After the release of the financial statements of the Central Bank of Iran in September of last year, last month for the first time in Iran’s economic history, the financial statements of some government companies were placed on the Codal information dissemination system. Although Ibrahim Raisi claims that the publication of this report is to criticize the opinions of government companies and help better manage them, further investigation reveals other realities that this writing examines and emphasizes their importance.

Definitions and philosophy of existence.

According to Article 4 of the Public Accounting Law of the country, a “state-owned company” is a specific organizational unit that is established as a company with the permission of the law, or by order of a legitimate national court, or by confiscation, and is recognized as a state-owned company with more than 50% of its capital belonging to the government.

The philosophy of state-owned companies is to combat market failures. In other words, state-owned companies may be created due to economic, political, and cultural necessities, such as the weaknesses and incapabilities of the private sector. Natural monopolies, economies of scale, positive and negative externalities, risk aversion in the private sector, divisibility of investments, and similar factors justify the existence of state-owned companies in theory.

In the economy of Iran, the existence of these companies is sometimes the result of early confiscations or nationalization of some large industries. The main duty of government companies is to provide public services to the general population and, according to Article 7 of the Charter of the Audit Organization, the performance of legal auditing duties and auditing of government companies and organizations is the responsibility of the Audit Organization.

Statistical evidence.

Some economic experts believe that the finances of government companies are as important as the public budget due to their impact on the fate and economic development. This is because the weight of the budget of government companies is equivalent to two-thirds of the country’s total budget. According to the head of the auditing organization, out of a total of 330 government companies under the supervision of this organization, 200 government companies are in deficit. However, the number of government companies is more than 330 and it is estimated that there are over 500 companies, but only this number is audited by this organization.

The examination of the published financial statements of government companies on the stock exchange information system shows that a significant portion of banks and government companies are facing accumulated losses. Among government companies, Tavanir with 51.5 trillion tomans, Bank Melli with over 67 trillion tomans, Iran Air (Homa) with 9.2 trillion tomans, National Water and Wastewater Engineering Company with 12.88 trillion tomans, Iran Power Management Company with 10.48 trillion tomans, and Islamic Republic of Iran Railways with 7 trillion tomans are among the most affected government companies.

The Pars Oil and Gas Company with 1670 billion tomans in losses, the National Iranian Oil Products Distribution Company with 1000.5 billion tomans, the Fajr Jam Gas Refinery with 585 billion tomans, and the Khangiran Gas Refinery and Bid Boland Gas Refinery with 541 and 466 billion tomans respectively, are among the most financially struggling state-owned companies in the oil and gas industry (according to the table below).

Accumulated losses of state-owned companies in 1399 (1).

I’m sorry, there is no Farsi text provided. Please provide the text you would like translated.

According to the 1401 budget law, state-owned companies, banks, and affiliated institutions have been allocated 61% of the total budget for the next year and, as in previous years, have the highest share of the country’s overall budget. According to Gholamali Jafarzadeh Eimanabad, a member of the Parliament’s Planning, Budget, and Calculations Commission, the budget for state-owned companies had a gradual increase until 1395, but from 1397, the budget for state-owned companies, banks, and affiliated institutions has had a steep upward trend in performance and budget law; so that the budget for these companies was set at around 839 trillion tomans in 1397, which increased to 1025 trillion tomans.

Fifteen-fold gap.

In 2019, for the first time in the history of the Court of Accounts, due to the addition of a clause to Article 182 of the Internal Regulations of the Parliament, the Planning and Budget Organization presented the reports of state-owned companies to the Parliament one month before submitting the budget bill, so that the Court of Accounts could review them according to the law. However, the presented reports and the report of the Court of Accounts showed that the method of reviewing the budget of state-owned companies in the Parliament is still problematic. In this report, although incomplete, the total loss of state-owned companies was estimated to be 2,475 billion tomans, while according to Farshad Momeni, an economist and member of the faculty of economics at Allameh Tabatabai University, the actual loss in 2018 was equivalent to 45,000 billion tomans; meaning a 15-fold difference.

It is said that part of these damages are caused by the responsibilities that the government puts on these companies, but inefficiency, corruption, and mismanagement are also among the factors that contribute to these damages. In addition, the excessive payments to the employees of these companies have also caught the attention of the public.

Problems and challenges.

Although state-owned companies in Iran have been formed as a means of justifiable government intervention in the economy, the inefficiency of their structure and management system, the supply of goods and production services at imposed prices, the increase in the cost of production services due to the rise in general prices, the overestimation of company income in order to show profitability, and the non-commercial and governmental duties of some companies are among the reasons for the loss of state-owned companies, banks, and affiliated institutions.

Not reviewing the budgets of government companies during the annual budget review and approval process in parliament is another important and noteworthy issue that has been criticized by experts. Despite their significant share of the country’s total budget, there is no proper monitoring and evaluation of the performance of government companies, and every year a large number of them suffer losses without being held accountable. Additionally, these government companies are subject to their own establishment laws and bylaws, and monitoring them is dependent on changes to these laws.

Determining an equal share of government profits for all state-owned companies, regardless of their size, structure, and mission, is one of the most obvious inappropriate regulations in Iran, designed by lawmakers unfamiliar with the matter. This rule also adds a heavy tax burden, to the extent that the share of profits and taxes collected from state-owned companies exceeds 75% of their annual profits, leaving no room or incentives for innovation, foresight, and investment.

Buttocks.

The most feasible and effective way of economic and political development is to reform the budget system, which has been completely neglected in Iran over the past three decades. The importance of the government’s budget can be seen in the fact that it has accounted for two-thirds of the country’s total budget over the past three decades, but the focus on public budget resources has made this issue even more significant. Reports of exorbitant payments in government-owned companies have been published, highlighting the need for oversight bodies to address the issue of government-owned companies more than ever before. Therefore, it seems that more than just publishing financial statements, more important and structural actions are needed to organize these damaged government-owned companies, which is beyond the scope of this writing.

Notes:

1- Codal.ir, the information system for stock market publishers.

2- The thirteenth government inherits accumulated losses, Iran newspaper, 1st of Ordibehesht month, 1401.

3- Reasons for the loss of government companies, website of the Center for Parliamentary Research, 7 Dey 1398.