Power plants’ debts to Iran's sovereign wealth fund, known as the National Development Fund of Iran, have surpassed $950 million, the fund’s deputy for banking and credit affairs said.
“The $950-million debt is only for power plants that have already become operational and can now generate revenues,” Alireza Mirmohammad-Sadeqi was also quoted as saying by Barq News website.
The unsettled dues have accumulated over the past few years, he added, noting that Kahnouj and the Iranian copper industry’s power plants in Kerman Province and Jam power station in Bushehr Province are obliged to settle their debts by the yearend.
“Of the total debt [$950 million], 85% pertain to four power stations, which should be reimbursed by March,” he said.
According to the NDFI official, since 2015, the fund has lent close to $4.6 billion to private sector investors for building close to 46 thermal power plants, some of which are up and running and have added 7,000 megawatts to the national grid’s installed capacity of 90 gigawatts.
Mirmohammad-Sadeqi stressed that 85% of power stations’ revenues should be paid to the fund and the rest is used for maintenance and other purposes.
“The main challenge facing the fund is the difficulty of borrowers in reimbursing loans due to wild fluctuations in forex rate over the last few years,” he said.
“The sovereign wealth fund lends in rial and foreign currency to key private and public sector industries, and most borrowers have been unable to repay the forex loans on time.”
He stressed that all the debts must be reimbursed in the same currency that they were lent in.
A Bigger Role
Following the government’s appeals in 2014 to private firms to play a bigger role in the power production sector, NDFI gave $200-350 million to several private companies to build thermal power stations.
According to Mohsen Tarztalab, the former head of Iran’s Thermal Power Plants Holding Company, private power producers who built plants with loans from NDFI are unable to repay their debts.
“Private sector electricity producers owe around $5 billion to NDFI and they cannot settle their debt not only due to the unprecedented volatility in the currency market over the last six years but also because of unclear laws,” he said.
At that time, the US dollar was worth less than 40,000 rials but is currently trading near 400,000 rials.
The official said the rate has risen ninefold and NDFI wants the private sector to settle the debt based on the current rate and not the old exchange rate, which is unfair and impossible.
For instance, a company that borrowed $200 million must repay $1.8 billion to the lending fund and many such companies are unable to settle their debts calculated at such prohibitive rates.
As per the proposal ratified by the Cabinet in 2015, NDFI’s debts should be repaid based on the exchange rate at the time of granting the loan, but the fund refuses to accept it and the issue has remained unresolved.
In the dispute between NDFI and the private sector, the Energy Ministry supports the former and insists that the latter should repay its debt at the current forex rate.
It is noteworthy that the ministry owes at least $2.5 billion to private sector contractors.
Private companies are not allowed to sell electricity (directly) and their output must be delivered to Iran Power Generation, Distribution and Transmission Company (Tavanir), which policy has added to their problems because private firms cannot generate income by selling power through the Energy Bourse in Tehran.
Effective Measures
Reza Haddadian, a member of Iran Electrical Industry Syndicate, said the power industry’s future is in jeopardy and called for effective measures to address the key sector’s litany of problems.
Private sector investment in the power industry is said to be near $22 billion and 50% of the power demand are supplied by private power stations.
“The failure to adopt new and efficient policies [allowing private companies to sell electricity directly or raising power tariffs] is demotivating. That’s why private companies are simply not interested in undertaking any new power projects,” he said.
Government investment in the sector is out of the question, as the economy stutters due to the huge decline in oil exports and the ballooning budget deficit.
NDFI is independent of the government and was set up in 2011 to help curb dependency on oil revenue and save a percentage of the earnings from energy export for future generations.
The fund lends to nongovernment public sectors, private firms and cooperatives when government revenues are low, namely during low global crude oil prices and when the government cannot meet its oil export targets due to economic sanctions, as is the case since 2018.
As per the law, 80% of NDFI resources should be used to fund private sector projects with non-governmental public entities taking the balance.
Due to shrinking oil revenues linked to the US sanctions, the input of the fund has declined while governments continue to use NDFI resources to plug the gaping holes in the budget.
