Factors slowing down privatization in Iran

TEHRAN, Dec. 30 (MNA) – The law on implementation of the general policies of the Article 44 of Iran's Constitution on privatizing state-owned companies was declared in 2006 in a bid to downsize the government and promote the private sector’s role in the national economy.

The government envisioned a large privatization program in the Fifth Five-Year National Development Plan (2010-2015), aiming to privatize about 20 percent of the state-owned firms each year. Under the present interpretation of the Article 44, some state-owned companies have been privatized to reduce their financial burden on the country’s budget and also increase their productivity. 

The privatization process was due to be complete by the end of the Iranian calendar year 1393 (March 20, 2015), as Ali Ashraf Pouri-Hosseini, the head of Iranian Privatization Organization (IPO), said in that year “privatization will be complete this year through divesting the shares of 300 companies in the list of privatization.”

Neither has the target been achieved in due time nor have the intended objectives of the privatization plan been materialized.

While promoting private sector’s status has been one of the main goals of the plan, in many cases shares of the state-owned firms have been transferred to the private companies as repayment of government’s debts to the private sector. In this way, some producing companies were sold to some firms with no experience of the related activity.

As the government has adopted a view toward repaying its debts in transferring the shares of some state-owned companies, so promoting those companies’ productivity has not been considered in the privatization approach, according to Hamidreza Fouladgar, the chairman of Iranian Parliament’s Committee for Supporting Domestic Production and Supervising Implementation of Article 44.

This government official believes that the remaining state-owned companies should be transferred to the efficient private companies.

Small companies should come first

Fouladgar also is of the opinion that the policy adopted by the government to start privatization from large companies has not been efficient.

As the large companies with high prices came first, the private sector could not afford buying the shares, he says adding that the process should have been done in a way that the shares of small companies were transferred first and then it should have come gradually to the large companies. 

To clarify his point, Fouladgar compares two opposite approaches adopted by Russia and China in this regard. He says that Russia started from its large state-owned companies and after some years they came to the conclusion that it is inefficient and changed their approach. But China first embarked on developing its small enterprises into some large companies and then moved toward their more contribution to the economy.

In this regard, IPO Spokesman Jafar Sobhani refers to holding several bids for transferring the shares of some companies without the existence of any buyers and comments that the transferring condition should be set based on the companies’ condition.

Inadequate authority for IPO 

Sobhani also refers to inadequate authority granted to IPO in the process of privatization as another obstacle slowing down the privatization process and says: “IPO does not have adequate authorities in this regard and sometimes when the shares of a company are divested there are so much pressure from the officials and the Parliament on this organization that it seems that its role and mission are ignored.” 

Resistance in the state-owned companies against privatization is another obstacle in the way of privatization.

Sasan Shahveisi, an economist, says “there is always resistance in the state-owned companies against privatization as directors of such companies fear to lose their positions and benefits.”

The main advantage of private sector over the state-owned sector in an economy is that due to the competitive environment, for continuing their activity the private companies have no choice but to promote the quality of their products and services which is achievable through modifying their management structure.

But one of the main problems in the process of privatization in Iran is that the shares are transferred while management is not. It means that transferring the shares is done without transferring the authorities. It is while privatization is aimed at promoting the productivity of companies and there is no doubt that transferring the shares without the management will lead to no change in the structure of the companies for elevating their productivity.

Privatization is on the Iranian government’s agenda and all the above mentioned factors indicate that the trend of privatization should be revised and amended in the country and it is hoped to come true as the IPO head has said “while considering the number of companies left in the privatization list, it should not be expected that privatization process will be complete by the end of current Iranian calendar year (March 20, 2018), we are trying to follow up this process more actively through providing the necessary basis.”


News Code 130750


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