“Financing Production and Infrastructure” Law

– Recently, on May 1, 2024, this law was promulgated by the President to the Judiciary, the Ministry of Economic Affairs and Finance, the Ministry of Industry, Mine and Trade, the Plan and Budget Organization, and the Central Bank of the Islamic Republic of Iran. 

– In this law, “supply and transmission of energy” is defined as part of infrastructure projects. Therefore, the oil and gas industry can also benefit from the facilities and innovative mechanisms introduced by this law. 

– It is evident that financing by any supplying entity is contingent upon the provision of collateral by the requesting institution or body. 

– The law has sought, in order to expand and promote financing models, to broaden the scope of acceptable collateral and has enumerated numerous examples. More importantly, it does not consider possession (meaning physical receipt or taking hold) as a condition for the validity of collateral contracts, which greatly facilitates access for financing applicants. 

Article 7 of this law addresses the types of collateral: 

“All assets and properties, whether tangible or intangible, usufruct or financial rights, movable or immovable, material or immaterial—such as urban or rural residential or commercial units, urban or rural agricultural lands, production machinery and equipment, precious metals, securities, deposits and rial deposit certificates within the framework of resolutions of the Supreme Board of the Central Bank, deposits and foreign currency deposit certificates, disposable proceeds from shares, disposable proceeds from contracts or implementation of production and infrastructure projects, objects, non-government-owned heritage and historical works and buildings, end-of-service rewards and employee claim reserves, salaries and continuous benefits received, contractual claims, trademarks (brands), intellectual property, durable goods, liability insurance policies, administrative permits, cash subsidies, and inventory (raw materials or products) of production units—within the framework of the executive bylaw to be approved by the Cabinet upon the Council’s proposal within a maximum of three months from the date of entry into force of this law—are eligible for collateralization.” 

It should be noted that these examples are exhaustive and apply only to the items explicitly listed in the article. 

– Another innovation of this law is the “Anonymous Investment Package”, defined for the purpose of foreign financing. This is a package of permits prepared by the relevant executive body, after conducting the necessary inquiries with all related agencies and obtaining their approvals, for one or more specified economic activities. It is ready to be transferred to the investor without requiring the investor to obtain any further permits. Moreover, it must be uploaded free of charge in the “National Investment Information System” in two widely used international languages.

What may be of particular importance to the audience of this channel are the facilities that specifically apply to the oil and gas industry. 

Articles 32, 33, and 34 refer to the role of the oil sector: 

– Article 32 states: 

The Ministry of Petroleum is obliged to participate in financing executive projects (approved by the Economic Council) that result in savings in fuel or energy consumption. The extent of participation is calculated and recorded either as the government’s non-repayable contribution or as compensation for energy savings. 

  – This raises questions: Why does the law remain silent regarding the executive bylaw for this article? 

  – Another question is how the Ministry of Petroleum, which already relies on banks, financial institutions, major holdings, and even the petrochemical industry to finance its own projects in the National Iranian Oil Company and National Iranian Gas Company, is expected to provide non-repayable participation in financing these projects. 

  – A further question is why the legislator has not assigned a role to Energy Saving Companies (ESCOs). In other countries, ESCOs have had successful experiences: after implementing fuel-saving and efficiency projects, they collect their claims from real or legal employers based on the reduction in fuel consumption compared to pre-optimization levels, with payments made by the government. 

– Article 33 provides: 

In order to complete the oil and gas value chain, the Ministry of Petroleum is authorized, taking into account the share of the National Development Fund, through relevant state-owned companies, to engage in joint investment with the non-governmental sector in refineries and petro-refineries. This may be done using the companies’ internal resources, foreign financing, or by delivering crude oil at the prevailing export price to contractors for the production of petrochemical feedstock and fuel, within the framework of the annual budget and up to the ceiling determined by the Council. 

  – This provision can facilitate diversification in crude oil sales methods, completion of the value chain, and prevention of crude oil exports. 

– Article 34 addresses the barter of oil with infrastructure contractors. These contractors may be engaged in projects such as roads, railways, or the supply and renewal of fleets including bus services, taxi services, high-speed or diesel trains, and urban and suburban rail systems, as well as land development. They may also provide raw materials, machinery, capital goods, or other essential commodities for the country. Oil is delivered at the prevailing export price of the National Iranian Oil Company, and after the barter transaction, accounts between the company and the Treasury are settled. 

  – More importantly, Note 3 of Article 34 authorizes the government to provide fifteen percent (15%) of its share as an advance payment and to guarantee repayment of the principal and interest of funds secured from foreign correspondent banks and international development banks and financial institutions, either in cash (foreign currency) or through oil barter. 

  – This authorization can accelerate project implementation by enabling faster disbursement of advance payments.

🔺 The other important changes after law is that there is no longer any need for a law license in order to represent a company in any lawsuit, defense, or pursuit of related judicial claims! 🔺 

This is the essence of Clause “P” of Article 20 of the law. 

– In many cases involving corporate disputes, although the company’s legal team is thoroughly familiar with the contract and even technical and financial colleagues are aware of details that are highly valuable, nevertheless the company had no choice but to rely on the presence of an attorney in court proceedings. 

– Of course, the continuous presence of an attorney in a company’s legal department is always beneficial. However, many companies cannot afford to pay appropriate salaries and therefore, when necessary, they resort to external attorneys who are not permanently present in the company. Informing such attorneys of the non-legal aspects and project details is often very time-consuming. 

– Clause “P” of Article 20 of the Financing Production and Infrastructure Law provides: 

“The provisions of Article 15 of the Law on the Leap in Knowledge-Based Production, enacted on May 1, 2022, shall also apply to all private legal entities such as enterprises, or members of their boards of directors and managing directors, in matters related to the same institution, company, or enterprise.” 

– Previously, Article 15 of the Law on the Leap in Knowledge-Based Production had stated: 

“Knowledge-based companies and institutions, or their board members and managing directors, in matters related to the same company or institution, may, in addition to using licensed attorneys to initiate any lawsuit, defense, or pursuit of related claims, and in the cases specified in Article 35 of the Civil Procedure Code of the General and Revolutionary Courts (enacted April 9, 2000), appoint their own employees as legal representatives, provided they meet one of the following conditions: 

1. Possession of a bachelor’s degree or higher in law.
2. Two years of judicial, attorney, or legal advisory experience, provided they have not previously been barred from practicing as a judge or attorney.

Note – Submission of a letter of introduction for legal representation to judicial authorities is mandatory.” 

– Following the recent Law on Facilitating the Issuance of Business Licenses, the legal market for attorneys had already been significantly restricted. In the author’s view, Clause “P” of Article 20 of the Financing Production and Infrastructure Law dealt a final blow to the already weakened legal market. Of course, these remarks are general in nature, and undoubtedly, in every field there are distinguished and competent professionals whose work lies o