According to the Fourth Five-Year Economic Development Plan (2005–2010), the Privatization Organization of Iran affiliated with the Ministry of Economic Affairs and Finance is in charge of setting prices and ceding shares to the general public and on the Tehran Stock Exchange. The privatization effort is primarily backed by reformist members of the Iranian government and society who hope that privatization can bring about economic and social change.
In 2007, Supreme Leader Ayatollah Khamenei requested that government officials speed up implementation of the policies outlined in the amendment of Article 44, and move towards economic privatization. Khamenei also suggested that ownership rights should be protected in courts set up by the Justice Ministry; the hope was that this new protection would give an additional measure of security and encourage private investment. Despite these statements, true official backing for privatization remains very slow due to political reasons.
Some 80 percent of the companies subject to Article 44 of the Constitution would be transferred to public ownership, 40 percent of which will be conducted through the "Justice Shares" Scheme and the rest through the Tehran Stock Exchange. The government will keep the title of the remaining 20 percent.
It is widely believed that if current governmental organizations are privatized they will need to become more efficient. At present many are not profitable due to large numbers of unnecessary employees hired by the government to reduce unemployment. Furthermore, many of these companies are subsidized by oil revenues. True privatization will inevitably lead to many unpopular job cuts and large scale lay offs.
The writer Kaveh Ehsani of an article on privatization in Iran says: "the absence of transparency and accountability, in all likelihood, “privatization” of public assets will replace state monopolies with equally unaccountable private monopolies and multi-national capital, without necessarily benefiting “the public” in a discernible way."
The current privatization effort calls for an initial public offering (IPO) of five percent of the firms being privatized. Once the five percent is public, it will establish a base market price for future offerings. According to a study conducted by the IMF in 18 countries, privatization adds 2 percent to the government's GDP per annum.
The Iranian constitution
According to the Article 44 of the Iranian Constitution, the economy of Iran is to consist of three sectors: state, cooperative, and private; and is to be based on systematic and sound planning.
The state sector is to include all large-scale industries, foreign trade, major minerals, banking, insurance, power generation, dams and large-scale irrigation networks, radio and television, post, telegraph and telephone services, aviation, shipping, roads, railroads and the like; all these will be publicly owned and administered by the State. The cooperative sector is to include cooperative companies (Bonyad) and enterprises concerned with production and distribution, in urban and rural areas, in accordance with Islamic criteria. The private sector consists of those activities concerned with construction, agriculture, animal husbandry, industry, trade, and services that supplement the economic activities of the state and cooperative sectors.
A strict interpretation of the above has never been enforced in the Islamic Republic and the private sector has been able to play a much larger role than is outlined in the Constitution. In recent years, the role of the private sector has been further on the increase. Furthermore, an amendment of the article in 2004 has allowed 80 percent of state assets to be privatized (ref: Note C, article 44 of Constitution).
Background
Iranian Revolution and Iran–Iraq War (1979–88) In July 1979, six months after the victory of the Revolution, 28 private banks that held 43.9 percent of the total assets of all the Iranian banks in their possession, were declared nationalized by the government. At the same time, all the car-making, copper, steel and aluminum industries, as well as the assets of 51 capitalists and major industrialists and their next of kin were declared nationalized by the government. In 1982, Mostazafen Foundation of Islamic Revolution alone came to possess 203 manufacturing and industrial factories, 472 big agricultural fields, 101 major construction firms, 238 trade and services companies and 2,786 big plots of real estates.
Immediately following the outbreak of the Iran–Iraq War over 80% of Iran's economy came under the control of the government. This created numerous problems for Iran as previously internationally competitive companies, such as Iran Air or Iran Khodro, degraded into basic domestic companies that could barely function without massive government subsidies – primarily derived from oil revenues.
Rafsanjani government (1989–97) After the Iran–Iraq War in 1988, the Iranian government under Rafsanjani, declared its intention to privatize most state industries in an effort to stimulate the ailing economy. The sale of state-owned factories and companies proceeded slowly, however (mostly because of the opposition in Majlis), and most industries remained state-owned in the early 21st century (70% of the economy as of 2006). The majority of heavy industry—including steel, petrochemicals, copper, automobiles, and machine tools—was in the public sector, while most light industry was privately owned.
Khatami government (1997–2005) In 2004, under the presidency of reformist Mohammad Khatami a number of efforts were made to eliminate the role of the government: The Tehran Stock Exchange was re-launched, which allowed a mechanism for trading shares of government companies. Elements of the constitution (article 44) that decreed that core-infrastructure should remain state run were eliminated, and private banks were launched.
