Seemingly a disagreement between the Central Bank of Iran and the carmakers is central to the latest impasse. Aziz Shams, head of Chabahar Free Trade Zone Customs Office discussed the issue recently in two separate interviews with IRNA and Mehr.
He said 2,800 containers of imported auto parts are in the Chabahar Free Trade Zone Customs warehouses. Another 8,000 containers are warehoused in the Islamic Republic of Iran Customs Administration in different parts of the country.
“The carmakers had a three-month window to get customs clearance for their shipments [which ended on Feb. 18]. The (semi-state-owned) firms claim they cannot clear their goods due to banking problems,” Financial Tribune quoted Shams as saying.
“The customs office has given a one-month respite to the automakers. If they fail to take out their containers, the auto parts will be considered as unclaimed/uncleared cargo.”
As per laws in many countries, unclaimed goods are disposed and sold to anyone by the customs office after certain legal procedures.
Shams said, “Over the past few days Iran Khodro has taken some measures to get customs clearance for 1,008 containers in Chabahar FTZ. Hopefully, the other containers will also get clearance soon.”
Shaky Agreement
The CBI has an agreement with IKCO and SAIPA that says the two companies are to receive subsidized foreign currency at USD1=42,000 rials.
However, the two firms claim that the whole process is drawn-out and that they doubt the CBI can or will provide them the forex at the agreed rate, which is almost three times below the market rates.
As per the agreement, since car production is subsidized by the state, auto companies must sell at lower than prices they claim are essential for sustaining their operations. This is a rule almost all carmakers respect in the breach.
The companies say if they clear their goods from customs and sell cars/parts at the rates they have negotiated with the government, and if the CBI fails to provide the subsidized hard currency, they will be the ultimate losers! Few if any market observers and pundits buy such old stories from the dysfunctional carmakers.
Over the past months and with the government’s tacit backing, IKCO and SAIPA have jacked up car prices to levels unseen in decades.
Loans and Rescue Packages
Mechanisms as per which subsidized hard currency are given to the two car companies was not detailed by Shams. However, he pointed to the recent loans and rescue packages introduced by the CBI for the struggling auto industry.
In one directive, the CBI told 12 local banks to grant loans to parts makers, as part of the ongoing state policy to rescue them and save jobs.
Under the banner of ‘Support for Iranian Products’, a letter was sent to CEOs of the 12 private and state-owned banks: Bank Melli Iran, Bank Saderat Iran, Tejarat Bank, Bank Mellat, Bank Sepah, Bank of Industry and Mine, EN Bank (Eghtesad Novin Bank), Karafarin Bank, Parsian Bank, Bank Pasargad, Sina Bank and Saman Bank.
Without strings attached and with no lending ceilings or regulatory conditions, the CBI letter focuses only on one thing: continue funding car companies.
Earlier and as per another directive signed by First Vice President E’shaq Jahangiri, the same one dozen were told to lend to the two main local auto companies, Iran Khodro, and SAIPA, 40 trillion rials ($296 million). The bailout was to help the companies pay some of their mounting debt to local parts makers.
According to Shams, an €844 million forex loan is also to be given to the car companies.
Offering the dysfunctional auto industry easy loans and aid packages will shift the cost and responsibility for the failings of the ailing industry on other sectors of the economy and unfairly saddle the national economy with the burden of sustaining a dented industry that so far has done more damage than good.
Facts and Figures
Carmakers claim that due to a sharp decline in auto parts imports, their production has nosedived. During the nine months to December domestic auto output plunged to 763,519 cars and commercial vehicles -- a 31% year-on-year decline.
According to the Ministry of Industries, during the period 713,233 cars were produced, down 31.2% compared to 1,037,374 made in the same period last year. In the nine months 50,101 trucks, buses, minibuses, and pickups were made – down 27.4% YoY.
IKCO and SAIPA are in disarray, to say the least, with both reporting 35.4% and 30.3% decline in output. Some say the worst is still to come.
During the nine months, IKCO production fell from 520,480 cars and commercial vehicles (made last year) to 335,953 units this year – down 35.4%. Data shows IKCO produced 327,792 cars during the period – down 35.8%.
The company’s main rival SAIPA is also struggling and facing an uphill battle. Over the nine months, SAIPA made 328,355 cars and commercial vehicles, -- a 30.3% decline compared to the 471,405 units made during the corresponding period last year.
While carmakers have repeatedly blamed the sharp fall in production on the new US sanctions and declining imports, seemingly most of the auto parts required for sustaining their production lines were gathering dust in the customs’ warehouses.