Engineering and Contracting Services
Exporting engineering and contracting services as one of non- oil export items, is an influencing factor on Iran economy and its importance in technological and technical abilities promotion is a considerable fact. In other words, engineering and contracting services export not only increases Iran export, but also contributes to Iran economy growth through increasing engineering and technical sector’s efficiency and its gradual effect on other sectors. During recent years, the experienced decrease in oil export
incomes and its price fluctuations, budget shortages and purchasing power decrease, and more importantly oil sources exhaustible nature, the importance of services export in lining with national development and economic growth has been intensified and policy makers have also reached the belief that development of non- oil export especially engineering and technical services, is an unavoidable matter. Iran seeks to increase its engineering and technical services export value to 25 bn USD by 2025.
Table 15-1 Contractors maximum capacity sum divided by various activities in the year
ended in March 2017 (mn IRR)
Source: Management and planning organization of Iran
Iran engineering and technical services exporting companies’ capabilities has caused their presence in 59 countries. With onset of Iraq war, which had the major share in attracting these services and had the least difficulties in terms of banking transactions, and also oil price decrease in recent years, 50% of projects in this country were shut down. Currently, the government has dedicated 200 mn USD in facilities for Iranian contractors present in Iraq in order to finish their projects.
Iran engineering and technical services export history goes back to 1995. From that time until today, Iranian engineers and contractors have participated in over 700 projects throughout the
world and the total value for engineering and technical services export is more than 23.5 bn USD. But from the year ended in March 2013, because of problems such as economic crisis, competition becoming more difficult, sanctions, difficulty in obtaining assurances, Iraq war and Syria that are two main Iran target markets, and finally failure to pay export bonuses, Iran export decreased; in the year ended in March 2015, Iran engineering and technical services export decreased into 1000 mn USD. It must be noted that in the year ended in March 2016, Iran engineering and technical services export value, in comparison to previous year, experienced a two- fold increase.
Table 15-2 Engineering and technical services export (mn USD)
Figure 15-1 Engineering and technical services export (mn USD)
Dam construction industry is considered among most important industries in Iran. Because of water and precipitation shortages, from old days Iranians had paid a special attention to this industry such that dam, dike, and water catchment pond construction was conducted in accordance with each region’s residents’ needs while putting geographical conditions of respective regions in consideration. Iran dam construction history has a long history. Iran dam construction in modern terms and scales goes back to almost half a century in past. To be more precise, studying and designing reservoir dams started from 1949 and their construction started in 1950s late years. After Islamic revolution in Iran, dam construction entered a new growth and development phase and Ministry of Energy played a significant role in this regard. The following table indicates status of Iran dams divided by their phases
Table 15-3 Iran dams by phase
Source: Iran water resources management company
Table 15-4 Dam construction services export by Iran companies
Power Plant Services
Nominal capacity of Iran electricity industry’s installed power plants in the year ended in March 2016, was about 74,000 MW while its operational capacity was 64,000 MW. From the mentioned volume, more than 12,000 MW is hydroelectric and renewable sources power plants. Power plants non- specific production is 280,689 mn kWh. Thus, Iran per capita electricity production reaches 3,542 kWh. Transmission lines and sub- transmission lines are 51,074 and 70,552 circuit kilometers respectively. Also transmission and sub- transmission stations capacities are 135,805 and 96,909 MW ampere respectively.
Table 15-5 Iran power plant industry general information
Source: Ministry of Energy
Engineering and technical services in Iran power plants domain have a lot of potentials in electrical equipment production and electrical facilities construction services export. This industry has an annual 1.1 bn USD value and has created more than 11 thousand jobs.
For the first time in Iran, production of high voltage cables with 63 to 400 KV capacities have been initiated. Producing this new generation of electricity transmission cables has a lot of chemical and operational advantages. For instance, if buried under ground, the cables will not be corroded. These cables are also highly resistant to subterranean chemical and thermal changes.
By attaining technology for new electricity transmission cables production, the need for digging underground tunnels and also major investments for electricity distribution throughout various regions, became limited or even non- existent. Before these cables were produced, some similar variations were previously imported to Iran from South Korea and Japan. It is predicted that with localization of technical knowledge for producing these electrical equipment, an estimated 20% saving in currency costs of import, will become realized.
