IranDaily.gif IranDaily.gif
Domestic Economy
Thu, Dec 11, 2008

Advanced Search
ADVERTISING RATES
PDF Edition
Front Page
National
Domestic Economy
Iranica
Society
Science
Middle East
World
Sports
Art & Culture
RSS
Archive
Japanese Firms in Trouble
Aviation Confab With Switzerland
Agro Subsidies to Remain
Call for Controlling Rice Imports
Jask as Oil Transit Hub
China, Russia Eye Telecoms Deals
Afghan Remittances at $500m
Gazprom Interested in Azadegan Oilfield
Iran, Greece Mull Trade Ties
$40m Credit for Ecuador Bank
ALBA Exhibit in Tehran

Japanese Firms in Trouble
129567.jpg
Billions of dollars of corporate assets were also wiped out because many Japanese companies own stakes in their peers.
When Japanese shares plunged to a 26-year low on October 27th, it was not just investors who felt the pain. Billions of dollars of corporate assets were also wiped out because many Japanese companies own stakes in their peers.
Cross-shareholdings (when two firms hold each other’s shares) and stable-shareholdings (friendly firms holding shares they almost never sell) are the blood-brotherhood of corporate Japan. Such holdings are regarded as a way to cement business relationships, rather than as investments.
After falling for a decade, the level of cross-shareholding has crept up since 2004. Greater shareholder activism, mostly on the part of foreign investors, and fear of hostile takeovers prompted managers to adopt mutual shareholdings to insulate themselves from nettlesome outsiders. Over 20 percent of the shares on the Tokyo Stock Exchange are owned by Japanese companies and financial groups, reported Economist.

Cross-Shareholding
The practice is most common in traditional industries such as steel, paper and energy. But big global carmakers and electronics firms participate as well. Toyota, Honda and Nissan are all involved in webs of interlocking shareholdings with their business partners and suppliers.
In 2007, Toshiba and Sharp bought stakes in each other, as did Sharp and Pioneer. Panasonic, which is considering taking a controlling stake in Sanyo, held shares in over 300 companies as of March 2008, valued at ´446 billion (around $4 billion).
The practice originated in 1952, when someone tried to take over what is today Mitsubishi Estate, a huge property firm tied to the famous trading house. In response, 11 companies linked to Mitsubishi bought shares to block the outsider. In the 1960s, when foreigners began buying shares after Japan liberalized its financial markets, cross-shareholdings were adopted as a defensive measure. By 1989, more than half the stock market was tied up in this way.
Cross-holdings consolidate alliances, but also make firms captive to their partners. They make it harder to work with firms outside the circle, reinforcing the inflexibility of Japan’s business environment.
As share prices fall, cross-holdings amplify the pain. When the Nikkei-225 Stock Average fell around 10 percent last year, firms booked latent losses of ´444 billion. Between March and September, corporate shareholdings wiped ´330 billion in value from more than 160 public firms.
This punishes companies, even though their actual business remains unchanged. “Write-downs on unrealized losses are far more than an accounting blemish; they are a direct hit to earnings on the income statement and reduce assets and shareholder equity on the balance-sheet,“ says Steven Towns, a Japanese-equities specialist.
Companies’ credit ratings may also suffer, increasing their borrowing costs.
The most visible impact is in financial services. Banks need to recalculate the value of their assets daily, since the shareholdings are part of the core capital they lend against.
When shares hit a trough last month, Japan’s three ’megabanks’ wrote down around $12 billion in paper losses from some $120 billion in shareholdings. Their capital ratios fell by half a percentage point, putting the banks in uncomfortable territory. The result was a scramble to recapitalize.
Japan’s biggest bank, Mitsubishi UFJ Financial Group, considered raising $10 billion, just two weeks after buying 21 percent of Morgan Stanley for $9 billion. Others are considering similar moves.
Transparency
To ease the burden, the government has proposed relaxing accounting rules and buying the shares from the banks (as it did in 2002 to address Japan’s banking crisis).
Corporate shareholding is also a bone of contention for foreigners investing in Japan. Steel Partners, an American fund with stakes in two dozen Japanese firms, wrote last month to the management of Ezaki Glico, a confectionery company, noting that the firm’s cross-shareholdings had erased some $50 million in value. “Management is responsible for running a food company, not an investment portfolio,“ wrote Steel’s boss, Warren Lichtenstein.
An unwinding of cross-holdings by J-Power, the former state-owned energy giant, was one of the demands made by the Children’s Investment Fund (TCI), which amassed a 9.9-percent stake in the company starting in 2005. Rebuffed, TCI has just abandoned its investment in J-Power with a $130 million loss.
Japanese bosses say cross-holdings are an aspect of their business culture that will endure, however much foreigners object.
“It disembowels corporate governance,“ retorts Nicholas Benes, the head of JTP, a merger-advisory firm.
Almost 50 percent of voting rights in Japanese firms are controlled by 2.1 percent of shareholders, he notes.
Because banning the practice is impossible, regulators should obligate firms to at least disclose their stakes, so that transparency can help investors press managers to use their company’s capital more wisely.

