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Summary: The following is a round-up report on major economic activities in the industry sector including steel producing industries, auto making, aluminum, food processing, petrochemical products such as aromatic, rubber, tire, raw materials, fiber industries and varying kinds of chemical fertilizers and in the agriculture sector consisting of agricultural products and foodstuff such as dried fruits, fruit juices and flowers, over the past few years as well as their prospect in the future.

The report also offers information on investments in the oil and gas industries, civil engineering including construction of dams, hydroelectric power plants, shopping malls, chain stores and airport as well as setting up of atomic reactors.

Text:

PRODUCTION

The lack of foreign exchange and enforcement of inefficient state control over manufacturing industries have placed Iran in the middle of a long term period of recession.

Despite limited resumption of credit line for export of goods, financing major industrial projects will remain problematic. The government had earlier announced that it would maintain restrictions on import in the new Iranian year 1377 (March 1998- March 1999) so as to save enough hard currency to repay its foreign debts.

The government tries to adjust Iranian companies with realities and competitions on world trade scene one of whose major characteristics is limited government involvement.

Certain customs tariffs have been raised with an aim of containing the flood of goods entering Iran from Asian countries. However, few state-owned companies have access to cheap hard currency (foreign exchange at official rate). Smaller firms have reacted more positively to these developments.

Given the gradual improvement in the quality of domestic raw materials such as steel and plastic and the government's inclination towards foreign partnership, one should look forward to seeing signs of development in light industries. The employment of better marketing strategies has led to opening of new markets for Iranian made petrochemical products and processing of foodstuff and steel.

Such sectors as minerals, hand-woven carpets, handicrafts, pistachio and caviar which have already found their places on international markets are expected to grow moderately while recession is facing the future of heavy industries.

Source: Ministry of Mines and Metals; Figures for 1996 and 1997 are based on estimation.

STEEL: MAJOR INDUSTRY IN EXPORT SECTOR

Steel production has increased from 1.3 million tons in 1989-90 to 4.7 million tons in 1995-96, thus earning Iran the third place among the world's major steel producing countries.

Increase in import expenses has prompted state-run steel mills in the country to use innovation and expand indigenous technology. The use of direct reduction technique by the Isfahan Steel Mill can be cited as an example. This technique has attracted the attention of major steel producers in Japan, Germany and the United States of America.

Quality improvement and steady production have enabled Tehran to have a 350 million dollar trade in steel. Interruption in the input of foreign exchange pushed down the export of goods by 17 percent in the first months of 1996. Although this factor may delay implementation of extension plans in the steel sector worth 500 million dollars, the sector which has already found foothold on international steel markets is given high priority by the government for investment.

Under the goals of the Second Five Year Development Plan, steel production is to increase to seven million tons a year by the year 2000, but estimates show that the figure can go up as high as 15 million tons.

The major steel extension plans are concentrated in three main complexes in Mobarakeh, Ahvaz and Yazd, the third one producing specific steel. To this end, the National Iranian Steel Company plays a key role.

ALUMINIUM: SEEKING TO REPLACE IMPORTS

In aluminium production sector, Iran has given priority to the policy of replacing imports. Demands for aluminum in 1996 stood at 200,000 tons per year and the figure is expected to increase gradually simultaneous with the promotion of reconstruction projects.

Contrary to the ambitious goals of the government, aluminium output is a little more than 110,000 tons annually and the rest is imported from Dubai.

With Almahdi aluminium smelter, now being constructed in Bandar Abbas, in southern Iran, coming on stream, the current production level will increase.

The capacity of the plan, for construction of which 1.25 billion dollar has been spent, is 110,000 tons per year in the first stage.

AUTO MAKING INDUSTRIES

In the course of the Second Five Year Development Plan (1995-1999), auto making industry turned into a vanguard in attracting foreign investments.

At present, Peugeot, Nissan, Mercedes Benz, Daewoo and Renault are producing trucks and cars in Iran under licenses they have granted to Iranian companies.

With the allocation of more foreign exchange by the government to the import of needed parts, the production of vehicle is expected to increase from 80,000 cars in 1997 to 135,000 cars by the end of 1998.

Iran-Khordro company is a vanguard in auto making industries in Iran whose shares are traded at the Tehran Stock Exchange.

