VW, Ericsson, Statoil Invest in Iran, Undeterred by Tensions

August 24, 2003 - 0:0
(Bloomberg) -- The Fifth Tehran International Auto Fair, a five-day event that closed July 5, drew companies such as Renault SA, PSA Peugeot Citroen, Mazda Motor Corp., DaimlerChrysler AG's Mercedes-Benz, Fiat Spa, and Volkswagen AG (VW).

Many foreign companies continue to invest in Iran even though U.S. President George W. Bush described the country as part of an ``Axis of Evil,'' along with Iraq and North Korea.

Some foreign investors, such as Japan, are delaying projects. Yet most of the about 200 companies present in Iran, such as Ericsson AB, the world's largest maker of mobile-phone equipment, and Alcatel SA, the second-biggest producer of telecommunications gear, are staying put though adopting a low profile. Others, like Statoil ASA, Norway's biggest oil company, and Technip SA, Europe's largest provider of oilfield services, state openly that they are in the country for the long term. ``When the political temperatures go up, companies take a low profile,'' said Siamak Namazi, managing director of Tehran-based Atieh Bahar Consulting, an adviser to companies such as BP Plc, HSBC Holdings Plc and Alcatel. ``But we have not heard of any that have cut their investments.'' Abraham's Talks

U.S. Secretary of Energy Spencer Abraham was in Europe last week and held separate discussions on Iran with Dutch Economic Affairs Minister Laurens-Jan Brinkhorst and Italian Industry Minister Antonio Marzano, a Department of Energy spokesman said. He declined to disclose details.

``They only talked about Iran in general terms,'' Dutch Economic Affairs Ministry spokeswoman Paula de Jonge said. ``The subject of investments did not come up.'' Italian officials refused to comment.

``Iran is one of the most resource-rich countries in the world but its political risk is among the highest of any rated sovereign nation,'' said James McCormack, a senior analyst at ratings company Fitch, which rates Iran's foreign debt as B+, on par with Romania and one notch below Azerbaijan.

After years of shunning Western investments, Iran is now actively seeking funds from abroad. In the five-year plan covering 2000-2004, the government is seeking $4.5 billion to $5 billion in direct foreign investment. VW Project

Volkswagen AG (VW), Europe's biggest automaker, sent its regional manager, Peter Poersch, to Tehran. Kerman Car Manufacturing, Iran's No. 3 car company, said at the fair that it signed a preliminary agreement with VW to produce four models in Iran, according to Iranian state news service IRNA.

If the accord goes ahead, the first model would come off assembly lines in the third quarter of next year with a goal of eventually producing some 200,000 units. Iran has plans to produce 600,000 cars by 2004, primarily to meet domestic demand.

``Nothing has been decided up to now,'' VW spokesman Hans Peter Brechinger said.

Iran has the fifth-largest proven oil reserves, holding about 90 billion barrels, or about 9 percent of the world total. It holds the world's second-largest reserves of natural gas, surpassed only by Russia.

Since 1995, the U.S. has tried to put an economic noose around Iran and slow the development of its energy potential. Then- President Bill Clinton banned U.S. companies and their foreign subsidiaries from conducting business with Iran. Sanctions

The following year, under the Iran-Libya Sanctions Act, the U.S. imposed mandatory and discretionary sanctions on non-U.S. companies investing more than $20 million annually in the Iranian oil and natural-gas sectors.

In the post-Iraq War period, Bush has renewed calls for tough sanctions because of Iran's alleged nuclear plans. ``The international community must come together to make it very clear to Iran that we will not tolerate the construction of nuclear weapons,'' Bush said in June after the International Atomic Energy Agency reported that the country didn't properly report some of its activities as required by the Nuclear Non- Proliferation Treaty. ``Iran would be dangerous if they have a nuclear weapon.'' Low Profile

Iran has denied that it is developing nuclear weapons and says the program is designed to generate electric power to spur the economy. The country has an 18 percent unemployment rate and inflation is 25 percent.

Keeping a low profile is the best strategy for companies dealing with Iran, says Patrick Clawson, deputy director of the Washington Institute for Near East Policy. ``When companies ask my advice, I've had to tell them candidly that so long as they can keep the investments off the front pages of the newspapers, it's likely that the United States government will do very little,'' he said.