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November 2003 / No. 26


Economy

Achieving 80 Percent of Planned Privatization

One of the most important recent discussions with regard to transferring companies was pricing their stocks.

The privatization figure for (the Iranian calendar year) 1382 is inflationary (unreal) and is by no means achievable. The 80-percent realization of privatization has become possible with much difficulty. Therefore, more attention must be paid to budgetary figure during upcoming years.

The sudden acceleration of privatization brought about the happiest day for the Iranian economy. Seyed Ahmad Mir-Motahari, head of Iran Privatization Organization, who came under serious fire for offering 860 billion rials worth of stocks during the first half of the current Iranian calendar year (started 21 March 2003), told reporters that 9,400 billion rials of stocks has been presented on the stock exchange by the end of fall, thus brushing aside many charges. A couple of days earlier, Mehdi Karbasian had broken the same news with much fervor. It seemed that each of the government’s top economic officials had decided to take the credit for the declaration. The 80% realization of the privatization objectives for the current year, although faced by a 20% budget deficit, is promising. The privatization drive in the country, which practically started from the middle of the Third Economic Development Plan, was progressing at a snail’s pace. The sudden acceleration of the trend, in addition to indicating closer cooperation with Iran Privatization Organization on the part of most state-run companies, is further evidence of the convergence among economic officials or the beginning of improvement in the country’s economic management. On the other hand, since the main axes of the Fourth Economic Development Plan include privatization and competitiveness, one can be hopeful that the first step would be taken in the same direction, although there is a long way from providing the grounds to finishing the job.

Privatization, a Compensation for Budget Deficit: One of the objections raised by many privatization experts is shifting revenues earned through this process to compensate the government’s budget deficit. Based on the Third Plan Law, revenues earned through privatization would be used for making up for the budget deficit. Therefore, no change can be made in the process before the end of the Iranian calendar year 1383 (2004-05). Referring to this fact, Seyed Ahmad Mir-Motahari said, "We intend to allocate privatization revenue sources to improving structure of companies during the Fourth Economic Development Plan. We also plan to do away with employment problems resulting from relocation of manpower of transferred companies through two unemployment insurance and job training funds." He stipulated that at present, selling government assets as a source of revenue has been totally neglected in the most governmental economies of the world.

Iran Privatization Organization was drafting the bill of privatization law, which would be soon presented to the government.

Head of the privatization organization emphasized that privatization was characterized by defining new opportunities for the participation of the private sector in economic activities and downsizing the government. Therefore, the government must not transfer ownership of its assets to the private sector in order to earn new revenues.

Mir-Motahari, who practiced austere policies for presentation of shares on the strength of false stock prices and to encourage committed transfer of stocks during the first half of the current year, announced the establishment of a transfer basket that included more than 9,000 billion rials worth of governmental shares. He added, "The current plan includes transfer of half a million governmental stocks. The shares include priced stocks of three companies of Sadra, Sanayeh Azarab, and Machine Sazi Arak worth 4,400 billion rials, the priced shares of two cement production companies worth 2,000 billion rials and 1,200 billion rials; shares of petrochemical companies whose letter of attorney has been given to the organization by the National Petrochemical Company (NPC). All the shares are managerial and controlling shares and there is a high willingness in the market to buy them. Also, the letter of attorney for presenting shares of Karoun Cement, Avangan, Nirou Klor and Abfar companies has been offered by the Ministry of Energy."

While announcing the presentation of 1.5 million shares belonging to 10 other companies, the official stated that the shares were worth 1,000 billion rials, whose related advertisements have been frequently published in the press.

"We are planning to price the shares of 160 more companies. In addition, presenting small stocks is also underway," he noted.

Interpretation Offered by Stocks Pricing Authority: One of the most important recent discussions with regard to transferring companies was pricing their stocks. Previously, the authority in charge of transfer determined the price under supervision of certain commissions. Since this pricing method had raised many questions, pricing was handed over to Iran Privatization Organization. Referring to this, Mir-Motahari says, "Some 50 audit institutes and centers cooperate with the organization and carry out stock pricing according to certain standards. In addition, official experts from the Justice Department and Iran Privatization Organization quote their own prices and the final price is set by a specialized commission taking into account the above three price quotes."

The official noted that the value of the stock exchange, return of investment as well as many other factors is taken into consideration when determining prices. He also announced design of a ‘Privatization Model’ that would cover all the national demands; and that Iran Privatization Organization was drafting the bill of privatization law, which would be soon presented to the government.

"In this model, we have tried to pave the way for more participation of the private sector in the national economy by improving the government’s structure (through downsizing the government). Boosting production level, exports as well as productivity of companies are the main axes of this model. After that, we will try to make the most practical decisions that would lead to protecting employment at transferred units," he noted.

Illogical Figure: The Budget Law for (the Iranian calendar year) 1382 has stipulated that 14,000 billion rials of governmental assets must be ceded to the private sector. Although, about 80% of the figure would be realized during the current year, which is unprecedented in the country’s history of privatization, the remaining 20% is still in limbo. The fact that about 45,000 billion rials of budgetary projections would not be realized is a considerable issue. Head of Iran Privatization Organization stated that the deficit was inevitable.

The budget deficit which has been nagging national economy year in and year out, like many other concepts, has changed name and is mainly referred to as ‘non-realization of government’s revenues’. Also the problem with privatization would not solely be solved through offering stocks, but the next step should be paying attention to time and assessing the market demand.

With regard to the slow trend of presenting stocks since the beginning of the year and the reason for not offering stocks at a certain juncture during which many people called for more speedy presentation of stocks, Mir-Motahari said, "If we had presented stocks at that juncture, the price would have continued to soar and now the government would have been held responsible for presenting low-output stocks at a high price."

Elaborating on the reason for lack of enthusiasm to purchase some governmental stocks, he said, "Unwillingness was a result of wide fluctuation of prices and cannot be attributed to international tensions. Therefore, supply was carried out in proportion to market demand. Anyway, if people were not enthusiastic about a certain stock, we could review conditions, change stock price or change installments or the volume of supply."

 

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