The report of the investigation and examination of Mobarakeh Steel, which was read in parliament, caused a wave of reactions in society. According to this report, at least 2,200 violations were discovered in the activities of this company between the years 2018 and 2021, ranging from corruption and bribery to gifts and illegal payments to government institutions, the Revolutionary Guards, Friday prayer offices, media outlets, and also embezzlement of capital and signing of contracts with a non-specialized Chinese company for amounts higher than the actual value.

After presenting the research report and investigating the major corruption in the Mobarakeh Steel Complex in Isfahan and exposing the embezzlement and financial abuse of 92 trillion tomans in this complex, some principled individuals and their media are trying to absolve themselves and their associates of this theft of public property from the people.

From the beginning, a number of representatives of the Revolutionary Parliament and some government officials have referred to the corruption that took place in this industrial unit during Hassan Rouhani’s presidency, and have accused reformists as the main perpetrators of this embezzlement. Recently, a number of parliament members have also stated that the 300-page report on the investigation of Mobarakeh Steel is not approved by the Parliament. (1)

The topic of corruption and rent-seeking in government companies, banks, and non-profit organizations affiliated with the government in the economy of Iran is not a new issue, and for years, various reports have been published about this issue and its background and roots. However, no changes are made to reform this practice and eradicate it.

Statistics show that seventy to eighty percent of the country’s budget belongs to companies, banks, and government-affiliated institutions. The amount of this budget for this year is around three trillion tomans, but usually there is no talk about the expenses and revenues of companies in Iran; while the majority of political and economic groups in the country are trying to gain control over government-owned and government-affiliated companies and enterprises with significant financial transactions.

According to “Daron Acemoglu”, a famous contemporary economist and author of the book “Why Nations Fail?”, if rent distribution and monopolistic privileges become institutionalized in an economy and the rules of the game are based on it, it will be impossible to move towards a phase of development. In rent-seeking societies, abnormal consumerism grows rapidly, regardless of the country’s capacity and development potential, and becomes an obstacle to economic development.

Three.‌

Face.

Iron.

A few years ago, 9 Iranian economists criticized and openly addressed the current economic model of their country in a letter to the President, Hassan Rouhani, and declared: “Through the transfer of government assets to friends and acquaintances, wealth and capital were concentrated in the hands of groups that had taken advantage of their insider privileges.” This means promoting and spreading corruption at the level of the three branches of power by creating political and economic lobbies and forming a strong alliance between bureaucrats (government), legislators (parliament), and crony economic groups. (2).

The topic of some members of parliament’s support for the embezzlement of national resources and wealth (which belong to the general public) in the form of rent and the like is not a recent phenomenon. The phenomenon of the Iron Triangle, which refers to collusion and cooperation between members of parliament, government officials, and economic stakeholders to gain benefits from specific economic sectors, has unfortunately become widespread. The issue of revolving doors, which refers to the migration and back-and-forth movement of employees from the public sector to the private sector (such as taking on important roles in government and semi-governmental institutions by members of parliament) is also of great importance in the fight against corruption. The number of members of parliament who take on high positions in the government or semi-governmental sector after the end of their term is increasing and has exceeded the usual limit.

The Islamic Consultative Assembly has become a place of bargaining and advancement for some representatives. For example, during the vote of confidence for the Minister of Oil in the twelfth government, the representatives of Izeh and Baghmalek, who were against the proposed minister, revealed that 23 representatives from previous terms of the Assembly were employed in oil and petrochemical companies after their term ended. This was met with strong opposition from the Speaker of the Assembly. The laws and administrative processes of the country do not meet the real needs and demands of the people. These laws and processes were mostly established during the pre-revolution era and are not suitable for the current situation. There is a need for serious review of working hours of employees, elimination of unnecessary procedures and bureaucratic paperwork, significant reduction of administrative and personnel expenses, and improvement of efficiency and accountability of government agencies towards the people. Experience has shown that this can be achieved through changing the mindset of managers and their determination to bring about change for the

In the appendix, three budget bills for the year 1401 have been included, which include the budgets of 376 government companies (351 profitable companies and 25 loss-making companies). An important point to note is the decrease in the number of loss-making companies from 50 in the 1400 budget law to 25 in the 1401 budget bill. This is while, according to the six-month performance report at the beginning of 1400, 203 government companies were in the red and including the budget of loss-making companies in the budget bill, which is less than the actual number, leads to lack of transparency and misrepresentation of the budgets of government companies. This is while government companies not only receive annual budgets, but also benefit from various forms of rent. It is surprising that despite such support for state-owned rent-seeking companies, a large portion of them still do not reach the profitability stage and have been facing accumulated losses and unpaid loans for years. (3).