Aviation Confab With Switzerland
129573.jpg
Civil aviation officials from Iran and Switzerland will meet in Tehran on Saturday to discuss issues of mutual interest, including cooperation and air safety.
According to a fax sent to Iran Daily, the heads of civil aviation organizations and airports from the two countries will also attend the gathering.
The conference is aimed at finding ways of improving flight safety in Iran and discussing challenges faced by the industry. Other topics will include flight safety management, safer flights and modern aviation practices.
In this respect, Managing Director of Iran Air Saeed Hesami said the illegal US-led sanctions imposed on Iran have been ineffective.
“Despite minor problems faced by air services, which increased expenditure due to sanctions, they did not lead to suspension of services provided by Iran Air to passengers,“ he said.
“Today, Iran Air is fulfilling its commitments. Ensuring security to air passengers is a responsibility that Iran Air has handled well,“ he said.

Agro Subsidies to Remain
129579.jpg
The Economic Overhaul Plan will not do away with agricultural subsidies in the near future, said the head of Majlis Agriculture Commission.
Abbas Rajaei added that energy subsidies enjoy priority, IRNA reported.
The plan drawn up by President Mahmoud Ahmadinejad and his Cabinet aims to tackle the country’s economic problems, including rising inflation, and protect the low-income strata.
The plan will incorporate fundamental changes in the banking, customs and taxation sectors.
The government maintains that the rich benefit from 70 percent of subsidies and that it is one of the primary reasons for changing the subsidies system.
Rajaei noted that close to two trillion rials have been allocated to offset the losses incurred by farmers who are not covered by any insurance.
“Therefore, the entire credit allocated for insuring farming crops has reached seven trillion rials,“ he said.
On changing the name of Agricultural Products Insurance Fund to Agricultural Insurance Fund, he said that in addition to crops, this change will extend insurance coverage to agricultural machineries, buildings, wells and aqueducts.
Support for agricultural self-sufficiency tops the government’s agenda. About 11 percent of the country’s total land area of 163.6 million hectares have been cultivated at some point. Still, 63 percent of cultivable lands have not been used and since 18.5 million hectares of farms are being used with 50 to 60 percent productivity, one-seventh of the total cultivated land is sufficient to meet domestic demand.

Call for Controlling Rice Imports
An official has stressed the importance of controlling rice imports.
Gholamali Qorbani, the deputy head of Iran’s Rice Association, put the annual domestic need for rice imports at 400,000 tons, IRNA wrote.
“This is while over one million tons of rice are imported annually,“ he said.
According to the official, due to the extensive imports, foreign rice brands are now available even in remote villages across the country.
Since every kilogram of foreign rice is sold at 22,000 rials in the domestic market, local farmers also want to hike the price of their produce.
“If the trend continues, domestic production will be seriously harmed,“ he said.
Iran’s total rice production stands at 2.2 million tons per annum whereas annual consumption is about three million tons. Grown in 113 countries, the staple food of over half the world’s population features in religious festivals, cuisines and celebrations. Rice also plays a strategic role in the country’s food security after wheat.
Some 637,000-640,000 hectares are under rice cultivation in Iran.

