Friday, January 07, 2005

Former Iran vice president risks court summons

Iran Mania News: "Former Iran vice president risks court summons

Friday, January 07, 2005 - ©2004
LONDON, Jan 7 (IranMania) - Former Iranian vice president and outspoken reformist Mohammad Ali Abtahi said Friday he could be summoned to court after complaining over the abuse of journalists in his personal weblog.

"I read in the papers that the attorney general and the police have pressed charges against me in the clerics' court, although I have not yet been officially informed," Abtahi wrote on his website.

The charges appeared to be related to "spreading lies", Abtahi wrote.

Abtahi quit the reformist government of embattled President Mohammad Khatami in October, saying that working with hardliners -- who took control of parliament after most reformists were barred from contesting the February 2004 legislative elections -- had become impossible.

On his website, the mid-ranking cleric has openly complained about a fresh crackdown on the pro-reform press, and voiced alarm over how several journalists had written letters of confession after being arrested.

Abtahi quoted two of the arrested journalists as saying they had been threatened and beaten.

Last month the reformist government admitted that it was concerned over how the hardline judiciary managed to exact such written apologies and confessions and said Khatami had ordered an enquiry.

But the four journalists were then quoted in the national press as denying they were forced to repent while in jail, and denied they had been ill-treated."

The Banker: Fuelling investment

The Banker: Fuelling investment: "Fuelling investment
Published: 01 December, 2004
Page 128
Iran’s prospects for liquefied natural gas sparkle but the timetable for project finance remains hazy.Kevin Godier and Jon Marks investigate.

If bankers needed reminding of the importance of Iran’s role in the oil and gas sector, November’s signing of a huge liquefied natural gas (LNG) deal between Beijing and Tehran served this purpose.

Worth at least $100bn and billed already as the “deal of the century” by various commentators, the agreement is likely to increase by another $50bn-100bn when a similar oil agreement, currently being negotiated, is inked.

Iranian officials have expressed hope that the deal can lead to a fundamental rethink of the risks involved in doing business with their country. Iran is seeking to develop its gas reserves – the second largest in the world after Russia – by exporting more LNG to emerging markets such as China, South Korea and India.

Market anticipation

On a medium to long-term time horizon, billions of dollars’ worth of debt will be required for these and other developments to transform the source of the gas, Iran’s giant South Pars field, into a huge production hub. The National Iranian Oil Corporation (NIOC) has arranged for South Pars to be developed in at least 20 phases, 16 of which have begun. Each of these involves the production of 1bn cubic feet per day of natural gas, some of which will be transformed into LNG and gas-to-liquids schemes.

Markets are also looking with considerable anticipation at Iran’s other major parastatal, the National Petrochemical Company, which has 23 projects lined up over the next five years requiring billions of dollars. The National Petrochemical Company has already established itself as a major borrower of debt, guaranteed by leading export credit agencies such as the UK’s Export Credits Guarantee Department (ECGD), Italy’s SACE and Japan’s NEXI.

Looking further ahead, big investments will be required for build-operate-transfer contracts that will be used to construct Iranian power plants.

However, project financiers who are eyeing the market remain unsure as to how and when their expertise will be called upon.

South Pars’ phases 15 and 16 – which are aimed at producing refined gas for internal use, as well as for export – are on the horizon. However, according to the head of project finance at a large French bank:

“There are no large Iranian projects which are definitively seeking finance in the near term. Everyone would like them to come fairly quickly but quite often they don’t.”

He underlines that although market sentiment is generally positive – based on Iran’s considerable liquidity, its healthy economy and its steady repayment of past-trade debt – “banking appetite for long-term Iranian assets is no more than cautiously favourable”.

He observes: “We have just finalised our country lines for 2005 and it is not as if there is a limitless amount of capacity.”

