Recently, Sharif University of Technology held a conference on international finance of infrastructural projects in Iran. During the inaugural ceremony, Dr. Sohrabpour, Chancellor of Sharif University of Technology, noted that industrial and technological development alone cannot guarantee Iran’s future progress. He called sustainable development as the most important pillar for achieving economic development. "Sustainable growth and development is a characteristic of industrial countries. Developing states can pave the way for development process through reliance on large-scale policies and availing of legal protections combined with reasonable decisions. They can help development of their countries through presenting suitable solutions," he added.

Sohrabpour further noted that the procurement of capital for financing industrial and infrastructural projects is an effective factor for the economic development of countries. He pointed out that "in fact, the most important and effective way for the realization of long-term economic goals and achieving high levels of growth and development is the existence of a capable economic structure along with an active and healthy financial market." He also added that "given widespread poverty and a low savings rate in most developing countries, domestic resources of those countries are not sufficient to realize high economic growth rates. For this reason, most of those countries have to make up for capital deficiency through foreign sources and this is the main factor that prompts those countries to attract international investments."

The Chancellor also stated that a fluid and active flow of capital is one of the most important features of economic globalization. The forces of globalization have allowed capital to flow within markets and that "fluid flow has paved the way for a lot of economic developments in many countries, thus, leading to dynamism of the world capitalism."

Today, most of the projects under way within the country are infrastructural in nature. Thus, achieving the objectives of the 20-Year Perspective Plan and the five-year development plans is the "attraction of necessary financial resources for infrastructural investments," since securing capital, especially for infrastructural projects, "can influence management and profitability of such projects." Pointing out this issue, the Chancellor mentioned that "identifying various methods of domestic and international finance and financial analysis of infrastructural projects is of paramount importance."

The managing director stated that privatization in those sectors requires sufficient capital and one of the best ways to attract capital is to take advantage of foreign financial resources and investments. He also highlighted a number of positive characteristics that make Iran an attractive market for foreign investment. Such reasons include a relatively "inexpensive and young manpower, a large population of university graduates, valuable underground reserves, a 70-million-strong demand market, special regional and international political position as well as geographic and economic conditions." Moreover, recent legislative measures, including a new interpretation of economic policies enshrined in Article 44 of the constitution and the notification of Clause C of that article has provided the necessary framework for the attraction of foreign investors in the country.

Mazaheri also delineated a number of prerequisites for the attraction of foreign investments to Iran, including the procurement of capital resources and technical know-how as well as promoting skills and encouraging scientific management to get a higher share of the market. "Privatization will catalyze economic processes and facilitate the achievement of macroeconomic objectives. The major positive development regarding privatization in the country is that privatization is no more a means of increasing the government’s earning." While that outlook had hindered previous privatization efforts, a new approach to privatization will hopefully "clear the way for further progress of this process in the country."

One of the issues that should be taken into consideration in the course of privatization is that privatization should begin in the market especially ones that are controlled by the government. Starting privatization by transferring state-run companies is not a good idea. Moreover, the privatization of markets is the best way for the privatization of pricing mechanism, production cycle, sales, and exports. This principle relates more to the privatization of infrastructural sectors, Mazaheri pointed out.

In another part of this speech, Mazaheri remarked that the government will invest more than 95 billion dollars in the energy sector by 2020. "It has been predicted that new investments over the next 15 years should amount to 40 billion dollars in the oil sector, 46 billion dollars in the gas sector, 20 billion dollars in petrochemicals sector, and 25 billion dollars in power generation. Since the government is not capable of making such hefty investments, we have no choice but to rely on foreign finance."

Torkan then analyzed the political situation in the five Middle Eastern countries that together make up 55 percent of the world’s oil reserves. Since all countries in the region, except Iran, are somehow or another under the influence of Western countries, other countries have accorded Iran support out of the concern about domination of the United States and Britain over the world’s oil reserves. He pointed out to the occupation of Iraq by the United States and the influence of U.S and Britain over countries such as Saudi Arabia, Kuwait and the UAE as supplying evidence to his claim. Thus, support for Iran does not emanate from sympathy; rather it comes from countries that "do not want to see a single country take control of independent oil reserves of the world."

Referring to the government’s policy on oil reserves, he said, "Our policy is to build an economic system on the basis of oil, but the government’s budget should not depend on oil revenues. Oil, is the main impetus behind the attraction of foreign investment. But we must not extract and use it up."

In this light, The Fourth Economic Development Plan has envisaged that 80 billion dollars should be invested in the oil industry, 57 billion dollars of which should be supplied through foreign investment (including 21 billion dollars through finance) while 23 billion dollars should be supplied domestically. According to Torkan, 24 billion dollar will be invested in South Pars region out of the total 57 billion dollars. Moreover, "10 billion dollars will be invested in oil and gas projects in South Pars region during the Fifth Economic Development Plan." The managing director of Pars Oil and Gas Company added that South Pars region accounts for 8 percent of the world’s proven gas reserves, adding that a total of more than 30 billion dollars worth of oil projects is being carried out throughout the country.

"There are certain risks for foreign investment in the oil industry that cannot be controlled by us. For example, the psychological repercussions of a possible oil embargo on Iran in the course of the nuclear crisis have cost us dearly and we are facing major problems for the attraction of foreign capital," he said.