SAIPA company is scheduled to raise its production to 10,000 cars per year. The company has announced plans to export two new kinds of its new products.

Iran has also captured new markets in Central Asia, Africa and the Middle East for export of 50 million dollars worth of its tractors and trucks per year.

AGRICULTURE

Though having less work force compared to other sectors, the agriculture sector has managed to substantially improve its productivity.

During the First Five Year Development Plan, liberalization of production and marketing helped increase growth rate of the agriculture sector to 8.8 percent per year.

The Central Bank of Iran predicts an additional four to six percent increase in this sector in the period under study. The government has vowed to maintain its guaranteed purchase of agricultural products at high prices by the end of the Second Development Plan, to allocate foreign exchange at preferential rate to the import of agricultural machinery, to grant loans with easy terms and low interest rate to farmers through state-owned organizations and to keep paying subsidy on agricultural products.

This is while domestic production of such materials as chemical fertilizers is on the rise. At present, only 30 percent of 56 million hectares of arable lands in Iran are under cultivation, but the government has launched efforts to add another five million hectares of lands to this figure by the year 2000.

The average area of farms in Iran is 5.3 hectares. Therefore, it is possible to embark on mechanized farming only when farmers put their farmlands together and share in their products.

The main crop produced by Iranian farmers are grains such as wheat, and barley. Diversity of climate makes it possible to produce various crops such as tobacco, tea green leaves, dried tea, rice and beet roots. Live livestock account for one fourth of value added in the agriculture sector. Most of traditional and small farms in Iran are engaged in such agricultural activities as production of milk and meat using beast of burden. Most of fisheries products except sturgeon fish and caviar are consumed domestically.

Apart from the Agriculture Ministry, which is run by Agriculture Minister Issa Kalantari as a successful manager of the Islamic Republic of Iran, the Mostazafan and Janbazan Foundation (Foundation for the Oppressed and Disabled) has an active agricultural organization.

GOVERNMENT SEEKS TO ATTAIN SELF-SUFFICIENCY

Based on official statistics, improvement of distribution has led to the increase of wheat output to 11.5 million tons per annum. However, repercussion caused by rapid population growth has made it more difficult to achieve self-sufficiency in the agriculture sector. Presently, five percent of the country's needs for wheat, rice, vegetable oil, sugar and meat are met through imports. (The Iranian Parliament in the 1996-97 budget law, allocated 1.46 billion dollars to the import of basic foodstuff items. The figure later rose to two billion dollars).

After all, the minister of agriculture predicts that the percentage will drop to 3.5 percent by the year 2000. The Agriculture Ministry has set up a sophisticated computerized data center to get access to up-to-date and accurate information on average domestic production and import expenses.

In August 1995, the Iranian government, in an effort to encourage Afghan farmers to cultivate crops instead of poppy seeds, announced that it would buy wheat from Afghan farmers three times as much the price as it purchased from Iranian farmers.

STATUS OF EXPORTS

The improvement in the marketing techniques used and use of better packaging methods have enabled Iran to promote export of its agricultural products.

For the first time, Iran has exported strawberry to Europe and Iranian made fruit juices and soft drinks are on high demands on markets of the Commonwealth of Independent States (CIS).

Establishment of new air links by Iran will enable it to sell its fresh as well as dried fruits throughout the Middle East.

Presently, Iranian flowers are auctioned in Amsterdam. The annual production of pistachios stands at 160,000, constituting half of the world's total production.

Over 65 percent of pistachios produced in Iran are exported. At the same time, Iran earns 50 million dollars per year from export of 170 tons of caviar.

The agriculture minister expects agricultural products to make up 18 percent of the country's non-oil exports by the end of the Second Five Year Development Plan.

In 1995, the Ministry of Construction Jihad announced that it had rehabilitated over 26,000 hectares of farmlands in Tanzania, Ghana, Sudan, Albania and Sierra Leone since 1987.

SECTORS LIKELY TO GROW

Iran pursues two goals in its agricultural sector: attaining self-sufficiency and boosting exports. Therefore its is expected that production of such crops as wheat and meat would be encouraged in order to cut expenses of imports.

It is also expected that new strategies would be explored for export of surplus production of other items such as flower, dried fruits and fruit concentrates.

