Country Analysis for Project Opportunity - Iran

Country Overview

Population: 78 Million (2014 estimate)

Area: 1,648,195 km2

Electrification Rate: 98%

Population Without Electricity: 1.2 Million

GDP (Nominal): USD 400 Billion (2014 estimate)

GDP Growth Average: 2.8% last 5 years CAGR

Inflation: 16.2% in 2014

International Reserves: ~120 Billion

Unemployment Rate: ~10% in 2014

Ease of Doing Business: Ranked 132 out of 189

Export Value: ~US$ 95 Billion (2014) 80% Petroleum products

Import Value: ~US$ 65 Billion (2014)

Budget: US$ 300 Billion (2015)

Budget Deficit: 0.7% of GDP

Public Debt:L 11% of GDP (2014

Per Capita Consumption: 1962 kWh in 2012

Peak generation in 2015 stood at 86,000 MW

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Risk Overview
Risk Period
Feb - 2014

Sovereign
risk

Currency
risk

Banking
sector risk

Political
risk

Economic
structure risk

Country
risk

CCC

CCC

CC

CC

CC

Source: The Economist Intelligence Unit credit rating agency

Sovereign Risk

Iran's CCC sovereign risk rating reflects the government's weak fiscal position resulting from the difficulty in
exporting crude oil, owing to international sanctions. This is expected to reduce with the recent interim
agreement with P5 +1 countries

Currency Risk

The central bank devalued the official rate to around IR 29,500:US$1 in July in the face of restrictive
international sanctions.

Nevertheless, the currency risk rating has improved to CCC from CC in the previous assessment (2013)

Banking sector Risk

Iran's banking sector remains cut off from international financial flows, meaning that cross border payments
will be difficult.

Local business will suffer as a result of the poor economy, which in turn will impair the asset quality of the
banking system

Oil & Gas Sector (1/2)

Iran has the world's second largest reserves after

Russia

According to the Iran Petroleum Ministry, the

proved natural gas reserves of Iran are about 1,046
trillion cubic feet (29.6 trillion cubic metres) or
about 15.8% of world's total reserves

Iran produced as much as 550 mcm of gas a day

during 2014 and has plans to double the production
to 1 bcm a day by 2017

Currently Iran exports about 10 bcm/a of natural gas to Turkey, imports 7.5 bcm/a from Turkmenistan,
barters about 350 mcm/a with Armenian power and swaps the same level with Azerbaijan. Therefore,
Irans gas trade balance stands at 2.5 bcm/a.

Apart from above, Iran has two gas trade deals with Iraq, one agreement with Pakistan and one
memorandum of understanding with Oman that adds up to a total of 120 mcm/d of natural gas exported to
these countries.

Iran is also evaluating other markets like Kuwait, UAE, Saudi Arabia and Europe.

Oil & Gas Sector (2/2)

Sanctions imposed by the United States and the

European Union (EU) at the end of 2011 and during the
summer of 2012, respectively, led to the displacement of
more than 1.0 million barrels per day (b/d) of Iranian
crude oil on the global market.

In 2011, prior to sanctions, Iran exported 2.6 million

b/d, most of which went to Asia

Particularly China (550,000 b/d), India (320,000 b/d),

Japan (315,000 b/d), and South Korea (250,000 b/d).

By 2013, Iran's crude oil and condensate exports

dropped to just below 1.3 million b/d, with the main
importers being China, India, Japan, South Korea, Turkey,
UAE, and Syria.

Could Iran set up cost efficient

LNG facility?

The state-owned National Iranian Oil Company had started working on an LNG plant, but its
work was halted due to international sanctions.

The possibility of Iran setting up cost effective LNG production looks bleak as of now.

Iran could become a large gas exporter by the end of this decade at the earliest.

Developing LNG capabilities is more costly and would probably take longer, and the market is
not expecting Iran to export large volumes of LNG before mid-2020s

Although Iran has one of the highest global natural gas reserves, it contributes merely 1 percent
to the total global natural gas trade with almost 90 percent of its natural gas exports going to
Turkey, while the remainder goes to Armenia and Azerbaijan.

Iran is at a strategic location where it can benefit from the growing natural gas demand from
Asian countries like India, China and Pakistan.

