EghtesadOnline: T his is the story of Iran’s largest producer of mineral machinery, Heavy Equipment Production Company (HEPCO), who weathered two privatizations, two financial collapses and is now going through its second return to the government.
HEPCO once used to command respect, not only in Iran but also in the Middle East. It was the main supplier of armored road machinery for Iranian forces in the 1980-88 Iran-Iraq War, had one of the largest workforce of specialized engineers in post-revolution Iran and singlehandedly met the market demand.
But now its second primary shareholder in less than a decade has quit after months of worker strikes and inactivity in the factory, leaving the firm in limbo.
The path ahead is still unknown for HEPCO. Legally speaking, the company should go to the previous owner, in view of the current one’s withdrawal. But the previous owner, under whose lead HEPCO withered, seems unenthusiastic to take the helm again, and so are the government officials in charge of the share transfer, according to Financial Tribune.
Thus, HEPCO will go back to the government again, albeit temporarily, 11 years after it was privatized.
They say history repeats itself, first in the form of tragedy and then as farce. In HEPCO’s case, and for the unpaid workers involved, both times must seem like a tragedy. For any outside observer, however, this has been nothing short of a farce: having tried a proven bad formula twice.
“HEPCO is dead and now they’re planning to nationalize a corpse. Tell us, why did you privatize it in the first place?” one of the protesting workers told the Persian daily Shargh.
Prologue: HEPCO’s Inception
HEPCO was first established in the city of Arak in 1972, as a factory for the assembly and production of road construction equipment. It started with the licensed production of machinery designed by Dynapac, Poclain, Sakai and Lokomo.
In 1984, HEPCO expanded its production capacity in collaboration with Liebherr & Volvo companies, with the aim of expanding its product portfolio to steel structures of road construction equipment.
With ample excess capacity, from 1996 onward, HEPCO gradually engaged in the production of parts and components for industrial projects such as power stations, oil, gas and petrochemical complexes. HEPCO even established a subsidiary company in 2002, Energy Equipment Production Company to handle the demand.
Fast forward to 2006, and privatization was in full swing during the previous president’s tenure. HEPCO, too, was on the list.
The first buyer who emerged was an Iranian representing a European firm, eager to take over HEPCO’s lucrative operations. But he was disqualified from the process for being a dual national.
A private firm, Wagon Kowsar Company, a fledgling company established only four years before won the tender. It purchased 72.6% of HEPCO’s shares through Iran Privatization Organization. Yet the purchase was not a success story.
Act I: First Privatization
Kowsar paid 700 billion rials ($16.6 million) or 20% of the stake’s total value in cash and the rest were to be paid in installments over five years.
But “the investor did not adhere to any of its commitments and has brought production to a halt,” said Markazi governor’s deputy for economic affairs, Zafar Afshoun, early last year.
Workers’ payments were delayed for up to six months, giving rise to continued protests and strikes. And how did that happen?
“Just a year after taking over, the new owner sold more than 2.8 trillion rials ($66.6 million) of machinery produced before and in depot and then slowed down production. Manufacture had completely stopped by fiscal 2012-13, and the company was taking welding projects for towers in Tehran,” Markazi’s former governor, Mahmoud Zamani Qomi, told IRNA.
In 2011, when HEPCO’s troubles caught the media attention, workers told Hamshahri that the “slowdown” in production was due to the owner selling the production equipment, on top of turning the company into an importer of secondhand mining machinery, buying a stake in a mine in cash and ultimately, attempting to build residential complexes using the factory’s land.
However, the owner, Ali Asghar Attarian, had a different view of things.
“When we bought HEPCO, we were told we would make 120 billion rials ($2.85 million) in profit within the first year, 160 billion rials ($3.8 million) in the second, 230 billion rials ($5.4 million) in the third, 320 billion rials ($7.61 million) in the fourth and 450 billion rials ($10.7 million) in the fifth year. That did not happen,” Attarian told Tarabaran Magazine five years after the purchase.
“The economy slipped into recession as of the second year, oil prices dropped to $40 per barrel, the government’s construction budget was slashed and banks’ interest rates shot up to 22%,” he added.
Act II: Second Privatization
Following the controversy, the government retook HEPCO’s ownership in the fiscal 2011-12 and was looking for a buyer for the next six years.
And it was finally sold in the second quarter of the last fiscal year (March 21, 2017-18), right when workers’ protests reignited over delayed payments.
The new buyer was Hydro Atlas Company, a producer of road construction machinery operating under the license of Germany’s Atlas GmbH.
The deal was worth 120 billion rials ($2.85 million), but reports indicate that Hydro Atlas paid only 100 million rials ($2,380) to Iran Privatization Organization on the condition that the buyer will furnish the rest to HEPCO for reviving production, according to Iran Chamber of Commerce, Industries, Mines and Trade.
But things took the same turn as the last time: production dropped to near zero, company sank under unpaid loans taken to pay workers and strikes restarted on a much larger scale.
And government officials did not take notice until protests erupted and HEPCO’s manager attempted to resign late last year, but the privatization organization opposed it.
Enraged workers took protests beyond the factory and blocked the Iran North-South Railroad for three days on May 14, and only left after the security forces’ intervention that led to increased media attention.
The latest report by Shargh says they’re back to daily protests at the factory in Arak.
And the epilogue is rather short: The government is currently looking for another private buyer to revive the company. Whether it succeeds and charts a different course than in the past remain to be seen.