It is likely that foreign assistance with food processing industries will lead to improvement of productivity in this sector. The MJF is likely to increase investments in the sectors with export-oriented products. But the organization's key role in production of fruit concentrates can prevent entry of new investors into the markets.

OIL

Despite efforts so far made to diversify the structure of Iranian economy and rid the country of reliance on oil revenues, oil still is the main source of income for the government in financing investment projects.

The Oil Ministry is making efforts to increase the country's oil production capacity and increase the value added in hydrocarbon resources sector.

The investments made to increase production capacity focus more on off-shore oil fields. There is a basic plan for production of oil under way which involves foreign investments. Iran's production capacity can increase to 4.2 million barrels per day

STATUS OF PRODUCTION

In comparison, Iran ranks fourth in the Middle East in terms of having oil reserves. Iran's oil reserves is 93.3 billion barrels or 0.9 percent of the world's total reserves. Iran's total reserves will add to 140 billion barrels once the Caspian Sea's untapped reserves are taken into consideration.

At the current rate of production, Iran will have enough reserves to produce oil for the next 71 years. At present, Iran offers two kinds of oil - heavy ad light, to the markets. The National Iranian Oil Company has of late begun to offer a new sort of heavy oil. This sort of oil whose density is heavier than heavy crude of Iran has a more percentage of sulfur than the previous one.

GOVERNMENT SEEKS TO LIMIT CONSUMPTION

Domestic demands for oil derivatives is growing by six percent. This growth has sounded the alarm for the Oil Ministry because if domestic consumption is not checked considerably, Iran will be excluded from the group of oil producing countries by the year 2018.

The government has taken some steps to reduce consumption. The price of petrol doubled to 100 rials per litter in January 1996 and again increased by 30 percent in March 1996.

However, the average price of fuel in Iran is one eighth of its world price. The price of fuel is to be increased by 20 percent every year by the end of the current decade and it seems that demands will continue to grow.

UNITED STATES' SANCTION THREATS AGAINST POTENTIAL INVESTORS

In 1987, the Government of the United States banned import of crude oil from Iran and in April 1995 imposed a wide-scale trade and investment sanctions against Iran.

Under the sanctions law, all American firms were prohibited from buying crude from Iran for sale to the Latin American and Far East countries.

In December 1995, the U.S. Congress approved secondary sanctions against foreign companies investing more than 40 million dollars in the oil and gas industries of Iran.

Under this law, the U.S. president has been authorized to take one or some of the following measures against companies subject to the sanction law:

- Revoking export license by the U.S. for sale of any goods or services to the sanctioned company

- Prohibiting the Import-Export Bank of the U.S. to guarantee, insure, extend credit or contribute to extension of credit in connection with export of any goods or service to the sanctioned company.

- Preventing American financial institutes from granting any loan worth more than 10 million dollars for each 12 month period to the sanctioned company.

- Federal Reserves Bank of the United States does not recognize those groups of foreign banks helping Iran with development of its oil industries, as (First dealer) bonds of the U.S. government.

Furthermore, the aforesaid banks will be denied U.S. representation or government funds.

Despite the U.S. sanction threats, representatives of 40 international oil, gas and engineering companies participated in a conference held in Tehran in November 1995 to get first hand information on investments contracts worth six billion dollars with a guaranteed rate of return of 30 percent, as announced by the Iranian government. For the first time since the victory of the Islamic Revolution the government intended to invite foreign firms to contribute to the implementation of projects in the strategic oil sector. According to high ranking NIOC officials, off-shore oil projects in Iran still offer high profits.

According to the Iranian Constitution, transfer of shares to a foreign firm is banned. This has forced the NIOC to attract foreign partnership through buy-back contracts (it means the total cost of the project will be paid through future sale of crude oil to the foreign firm). In July 1995, the NIOC signed a 600 million dollar contract with French company Total for development of Sirri A and E oil fields in the Persian Gulf. It is expected that 120,000 barrels of oil will be extracted from the oil field on the daily basis during the next three years. 33 percent of the output will be used to pay back to the Total company. The oil field has a combined reserve of 500 million barrels. The French company had earlier offered its 300 million dollar head office on sale. The Irish oil major Momentum had already been granted the development of Sirri E oil field.

