Privatization Iranian Style

Iran's Press TV announces the privatization of state enterprises in the oil industry, claiming that "oil privatization in Iran can serve as a model for other regional countries" ("Iran, a Model for Oil Privatization," 7 October 2007). Is it true? If it were a model privatization according to the Washington Consensus, the business press should be jumping up and down and hailing Iran's power elite as if they were the AKP of Turkey, the West's favorite Islamist party, but they aren't. Why is that?

Note that the upstream sector, i.e. the exploration and production sector, is excluded from the privatization plan: "Iran's Oil Ministry Excludes 25 Companies from Privatization" (Tehran Times, 8 October 2007). In other words, Iran's government will be privatizing only the enterprises that are normally not in the state's hands to begin with in other countries.

For international comparison of national oil companies and their upstream fiscal regimes, see Figure 1 on page 9 of Miranda L. Wainberg and Michelle Michot Foss, "Commercial Framework for National Oil Companies" (Working Paper, Center for Energy Economics, University of Texas at Austin, March 2007).

Click on the figure for a larger view.

To top it off, this is what "privatization" in Iran looks like: "the fact the purchasers are themselves state entities casts doubt on whether this can be termed a real privatization."¹ It's better to describe this as transition "from a state-held monopoly to a state-sanctioned oligopoly" as Daniel Brumberg and Ariel I. Ahram put it.²

This mode of "privatization" has complex effects:

• in the long term, it is likely to create a caste of people who may eventually threaten the politico-economic foundation of the Islamic Republic;


• in the short term, it gives power to the Bonyads (religious foundations) and the Pasdaran (the Revolutionary Guards) whose leaders, workers, and beneficiaries are among the sectors of the Iranian population who are the most ideologically invested in the Islamic Revolution and its brand of populism;


• in the medium term, it may help Iran's government alleviate the following problem:
  

  While the firm is obliged to give over 25 percent of its profits from crude and (when prices are high) a deposit to the oil stabilization fund, NIOC keeps for itself revenues derived from petrochemicals, gas, domestic sales of gasoline, and can make use of gas for reinjection to revive older fields. This type of arrangement provides NIOC with ample incentive to continue to work on diversifying Iran's petroleum industry, as any improvement in non-oil capability will benefit NIOC directly. However, it also has the potential for long-term conflict between state interests in maximizing the revenue from oil, and NIOC preference to focus on gas and petrochemicals as more lucrative ventures. (Brumberg and Ahram, pp. 30-31)

1 This is Privatization Iranian Style:

The Tehran stock exchange has broken its record for the highest ever transaction on the nascent bourse with the sale of shares worth over $1 billion dollars in a state copper company, media reported yesterday.

Twenty percent of shares in National Iranian Copper Industries were sold in less than seven minutes on Wednesday for 10 trillion rials ($1.1 billion).

The purchaser was a consortium made up mainly of state companies, including the pension funds of the steel industry and state broadcasting, the reports said.

While the shares have been sold as part of the government's ongoing privatization program, the fact the purchasers are themselves state entities casts doubt on whether this can be termed a real privatization.

Another 20 percent of the company would go on sale in the next week, media reports said.

The deal easily tops the previous high set earlier this year when the Iranian government sold almost $110 million worth of shares in a leading steel company.

Privatization program:

The state currently has a grip on over three-quarters of Iran's economy and supreme leader Ayatollah Ali Khamenei last year issued a decree envisaging a major program of privatization.

Drawn up by the Expediency Council, Iran's top political arbitration body headed by former president Akbar Hashemi Rafsanjani, the plan aims to ease state control over the economy.

The program set out by Khamenei to privatize 80 percent of public and state institutions notably excludes firms in the oil and energy sector as well as industries involved in work connected to defense and security.

But President Mahmoud Ahmadinejad has been criticized by observers for dragging his feet on privatization and seeking to hand out a large proportion of the shares in privatized companies as "justice" shares to the poor.

The Tehran stock exchange slumped following the election of Ahmadinejad in 2005 but has recovered in the last six months and in the last days topped the 10,000 points barrier. (Agence France-Presse, "Iran Bourse Breaks Record with Billion Dollar Trade," Turkish Daily News, 14 September 2007)

2 See "The National Iranian Oil Company in Iranian Politics," The Changing Role of National Oil Companies (NOCs) in International Energy Markets, Baker Institute Energy Forum, March 2007, p. 5. Go ahead and read the whole article, and you'll learn much about the faction fight between populists and neoliberals in Iran. The long and short of it is that Iran's populist President has been unable to defeat the oil mafia, and he won't be able to do so unless and until Iran's working people get ready to fight a good fight at the level they did at the time of Iran's Islamic Revolution, challenging nothing less than the authority of the Leader, the cornerstone of the political structure of the Islamic Republic. It is obvious that now is not the right time for that, what with Iran being the number one target of the empire.