Russian Funds for Iranian Projects to Boost Infrastructure

The funds attracted from the Eximbank of Russia will be mainly used for implementing infrastructure projects and not importing consumer goods, the director of the Organization for Investment, Economic and Technical Assistance of Iran announced.

“After the agreement between the presidents of Iran and Russia, executive bodies of both countries agreed to start using the funds for the construction of a thermal power plant in the port city of Bandar Abbas and electrification of the 600-kilometer segment of the Garmsar–Inche Borun Railroad,” Mohammad Khaza was also quoted as saying by ISNA.

Months after the Central Bank of Iran clinched an agreement with the Export Insurance Agency of Russia to pave the way for Russian banks to fund Iranian projects, last week four Iranian banks signed an "unlimited finance deal" with the Eximbank of Russia.

Khazaei noted that Iran has introduced four agent banks to sign the deal with the Russian bank, but it is not yet known which projects will be eligible to get the finance.

“Several projects have already applied for the funds, but their applications need to be assessed in the Central Bank of Iran and the Economy Ministry. In case of approval, they will be introduced to Russia's Eximbank for undergoing the final stages,” he said.

Bank Sepah, Export Development Bank of Iran, Parsian Bank and Bank Pasargad have signed the deal, based on which the Eximbank of Russia will provide funds "without a ceiling" to the four lenders to finance development projects in Iran.

Khazaei, who is also a deputy economy minister, added that there is neither any difference between state-owned or private sector projects, nor any limitations in this regard.

“This is the first interbank loan from Russia to Iran at this volume and I believe it will be an effective step toward expansion of economic ties between the two countries,” he said.

In mid-October, Ahmad Araqchi, CBI's deputy for foreign exchange affairs, had signed the finance agreement with Alexey Tyupanov, chairman of the Management Board and CEO of the Russian export credit–aka Exiar–during the Russian officials' visit to Tehran.

Based on the recent agreement signed in Moscow, Iran's public and private sector's approved projects will be able to benefit from the loans, while Russian exporters can use them to export technical and engineering services to Iran.  

Khazaei emphasized that the allocation of this credit line does not mean that the government would be indebted to the Russian bank.

“If the Economy Ministry approves a project to benefit from the funds and the project goes through all the internal procedures and finally receives a loan from the funds, then that company and the ministry are indebted to that foreign bank,” he explained.

He also referred to the high cap of foreign finance considered in this year’s budget bill and also in the budget plan for the next fiscal year (2018-19), which is now being debated in the parliament.

Earlier this year, the parliament approved a measure allowing the government to increase the ceiling for using foreign investments in projects to $50 billion, in addition to what is left from the previous year’s allocation.

Share & Guarantee

The official explained that 15% of the primary funds should be provided by domestic sources while the remaining 85% can be provided by the foreign party.

“However, I emphasize that each deal might be different from another in details,” he added.

Khazaei noted that the guarantees for the attracted credit line from the Eximbank of Russia will be provided by the Economy Ministry, similar to other foreign finance deals.

“However, a few private wagon-making companies have negotiated with other Russian banks to attract credit lines to buy equipments from Russian companies. They do not need a guarantee issued by a state-owned organization, as they can use their purchased equipment as a guarantee for the bank,” he concluded.

After China, India, South Korea, Denmark and Austria in recent months, Russia has now become the sixth country to finalize a foreign finance deal with Iran, based on which billions of dollars worth of foreign finance have found their way into projects badly in need of cash.