Jask as Oil Transit Hub
Grounds have been prepared to turn east of Hormuzgan province, particularly Jask Island, into an oil transit hub, said the provincial governor general.
Abdolali Saheb-Mohammadi added that this could be achieved through the construction of an oil terminal and Neka-Jask pipeline, IRNA wrote.
He explained that the proposed pipeline, extending over 1,550 kilometers, could transfer one million barrels of oil per day.
“In view of the capacity to store 20 million barrels, in addition to the pipeline supply, Jask can become the second top oil expert terminal,“ he said.
The governor general noted that currently 30 percent of provincial development credits have been allocated to the eastern region.
“The Oil Ministry has also pledged to pay the cost of establishing the Neka-Jask pipeline,“ he said, announcing that in the first stage, the ministry has allocated one trillion rials to the project.
Saheb-Mohammadi further said national and provincial funds will be invested in the region for creating infrastructural facilities.

China, Russia Eye Telecoms Deals
129642.jpg
Foreign operators will be able to have a 49 percent stake in the new mobile operation and Iranian companies can participate in the tender as a consortium.
Big economies in Asia have expressed their interest in making large-scale investments in the Iranian telecommunications sector, an official said.
Davoud Zare’ian, a spokesman for the state-owned telecoms operator, said that investors from China, Russia and Indonesia have already voiced their interest in acquiring a stake in the Telecommunications Company of Iran (TCI).
This is while the telecoms regulator is expected to announce the winner of the technical bid for the third domestic mobile phone carrier at the end of the month, Fars News Agency reported.

Competitive Bid
After the announcement of the result, the winners will have to submit their financial bids until January 11, 2009. The contract will go to the most competitive bidder the following day.
The winner company will have to compete with the current telecoms operators, namely, TCI and Irancell which is 49 percent owned by the MTN Group. The organizers have not disclosed the number of companies and firms which have submitted their bids.
Qatar’s Qtel expressed interest in the opportunity saying that it is in line with their plans to expand throughout the region. PT Telekomunikasi Indonesia is also interested in acquiring a stake of up to 20 percent of Iran’s national phone operator, the TCI.
“Telkom is ready to become its strategic partner,“ Telkom Chief Commissioner Tanri Abeng said.
Telkom plans to make investment through its PT Telkom International Indonesia (TII) subsidiary, the international operations unit. Tanri said that the deal will be funded internally.
By the end of September, TCI had 24 million fixed line subscribers and 28 million mobile users. The company also operates a 79,000km optical fiber network in the country. According to charts on the Tehran Stock Exchange, shares of TCI are trading close to 20 percent above its initial listing price.
The sale of TCI is part of the Iranian government’s privatization drive for state-owned entities across major industries. Foreign companies from South Africa, Saudi Arabia, France and Russia have reportedly expressed their interest in TCI.
Russian cellco MegaFon had also declared its intention to bid for Iran’s fourth national mobile licence when it becomes available. The government is expected to offer a new mobile licence, with the new licensee competing with established operators TCI, MTN Irancell and Taliya.
MegaFon has said that it is prepared to invest around $4.6 billion in the construction of a GSM network. Ministry of ICT has suggested that, once issued, the new mobile licence will include access to the spectrum necessary to provide 3G services.
The Ministry has also said that foreign operators will only be able to have a 49 percent stake in the new mobile operation and that Iranian companies will be able to participate in the tender in the form of a consortium.

Growth Report
In the first six months of 2008, the number of cellular subscribers grew by an estimated 22.6 percent to reach over 35 million; which helped to increase mobile penetration to 49.4 percent.
Much of the growth can be attributed to the continued expansion of MTN Irancell. MTN Irancell ended 2007 with an even larger mobile customer base than predicted (6.006 million).
Furthermore, during the period, MTN Irancell’s customer base expanded by over 50 percent to reach 9.025 million in April. This allowed MTN Irancell to raise its market share to almost 28 percent, up from 21 percent in December 2007 and 6.4 percent in March 2007.
Due to the stronger than expected subscriber growth in the period, the previous set of mobile forecast figures have been revised. It is predicted that the sector will grow by 60 percent by March 2009, enabling penetration to rise to over 64 percent by the end of the year.
In April 2008, Iran Telecom Chairman Saber Feizi said that various companies which constitute Iran Telecom were interconnected in such a way as to make it impossible to separate them when the company is eventually offered for sale on the Stock Exchange.
Feizi therefore stressed that Iran Telecom would be sold along with all its subsidiaries, including mobile business unit of Mobile Communications Company of Iran (MCI).
In March 2007, TCI and its provincial affiliated companies received the government’s permission to be privatized. TCI’s Infrastructure Telecom Company will be detached from it and it would continue its activities as a part of the ICT Ministry. Close to 33 companies in the telecoms sector will go privatized.

