The Forum for Partners in Iran's Marketplace

October 2019, No. 92


People Pay the Price of
Public Companies Incompetence!

I believe it is necessary to have a system of discipline in each of these sectors, depending on the different nature of the subject, but unfortunately there is no such thing.

The budget of state-owned companies allocates a large portion of government financial resources but how these funds are spent is unclear. In this year’s budget bill, the government and the Parliament took steps to shed some light on the structure and functions of state-owned companies; for example, Paragraph (c) of Note 2 emphasizes: “The government (the Treasury) is required to cite profit & loss, the profits gained, and government’s stakes in these companies divided by individual company in the financial statements on government performance and update them.

But economic expert Hussein Raghfar says that despite the passage of a few months after the adoption of the budget bill, no effective action has been taken to make the budget of state-owned companies transparent. He believes that state-owned companies are trying to pretend they are making a loss in order to justify raising their prices and at the same time succeed in bargaining for credits and take a bigger share from the oil resource cake. Also, by declaring unreal figures on profits and losses, these companies impose the expense of their incompetence on the nation.

What follows is the text of an interview with Raghfar on the government’s practical steps to clarify the income and expenses of the government companies: 

Given that several months have passed since the adoption of the budget bill; have the cases foreseen by the law been implemented or would be executed anytime soon?

They have done nothing about this law and no action has been taken for the sake of transparency. The budget of state-owned companies, which is a significant part of the public budget, has always been a problem. The fact is that there is no external control over state-owned enterprises. They enjoy concessions but they are never transparent and accountable. In many cases, they feed from public resources and provide public services, such as electricity, water and gas to people, and regularly raise prices even without prior announcement, but do not explain how these revenues are calculated and how costs and expenses are calculated. According to the information we have, in some cases, the costs they declare are very unreal, and these costs are more than real numbers to justify the price increase.

In other words, part of their ineffectiveness is hidden due to the closure of their activities and lack of transparency. Their attitudes are essentially based on being unaccountable in this regard. The nature of these behaviors seems to be accompanied by numerous inefficiencies. Much of the unconventional expenses and what we hear about unconventional salaries in these companies are due to the fact that virtually no monitoring of their activities exists. It is unlikely that in this state of confusion and tumult we face today, which is also very unprecedented, and the price of government products and public places has sharply increased anyone would pay attention to the performance of the main part of the general budget goods of the government and the public places are facing very high price increases, anyone pays attention to the function of the main part of the general budget of the country, which is the limit of these enterprises. 

You mentioned in your statements that these companies enjoy a number of benefits; can you give us some examples?

These firms behave by applying private sector rules, but there is no transparency in their performance. There is virtually no way of accountability to people about their expenses. Nobody knows how the pricing of services and products take place and how they are priced. These companies enjoy the great benefits of the public sector as well as the rules of the private sector’s behavior, but they are neither accountable nor their activities are transparent because the scale of their service is very wide. With a slight change in prices, these companies can effectively take a large volume of resources from the pockets of the people, and it seems that unfortunately there is no system of accountability in the country. It’s unclear where people can complain about these public-private behaviors and who is accountable. None of these issues is clear. 

Do you think that in auctions and tenders for project assignment, state-owned companies receive certain concessions and are treated differently from like private sector?

Of course, these companies have capacities, but unfortunately due to numerous factors, including the sanctions and similar considerations many rules and regulations regarding tenders and auctions in the state-owned and quasi government sector enterprises are not practically enforced, and the justification of this behavior is in many cases the restrictions imposed by the sanctions.

Unfortunately, in recent years, we have seen behaviors outside legal procedures on public tenders and auctions. Unfortunately, the sensitivity of the country’s oversight system to this type of activity has fallen sharply, and this again has provided an opportunity for corruption. 

According to the content of the 1398 (2019/20) budget bill, a monthly payment of one percent of the expenses of state-owned companies should be deposited in the treasury account. When the accounts of these companies are unclear, on what basis does this one percent is calculated?

Deduction of one percent of the expenses and depositing it elsewhere is possible when there is a transparent budget. It must be determined which portion of the costs is to be deducted and deposited into the treasury account. Unfortunately, one of the main issues is that public corporations use public resources in public service sectors, but no regulatory oversight is seen by the companies as a result of which, in some cases we have information that even the price of the services they provide is very unreal and is less than what they announce. They do this to pretend the expenses are high and they are in loss or on the brink of making losses, so that they can attract more public resources for their activities or for their management by bargaining. I believe it is necessary to have a system of discipline in each of these sectors, depending on the different nature of the subject, but unfortunately there is no such thing. 

How can such pretension and show off harm the Iranian economy?

The first issue is the lack of transparency in the activities of these companies. A survey on firms’ performance shows that in the electricity and water sector, a significant amount of these resources is wasted due to the inefficiency of the system. A huge amount of urban pipes water is wasted due to the system’s leakage, and the plumbing system is decayed in many places and the water that is so expensive is wasted. We also have serious problems with the electricity transmission system, and naturally, when we are losing these resources, the costs of the respective companies also go up; this increase in expenses is due to the ineffectiveness of the authorities in this sector. Then, these companies need to either increase the prices to compensate for these costs, which puts financial burden on the consumers, or to get more money from public funds. In this way, such behaviors will result in sustainability and stability of inefficiencies. In fact, in such a process, the people have to pay for the incompetence of the public sector.


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  October 2019
No. 92