MAJOR INVESTMENTS EXPECTED

The NIOC would like the contract it has signed with Total to serve as a pattern of foreign contribution for 11 other

projects while at the same time insisting on the use of domestic firms. The body has guaranteed the return of investments in a 2 to 4 year period and vowed to use other oil fields if reserves of existing fields in the said project prove insufficient to pay off foreign investors.

The aforesaid company has concentrated all its efforts on exploitation of 40,000 bpd (worth 120 million dollars) from Balal field, 4.9 billion cubic meters of gas from Soroush field, gas injection project of Doroud (worth 530 million dollars) and South Pars and Salman development plans.

A major part of Iranian crude oil is sold to Europe and Far East. Main purchasers of Iranian crude are Japan, Italy, the Netherlands and France.

The oil marketing programs launched by Iran have so far managed to resist the U.S. sanctions. It also seems that the strategy adopted by the NIOC to supply more oil to the final markets particularly in the Mediterranean region has been successful in maintaining the outflow of exports.

The refineries located in southern Europe especially those belonging to the Total and ELF of France, CEPSA of Spain and ISAB of Italy have received most of the oil supplied.

Apart from promoting its relations with European customers, Iran has now been turned into South Africa's largest oil supplier since the countries resumed their diplomatic relations in 1994.

The NIOC has committed itself to supply 70 percent of South Africa's imported oil and in return has demanded facilities to store 22.5 million tons of oil in the Saldanha Gulf.

In Early 1996, Iran exported its first consignment of gasoline while until a year earlier it used to import about 200,000 barrels of kerosene and gasoline.

REGIONS MORE SUITABLE FOR DEVELOPMENT

Iran is confident that foreign firms will resist U.S. pressure and eventually invest in Iranian oil sector. If Iran wants to maintain its position as the second largest oil exporter in the world, it has no other alternative but to attract foreign investments.

Since Iran's on-shore oil wells which have been used for long, are running out of oil and due to the nation's limited access to global financial markets, it pursues development of its off-shore oil and gas fields in co-operation with foreign companies as one of its key policies.

At the same time, Tehran has begun manufacture of its first oil platform for use in the Caspian Sea and decided to start construction of the second platform by the year 1998.

The NIOC hopes to double its off-shore oil production capacity which now stands at 470,000 barrels per day by the year 2000. But if foreign oil firms do not show any enthusiasm for inking sound contracts for fear of U.S. sanctions threats, they may confine their activities to only a few projects mentioned before.

The NIOC also intends to expand its overseas activities. The company participated in operations to cap the burning oil wells of Kuwait which had been set ablaze by the occupation forces of Iraq.

In 1995, the company signed a letter of understanding with Nigeria for maintenance of its refineries, oil pipelines and petrochemical plants. It also offered proposals for exploration of oil in on-shore and off-shore fields and setting up of refineries, to Pakistan, Vietnam, some African countries and the newly independent republics of the former Soviet Union.

Iran also desires to play a key role in the development of hydrocarbon resources of the Caspian Sea in the future. Tehran and Moscow have time and again called on the Caspian Sea littoral states to sign an agreement on determination of a legal regime for the world's largest inland sea.

Three other states bordering the Caspian Sea which call for the division of the sea, do not agree with Tehran-Moscow joint stand.

At any rate, Iran prefers its poorest oil fields in the Persian Gulf to its oil fields in the Caspian Sea. This means that instead of allocating budget to development of Caspian fields, Iran will proceed with its development plans for its oil fields in the Persian Gulf.

NATURAL GAS

Financial restrictions will prevent Iran from carrying out its ambitious plans for gas industries. But development and modernization of domestic equipment and pipelines strengthen the possibility of inking services agreements.

However, implementation of several ambitious projects for transfer of Turkmenistan and Qatar gas via Iranian territory heralds a bright future for implementation of giant plans in the long run. Furthermore, the prospect for expansion of off-shore co-operation is bright.

The Oil Ministry's gas production is carried out and supervised by the NIOC. In early 1996, Iran's total proven gas reserves were estimated at 20.9 trillion cubic meters.