Words of caution

A London-based banker with experience in Qatar’s booming project finance market, just across the Gulf from Iran, also expresses caution. He emphasises that although the South Pars field provides many compelling financial attractions, it is not just the US blacklisting of the country that makes Iran a challenging market for banks. “My personal feeling is that Iran may not turn out to be a joint venture culture,” he suggests.

Project finance templates in Iran have been talked about for a decade or more but have so far proved difficult to lay down because of Iranian law.

The London-based banker explains: “The Iranian law reserves all oil gas assets for the ownership of the state, so conventional pure project financing is essentially impossible, unless financiers can find another security structure.”

To date, the two financing structures that have proved most suitable for Iranian projects are buyback and structured export finance. Under the traditional buyback option, suppliers of capital plant or equipment agree to be paid from the future output of the investment concerned. Therefore, exporters of equipment to Iranian oil facilities have sometimes been repaid with part of the resulting output.

However, as larger projects have moved on to the scanner, this option has run into problems. Iran’s still considerable political risks necessitate the use by lenders of long-term political risk insurance and the primary providers – national export credit agencies – “generally prefer not to plug into a buyback” structure, as another banker put it.

He explains: “Buybacks are really a form of service contract, and mean that payments to a contractor are limited to project performance. Although the Iranians can sometimes be very flexible with their structures, export credit agencies, for their part, prefer an unconditional repayment obligation.”

Some export credit agencies – including Atradius in the Netherlands and SACE – have worked with buyback. However, the export credit agency-backed model for larger, longer-term loans that looks set to predominate is the “structured finance” template. In this model the lending facilities are secured against the revenue streams of NIOC or the National Petrochemical Company.

Giant South Pars deal

The National Petrochemical Company has borrowed regularly on a structured finance basis but the first Iranian mega-project to push ahead of this basis – which took many months to finalise during 2004 – is a giant 10-year $1745m structured financing for NIOC to fund the development of phases nine and 10 at South Pars. The project comprises four onshore gas-processing trains and 100 km of offshore pipeline, which will produce condensate and liquid petroleum gas from the gas feedstock.

Deutsche Bank arranged the deal, in which the Export-Import Bank of Korea directly financed $880m of the transaction, linked to imports from a sponsoring consortium led by South Korea’s LG Group. Atradius, SACE and ECGD absorbed a further $340m of lenders’ risks. Commercial banks including BNP Paribas, Commerzbank, ING, Kreditanstalt fuer Wiederaufbau, Natexis Banques Populaires and Société Générale took $525m of naked NIOC risk.

Keen to do business

The financing model – expected to be replicated eventually for further integrated gas projects planned by NIOC – “involved collateralised offshore structures, as well as straight export credits”, says Klaus Michalak, the global head of structured trade and export finance at Deutsche Bank in Frankfurt.

“Banks that are familiar with Iran are keen to do structured lending, especially on the oil and gas development programme. There is not a colossally deep appetite – but reasonable amounts can be raised with export credit agency support,” a London-based export financier observes.

He highlights that even though European export credit agencies are already considerably exposed to Iran – SACE, for example, had medium and long-term commitments worth E4.65bn at the end of 2003 – “they are still keen to do more business”.

This is reflected by Jan Vassard, a director of the international department at Denmark’s Eksport Kredit Fonden, which has financed deals in Iran’s cement sector. Mr Vassard acknowledges that many observers point to the political risks inherent in the deep-seated divisions within Iranian society, and the country’s relations with the international community over the nuclear proliferation issue. “However, on the whole, we continue to consider Iran to be a fairly good credit risk,” he concludes."

The Banker: A new economic era for Iran

The Banker: A new economic era for Iran: "A new economic era for Iran
Published: 01 December, 2004
Page 108
Iran is reaping the benefit of economic reforms and its banking privatisation plan is likely to be a springboard to further financial success. Stephen Timewell reports from Tehran.

