A $170 million apparent embezzlement case has left one of Iran’s natural gas producers in serious trouble and might reduce production at the onset of winter.
The issue of possible fraud or some sort of corruption is not straightforward as one might expect in a typical Western company. There are Iranian nuances in the case that makes it a bit different.
Mehr Petrochemicals produces the highest-grade polyethylene in the Middle East but it stands at the verge of bankruptcy, according to Eghtesad Online (Economy Online) a recognized website in Iran reporting on economic issue.
The firm belongs to Persian Gulf Holding, a large Iranian quasi-governmental company that claims to be an independent entity, with 15 subsidiaries.
Mehr Petrochemicals, as an Iranian company is supposed to repatriate its foreign currency earnings according to law, as it exports products and receives government dollars at preferential rates when it for importing equipment or chemicals. The problem is that it has failed to bring back $170 million to the country and apparently the money has simply vanished.
The Iranian Inspector General’s office has issued a report saying that Mehr owes close to $100 million locally and its export revenues are missing.
The danger in the company going bankrupt and shutting down is loss of gas output in the South Pars fields in the Persian Gulf, Iranian media say. Mehr plays a role in gas production because it needs it for producing petrochemicals.
A partial view of Mehr Petrochemical Co. plant
In the middle of the scandal stands a mysterious and unnamed foreign investor, reportedly a firm registered in Italy. The story goes back seventeen years, when Mehr Petrochemicals was established with a 60-percent foreign stake by a Japanese-Thai consortium, with some management rights over the company.
In 2018, in the wake of renewed economic sanctions by the United States, the foreign investor decided to divest of its stake in the company. It offered to sell its share to the Persian Gulf Holding for a certain price, which has not been disclosed. Iran appointed a commission to assess the value of the asset and it came back with a very low estimate that the foreign stakeholder refused.
At this point, the mysterious Italian company entered the picture and offered enough money to the Japanese-Thai consortium to buy their shares.
The whole affair of not buying the consortium’s shares and then agreeing to an Italian company, that according to Iranian media had no track record in the petrochemicals business, to buy 60 percent of Mehr is all shrouded in mystery and lack of transparency. This is common in Iran’s sprawling public and quasi-public sector that controls 80 percent of the economy.
Political and economic interests and spheres of influence are often so closely intertwined that it is impossible for the media and even members of parliament to demand and receive transparency.
The so-called Italian investor could well be a group of well-connected government and military officials who simply offered a very low price to the original foreign investor who bulked, and then set up a front company abroad and bought the 60-percent share themselves.
With Iran short of natural gas, local media warn of a worse situation this winter if Mehr Petrochemicals stops operations. There is already ongoing labor strikes and protests as many other petrochemical and oil outfits linked to the government delay salaries.