Iran's 2020-21 Budget Bill Allows Municipalities to Issue Sukuk Bonds Worth $357m

EghtesadOnline: As projected in the draft budget bill for the fiscal 2020-21, the Iranian government has permitted municipalities to issue sukuk (Islamic bonds) to the tune of 50 trillion rials ($357 million) for expanding urban public transportation.

News ID: ۷۸۵۲۱۷

07 January 2020

Sukuk is a type of Islamic financial instrument that states ownership of a certain service or future profit of a lasting commodity transferred for a certain price. The security can help meet businesses’ immediate needs for liquidity with no access to end-users to finance their operations, according to Financial Tribune.

According to Mozhgan Khanlou, the spokesperson of Plan and Budget Organization, urban managers are required to allocate at least 50% of the bonds for streamlining the urban subway system, ISNA reported.

The precise amount ultimately will be announced after the parliamentary ratification of the budget and its verification by the Guardians Council, the constitutional body in charge of vetting legislative bills.

During a Saturday meeting in Mashhad, the provincial center of Khorasan Razavi Province, urban managers expected the amount to be increased to 80 trillion rials ($571million), as was the case with the previous year.

Mashhad's Mayor Mohammad Reza Kalaei said, "Last year, at the urban officials' request, the government increased the bond sales cap by 30 trillion rials [$214 million] and instead, included the restoration and scrappage of dilapidated bus and taxi fleet to their task list."

Kalaei noted that final negotiations over the modifications are still underway.

Public transportation expansion projects have become a challenging task for managers in Iranian metropolises due to economic headwinds triggered by US sanctions.

However, officials are making efforts to overcome the funding shortfalls.

Measures in Tehran

According to the Persian newspaper Hamshahri, the government intends to use the National Development Fund to help Tehran Municipality buy 630 subway cars and 3,000 new buses.

The arrangement was announced two weeks ago when Es’haq Jahangiri, first vice president, and Mohsen Hashemi, chairman of Tehran City Council, discussed ways of expanding the capital’s public transportation network.

Mohammad Alikhani, the head of TCC's Transportation Commission, said the government will transfer the budget as soon as experts estimate the price and select the supplier companies.

Tehran Mayor Pirouz Hanachi told the media that since Nov. 15, 2019—when the government rationed and tripled fuel prices—authorities have stressed that the revenue saved will be spent on people's welfare in different areas, one of which is public transportation.

He called on government bodies to fulfill their promise and support Tehran Municipality in upgrading the dilapidated bus fleet and equipping the urban subway system.

According to TM, 1,000 subway cars are currently operating in the capital's urban subway system, 30% of which need to be upgraded.

The capital's subway stretches over 220 kilometers and comprises seven lines (1 to 7) with nearly 120 stations. Lines 6 and 7 are yet to become fully operational.

After the fuel price hike on Nov. 15, subway commute increased significantly in Tehran and currently four million people are using the subway daily. TM expects the number to surge by 25% after subway lines 6 and 7 are up and running.

But this is definitely not enough for Tehran where, according to statistics, over 15 million people commute daily, many from the surrounding cities and towns.

Bus Fleet Status and Earlier Measures

The number of buses operating in Tehran hardly reaches 6,000 which, according to experts, are half the number required for offering acceptable transportation services.

Experts say the average age of the fleet is over 11 years, such that 50% of the buses plying the streets of Tehran are dilapidated and fit for the scrapyard.

These old buses have numerous technical flaws and cause inconvenience to passengers, apart from worsening the air pollution suffocating Tehran’s residents.

According to Peiman Sanandaji, the former head of Tehran Bus Company, since the beginning of the current fiscal year (March 21, 2019), 100 buses have been repaired.

Additionally, in mid-June 2019, 13 buses and 117 minibuses produced by domestic automakers, such as Iran Khodro, Bahman Khodro and Sabalan Khodro, were added to the public transportation fleet to upgrade the aging transportation network of Tehran.

TM also announced that it has started restoring 500 dilapidated buses that have outlived their usefulness.

“Inefficient public transportation fleet is one of the worst problems afflicting the residents of Tehran. Addressing the issue is high on the municipality’s agenda,” Tehran Mayor Pirouz Hanachi said at the time.

While such positive measures are gaining momentum, they have not been effective because of the growing number of dilapidated buses plying the streets of Tehran.

In early July 2019, TM signed an agreement with Omid Entrepreneurship Fund to allocate 12.5 trillion rials ($89.2 million) in cheap loans for the expansion of Tehran’s public transportation system.

OEF and TM also discussed diverse solutions for overhauling the aging and inefficient public transportation fleet, including the repair and replacement of dilapidated taxis, minibuses, buses and passenger vans.

The agreement also envisaged replacing smog-inducing motorcycles with electric bikes, increasing biking facilities and providing vehicles with pollution absorbents and high-quality catalysts converters, as well as upgrading air quality monitoring equipment and devices.