Afghan Remittances at $500m
129651.jpg
According to a report by the UN, Afghans working in Iran send home close to $500 million per year.
A new study commissioned by the United Nations High Commissioner for Refugees (UNHCR) and the International Labor Organization (ILO) shows that the annual remittances of Afghans working in Iran is equivalent to 6 percent of Afghanistan’s gross domestic product (GDP), Moj News Agency reported.
Most Afghans working in Iran are doing so illegally, with 360,000 of them having been deported last year, said the new report, which examines the migration of Afghans under irregular conditions and for employment purposes to Iran.
“The potential for Afghans to succeed financially in Iran is significantly higher than in Afghanistan, Nassim Majidi of Altai Consulting, which was commissioned to conduct the survey by UNHCR and ILO, told reporters in Kabul.
Afghans send two-thirds of their salaries to Afghanistan, she said. “Also, monthly wages in Iran are four times higher than in Afghanistan, with an Afghan earning $320 each month on average in Iran compared to $80 back in their home country.“
“Unemployment levels are also significantly lower,“ Majidi noted, based on the survey that says, Afghans going to Iraq will find employment within a week. “Beyond their fulfilled income generating potential in Iran, Afghan men also benefit from experience to improve their wages or to learn new skills.“
Migration is mostly temporary and cyclical for adult Afghans without their families, staying on average for 3.5 years. Nearly two-thirds have already been to Iran more than once and a lot of them have already experienced several deportings.
“It is a labor migration issue and not a refugee migration issue,“ Majidi noted.
While recognizing Iran’s sovereign rights to deport undocumented and unauthorized immigrants from its territory, the new study calls on both Iran and Afghanistan to endorse a rights-based approach for all deportees during detention and upon return.

Gazprom Interested in Azadegan Oilfield
129645.jpg
Gazprom Neft, Russia’s fifth-largest crude oil producer, says it is interested in developing the South Azadegan oilfield in Iran.
“We have asked the Iranian government to consider both parts (north and south) of the field together,“ Boris Zilbermints, the company’s deputy director general, told IRNA on Tuesday.
In June, a group of senior experts from the National Iranian Oil Company (NIOC) and a visiting delegation from the Gazprom Neft Company, a subsidiary of Gazprom, held talks in Tehran on the development of the southern oilfields.
The Iranian and Russian companies signed a memorandum of understanding in April on development of the oilfields.
The Azadegan oilfield is one of the recent NIOC discoveries and one of the biggest ever discovered in the world in the past 30 years. The field is located 80 km west of Ahvaz close to the Iraqi border.
It holds 33.2 billion barrels of oil in place and 5.2 billion barrels of recoverable reserves. The first exploration well was drilled in the field in 1976, but its discovery was finalized after drilling the second well in 1999.
The field has an approximate area of 900 sq. km. Sarvak, Kazhdomi, Godvan and Fahilan are productive layers of the field. Crude oil produced by the Fahilan layer is light while the other layers yield heavy crude.
Zilbermints also noted that Gazprom Neft may look for a foreign partner to develop the Prirazlomnoye oilfield in northern Russia. “We are considering seeking a foreign partner to start production at the field,“ he said.