During the first four years of Iran’s third five-year development plan (2000-2004), its real GDP grew by 5.6% on average, the external current account was in surplus, external debt was reduced to a very low level, international reserves increased and the unemployment rate declined. This performance, described in the International Monetary Fund’s latest Article IV Consultation, has taken place as Iran’s economy has become increasingly open to international trade and investment. It has also been achieved against a background of economic reforms, sustained high oil prices and expansionary fiscal and monetary policy.

Sustained growth

These positive developments have been associated with strengthened confidence in the economy, which has encouraged a rise in private sector activity and foreign direct investment, notably in the non-hydrocarbon sector. The IMF report considered Iran’s key challenges to be further strengthening the foundations for strong and sustained economic growth and diversifying to provide the basis for continued job creation in an environment of macroeconomic stability.

Endorsing the latest reform efforts, the IMF supported the Tehran government’s intention to tighten monetary policy and welcomed measures to contain domestic liquidity growth, such as stepping up its sterilisation operations. It also suggested curtailing the use of direct credit controls, introducing more market-based flexibility in setting rates of return and limiting the recourse by banks to the central bank’s overdraft facilities.

In further supportive measures, the IMF directors welcomed the licensing of private banks and leasing companies and backed Iran’s actions to restructure public banks and strengthen their capital base.

Bank privatisation

One key aspect of financial sector reform going forward is the privatisation of the banking sector. But while a number of privately owned banks have been licensed (see page 124) and the bulk of the state-owned banks will be sold, a significant state-owned sector will remain. Bank Melli Iran, the largest bank in terms of assets, will stay in state hands and expects to expand its role in the region through new operations in Baghdad, Kabul and Dubai (see page 133).

The agricultural bank, Bank Keshavarzi, has undergone a radical transformation in recent years and significantly increased its market share. It is also expected to remain state owned and to continue to have a pivotal role in agricultural finance and retail banking (see page 132). Under Jalal Rasoulof, the chairman of Bank Keshavarzi, more resources will be focused on agriculture in the next five-year plan, especially in the area of insurance. Mr Rasoulof hopes to attract $2bn of foreign direct investment into Iran’s agricultural sector in the next plan through a variety of major projects and pipelines. He also expects to work with the Jeddah-based Islamic Development Bank on a number of water-related projects.

Privatising the banking sector is high on the agenda and the sale of a number of banks was agreed in October. The government plans to retain a 30% stake and 60%-70% will be sold to the public through the Tehran Stock Exchange. According to MR Khorsandi, the director general of international affairs at Bank Sepah, it is not clear which bank will be first – and the sales may be delayed for up to a year – but he is confident his country’s privatisation strategy will go ahead.

Bank Tejarat is another candidate for privatisation. MA Davoud, the director of its international division, is keen to use monies from the Oil Stabilisation Fund to strengthen the private sector. “We are determined to go through the privatisation process. To make our accounts as transparent as possible and to minimise bad debts (less than 1%), we have arranged different mandates for different departments and established credit risk management procedures,” explains Mr Davoud. “Privatisation may be a long way away but there is a possibility for us to be privatised and it would be harmful to the bank not to do so. We are trying to make ourselves ready, we feel banks should go private but it may take two years at least.”

Commercial changes

Shahram Razavi, the general manager of the international division of Bank Saderat Iran, is concerned that the private sector is capable of absorbing a bank such as Saderat. Mr Razavi believes the banks are looking forward to change but adds: “We are too tightly run by government to effect the necessary changes at the bank.” He continues: “The bank needs to be commercialised before it is privatised. Westerners will be very cautious about the risks when Saderat is privatised – the fear is who will take control. Privatisation is going to be difficult but it depends on how it is done.”

Another big bank, Bank Mellat, which was formed by bringing together 10 banks that were owned privately before the revolution, is also looking at the opportunities of privatisation. According Mohammad Ali Nasrollahi Malek, a member of the Mellat board, the bank has a 27% share of the letters of credit market, 2000 branches across the country and is one of the most efficient of Iran’s large banks. An outsider may find it difficult to distinguish between these banks, which offer similar services. The question is whether privatisation will result in significant diversity and whether the banks will be able to boost their capitalisation through the Oil Stabilisation Fund or further capital issues.

