Financial Tribune - Atrilateral agreement based on the government's urban renewal initiative is expected to create 300,000 direct and indirect jobs.

The agreement was signed in Tehran on Saturday between the Ministry of Roads and Urban Development, the Plan and Budget Organization and the National Development Fund of Iran, according to the ministry's news website.

The ceremony was attended by outgoing Roads Minister Abbas Akhoundi, PBO chief, Mohammad Baqer Nobakht, the head of NDFI's board of trustees, Morteza Shahidzadeh, and President Hassan Rouhani's economic advisor, Mohammad Nahavandian.

The agreement, which among other things secured funds for the urban renewal initiative to begin in earnest during the current fiscal year that ends in March 2019, is expected to support 120,000 direct and 180,000 indirect jobs.

The initiative revolves around renovating and revitalizing distressed and unstable urban areas across the country. Capital city Tehran is especially a target of the scheme since a staggering 40% of its population currently live in distressed or unstable areas mostly located in the southern parts of the city.

The main aim of the scheme is to boost quality of life in those areas, but another significant goal is to empower them to be better prepared in the event of earthquakes.

"This agreement is a symbol of Iran boasting local potentials and based on it 100,000 residential units will be renovated in distressed urban areas of the country," Nobakht said, adding that available resources allow for another 100,000 units to be revitalized.

Where Will the Funds Come From?

Nobakht outlined how 700 trillion rials ($16.66 billion at the subsidized rate of 42,000 rials to the US dollar) are expected to flow from various sources into the urban renewal scheme.

According to the official, an article of the fiscal 2018-19 Budget Law allocates 30 trillion rials ($714.28 million) for this purpose.

Another article provides 123 trillion rials ($2.93 billion) that is on top of 150 trillion rials ($3.57 billion) agreed to be tapped from NDFI resources and another 300 trillion rials ($7.14 billion) to be provided by the banking system.

Furthermore, the high-level Economy Council of the government has agreed that the rial equivalent of $1 billion (42 trillion rials) will be designated for urban renewal with a final 50 trillion rials ($1.19 billion) included in the budget.

"We can employ local capacities to boost production and increase employment," Nobakht said. "These capacities have nothing to do with sanctions and can actually counter the effects of sanctions".

In May, US President Donald Trump unilaterally withdrew from Iran's landmark nuclear deal with world powers and vowed reimposition of stringent sanctions, the second tranche of which will be reinstated after the wind-down period ends on Nov. 4.

On Saturday, Nobakht also referred to the very real possibility of earthquakes and the potential destruction, saying "we must accept that our country is prone to earthquakes and residential units in distressed areas are not resistant to earthquakes".

On Nov. 12, a 7.3-magnitude quake hit the Iran-Iraq border, wreaking havoc on the western province of Kermanshah where hundreds lost their lives and thousands were displaced. Many of those are still living in woeful conditions. The possibility of such an earthquake occurring in Tehran has been an alarming concern ever since.

More Details of Urban Renewal Scheme

According to Afshin Barmaki, the head of PBO's Economy Council, articles of the national urban renewal scheme, in line with which Saturday's agreement was signed, obligate the government to revive 270 neighborhoods across the country each year.

An urban development council at the Roads Ministry, on the other hand, is tasked with devising renewal plans for each neighborhood that does not presently have any.

In each neighborhood, 500 residential units have been designated for renewal and revitalization. This includes 2,300 square meters for religious purposes, 2,800 square meters for cultural purposes, 7,070 square meters for medical and hygienic purposes, 190,000 square meters for replacing or renewing public passageways, 7,600 square meters for sports purposes, 1,400 square meters for educational purposes and 22,000 square meters of greenery.

For the fiscal 2018-19 alone, 100,000 residential units are slated to be renewed in 486 neighborhoods of all 31 provinces of Iran.

In addition to supporting those neighborhoods, Barmaki said, the agreement also specified facilities for urban renewal.

"Metropolises, including Tehran, East Azerbaijan, Isfahan, Khorasan Razavi and Khuzestan, will have a bigger share of the credits that include 500-million-rial ($11,900) loans," he said, adding that applicants in other cities will receive loans each amounting to 400 million rials ($9,525).

During the signing ceremony, Akhoundi stressed that urban renewal is the only solution to acute challenges of bad living conditions across Iran.

"Destroying neighborhoods and eliminating the definition of the problem will certainly resolve nothing," he said. "Social strengthening, public participation, boosting financial and technical capabilities of residents and returning to an Iranian urban culture and Iranian identity across cities is the main solution to our problems."

The major agreement was Akhoundi's last official act as urban development minister.

On the same day, he presented his resignation letter dating back to almost 50 days ago, saying the president has finally accepted it. The reasons behind his resignation—domestic resistance toward economic freedom and free market tenets that prevented him from effectively doing his job, especially a difference of opinion on how to implement urban renewal—may yet cast doubt on the future of the urban renewal scheme.

Agreement Expected to Kick-Start Urban Renewal Plans

The administration of President Hassan Rouhani has long talked about and planned urban renewal. Although many tangible results have not yet materialized, the agreement reached on Saturday is hoped to signal that the plan will truly get underway.

The NDFI chief pledged the full support of the sovereign wealth fund as "a soldier ready to cooperate with the government to further this plan".

"Focusing the entirety of its resources to develop projects will be chief among the government's work and of course job creation will be a priority," Shahidzadeh said.

Nahavandian urged all parties involved to accelerate the process of implementing the urban renewal scheme.

"The job-creating effect of this plan will be considerable not just in the construction sector, but also across all other sectors," the top presidential advisor said.

He stressed that public participation is key to correctly executing the initiative.

Nahavandian called for assuring all contractors that the government has adopted a course of action that considers "the reality of current economic conditions".

He was referring to massive price hikes across the housing and construction sector, which is expected to impact the urban renewal scheme.

The inflation in the sector, similar to other sectors, has been a result of currency fluctuations in recent months spurred by the prospects of returning US sanctions.