The free-wheeling days of the prowestern Shah may be long gone but a decade after his overthrow Iran is re-opening the door to foreign investors to speed up post-war reconstruction. The Islamic republic has indicated it will allow considerable foreign involvement and has hinted at surprising latitude for investors in some cases. The figures involved range from $20 billion to $40 billion over the next five years. They may yet provoke a backlash from revolutionary purists.

Despite impressions to the contrary, Iran's authorities never shut the door on foreign financing — not even at the height of confrontation with the outside world and during the Gulf War with neighbouring Iraq. Instead, flexibility and pragmatism have often overridden ideology — and this in any case, is orientated towards capitalism under Islam.

The government started to make substantial use of long-term trade financing under usance arrangements in the early 1980s after its oil income nose-dived. By 1990 it had raised (and mostly paid back) nearly $10 billion in this way. At the same time, foreign firms were being asked to provide their own finance for projects awarded to them.

The government is now finalising a five-year development plan that includes provisions for $20 billion of what is described as foreign "investment" and an additional large amount for medium and long-term borrowing. These sums will help to make up the $120 billion hard-currency portion of the $380 billion plan.

Before his death in June 1989, Ayatollah Khomeini gave his official blessing to the idea of foreign loans — as long as they were invested in productive enterprises vital to the nomy. At the time a figure of
billion-3 billion for the plan period agreed on; but since then the government of President Rafsanjani appsition to have raised this ceiling. Iran considerable  reserves  of foreign change — at present reckoned at already $7,000 million — but these are tread as strategic and kept for emergencies.

State and private firms can them cally raise unlimited amounts of nance abroad under buy-back arrangments whereby loans are paid to with hard currency earned from express of the final products.   In prade however, it will be state enterprises priority sectors that will be doing me of the borrowing.

The government has marked some key industries for priority. The are, for example, big opportunities
mining and metal manufacturing maximise exploitation of local sources. A large number of paper tyre plants and other industries had been given the go-ahead; some already under construction and other are waiting for hard-currency finaling. In early 1989 a buy-back agreement was reached with -Frames Peugeot for local assembly of the model, although the contract has yet be finalised.

Power generation is also high premity; but here buy-back arrangement are not possible. The govenment
as cated over $1 billion in hard currency for power plants this year and is loning for more financing abroad to add least 1,000 MW to the national each year during the 1990s. Japaned and European firms are heavily volved and more and more recourse also being had to East European our tries (particularly Czechoslovakia an Yugoslavia), the Soviet Union.

Top priorities

Not surprisingly, the top priorits are the oil, petrochemicals and industries. Most of the hard-current
and foreign financing will go town rebuilding and expanding onshore are offshore oil and gas fields, refineries oil and petrochemical product, and export facilities. These facilities so fered war damage of at least billion. They include the southern fields, offshore rigs, the main oil-expterminal at Kharg Island, and the dissolved partnership with Japan complete the $4.5 billion Bandar Khomeini petrochemical complex.

Much of the damage to oil refine has been repaired but several new of are to be built to meet rising dems. These include the 230,000 barrel as (b/d) Bandar Abbas refinery over was negotiations have been going on some time with a Japanese-It consortium. The foreign firms being asked to agree to repayment from the proceeds of the refinery's exports. Similar deals are being finalised for the $300 million Salman, $100 million Nasr and other offshore oil-rig repair projects. A $500 million fertiliser complex in Mashad and an $800 million aluminium plant in Bandar Abbas will also be tendered soon on the same basis.

National Iranian Oil Company (NIOC) has indicated it will allow foreign investors special latitude in at least two big gas projects which Iran itself will not be able to handle for some years. One concerns development of the Iranian portion of the offshore North Field, whose gas reserves are shared with Qatar. When the latter starts tapping the field in 1991, Iran will suffer rising nominal losses the longer it delays its own exploitation. But NIOC has now decided it cannot afford this extra investment so it is willing to put one or more foreign firms in charge of the scheme in a package deal.

A similar package has been offered to foreign firms for an even bigger gas export project in the northern Gulf. This will require heavy investment in liquefaction facilities and tankers.

At present foreign investors are wary of making such huge investments in a volatile region. But European and Japanese firms and banks are'showing more than casual interest in other schemes with government protection. Bankers' interest can partly be seen in the large number of European — mostly French — banks which recently raised $800 million to pre-finance NIOC's crude-oil sales. The credit, over 12 months, is at 1 1/2% over LIBOR. Other Japanese firms and banks had earlier provided about $1 billion in such pre-financirig to NIOC. And Japan's Mitsui has just offered $500 million in long-term credit to finance Iran's petrochemicals and steel, imports. 

The privatisation of hundreds of nationalised industries arid the revival of the Tehran Stock Exchange are also opening up opportunities, mostly for local investors and banks. The govern-vment is trying to rechannel large amounts of private capital now vested in speculative land and currency transactions.

Since 1986 local banks have to playing a growing role in finance development projects. The trend started by Bank Melli Iran which to a controlling stake in the $1.5 billion Arak petrochemical complex now best built; the rest of the shares are own by National Petrochemical Company (NPC).

Iran has an urgent need to rebuild economy after years of revolution turmoil and war. Its industries working at well below 50% capacity and both unemployment and inflat are high. In addition, public expedations were artificially raised with the election of Rafsanjani as president mid-1989.

But the government cannot produce spectacular results without a steep in international oil prices or substatial foreign borrowing. So far it getting just enough results on be fronts to allow modest growth. But the government becomes too depends on foreign (that is, mostly western finance, its revolutionary could be brought into question door to outside investors is openium wider but it will be a long time-before the banks are reminded of the "good days" of the Shah.