It is therefore planning a number of gas pipelines once the sanctions are lifted.

Power Market Overview

Iran has one of the largest power industries in

Southwestern Asia, accounting for around 17% of MENA
power generation, and the 19th biggest in the world

Total installed capacity is ~72,000 MW as on June15

With Natural Gas as the primary fuel for 67% of the total
installed capacity, the electricity generation is dominated
the thermal energy sources by 92%

The balance of the generation i.e. 8% is though different

sources including Nuclear and renewable

Power sector

2015

2014

Y/Y Var.

Gas consumption (bcm)

43.47

36

34%

Diesel consumption (billion liters)

7.627

12.1

-24%

Fuel oil consumption (billion liters)

15.2

-33%

56.856

54.879

3.6%

Actual power generation (GW)

Import & Export Market

Export Volume in mn kWh

Import Volume in mn kWh

8000

3500

7000

3000

6000

2500

5000

2000

4000

1500

3000
2000

1000

1000

500

0
2006 2007 2008 2009 2010 2011 2012 2013 2014

2006 2007 2008 2009 2010 2011 2012 2013 2014

Iran has electrical connection to some of its neighboring countries. Total annual import and export in
year 2014 were 3 GWh and more than 7 GWh respectively.

Almost 75% of the total export were to Iraq, while others includes Turkey, Pakistan, Afghanistan etc. In
addition, during March 2015, Iran signed an agreement with Pakistan to export 1,000MW of electricity.

Under import market, electricity is imported from Azerbaijan, Armenia, Turkmenistan etc.

Power Sector Reforms

Until 2004 the Iranian electricity market was governed by TAVANIR Co., a state-owned
monopoly that controlled all generation, transmission, supply, and distribution.

In 2005, the government began privatization of Irans major industries (except oil and gas) with a
targeted 20 percent privatization per annum.

BOT (build, operate, transfer) and BOO (build, operate, own) power plants were opened for bid
and successful bidders were guaranteed power through Power Purchase Agreements.

Current Market Structure

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FDI & Recent Development in

Power Sector

Recently, Germany has invested $445 million in construction of the Pareh-Sar combined cycle
power plant in northern Iran

UAE has invested $720 million in construction of a gas power plant as well as a combined cycle
power plant in Isfahan and Shiraz.

Iran and Russia has also signed an agreement regarding the construction of eight thermal power
plants in Iran, with a total installed capacity of 2,800 Megawatts (MW). The investment per MW
will be $3.57 million ($10 billion in total).

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Summary

Iran has one of the largest power industries in Southwestern Asia, accounting for around 17% of
MENA power generation

Nonetheless, ample room for investment remains, as the sector has suffered heavily under
sanctions.

Further, the sector has maintained strong domestic technical competence despite the lack of
technology from outside.

Paired with cheap local feedstock in the form of natural gas, the country thus has a substantial
competitive advantage among its neighbors, positioning it as a growing exporter.

There has been a huge interest among international investors, particularly from China, Germany,
Japan, and South Korea, looking to upgrade the domestic infrastructure of more than 400 power
plants and almost 40 electricity distribution companies

The Government of Iran is also planning to add more than 5 GW of generation capacity
annually to reach a cumulative output of 122 GW by 2022

Thus, we see significant potential for growth in the sector, particularly if a nuclear deal with
P5+1 countries is reached.

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Political

Main Office Holder

The Supreme Leader of Iran, functions as the country's head of state.

The president functions as the head of the government. The President is the highest popularly elected official in Iran, although
the President answers to the Supreme Leader.

The government has 7 vice-presidents, all responsible for specific sectors. Below these, the government consists of 22 ministers.

The National Assembly (Islamic Consultative Assembly) has 270 members, of which about one-third are elected from singlemember constituencies.

Office

: Supreme Leader

Office

: President

Office

: Spker of Parlimt

Office

: Chief Justice

Name

: Ali Khamenei

Name

: Hassan Rouhani

Name

: Ali Larijani

Name

: Sadeq Larijani

Since

: 04-Jun-89

Since

: 03-Aug-13

Since

: 02-May-08

Since

: 30-Jun-09

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Thank You