Private Investment in Iran's Transport Infrastructure Accelerates

EghtesadOnline: Private investment in Iran's transportation infrastructures has grown 70% from the fiscal 20015-16 to reach 71 trillion rials ($1.9 billion) in the last Iranian year (ended March 20, 2017), a deputy minister of roads and urban development said.

News ID: ۷۷۶۴۶۹

24 May 2017

According to Amir Amini, the figure stood at a low of 296 billion rials ($79.2 million) in the fiscal 2005-6. It followed a steady uptrend until March 2016, before the jump seen last year, the Ministry of Roads and Urban Development’s news portal reported.

Minister of Roads and Urban Development Abbas Akohundi said in February the Iranian private sector has invested 420 trillion rials ($11 billion) in Iran’s development projects since President Hassan Rouhani took office in 2013.

“This is a record high in terms of private sector participation,” Financial Tribune quoted him as saying.

The increasing investment owes for the most part to economic stability that prevailed after President Hassan Rouhani who took office in August 2013, which resulted from a series of actions initiated by the government, including the signing of a landmark deal with world powers to limit the scope of Iran's nuclear program in exchange for the removal of years of sanctions against the country.

The deal, which was signed in July 2015, and its implementation the following year, brought confidence to investors both inside Iran and abroad.

In the domestic front, the government worked hard to discipline its monetary policies, which resulted in a sharp fall in the inflation rate. Moreover, the government managed to curtail fluctuations in the foreign exchange market.

“As of March 2013-14, we were able to record growth in investment by controlling the inflation rate,” Amini said.

Rouhani’s economic team halved the inflation rate one year into office, pulling it below 20% in September 2014 and then to around 15% in March 2015.

Iran’s inflation rate went below 10% for the rolling year ending June 20, 2016. This was the first time the country was experiencing single-digit inflation in about a quarter century. The inflation rate recorded a record low of 8.57% late fall.

"Transportation sector has been a top priority for the Rouhani government.

The government has spent 360 trillion rials ($9.6 billion) from August 2013-Mach 2017 to develop domestic transport infrastructures," Amini said, adding that it has yet to settle 105 trillion rials ($2.8 billion) in debt to contractors.

> Shifting Paradigm

Akhoundi said the government is trying to “shift the paradigm” regarding the financing of projects by funding them through domestic and foreign private investment alongside Iran’s sovereign wealth fund, instead of relying on the state budget.

Statistics show the government only met 58%, 68% and 39% of its projected development spending during 2015-16, 2014-15 and 2013-14 respectively amid a sharp fall in government revenues obtained mostly through oil export, Iran’s main source of income.

The country has been facing a gap between income and spending since the price of crude fell sharply in 2014 from over $100 per barrel to a record low of under $30 in 2016.

Amini was quoted as saying back in March that the government had signed contracts worth 120 trillion rials ($3.2 billion) with private investors to develop freeways across the country.

“But to reach the objectives of Iran’s sixth five-year development plan (2017-22), we need 500 trillion rials of investment ($13.2 billion), of which 350 trillion rials ($9.2 billion) are expected to be invested by the private sector and 150 trillion ($4 billion) by the public sector,” he said.

According to the official, the government plans to encourage the private sector to fund 10% of its rail projects.

> $44b in FDI

Iran’s ongoing transport projects are plentiful. Banking on the effects of the nuclear deal, the government has been eying attraction of foreign investment into domestic infrastructures.

According to Akhoundi, the projects underway need 1.7 quadrillion rials ($44.4 billion) in capital.

"In the rail sector, Iran needs about 800 trillion rials ($21.3 billion) to complete 3,500 kilometers of its 22 under-construction rail projects," deputy minister of roads and urban development, Kheirollah Khademi, said.

At present, the government has prioritized rail connections between five provincial capitals. Earlier this month, a 267-km line between Tehran and Hamedan’s provincial capital came on stream.

Four other provincial capitals plan to join Iran’s rail network by the yearend, including Qazvin-Rasht, the so-called Gharb (West) project connecting the city of Arak in the central Markazi Province to Khosravi Border Crossing in the western Kermanshah Province bordering Iraq, Mahabad-Urmia and Mianeh-Bostanabad railroad projects.

Akhoundi has said the government will operate 1,800 kilometers of railroads by the end of the current Iranian year (March 20, 2018), of which more than 900 km pertain to double-tracking.