Iran gears up for action

MEED – With nuclear sanctions lifted, Tehran is looking to award contracts across a range of sectors including aviation, utilities and oil and gas

It has been a busy 15 months for Iran since nuclear-related sanctions were lifted at the start of 2016. More clarity has emerged over the scale of investment Tehran hopes to attract, the projects that are being given priority and the contract models it is looking to deploy.

The most visible progress has been in the aviation sector, with the delivery of the first three aircraft from France’s Airbus making headlines in January and March. Brazil’s Embraer has also been delivering planes to the Islamic Republic. Symbolically, the aircraft arrivals are a huge demonstration of faith in the new direction of the Iranian government, and hundreds of more planes are set to follow.

Improving airport infrastructure is also a priority; an investor conference for the Terminal 2 project at Imam Khomeini International airport was held in Tehran on 30 January, and was attended by about 50 representatives of local and foreign firms. Two options have been proposed for the contract: build-operate-transfer (BOT), or build-lease-transfer.

PPP focus

Public-private partnerships (PPPs) are set to feature prominently in Iran’s investment programme as the government looks to ease the burden of capital expenditure on state coffers in light of lower oil prices. PPPs are being pushed forward in the power, water and wastewater sectors as well as transport.

Road schemes are planned to be funded through tolls, and proposed storage tank projects at several ports will use BOT contract models.

With a population of 80 million, there is a huge requirement for investment in the utilities sector. Power demand is growing by more than 6 per cent a year, and it is estimated Iran will need to add some 25,600MW of generation capacity by 2020. Here, independent power projects are set to play a major role and legislation is being prepared to support their development.

Iran has also set a target of developing 5,000MW of renewable energy capacity and an attractive feed-in tariff system has been established, with guaranteed power purchase agreements of up to 20 years.

National Water & Wastewater Engineering Company is looking to attract IR54 trillion ($1.7bn) of investment into the water and wastewater sectors using various PPP models. It is looking to build new treatment facilities in 500 cities.

Faced with a worsening water shortage, the government is aiming to build 1 million cubic metres a day (cm/d) of desalinated water capacity, eventually increasing to 3 million cm/d. Today, about 300,000 cm/d of capacity is either in operation or under construction.

In the construction sector, hotel building is expected to provide plenty of work in the near future, with government officials saying some 300 new hotels will be built over the next five years. Tax holidays are being used to encourage investment in the tourism sector.

Another driver of activity will be hospital schemes, with nearly a dozen memorandums of understanding (MoUs) signed with European and Asian companies.

Oil and gas

The past year has also seen cooperation agreements signed and studies undertaken on major hydrocarbons assets. In January, the Ministry of Petroleum announced it had qualified 29 foreign firms to bid on upstream projects. The first deals are expected to be tendered imminently. The ministry is targeting investment in 52 oil fields and a total commitment of $30bn.

Downstream, several MoUs have been signed for refinery upgrades, and plans for the mining and metals sector include a significant increase in steel, copper and aluminium output by 2025.

While most foreign banks are still not thought to be accepting Swift messaging from Iran, the central bank is doing its best to draw financial institutions and businesses into the country. It is encouraging banks to set up 100 per cent-owned branches and subsidiaries in free zones. Foreigners can also now open bank accounts and borrow from Iranian banks.

The presidential election in May will be an important juncture in Iran’s re-engagement with the world. If Hassan Rouhani wins a second term, it will be taken as an endorsement of his decision to improve relations with Western powers and will give him the green light to proceed with the raft of projects planned.