Iran’s minister of industries maintains that prior to triggering public offering of managing shares of Iran Khodro and SAIPA, the number of active automotive firms in the country needs to be increased and competiveness should be boosted.
Mohammad Shariatmadari is of the opinion that the privatization of the country’s two semi state-owned automakers requires time, Persian daily Donya-e Eqtesad reported.
Initially the media reported that Shariatmadari is deviating from state’s oft-mentioned mantra of privatization. However, further scrutiny revealed the media coverage had been biased.
During a meeting with auto part manufacturers from Khorasan Razavi Province on Saturday, the minister made certain comments on the future of the carmakers’ privatization which were misreported by various news outlets.
The original remark by the minister says, “The divestiture of the controlling stake of Iran Khodro and SAIPA to the private sector cannot take place unless the number of present competitors in the market increases.”
Certain media omitted the second part of the sentence. The mishandled news prompted deputy minister Mohsen Salehinia to talk to reporters and set the record straight.
“The minister of industries still supports privatization and privatization of stakes, news reported by some media outlets saying the opposite is incorrect.”
Salehinia categorically denied the reports and shed light on the situation.
“Imagine a production facility such as IKCO’s Khorasan. It operates as a subsidiary of IKCO. If the production plant is fully transferred to the private sector, their link to the mother company will be severed.”
According to him, the factory will lose its raison detre, since “without IKCO’s support what the factory is going to produce?”
However, Salehinia noted that in order for the privatization plan to go ahead, the controlling stake of the mother company needs to be offered to the public.
In a conciliatory tone he added that in the near future parts makers will be enabled to purchase shares of the two carmakers.
Shadow of Doubt
One of the reasons why the ministry is yet reluctant to offer the two companies’ stakes to the public is the potential buyers of those stakes.
Auto part makers are the leading contenders for the shares and the government is hesitant to place that much power in their hands.
Another point was also raised by the minister regarding the lack of competitors in the business.
Should the semi state-owned manufacturers fall into the hand of a few people, it can create a monopoly that can set the prices of vehicles as they please with no one to call them to account.
Currently a government-backed body, the Competition Council headed by Reza Shiva monitors, and in some cases sets, prices of local products including cars.
Foreign Buyers
Another option on the table is selling controlling stakes of IKCO and SAIPA to foreign firms, a desirable solution that has proved impractical in practice in the past.
A case in point is the issue of Bonro factory, a situation still not resolved after ten months of raging debate.
Renault signed a €660-million agreement with Iran’s Industrial Development and Renovation Organization and Negin Khodro last August according to which IDRO was to hand over the Bonro production plant in Saveh, 100 km southwest of Tehran, to Renault.
SAIPA, which makes some Renault models in local plants, has repeatedly fight off the contract and has been successful so far in keeping the French carmaker from direct access to the country.
Such encounters will not bode well for foreign investors if SAIPA and IKCO are ever to be audited.
As of Tuesday, US President Donald Trump reneged on the 2015 Iran nuclear deal, a move which can further eclipse the foreign automakers’ presence in Iran and wedge a rift between Iran and foreign investors.