Currency devaluation

Recent currency devaluations have caused the Iranian banks to slip down the global rankings as their relative Tier 1 capital figures have fallen in relative terms (in US$). The privatisation process, as well as the recapitalisation procedures taking place for Melli, Keshavarzi and others, will be extremely important in determining how the Iranian banks will appear on the world financial stage.

Meanwhile, as Melli and Keshavarzi expand at home and abroad, the other operators are making some significant moves, particularly in project finance, petrochemicals and gas (see box).

The banks are establishing themselves overseas and high oil revenues are boosting Iran’s economy. The latest IMF report projects real GDP growth at 6.5% in 2003/2004 on account of oil prices and the continuation of the current expansionist economic policy. But that is not the whole picture. As always, politics and foreign affairs play their typically complex role.

The extent to which privatisation actually takes place depends on the political forces at work. There is a desperate need for private sector employment and it is acknowledged that the effective 80% state sector needs to be reduced drastically. However, there is no guarantee that the privatisation many hope for will become a reality. Yet, on a positive note, the Oil Stabilisation Fund provides a generous financial cushion. Oil prices are approaching $50 a barrel, putting Iran in the comfort zone.

There is no shortage of political concerns but, on November 15, Iran helped to calm international worries over its uranium enrichment strategy. The Iranian government told the United Nations atomic watchdog that it would suspend uranium enrichment and processing activities as part of a deal with the EU to avert any UN Security Council sanctions. Iran stressed that its decision to freeze sensitive nuclear work was taken voluntarily to dispel concerns that it was building atomic arms secretly.

However, while Iran has dealt with the enrichment issue for the time being, the presidential elections next May will not be dismissed as easily. With President Mohammad Khatami unable to stand for a third term, a new leader must be elected. Ali Akbar Hashemi Rafsanjani, the president from 1989-1997, is a possible candidate and a moderate. There is plenty of time between now and the elections but much is at stake.

Political uncertainty

Many observers believe the privatisation process could be a springboard for Iran’s further economic success. However, some Iranian conservatives are very much in opposition and foreign investors will remember how Islamic Revolutionary Guards closed the new Imam Kmomeini International Airport in May after the first flight had landed.

The conservatives may return to power but that is not a political certainty. Iran’s transition to an economy that is more open and focused on the private sector is a very positive development but plenty can happen in the months ahead.


Developments in iran’s banking sector

The bank has 13 million customers/depositors. It is the only Iranian bank with a branch in Seoul, three branches in Turkey and a negotiating branch in Canada. It is working on opening a branch in Dubai, by applying to the Dubai International Financial Centre.

Iran The bank hopes to use its Bahrain joint venture, Future Bank, as its springboard into the region. It has plans to open in Iraq and establish a parallel direct presence. It has eight branches in Dubai. Shahram Razavi, the general manager of the international division, is open-minded about the bank’s structure. He says: “Except for duplicate branches, we are not over-banked, we are over-branched.”
Mr Razavi believes the most important issue is establishing a clear identity and strategy for branches.

In trade, the bank has built a 19% stake in the international market and has established six branches on the free zone of Kish, with representations on Charbaha and Qeshm. The bank is looking for a joint venture and is also considering its role in the Dubai International Financial Centre, possibly through its London subsidiary, Bank Sepah International. Sepah is looking at financing new small and medium-sized enterprises through its co-operation with the Oil Stabilisation Fund.

This is the only bank with a representative office in Beijing and it has built up a sizeable China-Iran two-way trade of $4bn. After two years, it can apply for branch status in China. Bank Tejarat financed $1.1bn through the Oil Stabilisation Fund for 159 projects over the past two years."