Torkan added that Iran is also having difficulties for attracting finance facilities. "Up to last year, there were discussions about finance scheme being religiously permissible or not. Not that permits have been issued, no foreign investors is ready to finance our projects." He also pointed out some domestic barriers mentioning that the implementation of projects through financial schemes "requires that 85 percent of needed parts and equipment should be bought from the country of origin, while this is against the policy enforced inside the country requiring that 51 percent of all projects should be carried out using domestic capabilities and resources."

The managing director of Pars Oil and Gas Company stated that financial methods used to fund oil industry projects are based on either finance scheme, or buyback. "Given the said problems, we must find new ways for funding oil industry projects. At present, there are three specialized banks in the country, including Bank of Industry and Mine, Bank Maskan (Housing Bank), and Bank Keshavarzi (Agriculture Bank), but there is no such bank for the oil industry. Shares of industries and mines, agriculture, and housing sectors of gross domestic product stood at 11.3 percent, 10.4 percent, and 4.1 percent, respectively, in 2005, but share of oil sector stood at 27.9 percent," he noted.

Torkan went on to note that an oil industry development bank should be established. He pointed out that Iran has previously deposited money in foreign banks and has been rebuffed by them when it has asked for finance. Furthermore, the interest paid on that money is less than the floating rate. The establishment of an oil industry development bank will provide a greater benefit to the country. The bank can participate in shaping a finance syndicate to take part in funding international oil and gas projects. Such an act will reduce "the investment risk of Iran’s oil and gas sector and will provide good support for oil industry contractors."

He highlighted the three bases upon which international comparisons in financial sector are usually carried out, namely, "the study of economic development trend as well as the development of bank and non-bank stocks; the study of economic development and market –based financial systems as opposed to financial systems that are based on banks; and the study of the role of macroeconomic components such as tax, on financial structure of the country."

The official noted that capital import and export is one of the main economic components of the modern economy. "Capital import is currently one of the main roles played by major industrial players in the world. Iran does not enjoy a big share of capital export and import and there was a time that officials even despised capital imports. There are countries that gain power through exporting capital." Divandari also stated that banks, as financial mediators, provide industries with needed financial resources.

"A financial system is powerful when its banks can facilitate funding infrastructural projects…. At present, countries are classified from the viewpoint of financial development into financially undeveloped countries, financial developed countries based on capital market, and developed countries based on the banking system," he said. The official also noted that countries like Russia, Saudi Arabia, and Switzerland are major exporters of capital in the world, emphasizing that "Iran does not have a big share of the world’s capital market." The United States was a major importer of capital in 2005 and accounted for 65 percent of capital attraction in the world.

He added that if capital risk in a country is low and all conditions are provided, the risk may slide further down. Divandari stated that if capital importers provide security of investment, they will succeed in attracting investments. In countries that import capital, financial institutions are good at financial mediation and their financial power emanates from their financial infrastructures. This is due to the fact that efficient financial institutions and capital returns will attract capital. At the same time, globalization of banks and financial institutes is greatly effective in capital attraction. The situation is rather different in Iran where banks "only play the main role in funding projects and avail less of external opportunities because cultural and legal grounds have been lacking."

The managing director of Bank Mellat further mentioned that banks in the world only account for 45 percent of industrial finance and the remaining 55 percent is undertaken by markets, adding, "Since 1384 (2005-06) the ratio of deposits to liquidity has been 94.5 percent, while ratio of facilities to gross domestic product and the ratio of stock trading to gross domestic product have been reported at 64 percent and 3.3 percent, respectively."

Explaining about allocation of Oil Stabilization Fund’s facilities to Bank Mellat by the end of Shahrivar 1358 (September 22, 2006), the official noted that 1.5 billion dollars were allocated to industries and mines and total resource allocation to Bank Mellat stood at 1.7 billion dollars.

"General credits of oil-rich countries are based on oil revenues and this will be ensued with a major challenge because investment in infrastructural sectors has become a habit in such countries," he said. The official noted that subsidized prices are common in oil-rich countries and oil accounts for the bulk of financial resources.

"In such countries, reducing subsidies will cause major social problems while continued payment of subsidies will increase demand. Therefore, energy consumption growth will not match the country’s economic growth rate," he said. Referring to a 10 percent rise in annual power consumption against 5-6 percent economic growth rate in Iran, Mesgarian stated that the reliance on oil revenues will expand liquidity and inflationary pressures and will lead to forceful stabilization of prices and subsequent increase in demand.

Therefore, there is a dire need for more investment in the oil industry in order to boost governmental coffers. Taking the most advantage of domestic capabilities is "the government’s policy, which is expected to result in foreign exchange saving, reduced reliance on borrowing, increased technological abilities, and presence of companies in international markets," according to Mesgarian. The deputy chairman of the Industries Development and Renovation Organization for Economic Affairs further noted that the law for making the most of domestic potentials was approved in 1996 but was notified in 2002.

"The law is silent about how to provide needed credits for domestic economic sectors. The reason is lack of consolidated policies and a policymaking supervisor. According to this law, we want to give more latitude to domestic companies, but this is not consistent with the attraction of inexpensive foreign capital," he said.

Mesgarian stated that permits for selling 500 million euros of Islamic bonds had been issued by the last year’s Budget Act, but the current year’s budget has not pointed to it. "Releasing such bonds would require determining credit rating of companies that release them and that should be done by independent international institutes," he said.

The official added that granting commercial and short-term loans is a factor that increases the cost of plans. "The Ministry of Economic Affairs and Finance is reluctant about issuing letters of guarantee to domestic executives and this leads to delays in the implementation of projects," he said. He also considered the different parity of foreign exchange used for finance as a main economic challenge faced by Iran.