Power deal shows Iran needs money more than technology

11 August 2015

Tehran is targeting investment from Europe and Asia

Tehran’s signing of agreements with Italy for multibillion-dollar project finance deals and with Iraq to build a power plant reveals it is investment, rather than technology and human capital, that is the primary concern for the Islamic Republic following its nuclear detente with the West.

During the Italian trade delegation’s recent visit to Tehran, Italy’s export credit and finance agencies signed a memorandum of understanding (MoU) to provide €3bn ($3.3bn) financing for construction, infrastructure and industrial projects in Iran.  

During the visit, an Italian contractor, Fata, was awarded a €500m contract to build a 800MW combined-cycle power station in Bandar Abbas for Iran’s Ghadir Energy Investment. While the award of a contract to bring in foreign expertise to build infrastructure is not surprising, the deal happened simultaneously with an Iranian company, Mapna, being awarded a deal to build an estimated $2.5bn, 3,000MW power plant in Iraq.

The award of the contract to an Iranian firm shows the Islamic Republic has companies capable of building sophisticated infrastructure, but the primary stumbling block to its development is investment.

The signing of the nuclear pact with the P5+1 group of countries in July will remove the shackles of the crippling sanctions on Iran’s export market, but will also, more importantly, allow capital to flow into the country to allow progress to be made with vital infrastructure schemes.

Italy is the first EU country to make such an offer, and Tehran will hope that similar offers are forthcoming from international governments and export credit agencies to provide a key platform for progress with its development programme.

In late July, France’s foreign minister invited Iran’s President Hassan Rouhani to visit Paris in November, and the UK has also began preparatory work for reigniting trade with Tehran.

It is not just EU countries that Iran is targeting for investment. Tehran also welcomed a visiting business mission from Japan in August, and has appealed to Japanese banks to open branches and start operations in the Islamic Republic.

As Iran starts planning how to stimulate its economy and initiate ambitious infrastructure programmes, it will be targeting inflows of technology and human capital to assist with its efforts. However, it is clear the primary concern is securing the finance to kick-start its development targets.

Learn more of Iran from the Opportunity Iran 2015 report

A comprehensive assessment of the business landscape for regional and international companies, who want to understand the opportunities and risks of entering the Iranian market.

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