Economy, Domestic Economy

Quagmire of Unfinished Projects, Debts

Quagmire of Unfinished Projects, Debts
Quagmire of Unfinished Projects, Debts

The government has more than 75,000 unfinished infrastructure projects in hand, completion of which would require around 4,170 trillion rial ($154 billion at official exchange rate) in investment, according to Mohammad Shariatmadari, vice president for executive affairs, who made the remark three months ago.

He added that it would take at least 24 years for the government to complete the unfinished projects, “considering the limited resources available.”

Given the fact that most of the unfinished infrastructure projects were initiated years ago and that their progress depends on sufficient funding by the successive governments to come, it is a matter of concern whether they would maintain economic viability upon completion. Unpredictable socioeconomic impacts, inflation and capital depreciation are the risks threatening the economic feasibility of these projects over the years.

In addition to the large number of unfinished projects, the Rouhani government has also inherited from the previous administrations a huge pending debt to contractors of these projects. The total value of due payments to contractors by various ministries such as ministry of energy and ministry of roads and urban development was estimated by the head of Iran’s Audit Organization Ali Akbar Soheilipour to be around 940 trillion rial ($35 billion) as of May 2014.

In view of above facts and figures, the question remains as to why so many projects should have been initiated in the first place without having to go through proper feasibility assessments.

The Persian economic weekly Tejarat-e-Farda has criticized “the performance evaluation of different organizations based on the number of projects they have approved during their terms in the office, leading to hasty decisions by authorities to allocate government funds for new projects and plans.”

Mohammad Hassan Peyvandi, deputy director of Iran’s National Petrochemical Company says there are 67 unfinished projects in the petrochemical sector with total production capacity of 55 to 60 million tons, adding that it is uncertain whether the global market demand for petrochemical products would justify investment for completing these projects.

The huge number of unfinished infrastructure projects in the country, accentuates the role of vice presidency for strategic planning and supervision, which was put in charge of budget planning, supervision and evaluation of infrastructure projects since the Management and Planning Organization of Iran (MPO) was dissolved in 2007. The institution has since focused on prioritizing infrastructure projects according to their physical progress and allocating budgets to important projects at advanced stages of construction.

Vice President for Strategic Planning and Supervision Mohammad Bagher Nobakht announced in May that “2,906 projects with more than 80 percent progress” had been shortlisted by the government as priority projects. “Out of these, completion of 246 priority projects is on the government’s agenda for the current Iranian year (starting March 21, 2014),” he noted.

Allocation of more government funds to complete the unfinished infrastructure projects seems to be the only solution for alleviating the current sorry state of affairs. The budget allocated for construction projects was 410 trillion rial ($15.2 billion) for the current Iranian year (starting March 21, 2014) which has increased to 480 trillion rial ($17.7 billion) in the budget bill for the next fiscal year (starting March 21, 2015).

In addition to the hike in the total budget allocated for capital projects, the actual utilization of the budget is said to have increased during the first half of current Iranian year as compared to similar period in previous years. It is understood that the government’s investment on construction projects has grown since President Hassan Rouhani took office in 2013.

The government has also offered to pay through such means as Sokuk (financial certificates like bonds which comply with Sharia or the Islamic law) its huge debts to construction contractors. The steps taken by the government could, hopefully, in the long run help speed up the progress of the myriad unfinished projects.