Asghar F. Kashan is the chairman of MAPNA International (Iran Power Plant Projects Management Co.) and also secretary of the Association of the Exporters of Technical & Engineering Services. Dr. Kashan’s project management experience is associated with a financial vision coming from the capacities he has been holding at the Central Bank of Iran. In the following interview, Dr. Kashan speaks about investment risks and structure of finance deals that Iran should finalize.

Three Types of Risks: The risks involved in the two types of finance differ altogether. Finance risks may be classified into three categories: Commercial, execution and country. Commercial risk is concerned with all the factors connected to the feasibility of a project including production costs, inflation rate, interest rate, capital return, loan repayment rate, etc. All the factors that constitute the finance of a project undergo risk analysis. The risks are then distributed and measured, and finally conclusions are drawn as to whether the project is feasible. In classical finance commercial risk does not bear great significance because no one actually cares whether a project would be feasible as the recourse is not to the project but rather to the government providing the guarantees.
In project finance the most important factor is the feasibility of a project. Therefore, the first risk that has to be covered is commercial risk. But when it comes to implementation we have to analyze execution risk. In project finance it is very important to know ‘who implements the project’. The financier’s recourse could even be to the contractor who would pay the financier’s damages as well as a good performance bond if he fails to implement the project. The third risk is country risk which itself consists of operational and political risks.

A New Approach Needed: If we are going to attract foreign investment we must change our approach. We should no longer involve the government but rather present project finance packages. We should talk about the nature of project finance and the ways we can correspond it to economic and banking mechanisms. If we succeed in doing this we can attract foreign investment without requiring any recourse to the government. But if we fail, it is going to be the same old story.
Why have Iranian companies not been able to enter the oil and gas, energy or mining sectors in the form of project finance except under strong support and political decisions? The reason is that the nature of our projects involve project finance, but the structure we give to them is not so. As I said one of the risks involved in project finance is execution risk. It means that the contractor has to assure the financier that should he fail to properly execute the project the likely damages would be compensated. Iranian companies are not able to give such guarantees in terms of their financial resources. Even if Iranian companies succeed to do so, the foreign financier would not accept it because the money usually comes from external sources and he needs to rely on the companies as to the implementation of the projects concerned. In such a case, the financier would leave the Iranian companies little choice because no Iranian company would be able to provide the sort of guarantees foreign financiers require. This would deprive them from participation in domestic tenders and would force them to enter into partnerships with foreign companies. The foreign partners would in turn impose their own terms and conditions, and would ultimately turn them into mere subcontractors.
Concerning the CBI, I think it should consider two issues. One would be introducing the country’s economic stability, our foreign exchange reserve, and CBI’s capability in crisis management. The other would be for CBI not to engage itself in executive operations. You cannot introduce an open market and attract foreign investment and at the same time talk about a strong, centralized banking system which does all the controlling.

Solutions in Relations: I think the Foreign Ministry should make Iran’s economic relations with the rest of the world as a key axis of Iran’s foreign policy. This has not been accepted as an axis in neither of the Foreign Ministry’s statements nor anywhere outside Iran. When I say it has not been accepted as an axis outside Iran it means foreign countries do not still feel that despite all the political games they have played on us, their economic interests here would undergo changes, and do not feel that their political decisions would lead to a change in our economic decisions. They believe that despite any political relations they might have with Iran, their companies would sell their products here, and that Iranian companies would conduct economic transactions in their countries even at times of political disputes.
This is how we can establish links between our economic and international policies and foreign countries would know that they cannot have strained relations with us and at the same time be assured that their interests would be intact. Our economic policy should be so coordinated with our foreign policy that each would determine the other.
There are a number of people in the Foreign Ministry that follow this policy but it has not been institutionalized as a strategic axis.