Non-governmental investors, within the framework of the policies of the Islamic Republic of Iran, in collaboration with several state-owned banks, have undertaken the construction of power plants. Currently, more than 60% of the country’s electricity is produced by the non-governmental sector, with approximately 75% of the financial resources for these power plants provided in foreign currency by the National Development Fund. The revenue of these power plants is in rials because the only buyer of their electricity is the government, and the price of electricity is determined by the Ministry of Energy, which is part of the government. However, the repayment of the loans obtained from the National Development Fund’s resources is in foreign currency. Before the significant rise in exchange rates, there was no issue with repaying the loans in foreign currency. However, the unpredictable surge in exchange rates has made it difficult for producers to secure the financial resources needed to repay the installments.
After the surge in exchange rates, the Chairman of the National Development Fund, on 2015/02/15, in letter No. 2741/93/S addressed to the Minister of Energy, stated: “The Fund has considered long-term facilities for ten priority combined cycle power plant projects. Since the repayment of these facilities must be undertaken in foreign currency, it appears that projects managed by the private sector are selling their products in rials and lack any foreign currency income. Therefore, it is essential to ensure that they can secure the foreign currency required for the repayment installments. It is proposed that the Central Bank of the Islamic Republic of Iran commit to providing the equivalent foreign currency for each installment repayment to the Fund, in exchange for receiving rials from the borrowers at a mutually agreed rate, enabling them to fulfill their obligations to the National Development Fund.”
Subsequently, the Minister of Energy, on 2015/03/05, through letter No. 93/50412/20/100, communicated the issue of securing the foreign currency for the investors’ contributions and the repayment of loans received by non-governmental electricity producers from the National Development Fund to the First Vice President as follows:
As you are aware, within the framework of the executive policies of Article 44 of the Constitution of the Islamic Republic of Iran, it is stipulated that the construction of new power plants should be carried out by the private sector. In this regard, private investors have taken necessary actions to utilize the facilities of the National Development Fund to secure the required financial resources. According to the rules and regulations of the National Development Fund, the provision of the investor’s share and the repayment of the received facilities in foreign currency are the responsibility of the respective investor.
Considering that the guaranteed purchase contracts for the electricity produced by these power plants have been concluded in rials by the Tavanir Holding Company with the investors and they do not have any foreign currency income, the National Development Fund, through letter No. 93/2741/S dated 2015/03/05, has requested a commitment from the Central Bank of the Islamic Republic of Iran to provide the necessary foreign currency.
Given the high volume of investment in power generation plants and the need to expedite the construction of new power plant units, as well as to motivate private sector investment and ensure electricity supply for the coming years, and considering that the amount of foreign currency required by the private sector for implementing these projects is high and cannot be secured through means other than the Central Bank, I kindly request that the necessary draft resolution be presented and the matter be urgently addressed in the first meeting of the Cabinet.
Cabinet Resolution No. 31108/T51709H
The Cabinet, in light of the aforementioned points, in its session on 2015/05/31, pursuant to Article 138 of the Constitution of the Islamic Republic of Iran, approved the following regulation, which was subsequently communicated under number 31108/T51709H on 2015/06/02 to the Ministry of Energy, Ministry of Roads and Urban Development, Ministry of Economic Affairs and Finance, Central Bank of the Islamic Republic of Iran, the Management and Planning Organization of the country, and the National Development Fund:
“In cases where electricity purchase contracts between non-governmental producers and the Ministry of Energy and its subsidiaries, as well as non-governmental sector participation contracts with the Ministry of Roads and Urban Development and its subsidiaries in transportation projects such as rail development, ports, and airports, are concluded in rials, in order to repay the foreign currency facilities received by the non-governmental sector from the resources of the National Development Fund, the Central Bank of the Islamic Republic of Iran is obliged, based on the request of the agent bank contracted with the said fund, to provide the necessary conditions for converting rials to foreign currency at the official exchange rate (exchange rate) according to the repayment schedule of the aforementioned facilities, and after receiving the rial amount, to credit the equivalent foreign currency of each installment to the account of the National Development Fund with itself.”
This resolution is conditional and does not apply to all recipients of foreign currency loans from the National Development Fund. However, the Central Bank has refused to implement it, as detailed below:
A. Conditions outlined in the resolution for power producers
The mentioned resolution for power producers is subject to the following six (6) conditions:
1. The existence of a power purchase agreement with the Ministry of Energy and its subsidiaries.
2. The power purchase agreement must be between the non-governmental (private) sector producer and the Ministry of Energy and its subsidiaries.
3. The power purchase agreement must be concluded in rials.
4. The foreign currency facilities must be granted from the resources of the National Development Fund.
5. The said foreign currency facilities must be paid to the non-governmental (private) sector.
6. The conversion of rials to foreign currency must solely be for the repayment of the aforementioned foreign currency facilities.
B. Conditions outlined in the resolution for transportation project partners
The mentioned resolution for transportation project partners is subject to the following six (6) conditions:
1. The existence of a partnership agreement with the Ministry of Roads and Urban Development and its subsidiaries.
2. The subject of the partnership must be rail development, ports, and airports.
3. The partnership agreement must be concluded in rials.
4. The foreign currency facilities must be granted from the resources of the National Development Fund.
5. The said foreign currency facilities must be paid to the non-governmental (private) sector.
6. The conversion of rials to foreign currency must solely be for the repayment of the aforementioned foreign currency facilities.
Central Bank’s Refusal to Implement Cabinet Resolution No. 31108/T51709H
The Central Bank refused to implement the aforementioned resolution. Due to the detrimental effects of this refusal, even the Minister of Energy, through letter No. 97/43068/20/100 dated 2018/12/25, requested the First Vice President to urgently address the issue of using the official government exchange rate for the repayment of foreign currency loans received from the National Development Fund and external financing in the Cabinet. The Chairman of the National Development Fund also, on 2019/01/07, through letter No. 97/11327/S to the First Vice President, stated: “Despite the repeated follow-ups by this Fund and the agent banks, no clear response regarding the repayment method of foreign currency loans received for power plant projects has been received. Additionally, the new foreign exchange conditions in the country and the non-implementation of the Cabinet’s resolutions by the Central Bank of the Islamic Republic of Iran have put the Fund’s resources at risk of non-repayment.”
The issue of the Central Bank’s refusal to implement this resolution was raised in the Attorney General’s Office. The Deputy Attorney General, on 2021/02/09, through letter No. 900/77209/1399/140, requested the Central Bank to implement the said resolution. However, in response to this recent request, the Central Bank, through letter No. 1400/1144, claimed that the resolution had been repealed by Cabinet Resolution No. 63793/T55633H dated 2018/08/07 and No. 4353/T55300H dated 2018/04/11.
Legal Actions Taken
Apart from the fact that the actions of the Central Bank and consequently the agent bank diminish the motivation of individuals and investors to participate with governmental and public institutions, it should be noted that the regulations have created a right for those covered by the said resolution. On behalf of some of the affected individuals, lawsuits with the classification numbers 140031920001003150, 140031920001017368, 140031920001031263, 140031920001104185, 140031920001137507, 140031920001207099, and 140031920001392768 were filed. Fortunately, in the preliminary stage, the ruling was in favor of these investors.