Central Asian and Caucasus region countries – especially Turkmenistan – are considered among most important export markets for new generation electricity cables. In current situation, Iran companies were successful in exporting energy and electricity industry engineering and technical services to different countries especially neighboring ones so that currently more than 80% of engineering and technical services export value is for energy and electricity industry.
Iraq is considered a strategic market for exporting electricity industry products and equipment. For instance, Iraq electricity cable market value is estimated to be 900 mn USD and Iran, alongside Turkey, is among most important high voltage cables exporting countries to Iraq.
Iran has potential and capacity to export 15 bn USD worth of electricity industry products, equipment, and engineering and technical services. Iran companies are currently designing and executing various electrical projects in different countries such as Venezuela, Turkmenistan, Azerbaijan Republic, Iraq, Syria, Sri Lanka, Cyprus, Armenia, Pakistan, and Saudi Arabia.
S W O T
– Having expert and capable labor forcePossibility to provide needed material and equipment for projects
– Being in proximity of regional markets
– Governmental support from engineering and technical services export
– Appropriate educational capacity in domestic technical domains
– Customer credit: customer credit is 2 years in maximum while engineering and technical services projects need at least 5 to 6 years
– Services export is considered the exporting country’s symbol in receiving countries, and technical projects need a lot of support in order to enter other countries market. The services export class is different than product export and Iran is still immobile in this regard
– In Iran plan for exiting economic recession, no plans have been specifically dedicated for engineering and technical services export
– Major national advantage of engineering and technical services export is considered to be domestic products export and their utilization in projects and eventually increasing non- oil export. But Iran engineering and technical services companies often cannot utilize domestic products in projects
– Problems caused by lack of proper governmental support from engineering and technical services exporters in comparison to other competing countries
– Absence of agreements between Iran government and other countries’ that emphasizes on engineering and technical services export from Iran; an agreement which is set on basis of existing
knowledge in this domain
– Ineffective competition of Iran companies with each other
– Unsuccessful project completion in arranged time by some Iran companies that also blemishes other companies’ reputation
– Absence of coherent and organized Iran companies’ presence in target market
– Lack of knowledge from target market’s legal, customary, and cultural affairs which in most cases lead into major losses; it is an experience that may cost dearly
– Absence of an institution that could provide Iran companies with national engineering and technical services export experiences
– Iran is geopolitically positioned in the best region regarding demands for engineering and technical services.
– International increase in the need for engineering and technical services
– Rise of competitors who enjoy governmental financial supports
– Iran is not a member in WTO and some other international assemblies
Laws and reguletions
In execution of all services, construction, and installation projects and also products, equipment, and tool supply, all ministries, institutions, state companies and state dependent companies are required to plan in such a way that at least 51% of the cost for each project is considered domestic work. If utilizing domestic services and products is not possible, with reaching an agreement between head of related executive branch and industries and businesses minister, aforementioned branches could provide their projects needs through foreign services or products.
Also abovementioned branches are required to refer to qualified Iranian companies regarding their need for services, construction, and installation activities or products, equipment, and devices supply. If Iranian companies could not provide needed services, the mentioned activities could be assigned to an Iranian- foreign partnership or foreign company, only by acquiring verification of highest executive official.
In order to encourage engineering and technical services export and reduce risks, exporting companies and financing banks for
abroad contracting projects, with acquiring related fees and premiums and with upholding related rules and regulations, non- governmental export development funds and other Iran insurance companies are required to conduct in case of following items:
– Covering abroad contracting projects political and commercial risks and opening LC accounts in favor of exporters.
– Covering failure to repay export facilities before shipment, granted by domestic banks to exporters regarding contracts and opening LC in their favor with acquiring appropriate collateral (promissory notes if necessary)
– Covering credits political and commercial risks after shipment granted to foreign banks and employers by acquiring secure collaterals from them (buyer credit)
– Covering political risks (consisting war, currency transferal, and expropriation) for execution, operation, and transference projects etc. effective by exporting companies in destinations.