Iran, Greece Mull Trade Ties
By Majid Karimi

Vice President of Iran’s Chamber of Commerce, Industries and Mines (ICCIM) for International Affairs Mehdi Fakheri discussed ways of increasing trade exchanges between Iran and Greece in a meeting with Greek Foreign Ministry’s Secretary-General for Economic Affairs Theodorus Lakakis.
Fakheri said in the meeting, “Iranian companies intend to expand their ties with European countries, but problems such as banking and transportation obstruct their activities.“
He referred to Iran’s willingness to expand ties with Europe and added, “We intend to hold a business seminar on investment opportunities in Iran and Greece. Iran and Greece can start the transaction of agricultural products.“
Fakheri underlined the good relationship between the merchants of the two countries and noted, “For boosting bilateral cooperation, at first we can establish a joint commercial council and ICCIM will make available the necessary means to this council. Furthermore, we should provide the necessary information regarding companies interested in expanding bilateral relations so that the needed planning schemes are devised.“
He also referred to the role of tourism industry in enhancing mutual bonds and noted, “Iran has numerous historical sites and tourist attractions. If Greece is willing, we can launch tours for Greek tourists. The government renders a great deal of assistance to foreign firms that invest in Iran.“
He emphasized the need for easing up visa regulations and expressed hope that by utilizing the existing means and facilities such as agro products, aluminum industries and mining sector, the two countries could expand bilateral relations.
Lakakis, for his part, expressed his country’s willingness to bolster ties with Iran. “To this end, providing information about business opportunities and investment ventures and also increasing the number of meetings between the merchants of the two countries could prove useful.“
He recalled that Greece has good potentials in the mining, cement, banking, transportation and fishery sectors and that it has 400 million euros of exports in fishery sector alone every year.
The Greek official referred to his country’s capabilities in competing in the global markets and said, “We do not just seek a market for supplying our products; rather our merchants are keen on joint investment ventures.“
He emphasized the need to establish a joint chamber of commerce and noted, “We can provide services to Iran in the arenas of technical know-how, tourism industry and hotel constructions.“
He recalled that economic considerations take precedence over political matters and said, “Free trade and fixed institutions ensure the success of the European Union (EU) and the public trust.“

$40m Credit for Ecuador Bank
129648.jpg
The Export Development Bank of Iran (EDBI) has opened a 40-million-dollar credit line for the Central Bank of Ecuador in order to broaden bilateral banking and trade relations.
IRNA quoted EDBI President Kourosh Parvizian as saying that the bank is mulling over the allocation of another credit line worth $80 million to Ecuador.
He said the banking facility is offered in the form of short-term and mid-term credits.
In a meeting with Ecuadorian Central Bank President Carlos Vallejo and Deputy Foreign Minister Eduardo Egas Peca, Parvizian called for the promotion of banking and trade ties.
The Export Development Bank was established in 1991 with the objective of increasing Iran’s exports and developing trade with other countries.
As a unique state-owned EXIM Bank of Iran, EDBI aims to promote exports and develop economic and business exchanges with other countries; offer products and services that meet needs of all customers, particularly exporters, in a sound, safe and profitable environment; treat customers fairly and provide them with full access to its financial services based on the three principals of professionalism, responsiveness and respect; attain growth and profitability in all financial services the bank renders; utilize modern e-banking technologies to facilitate services; and open up future markets.

ALBA Exhibit in Tehran
The member states of the Bolivarian Alternative for the Americas (ALBA) association will hold an exhibition of their products from December 18 to 21 in Tehran.
Almost 80 companies active in different industrial fields are to take part in the event, IRNA reported.
ALBA is an international cooperation organization based upon the idea of social, political and economic integration among the countries of Latin America and the Caribbean.
The organization’s members are Cuba, Venezuela, Nicaragua, Bolivia, Honduras, Dominica and Ecuador as an associate member.
Unlike other free trade agreements, the ALBA represents an attempt at regional economic integration that is not based primarily on trade liberalization but on a vision of social welfare and mutual economic aid.
The Cuba-Venezuela Agreement, which was signed on December 14, 2004 by Presidents Hugo Ch‡vez and Fidel Castro, was aimed at the exchange of medical resources and petroleum between both nations. Venezuela delivers about 96,000 barrels of oil per day from its state-owned petroleum operations to Cuba at very favorable prices and Cuba in exchange sent 20,000 state-employed medical staff and thousands of teachers to Venezuela’s poorest regions.