Despite plans to sell billions worth of state assets to the private sector, uptake was very slow. A common criticism of the privatization effort by investors was the only local Iranian organizations that are capable of buying the large share blocks are themselves government owned. Also analysts have blamed international fears about the Iranian nuclear programme and an absence of transparency and information reporting for the lack of enthusiasm for state assets. In 2005, Iran tried to sell $2.5bn of government assets but only managed to offload less than 30 per cent. At present, at least 20 percent of the companies slated for selloff are officially loss-making. While the rest have earned an average profit of 5.5 percent in recent years, that figure does not take into account the extensive political and economic incentives and monopoly protections that they enjoy.
Ahmadinejad government (2005–2013) In July 2006, Supreme Leader Ayatollah Khamenei decreed a renewed effort to privatize the economy and said in his order that “ceding 80 per cent of the shares of large companies will serve to bring about economic development, social justice and the elimination of poverty”. The decree is also an effort to revive Iran's stalled privatization programme and kick-start the country's many uncompetitive industries, which are heavily protected by subsidies.
In February 2008, Iran announced that 3 newly formed Investment Banks (AminIB, Novin and Pasargad Bank) will take share subscriptions and act as an intermediary between the Privatization Organization and the stock exchange, helping Iran divest state-owned enterprises.
Close to 370 trillion rials worth of shares of firms covered by Article 44 of the Constitution have been sold to the private sector from 2006 to 2009. The value of government assets are between 1,000 and 1,100 trillion rials ($110 billion), one third of which have been ceded to the private sector (December 2008).
In 2009 it was reported that 30 percent of the revenues obtained from ceding the ownership of state entities within the framework of Article 44 of the Constitution are allocated to the nationwide cooperatives.
As of 2009, Iran has privatized $63 billion worth of government equity in state-owned firms since 2005 (out of $120 billion). Subsequently, the disinvestment has brought the government's direct ownership in the GDP from 80% down to 40%. However, privatization through the Tehran Stock Exchange has tended to involve the sale of state-owned enterprises to other state actors such as pension funds.
The Iranian Government announced in 2010 that it aims to raise some $12.5 billion by privatizing more than 500 state-owned firms. The money raised through privatization of the firms will be spent on paying the state's debts.
The Iranian President Mahmoud Ahmadinejad is beside the privatizations that happened under his government an anti-capitalist.
Rouhani government (2013–2021) Iran's government was due to privatize 27 huge companies, 76 large companies, 31 medium companies, and 31 companies of other sizes in 2014. Huge companies are those companies with the shares value of over 10 trillion rials (about $403 million) and large companies are those with the shares value of over one trillion rials (about $40 million). As of November 2014, the value of shares transferred over the mentioned 1.5 years (about $9.2 billion) is tantamount to the value of shares transferred since the establishment of the organization 12.5 years ago.
As of 2016, regarding privatizations conducted by the IPO, 25% of such entities were divested to the Civil Servants Pension Organization, 15% to the Farmers, Villagers and Nomads’ Social Insurance Fund and 25% to the Social Security Organization and only 5% to the "real private sector".
For years it has been the country's position to privatize 80% of all power plants. As of August 17, 2017 Energy Minister Hamid Chitchian has said that 55% of all power plants have completed privatization. The country aims to clinch international contracts in order to aid in attracting much needed investment.
Raisi government (2021–2024)
"Justice shares" plan
The government has approved a plan to offer shares to low-income families, starting with the poorest. Under the “Justice Shares“ plan, millions of Iranian families will receive shares in state-owned firms, the value of which will be reimbursed in 20 years from the dividends generated by those shares. The project is in line with President Mahmoud Ahmadinejad's election promise to improve the condition of Iran's poor. Ahmadinejad in July 2005 promised to distribute shares to Iranian families, adding that these shares would be from state-run companies that must be privatized. Justice shares are valued at $36 billion as of 2014.
Implementation The poorest strata of society shall receive justice shares at a 50 percent discount and will pay the said amount in 10-year instalments. Villagers and nomads shall have priority in this respect. The holding period for those shares is a minimum of 2 years [afterwards]. Those covered by charity services rendered by the Imam Khomeini Relief Committee and the State Welfare Organizations as well as the jobless war veterans are prioritised in the first phase of the justice shares initiative. In the second phase, rural population and tribesmen will receive the shares.