'Chance of a Century': International Investors Flock to Tehran

A Report by DER SPIEGEL

Since the landmark November 24 Geneva accord between Iran and major powers, many Western companies are gearing up do big business with the country, Der Spiegel reports.

The report entitled, “'Chance of a Century'”: International Investors Flock to Tehran,” appeared in international online edition of Der Spiegel today.

“Suddenly it appears to be there, the 'Chance of a Century' that (businessmen have) been waiting for,” says a longtime German resident of Tehran.

“Although none of the sanctions have been lifted, droves of Western business people are already flocking to Tehran. Iran has the world's fourth-largest known oil reserves, and the second-largest gas reserves. Business deals worth billions of euros can be made here.” (Der Spiegel, 3 January)

To read the DER SPIEGEL report in English, please click here.

Photo credit: A view of wintery Tehran in January 2014. (Kiana Hayeri/DER SPIEGEL) 

Tbilisi to Host Iran-Georgia Economic Conference

Iran and Georgia will sponsor the first conference and exhibition of economic and industrial cooperation in Tbilisi on 1-2 July. Over 100 industrial and service organizations and officials from both countries will attend the event. (Fars News Agency, 12 May)

Iranian nationals have invested heavily in Georgia in recent years, and Iran is now the top source of foreign investment in the country.

Chinese Oil Companies Delaying Iran Projects

Iran Warns Largest Chinese Oil Company of Losing Its $4.7 Billion Contract

CNPC, China's biggest state oil and gas group, has been warned by Iran to speed up work at the giant South Pars natural gas field or risk losing the multi-billion-dollar deal.

Ahmad Qalehbani, deputy minister of oil, told reporters in Tehran that the Chinese are delaying development work on the phase 11 of the South Pars gas field, phases. Qalehbani said as a result of the delays, CNPC is on the verge of losing its contracts to Iranian firms [Mehr News Agency, 2 September]. The CNPC contract was signed in 2010 and is worth $4.7 billion.

China’s second largest oil and gas company, the Sinopec Group, has also delayed the start date of the $2 billion Yasavaran oil field development. In late 2010, CNOOC, China’s third largest oil company pulled its team from North Pars gas venture.

The behavior of China’s three largest oil and gas companies cannot possibly be coincidental and must reflect the current strategy of the Chinese leadership toward Iran. Even though China had recently accelerated its purchase of the Iranian crude, but it appears to be hesitant to start or complete development work in Iran’s oil and gas fields. This hesitancy is a direct result of China’s eagerness not to challenge or offend the US and its sanctions against foreign investments in Iranian oil and gas sector. The crude oil purchase, however, is not subject to those sanctions and hence China’s willingness to increase its purchases.

Loss of Chinese largest firms as investors in developing oil and gas fields in Iran could cause serious problems for the country’s oil industry, especially considering that not long ago China was probably the last major economy left that was willing to ignore US sanctions on investments.

Iran Oil Minister Calls for Massive Investment in Oil Sector

Gen. Rostam Qasemi, Iran’s newly appointed Oil Minister, said today in Tehran that the country’s oil and gas sector immediately needs at least $40 billion in new investment in maintenance and development projects.

"Considering the extensive oil and natural gas fields, their development needs heavy investment; therefore, the task can be accomplished by securing the capital from domestic as well as foreign sources. Definitely a part of the needed resources will be secured from the country's general budget, but for the remaining part we will explore domestic sources that include the private sector and the banking system," Qasemi said [IRNA, 9 August].

Qasemi added that Iran would be issuing a "great volume of various bonds" this year to help finance the projects.

Investing in Asia – A New Paradigm for Iran

Cash Trapped in India, South Korea and China Turned into Investment. A Historic Opportunity for Iran

By Nader Uskowi

The International Monetary Fund (IMF) reported this week that Iran's economy is growing by 3.2% in 2011. The positive assessment of the Iranian economy reversed IMF’s own prediction of 0% growth made in April. IMF identifies a recovery in agriculture during rising food prices across the globe and higher oil prices as the main factors in the growth of the country’s GDP.

The IMF praised Iran's subsidy reforms, implemented by President Ahmadinejad in December 2010, which resulted in the removal of nearly $60 billion in annual product subsidies, equivalent to 15% of GDP. I have been an early and strong supporter of Ahmadinejad’s subsidy reform program. It will spur additional GDP growth in the coming years.

The publication of the IMF report coincided with other published reports indicating Iran’s serious problems in colleting payments for its crude oil sold to its major Asian customers. This blogger understands that nearly $30 billion of the country’s cash is trapped in India, South Korea and China due to inability of those countries to transfer those funds to Iran because of US banking sanctions. But this problem can be turned into a historic opportunity for Iran. Let me explain how.

In the past six years or so, in writings and in discussions with the country’s senior economists and policy makers, I have argued that Iran could not afford to regard its oil revenues as the never-ending hard currency source for its budgetary needs. Iran needs to invest a significant portion of those revenues, generating income, with the government receiving its share by taxing the income so generated. The investments, I have argued, should include foreign investment. Now that considerable amounts of the country’s cash are trapped in major Asian markets, and in spite of that the country’s economy is growing at a healthy rate, as indicated by the IMF report, the Iranian government should turn these oil payment problems into a historic opportunity to start major investments in India, China and South Korea, in the tune of $30 billion as a starter.

