Economy, Business And Markets

Revamping Infrastructure, Iran’s Top Priority

Revamping Infrastructure, Iran’s Top PriorityRevamping Infrastructure, Iran’s Top Priority

During Iranian President Hassan Rouhani’s high-profile tour of Italy and France in January, his investment push focused primarily on one area: infrastructure. This was no surprise; Iran requires massive investment in, primarily, power generation, water supply, air and rail.

In the three-and-a-half decades since the Islamic Revolution, Iranian governments have spent considerable sums on its infrastructure, most noticeably roads, public housing, airports and rural electrification, but improvements have failed to keep pace with official plans or population growth, wrote the Economist Intelligence Unit in a recent report.

  Sky’s the Limit

The biggest single deal during President Rouhani’s tour was Iran’s purchase of 118 aircraft from the pan-European (but French-headquartered) Airbus, including 12 A380s (or Superjumbos), at a total cost of $27 billion.

Since the US imposition in 1995 of a ban on aviation companies selling aircraft and spare parts to Iran, which also affected Airbus, given that its aircraft incorporate US-built parts, state-owned Iran Air’s fleet has suffered worsening maintenance problems.

As a result, reaching agreement on updating the country’s fleet has been a priority and more such purchases, potentially even from US-based Boeing, are possible.

Iran’s Roads Minister Abbas Akhoundi has remarked that Iran is in the market for some 400 medium- and long-range aircraft, as well as 100 short-haul aircraft.

First Vice President Es’haq Jahangiri has revealed that, in addition to updating the fleet, Iran is planning to build seven new international airports over the next decade. As part of this drive, memorandums of understanding to upgrade the country’s major airports were also signed during President Rouhani’s tour, with Italy’s Vinci signing a deal to build and operate new terminals at the Mashhad and Isfahan airports, and Aeroports de Paris and Bouygues of France agreeing to build a new terminal at the Imam Khomeini International Airport in Tehran.

As well as plans to improve the country’s air infrastructure, Iran intends to invest some $25 billion to modernize and expand its rail network.

During his tour of Europe, President Rouhani reached deals with a slew of companies and state departments, including France’s state-owned rail operator, SNCF, and Italy’s Itinera, to look at overhauling the Iranian rail network and providing new rolling stock and engines for the Islamic Republic of Iran Railways.

However, all of this will be fruitless without sufficient electricity to power the country’s transport network. Arash Kordi, the head of Iran’s Power Transmission, Generation and Distribution Company, has said that Iran needs to invest $7-8 billion a year in its power generation and distribution sector—a sum that will require significant private and foreign finance.

Although China has floated the idea of financing two nuclear plants, the overarching need for greater investment is likely to see the revival of the build-own-operate and build-operate-transfer contracts that were favored during the presidency of Mohammed Khatami (1997-2005), and have also been popular in the Persian Gulf Arab states.

The BOT model allowed private firms to build a power plant and operate it for some 15-20 years, before finally handing it over to the Ministry of Energy.

The BOT approach is also likely to be adopted for desalination plants—a major priority, in light of Iran’s worsening seven-year drought (20 of the country’s 32 provinces are now listed as having a “water shortage” or being “water critical”).

Indeed, so acute has the country’s water shortage become that the government is seeking foreign investment to part-finance a plan to filter and transfer 200 million cubic meters per year of water from the Caspian Sea to the middle of the country.