Iran has the second largest proven gas reserves in the world after Russia. The current level of gas supply by Iran is 40 billion cubic meters per year and the NIOC is planning to raise the figure to 82 billion cubic meters by the year 2000. The capacity of gas refinement has improved over the past two years. The gas processing and refinery of Kangan, set up at a cost of 1.2 billion dollars in 1995, can add 30 billion cubic meters of gas per year to the current output of 40 billion cubic meters.

In order to reduce demands for oil derivatives, the government is encouraging use of gas in industries. Domestic consumption has increased manifolds since 1997.

EXPORT STRUCTURE

At present, the export of gas by Iran has been limited due to increase in demands in the oil industry sector on the one hand and the need of the NIOC to re-inject gas into the oil wells on the other. In 1994, export of natural gas amounted to 773,000 tons and the figure is expected to rise to one million tons.

The Oil Ministry has ambitious plans for export of gas through pipelines. Iran has already signed agreements for sale of natural gas with some of the newly independent republics of the former Soviet Union including Georgia, Ukraine and Azarbaijan, in addition to reaching an agreement in principle with officials of the republic of Armenia.

Heavy costs of pipeline construction and lack of foreign capitals have delayed implementation of many of these projects. Despite these problems, Iran has made some progress in relation to export of gas to Turkey and Pakistan through pipeline.

In February 1996, Tehran and Ankara signed a letter of understanding for transfer of gas to Turkey for a period of 23 years. The contract was worth 20 billion dollars. The agreement included laying of a pipeline from Tabriz, northwestern Iran to Ankara for transfer of two billion cubic meters of gas annually from 1998 to 2000. The volume of gas export will increase to eight billion cubic meters by the year 2000 and to one billion cubic meters a year later.

The construction of a gas pipeline to Pakistan was supposed to start in October 1996. According to the NIOC, the feasibility study of the plan has been completed and negotiations already started with foreign firms. It takes four years to construct the two billion dollar pipeline which once completed will carry 16.5 billion cubic meters of gas per year.

Iran and Turkmenistan have initiated several accords for transfer of gas. It will be very difficult to finance the 4,000 kilometer gas pipeline to Europe. However, construction work has already started since August 1975 on a 200 kilometer pipeline which will connect the gas networks of the two countries.

The first consignment of Turkmen gas totaling eight billion cubic meters was supposed to be delivered in mid 1997. Iran is to use the gas for consumption in its northern cities and instead export heavy oil and gasoline on behalf of Turkmenistan from its southern ports on the Persian Gulf.

REGIONS SUITABLE FOR DEVELOPMENT

Among 11 plans offered by Iran to attract foreign contribution in 1995, the plan on gas recovery industry has been more profitable. Other projects include South Pars development plan and Dalan and Kangan gas reserves in Salman gas field. A gas refinery will be established in Alaviyeh, besides another refinery the Oil Ministry intends to build on Lavan island in the Persian Gulf.

The production capacity of the Shiraz refinery is to increase to 20,000 barrels per day. The major part of gas to be produced by the NIOC through its off-shore development plans, will be consumed domestically and a part may be exported to Armenia, Turkey, Pakistan, Dubai and India.

There are two major off-shore fields in the Persian Gulf that are yet to be developed. They are South Pars and North Pars fields.

Following the failure of talks with the German company Royal Dutch Shell in 1994, the implementation of the South Pars development plan was postponed to another time.

America's hostile position against Iran's buy-back schemes, has endangered the implementation of the second and third phases of the South Pars project, but the first phase of the project worth 900 million dollars which has already been launched does not seem to be affected by the U.S. hostile policy.

A 12 million dollar contract signed in 1995 with the British company (John Brown) and a domestic contractor has been left untapped.

This huge oil field which has been linked with the north field reserves has a production capacity of up to 35 million cubic meters of gas per day for use on domestic markets as well as export of 50,000 barrels of liquefied gas on daily basis.

PROSPECT

The main goal of Iran in using the existing gas reserves is to re-inject them into the old oil wells. Since the shortage of financial sources has hindered the implementation of gas development projects, development of this sector is centered on attracting foreign investments, through buy-back contracts.

The Second Five Year Development Plan with an increase of 600 million dollars compared to the previous plan has predicted expenditure cuts amounting to 3.8 million dollars for implementation of gas development projects.