Arrow.‌

Baran.

Rain.

Wholesale.

From.

Rent.

The main businesses and industries in the country that use various resources for rent distribution include banks, petrochemicals, steel, cement, and automotive, which benefit from a variety of rents such as raw materials, cheap energy, market monopoly, dual exchange rates, exports, taxes, capital, and political rent. (4).

One of the most important sources of rent for government and state-owned companies is the rent of raw materials, which is granted to steel and petrochemical units. These resources consist of providing raw materials at cheap prices, below global or domestic prices. Petrochemicals benefit greatly from cheap feedstock and steel companies benefit from cheap iron ore. It should be noted that the majority of the cost of downstream industries is made up of the cost of raw materials, followed by energy and investment costs. The important point is that the rent of raw materials injected into the first link (upstream) of the supply chain of petrochemical and steel products does not reach the downstream links in any way. Another important point that challenges the purpose of creating these industries is the low level and stages of processing in these industries, which shows that the goal is not to produce products based on labor and innovation, but rather to gain rent from national resources.

As an example, it has been more than half a century since we have been stuck in the stage of producing raw iron and steel, and the Iranian steel industry has not yet been successful in producing high-value added products and final consumer goods. Even if there are capabilities and capacities in this field, they are being destroyed by imposed policies and the focus is only on producing raw iron and steel. The industrial economy of Iran is still struggling in the space of industries that were established a century ago. This halt in the first step of industrialization has no reason other than the exploitation of national resources and wealth by state-owned and semi-private enterprises.

In the past forty years, the establishment of currency and energy industries such as aluminum purification, steel melting, chemical production, especially petrochemicals and cement, have been supported by government officials. The shares of these companies have been listed on the Tehran Stock Exchange and there is less news about shares of manufacturing factories such as household appliances, textiles, leather, shoes, agriculture and industry, and egg production units, etc. in this stock market. (5).

The continued prosperity of the current stock market’s major companies is seemingly dependent on the continued injection of massive energy subsidies. For example, in 2013, the Tehran Stock Exchange market experienced a sharp decline due to the parliament’s decision to increase the price of natural gas delivered to petrochemical companies from three cents to thirteen cents per cubic meter; as more than fifty percent of the distributed profits of the stock market belong to petrochemical companies, the government was forced to reduce the price of natural gas to 8.5 cents. If the “targeting of subsidies” law is fully implemented, the owners of these companies will be forced to once again align their production lines with market competition and an economy without rent by incurring significant costs. These energy subsidies have mostly kept the management of resources, trade, and industries hidden from the public eye.

Energy is injected into the energy industries in the form of natural gas, electricity, and oil fuels. The iron and steel industries account for forty-five percent, followed by the cement industry with sixteen percent, as the main consumers of energy in the country. More than fifty-five percent of electricity consumption is related to the industry, with the majority being used for iron and steel production. Iran is one of the countries with a high use of electricity in steel production. The delivered price of natural gas to the industry is significantly lower than global prices, and the price of electricity is about one-fifth to one-fifth of global prices.

According to the high growth of energy-intensive industries during the period of 2014-2000 AD, the energy consumption intensity in Iran increased by 68%. During this same period, the energy consumption intensity in the industries of the entire world and the European Union decreased by 14% and 24%, respectively. In other words, during the period of 2014-2000 AD, the energy consumption intensity in the industry of Iran increased by 83% compared to the entire world and the European Union. The export of energy-intensive industrial raw materials, which is made possible by cheap electricity subsidies, has more negative effects on the country’s economy than the export of raw materials; because the energy created through investment and waste of production from oil and gas is also used for low-profit production of raw materials such as steel, which is essentially double raw material exports.

If energy consumption in industry is in the form of fuel (natural gas), and the high waste of energy in domestically produced vehicles, the waste of household consumption due to the lack of suitable materials in the production of household materials and other factors are taken into account, the energy-intensive industries and automotive industries (rentier industries) are responsible for consuming half of the country’s energy. In a situation where rentier industries are the main cause of energy waste in Iran, media outlets affiliated with these industries have pointed the finger of blame at the people. According to information published by the Iranian Energy Efficiency Organization (SABA), in three stages of steel production, casting, direct reduction, and electric arc furnace method, 325 cubic meters of natural gas and 856 kilowatt-hours of electricity are needed. Based on calculations, the total process of the three main stages of producing one ton of direct reduced steel requires 156 cubic meters of natural gas. Now that the price of oil and consequently the price of

Therefore, for the production of one ton of steel in these factories, the value of energy consumed is one hundred dollars. In 1394, the sale of natural gas to the steel industry in the country was 320 rials per cubic meter, which at the exchange rate of 3.8 cents per dollar was equivalent to 5,000 rials. Therefore, steel production factories using the direct reduction method only pay 12.21 dollars of energy costs per hundred dollars, and the rest, which is about 118 dollars per ton, is received as “non-targeted” subsidies and contributes to the country’s steel production and economic prosperity.

