Public-Private Partnership to Help Complete Development Projects in Iran

EghtesadOnline: About 6,000 national and 74,000 provincial projects have remained incomplete at various stages of development in Iran.

News ID: ۷۴۹۲۶۲

22 December 2019

Insufficient budgetary allocation over the past few years has resulted in a slow injection of credit into these projects, prolonging the time and cost of completing them.

Current budgetary allocations indicate that 65% of the government’s development projects won’t be finished sooner than 12 years, the Persian-language daily Iran reported.

To tackle this issue, the government has proposed public-private partnership (PPP) plans for the fiscal 2020-21, Financial Tribune reported.

As per the new budget bill for the next fiscal year, 1,431 development projects at the provincial level and 302 at the national level are expected to be completed with the involvement of private or cooperatives sectors.

National-level development projects need 1,040 trillion rials ($8.12 billion) while provincial ones require an estimated 86.77 trillion rials ($677.89 million).

The provinces of Mazandaran and Kermanshah boast the largest number of PPP agreements with 180 and 131 unfinished projects, respectively, whereas Qom and Ardabil will have the fewest with three and five.

Proposed projects in Kermanshah and Yazd need to attract hefty funds while those in Qom and Ilam are in need of smallest finance compared with those of other provinces.

PPP agreements pertain to a wide range of fields, including sports (537 projects), tourism (295), agriculture (156) and culture & arts (119).

The biggest sum of investments set to be made will be in the field of sports with 14,630 billion rials ($114.29 million), agriculture with 12,310 billion rials ($96.17 million) and tourism with 12,160 billion rials ($95 million) while the smallest investments will go to welfare services with 6,000 million rials, ($46,875) urban services with 12 billion rials ($93,750) and handicraft industries with 13 billion rials ($101.562).

Oil Revenues Only for Development Projects

According to Mohammad Baqer Nobakht, the head of Plan and Budget Organization, all revenues gained from oil sales will only be spent on development projects as of the next fiscal year (March 2020-21).

Oil revenues are resources generated from selling the country’s capital assets and should be spent on possessing capital assets, namely development projects. Therefore, all revenues from oil sales will be allocated to the development sector as per the next year budget’s structural reforms," he said.

Noting that current spending levels from oil revenues will be cut to zero in the next fiscal budget, the official said, “The number of provincial development projects has increased from 76 to 86 over the past couple of years, indicating that new projects have been initiated before the completion of old ones. The disproportionate rise in the number of development projects will be avoided as per the reforms suggested in next year’s budget.”

In the budget bill submitted by President Hassan Rouhani to parliament on Dec. 8, the government has projected that its oil and oil products revenues will stand at 482,986 billion rials ($3.77 billion at market exchange rate of 128,000 rials per dollar and $11.49 at government subsidized rates of 42,000 rials per dollar) next year.

Victim of Budget Deficits

Successive budget deficits in Iran have hampered development projects, leading to underinvestment and abandonment of many such projects.

Figures published by the Central Bank of Iran show the budget earmarked for the development sector has never been fully allocated in the past few years, as the government failed to materialize the revenues it predicted.

“The main reason for the government’s failure in providing resources for development is that it fails to achieve its target revenues,” economic expert Mohammad Taqi Fayyazi, told the Persian weekly Tejarat-e Farda.

In fact, the government only met 58%, 68% and 39% of its projected development spending during the fiscal 2015-16, 2014-15 and 2013-14 respectively, latest available data show.

“Resources are allocated based on priorities. And the priorities include salaries and wages of state employees and buying back issued bonds and paying their interests … What little remains goes to development projects,” Fayyazi said.

The government owns the majority stake in Iran’s economy, which leads to low productivity and high costs. Most revenues are allocated to ministries and their affiliated companies and organizations in the budget. And the administration is unable to reduce most of this.

“Every budget bill has fixed and flexible parts,” Fayyazi said. “A smaller and more agile government means the inevitable section of the budget, including salaries and costs, is small and the flexible part is larger.”

Fayyazi said Iran’s budget faced problems following the reduction in oil price and shrinking crude exports as a result of sanctions.

“This is while lowering the costs at that point was impossible. The only way out was to cut the resources allotted to the infrastructure sector,” he said.

Low infrastructure spending compounds the lingering recession in Iran’s construction sector. For years, steel, cement and other construction industries have suffered a prolonged slowdown resulting from a drop in demand.

“About 75% of Iran’s development budget are associated with construction. If the development resources are allocated, the construction sector will thrive,” the official said.

Fayyazi noted that due to limited funds, the government has failed to pay its liabilities to contractors whose influence on the economy has been shrinking in the past few years.