Realistic estimation about gas projects indicate the possibility of investing 1-1.5 billion dollars per year. At the same time, while the government pursues some plans to encourage use of natural gas, the number of gas subscribers is expected to increase by 750,000 by the year 2000. Despite this, the figures envisaged in the plan step up the financial bottlenecks facing the country.

PETROCHEMICAL

Presently Iran is the second largest producer of petrochemical products in the Middle East after Saudi Arabia. The investments made by the government and opening up of the sector to greater private sector involvement in a pre-calculated move has served to increase the domestic production of petrochemical products from 800,000 tons in 1984 to 8.5 million tons in 1996 annually, registering a ten fold increase.

The current level of production meets 85 percent of Iran's domestic needs. With the implementation of ambitious plans, designed in response to growing export markets, Iran is expected to account for 15 percent of total production of petrochemical products in the Middle East by the year 2000.

PRODUCTION STRUCTURE

The production of main products is controlled by the NIOC while the production of by-products rests with the National Iranian Petrochemical Company (NIPC). Domestic demands amounting to 9.5 million tons a year is still a high figure. This explains why domestic prices remain at a relatively low level.

Iran has been trying for many years to reduce the value of oil derivatives imported to the country by two billion dollars per year.

With commissioning of the second phase of the new refinery of Arak in September 1995 with an annual production capacity of 200,000 tons, the import of distillation products has reduced.

The jump in the production of some oil derivatives has opened new doors to the lucrative foreign markets.

EXPORT STRUCTURE

The major part of exports by the NIPC goes to the Far East where main customers of Iranian petrochemical products, namely South Korea and Japan, are located.

During the 1995-96 period, the export figure amounted to 400 million dollars. The income of the NIPC in the 1996-97 stood between 400 and 450 million dollars.

Instead of relying on periodical sales, the NIPC has inked several long term contracts (Daewoo company increased the volume of its long term contract by 25 percent to 500,000 tons a year). This allows the NIPC to insure the uninterrupted export of these products and to increase funds needed for financing new petrochemical projects.

The NIPC managed to quickly repay its debts amounting to 1.3 billion dollars until 1997. Iran also possesses an advanced industry for production of petrochemical by-products. It also produces final products using the equipment and machinery of the NIPC.

These products are mostly exported to markets in the newly-independent republics in Central Asia. According to estimates offered by the Industries Ministry, export of other manufactured goods to the newly independent republics in the 1994-95 period amounted to 350 million dollars.

EXPANSION WILL ENTAIL SURPRISE

The NIPC plans to increase the production of petrochemical products to 15 million tons by the year 2010, considering the projected investments of 1.8 billion dollars by the government and an additional 1.5 billion dollar investments by the private sector.

So far, two out of five contracts for setting up of new petrochemical plants have been granted to foreign firms. The three projects of chemical fertilizer complex of Khorassan, petrochemical plant of Tabriz and the aromatic unit of the petrochemical complex of Imam Khomeini port will become operational soon.

These complexes were supposed to start operation in mid 1994. A fundamental extension plan in Isfahan using the technology of the British Petroleum is to be completed by a 188,000 ton cracker unit in the petrochemical complex of Imam Khomeini port (it is scheduled to start operation by 2000).

The methanol plant of Kharg island with an annual capacity of 660,000 tons will come on stream by January 1999. By the year 2000, chemical materials and fertilizers will account for one third of the six million tons of petrochemical products to be offered to market yearly.

The production of rubber and plastic materials is to reach one million tons per annum. The output of raw materials and aromatic used in synthetic fiber industry will rise to one million tons and that of sulfur and natural gas to two million tons.

PROVIDING MOTIVES FOR FOREIGN INVESTORS

Those foreign firms willing to invest in the petrochemical sector will enjoy a five year long tax exemption. On the other hand, discount in the prices will be offered for supply of parts an and equipment.

Since 1994, the NIPC has been offering a 30 percent discount compared to the FOB prices in the Persian Gulf, for the first five years. Foreigners' ownership is confined to 41 percent of the shares of main projects but they can own as high as 100 percent of the share of minor projects.

A committee has been set up at the Ministry of Finance and Economic Affairs to support foreign investors.

