EghtesadOnline: French carmakers, PSA Group and Renault, through talks with their Iranian counterparts and local and foreign authorities, are deliberating over ways to remain in Iran’s market in spite of looming US sanctions.
Ongoing negotiations held between Iranian officials and Renault and PSA Group on how the two Paris-based companies can proceed with their financial pursuits in Iran will conclude in the coming days, according to Deputy Industries Minister Mansour Moazemi.
US President Donald Trump reneged on the 2015 Iran nuclear deal back in May, pressuring international firms to ditch operations in the country.
Moazemi, who is also the head of the Industrial Development and Renovation Organization, visited parliament last week to discuss the fate of the aforementioned deals with members of the Majlis Industries and Mines Commission, according to Financial Tribune.
According to him, the French carmakers are keen to stay in Iran and carry out their agreements with their local partners; however, due to restrictions imposed by the US government, they are exploring approaches that will allow them to overcome the obstacles thrown in their way by Americans.
Moazemi continued, “The two car manufacturers are committed to remaining in the country, but the truth is that the US is looking for ways to harm Iran’s interests.”
The senior official advised patience on the part of Iran until Renault and PSA Group conclude talks with international authorities.
He further said, “The French carmakers have asked Iranian partners to give them time to somehow work around the issue.”
While Moazemi only provided the media with the overall picture, another deputy with the Ministry of Industries, Mohsen Salehinia, went into more details to explain the circumstances.
According to Salehinia, the foreign car manufacturers are coming up with “packages” to continue activities in Iran in some capacity.
He has told Mehr News Agency that he has held meetings with the French partners after the US exit from the Iran deal, officially known as the Joint Comprehensive Plan of Action.
“During past weeks, we have held one meeting with Renault officials, and one with the PSA Group, both of which revolved around creating [favorable] conditions that would allow the companies to preserve their joint venture deals,” he explained.
He noted that the two companies have invested time and money in Iran, making it hard for them to withdraw from the country’s market and lose the enthusiastic customers.
While the carmakers are persistent to stay, US sanctions can spell legal trouble for the international firms with vulnerable assets all over the world.
Through deals signed with local carmakers Iran Khodro and SAIPA, PSA Group had committed to invest €700 million in the country.
Salehinia said, “In accordance with the contracts, PSA Group has already transferred part of the funds to Iran. The funds to some extent have been used for setting up production lines, employing and training labor force and importing auto parts into the country.”
Costs and Benefits
He further noted that in case PSA decides to terminate its contracts with IKCO and SAIPA, the French firm will be obligated to pay penalties. According to him, clauses have been included in the contracts which determine the penalties. He did not elaborate further.
Salehinia is of the opinion that, “PSA will analyze the costs and benefits of abandoning the contract and weigh their options.”
He added that considering the US underhand move, “one thing is certain, the company will suffer losses whether it stays in Iran or leaves.”
According to Salehinia, the Industries Ministry and the PSA Group will come to a conclusion in the coming days.
He reassured the public that Iran’s auto industry was functional long before these joint ventures with foreign partners were formed, and although the US pullout can impact the partnerships, it will not and cannot shut down the key automotive sector.
Safeguards in Place
Salehinia said the companies were to bring their whole investment into the country gradually in two years, but he is now doubtful if the companies can follow through with the two-year plan.
The deputy minister said they have taken certain precautions to guarantee Iran will not be standing on the losing side if the firms do not fulfill their commitments.
“There are many companies across the globe, which are out of US’s sphere of influence. Those companies have various shareholders with different lines of thought and not necessarily always see eye to eye with Americans.”
Salehinia maintained that since the two French automotive giants cooperate with many financial institutions across the world, their decisions can be swayed against Iran.
Mentioning several auto parts such as airbags and anti-lock braking systems which are only manufactured by a handful of factories in the world, Salehinia said they are maximizing their stocks and finding alternatives to auto part suppliers.
The seasoned executive concluded his remarks by comparing the circumstances to the years 2011 and 2012, when previous US sanctions had reached their peak.
According to him, “the sanctions this time around will not impact Iran as much as they did last time.”
Salehinia believes that the country would face certain issues in regard to the production of some new models if they could not find alternatives to certain auto parts, but when it comes to local vehicles, the government is fully supportive of the production and will not allow the sanctions harm the industry.
What’s at Stake
Group PSA’s Peugeot and Citroen brands and their arch-rival Renault signed joint ventures with Iranian companies after the historic nuclear deal was reached between Iran and six major powers in July 2015.
Peugeot and Citroen signed two separate joint venture deals with the two leading Iranian car companies, Iran Khodro and SAIPA.
IKCO and Peugeot signed a €400-million deal in June 2016. Through the 50-50 joint venture known as Iran Khodro Automobiles Peugeot (IKAP), three models, namely Peugeot 208, 2008 and 301 were to be produced in Iran.
SAIPA and PSA’s brand Citroen signed a 50-50 joint venture in late 2016 under which the Paris-based carmaker had undertaken to invest more than €300 million ($352 million) in Iran during the next five years. Two Citroen models namely C3 and C4 were to be mass-produced in the country.
Renault signed a €660-million trilateral production deal with Industrial Development and Renovation Organization of Iran and a local private company Negin Khodro in August 2017. Three Renault models, namely Kwid, Duster and Symbol, were to be manufactured in Iran under the deal.