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Opening door beckons British

Iran : Overview

Iran has been a well kept secret for the few British consultants working there. But this should soon change.

Iran is calling on the UK construction industry to help it deliver an estimated 30 years worth of major civil engineering projects.

Of the 30 plus Iranian consultants and contractors who spoke to NCE in Iran when the magazine visited last month, all wanted to make contact with UK firms as the upsurge in work becomes too big for them to handle alone. The call is being made to come to the Islamic Republic before it is too late because firms from Italy, Germany and France are getting ahead.

Legislation making it easier for foreign firms to work in Iran and protect their investment is being finalised for approval by the government of Hojjat-olEslam Khatami and is expected to be in place in three months.

The European Union has already downgraded Iran from risk category six to four meaning that it is now perceived as a good investment in the short to medium term although slight doubts remain in the longer term while Khatami's government - which is driving through reforms - continues to establish itself.

President Khatami, who won a second term in June's general election, is already taking steps to modernise the country's infrastructure.

After 20 years of virtual engineering self-sufficiency he wants to attract substantial investment from foreign consortia that will in turn transfer technology and project management skills.

'Project finance in itself is not so important as we have good reserves, ' says Mr F Pazirandeh, managing director of the Iranian Development & Renovation Organisation which represents 180 Iranian firms. 'It's the project management that comes with it to produce better quality results more efficiently that we want.'

Iranian construction clients increasingly want foreign supervision on site and the UK's growing presence is led by Halcrow, now working on designs for four dams and an underground power station. Others include Parsons Brinckerhoff Power on hydroelectric power projects, Montgomery Watson, Foster Wheeler, Biwater and Maunsell.

The way into the market is to complement the high basic skill of Iran's 200,000 engineers. 'The civil engineering market for foreign firms has been slow in the past because there is such expertise here, ' says the commercial secretary of the British Embassy in Tehran Eric Jenkinson. 'When companies do come in they have to get a niche speciality to add value.'

This niche expertise is needed more than ever as World Bank (WB) money pours in for environmental projects such as water supply and sewerage. The latest loan is for $775M (£517M) and there are seven WB projects on the go creating a much more diverse market than just oil and gas. 'Any project to do with the environment is going to get a good look in now, ' Jenkinson explains.

British civil engineering pioneers have done well with limited credit from British banks and export credit guarantee running at only around £150M, says director of Tehran based Acasia International Mark Raey who finds business for UK firms in Iran. 'Halcrow for example has been here for two years and is working on major projects and gaining good margins, ' he says.

The UK's reputation has been improved by the professional approach of firms in the last few years. 'Five years ago you had UK firms in Iran over charging.

The Iranians wised up to it and those days are long gone because the market is much more open now. You'll now get a top 10 UK consultant for less than the old cowboys.'

The much talked about negatives for Brits working in Iran have been blown out of proportion, adds Raey.

'The perception that it can take a very long time to get paid has been greatly exaggerated, ' he says. 'We're not aware of any UK civil engineering firms that haven't been paid here. Sometimes it's a little slow because of the bureaucracy.' Halcrow reports that central bank guarantees or 'letters of credit' are coming in much more quickly, three months on average rather than up to a year before.

Other rule changes will make it easier for foreign firms to repatriate profits and allow them to take more than a 49% share in Iranian firms in certain cases.

The tax regime is also being reformed. Corporate and individual rates will be cut by nearly 20% from the current rate of over 50% and exemptions will be introduced if profit is reinvested in Iran. The high charge for a work permit, up to 30% of income could be scrapped.

Vice minister for taxation Aliakbar Arabmazar told NCE that the planned 'tax payers unit' would be more responsive, clarify grey areas for foreign investment and speed up decision making.

While reforms are being finalised, British delegations are rushing to Iran to assess the market, says the British Embassy's Jenkinson. 'I thought interest had plateaued or even waned but we've had British delegations almost every month this year and there is much more to come.'