Power Plant Privatization
Khalij-e Fars (Persian Gulf) and Sahand power plants will be ceded to the private sector in the near future, disclosed managing director of Iran’s Power Development Organization, Mohammad Behzad.

Goal-Oriented Subsidies
Minister of Economic Affairs and Finance Shamseddin Hosseini said the bill to make state subsidies goal-oriented will be sent to the Majlis before the end of 2008.

EconomyCol3
MENA Growth to Slow
Growth in the Middle East region is predicted to slow to less than 4 percent in 2009, as the global financial crisis and decline in oil prices continue to bite, according to a new report.
The World Bank’s 2009 Global Economic Prospects report suggests world growth will weaken to 0.9 percent next year with simultaneous recessions in the United States, Western Europe and Japan, Reuters said.
And it says the previously turbo-charged growth of the past decade in the developing world will also slow with the Middle East and North Africa (MENA) region growing by 3.9 percent in 2009, compared to 5.8 percent in 2008.
While a rise in oil and natural gas revenues to $200 billion helped drive growth in the oil-rich economies in 2008, next year might be a different story, added the report.

Iraq Seeks Regional Bloc
129570.jpg
With stability slowly returning to Iraq after avoiding sinking into a civil war, a more confident Baghdad proposed forming a European Union-style trading and security bloc with its neighbors.
Unveiling the plan at a conference in Washington, government spokesman Ali Al-Dabbagh said Iraq was now ready to play a more assertive regional role.
“It is a time now for Iraq as well as its partners to think of a new era on the role of Iraq in the region after five hard years,“ Al-Dabbagh said in an address to the United States Institute of Peace, greeted skeptically by the audience, Arabian Business wrote.
Its publication signaled that Iraq wants to put itself on a more equal footing with its neighbors, which until recently viewed it almost as a failed state.

Canada Enters Recession
129576.jpg
The World Bank has offered a grim outlook for 2009 of just 0.9 percent growth for the global economy, while a recession was declared in Canada and a rescue for US automakers hung in the balance.
According to AFP, in its “Global Economic Prospects“ report, the World Bank sharply cut its growth forecast on Tuesday and predicted world trade volume would fall 2.1 percent as a worldwide credit crisis hits rich and poor nations alike.
Developing countries’ economies would likely expand at a reduced annual pace of 4.5 percent while wealthier, developed economies are expected to contract 0.1 percent, the multilateral development lender said.
In Canada, the central bank lowered its key interest rate Tuesday by 0.75 point to 1.50 percent and said the Canadian economy had slid into a recession amid the global financial crisis.

Aussie Banks in Default
Commonwealth Bank of Australia, Westpac Banking Corp. and Australia & New Zealand Banking Group Ltd. raised $5.7 billion this week selling stocks and bonds to boost balance sheets dented by rising defaults, Bloomberg reported.
Commonwealth, the second-biggest bank by market value, offered government-backed debt as part of a A$1.25 billion ($824 million) bond sale and said it will sell up to A$750 million in stock to Merrill Lynch & Co.
Westpac, the biggest, sold A$2.5 billion in stock at an 11-percent discount and $1.5 billion of three-year 3.25 percent notes, sending its shares as much as 10 percent lower in Sydney on Wednesday.
ANZ, the No. 4 bank, sold $1.25 billion of three-year 3.2 percent bonds and $500 million of two-year floating-rate notes.

Mideast Airlines Facing Turbulence
Middle East carriers are set for another turbulent year, with the local industry’s 2008 losses expected to double in 2009 amid the worst revenue environment for 50 years.
Aviation body IATA has predicted $2.5 billion losses next year for the global airline industry--the biggest drop in revenue since 1958, Arabian Business reported.
The organization also said Persian Gulf carriers will report $200 million in losses next year as the economic downturn and lower passenger demand take effect.
“The outlook is bleak,“ said Giovanni Bisignani, IATA’s director general and CEO.
“The chronic industry crisis will continue into 2009 with $2.5 billion in losses. We face the worst revenue environment in 50 years.“
Global passenger traffic is expected to decline by 3 percent in 2009 following a 2-percent growth this year--the first drop in demand since 2001--while yields will also fall by 3 percent.