Iran approves the Sixth Development Plan to boost investment

Middle East

On 19 March 2017, the “Law on the Sixth Five-Year Economic, Cultural, and Social Development Plan for 1396-1400 (2016 – 2021)” (the “Sixth Development Plan”) was approved by the Iranian Parliament.

The development plan sets out the goals and objectives to be achieved by the country over the next five years. In a notable change to previous plans, the Sixth Development Plan places less emphasis on achieving hard targets and attempts to provide guidelines for the Iranian government (the “Government”) to deal with certain shortcomings facing the country.

Some of the key guidelines and goals for the various sectors as set out in the Sixth Development Plan are as follows:

  • Financing and Investment Sector: the Government to introduce the necessary economic, legal and policy directives to provide transparency and clarity of information to ensure Iran remains an attractive foreign investment destination and becomes the third most attractive foreign investment destination in the region. The Government is to place a particular emphasis on attracting US$30bn in the form of project finance (especially Islamic finance), US$15bn in the form of foreign direct investment and US$20bn in the form of joint investment agreements;
  • Banking Sector: within the framework of the Iranian Constitution and relevant regulations the Government is to encourage partnership between domestic and foreign financial institutions and credit agencies;

  • Government Guarantees: the Government has been authorised to issue guarantees for foreign investments in projects in Iran’s private sector that meet certain requirements including economic justifications, technical feasibility, and the approval of the High Economy Council. This is in line with the recent decree issued on February 2017 by Iran’s Council of Ministers authorising the Minister of Economic Affairs and Finance to issue sovereign guarantees for certain eligible projects. The value and security of such guarantee, however, is difficult to evaluate as credit rating agencies have not entered the Iranian market yet but they have indicated such services could be provided later this year;

  • Legal Sector: the Ministry of Economic Affairs and Finance is required to closely cooperate with other ministries to ensure clarity of existing laws in order to provide stability of the investment environment. The Minister of Economic Affairs and Finance is required to provide annual progress report to the Iranian Parliament on developments in attracting foreign investments into Iran. In this regard, it should be added that on 17 April 2017, the Vice President of Iran announced that an Executive Directive will be issued by 5 May of this year setting out measures to “safeguard” foreign investment in Iran;

  • Power Sector: the Ministry of Energy during this development plan should aim to increase the national power generation by 25,000MW through various PPP models such as BOO or BOT which may be funded through domestic as well as international finance. The High Economy Council is to provide the required guarantee for purchase price of the energy generated by these projects;

  • Tourism Sector: the Government to provide the necessary support to strengthen the tourism industry, in particular to increase the number of religious tourists and to provide financial incentives for the development of tourism industry in Iran’s shorelines, and

  • Water Sector: within the framework of the Iranian Constitution, the Government is required to take the necessary steps to reduce consumption of potable water by 30% and by the end of the Sixth Development Plan to produce 30% of the required potable water for south Iran through desalination.

Since signing the nuclear deal, Iran has attracted significant investment in a range of sectors including infrastructure, utilities, hospitality and oil and gas. Iran recently signed its largest-ever private power plant project valued at US$3.6bn, and in a short space of time, has witnessed a number of signings of major contracts and memorandum of understandings for large road and rail projects by European and Asian construction companies. Significant progress has also been made in the hospitality sector where a number of major international brands have either signed management agreements or been actively working to enter the Iranian market. However, it is the oil and gas sector which has received the most attention. With the imminent signing of the new Iran Petroleum Contract in the coming weeks, the sector is about to be revitalised.

In its attempts to attract significant investment into the country, the Government has shown signs that it is prepared to listen to major concerns from certain markets on such issues as guarantees, dispute resolution, enforcement of foreign arbitration awards, transparency and transfer of funds. The Government hopes that by issuing new directives and decrees, it will create a “win-win” environment for all the participants.