The price of Iranian steel ingots in January 2016 was equal to $210 per ton. Therefore, the share of hidden energy subsidies in the steel industry for producing one ton of steel ingots in only three main processes accounts for approximately 41% of its selling price. In 2014, the production of steel by direct reduction method in Iran was 6.14 million tons. It can be said that in this year, Iranian officials generously awarded the steel industry of the country with at least $1.72 billion in hidden energy subsidies.

It is clear why government officials, parliament representatives, and interest groups are seeking to control and dominate large state and semi-state companies through multi-faceted collaborations. In addition to economic benefits, political power and gaining authority are also achievable through this interaction and collaboration. It becomes evident how resources abundant in rent are distributed among individuals and various governing organizations, and of course, under the guise of production, exports, and industrialization, rent can easily be granted and demanded.

What is presented as profitability of large companies through extravagant advertising is actually the same as the various forms of rent-seeking, which are obtained and remain unspoken. In completely transparent and competitive conditions, instead of profit and added value, heavy losses and damages will befall these industries and companies.

Reproduction.

Corruption.

And.

Continuity.

Situation.

Existing.

By opening each corruption case, we discover more of what exists in the minds and beliefs of our society. These cases reveal a list of individuals, names, government and non-governmental organizations, or private entities that ultimately come to an end with the issuance of light or heavy sentences. Although efforts are made to address the dimensions, roots, and backgrounds that lead to widespread corruption, after a few weeks, months, or even years, new cases are revealed. Whether we want it or not, with each embezzlement and corruption case that is opened in the judicial system, a significant portion of the trust in Iranian society is lost, and corruption becomes a more normal part of society.

Corruption and embezzlement of billions of dollars, which have become a common phenomenon in the country, have led to the bankruptcy of banks, financial institutions, funds, and credit institutions. The continuous expansion of loss-making businesses and the continuous outflow of financial and human capital from the country are other signs of an inefficient economy. Rooting out corruption in this economy requires a change in the country’s economic structure, the growth of the national economy, and the reduction of the government’s role in the economy. It also requires economic independence from power and politics, and maximum national oversight over the economy.

The salvation of the country’s economy from corruption is only achievable if national development becomes a national determination, the economy returns to its natural position in society, and political power is entrusted to the community. It must also rely on its national role in preserving the health of the economy, supporting the continuous increase of national wealth, ensuring national welfare, and establishing social justice. In fact, the key to combating corruption is to stop the interference of non-accountable institutions in the economy, remove government enterprises from the economy, promote transparency and accountability, and enforce the law in all government sectors in the economic sphere. On the other hand, it involves rebuilding the power of the people to monitor the performance of the economy and politics in the country through strengthening civil society, independent and free media, and powerful civil institutions.

Experience has shown that even the existence of official monitoring institutions is not enough to combat corruption. Paying attention to the constructive role of national supervision and putting an end to negative approaches towards civil institutions and independent media, as well as helping to strengthen civil society, are among the most important factors in preventing and combating corruption, as well as revitalizing the economy and restoring public trust in the effectiveness of the system. Otherwise, by leaving the issue of corruption in Iran’s economy unresolved and insisting on cleaning it up instead of addressing the root cause, we will only be waiting for a new wave of systematic corruption and rent-seeking in other forms, beyond the “Petrochemical Gate” and the yet-to-be-discovered oil rigs, both large and small embezzlements. Until this structure is reformed, we will undoubtedly continue to face the same problems. Fighting corruption requires a national determination.

Notes:

1- Blessed Corruption, Shabakeye Shargh, 22nd of Mordad 1401.

2- Open letter of Iranian economist to Rouhani and criticism of economic situation, Newz reforms, Tuesday 22 August 2018.

3- Qarakhani, Mahtab, Review of the National Budget Bill for 1401, Government Budget, Parliamentary Research Center, 28 Bahman month 1400.

4- Soltani, Ehsan, Steel and Petrochemical, Mother Industries of Foreign Companies, Shargh Newspaper, 12 Bahman Month 1396.

5- Nai, Maryam, and Agha, Mehdi, were aware of the cash payment for energy subsidies to steel production in Iran, by the Center for Strategic Studies of the Presidency, on December 7, 2016.