The latest policies related to Article 44 of Iran’s Constitution are expected to boost the privatization of state-owned companies. This could serve as a perfect opportunity for officials to increase investments in state sectors as well as economic growth.

Apart from pursuing privatization, the government has decided to devise a legal framework to simultaneously address a host of key issues, including state monopoly, market regulation and competitiveness.

A taskforce known as ’Article 44 Taskforce’ has also been set up at the Ministry of Economy for exploring avenues to facilitate the transfer of shares of state-owned companies to the bourse.

Under Article 44, the Islamic Republic of Iran Railways (IR) should remain under state control. Even the latest policies failed to mention the privatization of railroad network.

For the same reason, in an exclusive interview with the Persian daily Hamshahri, Managing Director of IR Mohammad Saeed-Nejad said privatization of the railroad network has not been mentioned in the policies related to Article 44 and, hence, it will remain a state-owned entity. He stressed that Raja Passenger Train Company will likewise remain a state-owned entity.

Hamshahri interviewed Mohammad Saeed-Nejad, managing director of IR, in this regard. Excerpts:

HAMSHAHRI: Which sectors in the railroad network fall into the category of the policies of Article 44 and which ones cannot be privatized?

SAEED-NEJAD: The railroad network sits on top of the list of sectors mentioned in Article 44. According to the policies issued by the Leader of Islamic Revolution Ayatollah Seyyed Ali Khamenei as well as Majlis ratifications, certain economic units must be privatized as a top priority. As per the policies, except certain cases, the government has no right to take part in new investment schemes. However, since the railroad network is on top of the article’s list, it is possible for the government to invest in it.

As per these policies, some 80 percent of the shares owned by state-run companies will have to be ceded to the private sector, but there is no mention of the railroad network’s privatization.

However, the question of what sectors in the railroad network could be privatized is totally a different issue. Under the third and fourth development plans (2000-10) as well as the opinion of the Guardians Council, only the railroad network falls under the purview of Article 44 and cannot be privatized.

Other activities not directly related to the railroad network can be privatized, such as providing services and support to freight and passenger trains.

With regard to the law of free access to the country’s railroad network ratified last year by the parliament, the emphasis has been on the government’s control of the railroad network while allowing its other sectors to be privatized.

Notes A and B of these policies of Article 44 emphasize the importance of boosting the participation of private sectors in economic and trade activities. What measures has the IR taken to this end?

Since the affiliates of IR do not fall into the category of the latest policies, it is possible to privatize them. In this respect, there is no directive that says these activities should not be privatized. This is because the IR is not an exception and could have been privatized long time ago.

Under the existing policies, only the railroad network cannot be privatized and there was no need to wait for Article 44 before privatizing its affiliated companies.

Even before Article 44, the emphasis was on privatizing many railroad sectors such as management of passenger or freight trains, supplying carriages as well as providing services and technical support.

What measures have been taken regarding privatization in the railroad network?

Since the Third National Development Plan, serious attempts have been taken regarding privatization of the railroad system. The IR prepared a directive for privatization and offered support to companies that were doing business with it.

For the same reason, there are now 22 private railroad companies transporting goods. Of the 22 private freight train companies, seven are joint ventures between the IR and Iran Khodro, Saipa, Foulad Khuzestan, Iran Ports and Shipping Company, and other investment firms. The IR has mainly provided carriages and these companies purchased them.
Last year, these private companies purchased 3,000 freight train carriages and 5,000 more were sold through tenders.

The remaining carriages, which are around 12,000, have been leased by private train companies. For the same reason, the IR no longer has freight trains of its own.

Some of these freight trains have been given to private businesses on the basis of mortgage contracts and others have been sold for cash. Other leased carriages, which are still owned by the government, will be gradually handed over to the private businesses as well. However, the chief policy now is to sell all of them and private companies can purchase them under contracts signed with the agent banks.

What has been the success rate thus far?

I am convinced that our efforts and measures have finally paid off. All our tender bids have had overwhelming reception. We are determined to pursue these policies until the last wagon of the existing 12,000 is sold to private businesses.

Privatization of passenger trains is far more sensitive than freight trains because of technical issues, passenger safety and health regulations.

Raja Passenger Train Company has taken measures to purchase passenger trains and plans to hand them over to private businesses in due course. At present, a large number of passenger trains are being bought by private companies.

However, still only a limited part of them has been handed over to the private sector. This is because it takes longer to get loans and funds for privatizing the passenger train sector.

The Islamic Republic of Iran Railroad is the national state-owned railway system of the country. Raja Passenger Train Company is an associate of the IR and manages its passenger trains, including international trains linking Tehran to Istanbul and Damascus. Railway Transportation Company is also a subsidiary of the IR to manage its freight transport while the Ministry of Roads and Transportation is the state agency that oversees the IR.

What part of the activities of Raja has been handed over to the private sector?

In line with the policies of Article 44, Raja’s total ticket sales are being carried out by 408 private companies.

During 2000-05, the private sector produces more than five million train spare parts and repairs over 1,000 carriages.

Raja Passenger Train Company carried more than 4 million passengers during 2003-05.

The number of passengers traveling by rail increased from 11.7 million in 2000 to 17.3 million in the year ending March 2005. The number would increase further following plans to privatize the sector. In this respect, Raja will cede its cargo and passenger transportation affairs to private companies, but the policymaking and supervisory tasks will remain with the state-controlled company.

This is because the company cannot be transferred to private ownership in its entirety, although all activities that deal with rail transport services could be taken over by the private sector. Hence, privatization will be accelerated in view of the recent policies.

Raja was planning to purchase carriages before the leader’s directive was announced. Now we will extend financial facilities for the purchase of carriages to private companies willing to take over.

According to a report released by Raja, 500 carriages will be added to the national railroad system by the end of the Fourth Plan (2010). The private sector has been commissioned to manufacture 412 carriages by 2010.

Zarand Company, for instance, will be providing the national railroad system with freight and passenger train carriages.