To be successful, Iran needs to find a niche for its investments that would be common in those three countries. I believe automobile industry is the solution. Iran is already having success with its domestic car production. It can use nearly $5 billion in cash it now has in South Korea as the initial investment in a major Korean car manufacturing to gain added technology needed in today’s automobiles. It can use its nearly $7 billion cash in India and reportedly nearly $20 billion in China to start joint ventures with the local automobile producers to build its brands in the two countries that will be growing for years to come, with families getting rich enough to purchase multiple new cars. The profits generated could be reinvested in these projects with huge implications for Iran’s growing market shares in the fastest growing industry in top two fastest growing economies. This would be a new paradigm for the country, a historic opportunity that the government should not miss.

Iran Needs $150 Billion in New Investment to Maintain Oil Production

The Deputy Oil Minister Mohsen Khojasteh-Mehr today told reporters in Tehran that the country requires at least 150 billion dollars in new investment in the next five years to maintain its current levels of production. Without such investment, the minister warned, Iran’s oil production may fall to 2.7 million barrels per day (bpd) within the five-year period.

“The national oil company plans to invest 150 billion dollars during the fifth development plan,” said Khojasteh-Mehr. (The fifth development plan ends in 2015.)

“If the investments are not realized, the country's oil output will drop to 2.7 million bpd," Khojasteh-Mehr added [IRNA, 30 May].

Iran’s current production is 3.7 million bpd, with more than 2 millions bpd exported. If the production levels falls to 2.7 bpd, the exports will have to be cut in half. However, an investment of $150 billion could actually increase the total production by nearly 1 million bpd. The deputy oil minister did not reveal possible sources for any new investment. The international sanctions against new foreign investments in the oil industry in recent years have severely limited the national oil company’s programs.

Photo: IRNA

China Wins Iran Oil Contracts

China was awarded contracts to develop Iran’s North and South Azadegan oilfields. The Iranian ministry of oil announcing the news today in Tehran did not disclose the name of the Chinese state-owned company who has won the contracts. The Chinese investment to develop the giant fields is estimates to exceed $6 billion.

The Deputy Oil Minister Ahmad Qalebani told reporters that no domestic company has the required capital to undertake the development work.

“Development of these two giant oilfields requires investments more than $6 billion and the possibility of procuring such an amount by a domestic contractor does not exist,” Qalebani said [Mehr News Agency, 13 March].

Iran, unlike many oil-producing countries, has not developed an independent fund from its oil revenues to reinvest in the existing and new oilfields. The investment budget for any development work in the industry is part of the government’s general capital expenditure budget and usually has not been given the top priority it needs to maintain and expand the country’s premier industry.

Declining Economic Growth and Foreign Investments in Iran – World Bank

The latest report by the World Bank on Iran’s economic growth in recent years shows serious effects of the global slowdown and the severe economic sanctions on the Iranian economy. The Central Bank of Iran, which normally publishes the growth rates for the country, has in the past three years declined to do so. According to the World Bank, the growth rate in 2010 is estimated at 1.5%, in 2009 at 1.4%, and in 2008 at 2.3%; the signs of an economic stagnation.

The Bank’s world economic outlook report released this week also predicts continued decline of foreign investments in Iran. The volume of direct foreign investment for 2011 is estimated at $1.2 billion, in 2010 at $2.9 billion, and in 2009 at $3.2 billion; a dramatic 67% decline in foreign investments in a span of two years.

The subsidy reforms undertaken by the government in the past two months are designed to cut the government’s expenditure by some $80 billion in their first year (although this estimate looks increasingly unrealistic and the real savings could be half that). The government is also planning to hand out some $29 billion in cash each year to the individuals affected by the removal of government subsidies. The rising oil prices, expected to hit $100 a barrel, are expected to provide the cash necessary to continue the handouts. In light of the World Bank’s data on the economic stagnation of the country, the real necessity for removals of government subsidies becomes even more clear.

Iran Eases Foreign Ownership Rules

Iran announced today that it has adopted new regulations to facilitate foreign investment in its capital markets. All restrictions on foreign investors transferring money out of Iran are removed and the limit of foreign ownership of Iranian companies is raised to 20 percent from 10 percent. Foreign investments are now exempt from paying any taxes.

"The government is now offering broader incentives to foreign investors with fewer regulatory strings attached," said Ali Saleh Abadi, director of Iran's Securities and Exchange Organization. "They will be exempt from paying tax and will no longer be subjected to excessive regulations." [Press TV, 26 April].

Iran is aiming to raise some $12.5 billion in foreign investment by privatizing more than 500 state-owned firms during its current fiscal year that began on 21 March. Among those firms are two carmakers and two refineries.

In the current political atmosphere and the hesitancy of foreign investors to enter the Iranian market, however, IRGC, the country’s most powerful branch of armed forces with extensive economic holdings in the country, is expected to take over the carmakers and the refineries put up for “privatization."