procedures of transferring the state-owned companies especially their pricings.54

Some of the other factors are lack of serious intention and co-operation of

ministries and also fragile authority granted to the Privatization Organization.55

It is worthy to mention that in spite of all problems, the senior

authorities of the Islamic Republic of Iran are positively inclined to continue

the course of privatization.

51. Aliakbar, Mehdi, “There is no volition for privatization”, Hamshahri Newspaper, 3rd Sep 2002. 52. Razzaghi, Ebrahim, (2002), “Problems & Obstacles of Privatization, Ettelaat Gazette 7th December 2002. 53. Paykarjo, Combiz (2002), “Problems & Obstacles of Privatization”, Ettelaat Gzette, 7th December 2002. 54. Noori, Abbasali, (2002), “Problems & Obstacles of Privatization”, Ettelaat Gazette, 7th December 2002. 55. Aliakbar, Medhi, “There is no volition for privatization”, Hamshahri Newspaper, 3rd Sep. 2002.


158

Summary

Privatization gained considerable momentum in the developing world in

1980s. The motives were many, but the hope for higher economic efficiency

underlined the expectations of the implementing governments and agencies in the

developing countries. The impact of privatization is not only free market,

economic liberation and even economic efficiency, but privatization in any society

can lead to change beyond the economics, it can lead to greater social growth,

political openness (liberation) and more dominance of individual rights compared

to government rights.

The experience from the past several years shows that privatization is

neither a panacea nor universal solution, but experience shows that privatization

will benefit a country in the long-term only if social and macro-economic stability

are preserved in the privatization process.

In Iran, by the end of the Iran-Iraq War, the best way for being saved from

economic problems was considered to be the implementation of privatization.

Therefore, privatization in Iran is a post Iran- Iraq war (1998) phenomena, which

is supposed to be a restructuring of the Iranian economy. Following this idea,

taking operational measures started in this field since 1989 and the transfer of

state-owned enterprises and institutions to the private sector was commenced since

First Five-year Development Plan (March 1990-1995). Experience of privatization

in Iran reveals that privatization policy in Iran had not been successful enough

until July 2001. The new cycle of privatization in Iran began in 2001 with the

establishment of the IPO. The privatization process is persistently continuing now.

Although commenting on the new process of privatization in Iran and its

consequences seem a little soon, but as it is evident, the senior authorities of Iran

are strongly inclined to continue privatization in Iran.

privatization in iran: trends &...

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