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B Nafissi, Former General Director at Bank of Industry and Mine
B Nafissi, Former General Director at Bank of Industry and Mine

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World Bank Resumes Lending to Iran

The World Bank has resumed its lending programme to Iran a decade after halting it under US pressure. Two loans, together worth more than $500 million, were approved towards end of June by the Washington based Global Development Institution.

This bank, which keeps away from funding controversial proposals, said their loan of $279 million, would help the initial phase of a long-term project to expand water and waste facilities in the cities of Ahwaz and Shiraz. This will complement a similar project now being completed in Tehran under an earlier loan.

The bank said that 96% of the country’s urban population has access to treated water, but only 16% is connected to sanitary public sewerages and only part of collected sewage is roperly disposed, and even less treated.

A second loan involves a total of $264 million payable over 12 years to support the government’s housing programme. A fi rst payment of $80 million has already been cleared by the bank’s executive board.

The two projects fall in line with the World Bank’s interim strategy for Iran, which focuses on extending assistance and priority, to urban upgrading, and housing, water and sanitation, urban upgrading, and community-based infrastructure, among others.

The World Bank disbursed more than $800 million worth of loans to Iran by early 1995 before the US, which has an 18% representation on the executive board, enlisted enough support from other board members to freeze the programme in 1994. Of particular concern to Washington were an electric energy upgrading plan, which had already started, and proposals to implement the railway system and to promote the Doroud oil fi eld upgrading. These were seen by the US as strategic projects, which would allegedly enhance Iran’s ability to finance terrorism and other such activities abroad! Tehran’s plans for the Doroud oil field received bank support because its proposed use of the associated gases for reinjection, i.e. reducing the amount of gases being flared off by Iran, fitted in with the institution’s environmental goals.

The Doroud project to increase output by 90,000 barrels per day to 220,000 is now being completed by France’s Total under a $1 billion contract.

In the recent years, the Oil Ministry has established many projects in the fields of oil, gas and petrochemicals and has increased local production of petroleum products as well as their exports. The said activities have also created many job opportunities in the country. Although not enough to meet job requirement, but at least they have had a great positive impact on the labor market.

Market However, the outlook for the future is bright and promising. The other direct major positive effect from the establishment of such projects, is the economic impact on the other industries in the country, which in turn offers prospect for profi table opportunities, for both public and private investors.

Because of their large-scale investment requirements, most petroleum projects are being financed by large financial groups, the budgets of which are provided by foreign and local investors. In many cases, the repayment of the loans are secured through buy-back deals.

This kind of repayment, and the lengthy period over which the loans are settled could offer serious disadvantages to the national development of the country. The project owners should be very concerned about project management and time schedules, since any delay and/or poor management in the implementation of the project will directly result in extra and unnecessary costs.

Consequently, consideration of the product-based price in the period of loan return, is of great importance in the related contracts with the fi nancial institutions. Although the cost of financing are within international standards, the risks of the country in which the financial facilities are used indicate the actual cost and the appropriate financing. Tehran will welcome further direct or indirect bank support in the petroleum projects for the future development of the country.

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