Iran has scaled back its privatisation campaign by lowering its target for the sale of state-owned enterprises from $30bn to just $5bn for the current Iranian year.

The target for the privatisation campaign was slashed when the budget law was submitted to the Majlis (parliament), for approval at the end of March.

The government of President Mahmoud Ahmadinejad had claimed the privatisation campaign would raise $30bn in the original budget law, which was drafted in March (MEED 7:3:08).

The size of the climbdown only became apparent after a new analysis of Iran's budget law.

Analysts say the revised forecasts represent a realistic appraisal of the potential profits of the privatisation process to date.

"It is less than we thought they might claim...[and] is a lot more realistic," says Ramin Rabii, managing director of Turquoise Partners, an asset management company based in Tehran.

The privatisation programme has been hit by frequent delays since Supreme Leader Ayatollah Khamenei announced that all but 50 of the 1,500 enterprises owned by the Iranian government would be privatised (MEED 7:7:06).

Khamenei set a deadline of March 2010 for the government to sell all the enterprises approved for privatisation. To date, only two large state-owned enterprises have been partially privatised.

Stakes of 20 per cent in Mobarakeh Steel and National Iranian Copper Industries Company were floated on the Tehran Stock Exchange late last year.

The head of the Iranian Privatisation Organisation (IPO), Heidari Kord Zangeneh, has made wildly different claims about the sums raised from the sale of companies in the Iranian year, which ended on 20 March. He told Iranian investors his organisation had raised $9bn, but informed foreign journalists in February that he had raised $15bn.

"Zangeneh claimed it had privatised $9bn, but it only raised capital of $3.5bn," says Rabii. "The extra money it gave out as 'justice shares' to the poor and needy. That does not generate cash."

The IPO gave away $5.5bn worth of justice shares to poor Iranians in year to the end of March.

The Economic Ministry says shares were distributed to 15 million of the country's 23 million-strong rural population.

The government receives nothing from handing out justice shares. Over 20 years, the government recovers the capital value of the shares by taking a proportion of the dividend income.

Mahmoud Ahmadinejad won the presidential election in 2005 partly because he promised to redistribute wealth to poor Iranians. The justice shares have been used to reward Ahmadinejad's supporters financially, even though the shares cannot be sold for two years after they have been issued.

The programme generated a relatively low income for the government last year, mostly because the largest state-owned enterprises failed to prepare themselves for privatisation as quickly as the IPO had hoped.

Telecommunications Company of Iran (TCI), the monopoly fixed-line operator and the country's largest mobile operator, cancelled the flotation of 5 per cent of its equity in August 2007.

The company blames the delay on the need to arrange legally-binding service contracts between the divisions within the company responsible for the wholesale telecoms network, which will remain under government control, and other units that may be sold off separately.

"There are no finalised agreements between all of the operators for interconnection [linking calls between different networks]," says Hamid-Reza Nikoofar, an adviser to the chief executive officer of TCI's mobile phone division. "Having 30 operators causes more complexity."

Nikoofar says a financial analysis of TCI values the whole company at $16bn and the mobile phone operation, Mobile Company of Iran, at $4.2bn.

The IPO was also supposed to sell stakes in three banks - Mellat, Saderat and Tejarat - before the end of the previous Iranian year, but all three sell-offs were postponed.

Since the beginning of the current Iranian year on 21 March, the government has signalled that at least two partial sell-offs are due in the first half of the year.

The Tehran Stock Exchange has indicated that Iranian Shipping Line is preparing to enter the market, although the company has yet to confirm when it will list.

The IPO says a stake in either Bank Saderat or Bank Tejarat will soon be made available to investors.

"The IPO thinks it will sell 20-25 companies this year," says Rabii. "It makes no reference to an inability to sell because it thinks it is not a problem."

The budget estimates the $5bn privatisation proceeds will cover 5 per cent of the government's planned expenditure this year, implying that government spending will reach $100bn for Iranian year 1387, ending in March 2009.

Iran's outstanding debt is expected to be $14bn in the current year, falling to $10bn in the Iranian year ending in March 2011.

The economy is set to grow by 5.8 per cent in 2008 and by 4.7 per cent in 2009, according to the International Monetary Fund (IMF).