INDUSTRIES SET UP FOR PUBLIC USE: ELECTRICITY

Financial restrictions have cut the number of projects for generation of electricity in Iran but the Ministry of Energy has made planning to create new capacities up to 10,000 megawatts by the year 2000. The plan aims to respond to domestic demands which is growing by eight percent per year.

The funds allocated will mostly be spent on a few major hydroelectric power plants and the nuclear reactor of Boushehr.

Construction of 18 new hydroelectric power stations has already started and plans are under way to convert 20 other power plants into combined fuel.

However, it is expected that financial limits will delay the construction of some power plants.

HYDROELECTRIC POWER PLANT

Heavy cost of dam building has prompted the Energy Ministry to grant most of its contracting jobs to domestic contractors. According to schedule, 23 dams are to be built in Iran during the 1996-2000 period which once completed will raise the number of new dams built in the country since 1996 to 35. Most of these dams are small but three dams now under construction are considered among the largest dams in the world. These dams include:

Kudarlander: The Austrian company Ilbau completed two diversionary tunnels for the 2,000 megawatt dam in 1995 and the contractor of the development plans worth 463 million dollars is the Korean company Daelim Industrial Co.

Japan's foreign economic assistance fund is responsible for financing the project but it has postponed payment of the second installment of its 1.5 billion yen loan since 1994. It had also promised to suspend the payment of the rest of the loan at least until January 1998.

The total cost of the dam amounts to three billion dollars and domestic companies are responsible for 55 percent of construction operations. Energy Ministry officials predict that the dam will start generating electricity as of 2001.

Karoun 3: Following granting the major part of the contract to a domestic company named Sabir in 1994, operations to construct Karoun 3 dam was launched in 1995. With the commissioning of Karoun-3 dam in 2002, around 3000 megawatts of electricity will be added to the nationwide power grid.

Karkheh: In 1994, the Energy Ministry entrusted the Islamic Revolution Guards Corps (IRGC) with the task of Khrakheh dam at a cost of 1.2 trillion rials (700 million dollars). Of course, Chinese companies will possibly contribute to its building. Once built, the dam will generate 400 megawatt of electricity.

Thermal power plant: Construction of new thermal power plants has been limited mainly due to financial restrictions. It is predicted that some of these power stations will be modernized during the period under study and some will be converted into combined cycle plants.

Atomic power plant: The Atomic Energy Organization of Iran (AEOI), which is independent from the Energy Ministry, by signing a 800 million dollar contract with Russia in 1995 for completion of Boushehr atomic power plant angered U.S. officials. The power plant had been left unfinished by German contractors at the beginning of the Islamic Revolution (1979).

Hundreds of Russian technicians have been stationed at the site of the 100 megawatt atomic installations of Boushehr on the Persian Gulf.

According to AEOI officials, joint studies on the project have been completed and the first unit of the plant will start operation this year.

Iranian experts have mostly been trained in Russia to run the power plant. Two other contracts have also been signed by Iran and Russia for construction of two 440 megawatt nuclear reactors. The contracts will not be implemented before the completion of the Boushehr power station in the year 2000. It seems that construction of two 300 megawatt nuclear reactors China has promised to build will never start.

CONSTRUCTION SECTOR

Official statistics indicate a 26 percent growth in the construction sector in the 1994-95 period. With a new life being injected into the housing market and implementation of several infrastructural projects, a bright future is predicted for this sector.

Tehran intends to build 40 new airports and double the lines of some railroad tracks. Moreover, the laying of two new railroad tracks connecting Turkmenistan and Bandar Abbas (in southern Iran) has provided a potentially bright prospect for foreign investments in this sector.

The construction of a large shopping mall and 1,000 chain stores are making headway well. The housing market after a booming period which reached its height in 1994 is facing stagnation gradually.

 Table 2: OPEC production in 1992-96 period (figures in thousand barrels per day)

Source: OPEC - MEES

Table 3: Export of all kinds of oil Million barrels per day

Source: MEES

Source: International Monetary Fund, World Bank;(Figures for 1996 to 1998 are based on estimation)

Source: Annual statistical bulletin of 1995, Business Monitor International (Figures for the years 1992 to 1994 are based on estimation)

Source: National Iranian Petrochemical Company - BMI ;(Figure for 1992 to 1996 are based on estimation and for other years on prediction) ______________________________________________________________________________