The path smoothed by last September's Iran Invest 2000 conference in London, co-organised by TNA and Westhem Company, when Iranian officials and firms showcased business opportunities, is bearing fruit.

Then construction minister Nick Raynsford has since visited Iran and foreign secretary Jack Straw is now expected to confirm a visit. 'That is the key, ' says Jenkinson.

Straw's visit would cement strengthening relations between the two countries which were reported to have taken an upturn last year when the UK supported World Bank funding of the £32.6M Tehran sewerage scheme - the first World Bank loan to Iran since 1993.

'Britain supported the scheme on developmental grounds under heavy US pressure not to agree, ' says managing partner of Tehran based legal advisor Cyrus Omron, Rocky Ansari. 'Britain said, no, it meets all the criteria, and the loan was agreed. It got kudos out of that.'

Meanwhile, the US - having renewed its Iran-Libya sanctions Act for another five years - is more and more isolated, he adds.

UK trade missions arriving in Tehran are finding a country in buoyant mood with a projected growth rate of 6% for the next five years. Iran's economy has stabilised after the crippling debts from the Iran-Iraq war were finally paid off. Its oil price remains stable at 25cents (16.6p) a litre due its good standing in OPEC after years of problems with its Arab neighbours led to a low oil price. Last year it achieved a budget surplus of £5.3bn to £6.6bn as a cushion against variations in the oil price.

Foreign debt is down to below £5.3bn and the long list of commodities barred from entry is set to be relaxed.

European banks have consequently opened their credit lines.

Germany, France and Spain lend well over £600M each, and Italy £1.4bn a year.

Ansari warns that Britain will lose out to the Italians and Germans if it fails to raise the amount of British bank loans to Iran that are guaranteed by the UK government's export credit guarantee body - ECGD. 'The Italians in particular are demanding more contracts for all the credit it is committing, ' says Ansari.

The UK is lagging behind with HSBC lending up to £0.33bn and Standard Chartered restricting itself to lending on really big projects only. Britain's current export credit guarantee stands at £150M and UK firms are crying out for it to be raised to over £1bn. A long standing Iranian debt to Britain of £20-30M going back over 20 years is in the way of ECGD being extended. 'It's a very slow process but we are almost there, ' says Jenkinson.

Useful contacts

CONSULTANTS Beenesh-O-Fan Consulting Engineers Managing director: Mr F Tasbihegoo.

Tel: 98 21 834 4049 Comments: 46 staff for civil, structural and mechanical.

Zavir Consulting Engineers Managing director: Mr MR Massoudieh 98 21 8032054.

Comments: specialises in steel structures and power plants.

Sazeh Company Tel: 0098 21 873 9824 Comments: Infrastructure and oil and gas.

Nargan Company 0098 21 880 9842 OIL AND GAS SECTOR Namvaran Consulting Engineers O0098 21 223 1620 Oil and gas sector Chegalesh Company 0098 21 880 4770 Oil and gas sector CONTRACTORS Solar Engineering & Construction Company Managing director: Mr E. Sadeghi 98 21 8727335 Comments: Working on construction of huge gas refinery at Assaluyeh for client Petropars.

Partana Construction Company Chairman: Mr Mehrdad Anvari 98 21 878 3352 Comments: Specialist in concrete structures.

Chaussee Construction Company Managing director: Mr M. Droudiani Tel: 0098 21 873 7833 Comments: Specialist in dam construction.

Pournan Company Managing director: Mr B Mahdipour Tel: 0098 21 8767219 Comments: Heavy construction - dams and tunnelling including World Bank projects in Golestan and Mazandarin provinces.

Iran Apron Company Managing director: Mr Saeid Hashemi Tel: 0098 21 2222 6968 Comments: Active in Queshm Island free trade zone off the Persian Gulf.

Teha Construction Co (0098) 876 4221 PRODUCTS Beton Chimie - Concrete specialist Managing director: Mr AR Nozari 0098 21 8030 639 Comments: Develops special cements for extreme temperatures in Iran. Interested in joint development of product with UK firms for export to Middle East.

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