CHAPTER THREE :

Privatization and Management of the State-Owned Enterprises

ARTICLE 9- In order to enhance efficiency and to raise productivity in utilization of the country’s material and human resources, to streamline government in the area of policy making, and also in order to promote the role and scope of the private and cooperative sectors, the shares and stocks of the state-owned enterprises that are transferable and whose continued operation in the public sector seems to be unnecessary, shall be sold to the cooperative and private sectors on the basis of the regulations set forth by the law. Under equal conditions, priority shall be given to the War-veterans.

ARTICLE 10- Observation of the following points is mandatory in divestiture of the shares:

A- Divestiture shall be considered as a means of realization of the Plan objectives, and not as an end in itself.

B- Divestiture shall be undertaken in the context of the Constitution.

C- It shall not jeopardize national security or create any instability in the sovereignty of the Islamic Republic of Iran.

D- It shall not undermine the system’s sovereignty or infringe upon people’s right, or create any monopoly.

E- It shall result in a healthier and more efficient management.

F- It shall promote public participation to the widest possible extent.

ARTICLE 11- Shares belonged to the following entities are subject to the regulations of this Chapter: ministries, government agencies, state-owned enterprises stipulated in Article (4) of the State General Audit Law of 22/8/1987 (1/6/1366) as amended, profit making entities affiliated with government and other companies with more than fifty percent (50%) of their equity and/or their shares, in total or in part, owned by ministries, public entities, state-owned enterprises (except banks, credit institutions and insurance companies), other state-owned companies and profit-making entities affiliated with government whose subjection to public laws and regulations necessitates that their names be mentioned or stipulated, including National Iranian Oil Company, companies controlled by, or affiliated to the Ministry of Petroleum and their subsidiaries, Iran Industrial Development and Renovation Organization and its subsidiaries, and the Center for Procurement and Distribution of Goods; also shares owned by the above-mentioned entities in non-public enterprises and companies that are subject to special law.

Note 1- Shares owned by the entities stipulated in this Article, either possessed through donation, unchangeable conveyance or any other contract, are also subject to regulations of this Chapter.

Note 2- Any partnership, and investment by the state banks, insurance companies and credit institutions in the corporate sector shall be exempted from regulations of this Chapter.

ARTICLE 12- In order to coordinate, supervise and control the process of divestiture and to secure proper execution of the regulations of this Law, the “High Commission of Divestiture” shall be set up under the chairmanship of the Minister of Economic Affairs and Finance. Secretariat of the Commission shall be housed in the Ministry of Economic Affairs and Finance.

ARTICLE 13- The High Commission of Divestiture shall consist of the following seven members:

A- Minister of Economic Affairs and Finance (Chairman of the Commission),

B- Head of the Plan and Budget Organization,

C- Governor of the Central Bank of the Islamic Republic of Iran,

D- The relevant minister,

E- Minister of Justice,

F- Representatives of the Parliamentary Commissions of “Economic Affairs, Finance and Cooperative” and “Plan and Budget” (one representative from each) selected by the Islamic Consultative Assembly.

ARTICLE 14- Mandates and powers of the High Commission of Divestiture are as follows:

A- To confirm list of companies to be sold, dissolved or merged, submitted by the relevant ministries or Ministry of Economic Affairs and Finance , and to present it to the Cabinet for approval. The report shall include a specific time-table for each case and an explanation of the method of ceding in light of the market conditions.

B- To prepare an annual program of sales, dissolution, or merging of companies within the framework of the approbation of the Cabinet, including formulation of the necessary executive policies and strategies.

C- To monitor the divestiture process and to present semi-annual progress reports to the Speaker of the Islamic Consultative Assembly. The report shall include an analysis of the strength and weakness of the program, the process feedback and headway strategies.

D- To organize cultural and publicity activities in order to promote divestiture.

E- To propose to the Cabinet the draft of a by-law for a part payment plan in cases of necessity.

F- To exercise methods of share pricing, allowances, and to determine modes of payments by the buyers in the context of the by-law approved by the Cabinet.

G- To approve directives establishing priorities in sales of the shares of transferable companies, as proposed by the Secretariat.

H- To approve directives for preparation of the sales of shares and divestiture contracts, proposed by the Secretariat.

I- To approve criteria for collection of the proceeds of the sales or goods subject of Article (18) of this Law, proposed by the Secretariat.

J- To approve criteria for evaluation of the capacity, credit worthiness, obligations of the buyer, and the guarantee requirements in order to facilitate selection of the buyers, proposed by the Secretariat.

ARTICLE 15- Government shall set up an organization for privatization by modifying the articles of association of the Organization for Promotion of Ownership of Production Units. Shares of the companies that are appraised, and their modes of sales and the time-table determined by the High Commission of Divestiture, shall be given in trust by their holding companies to this organization to process the divestiture..

The executive by-law of this Article and revision of the articles of association of the said organization shall be proposed by the Ministry of Economic Affairs and Finance and the Plan and Budget Organization to the Cabinet for approval.

ARTICLE 16- The following criteria shall be observed in selling the shares of the companies content of this Law:

A- Shares of small companies shall be sold to entrepreneurs of high managerial caliber.

B- Shares of medium-size companies shall be sold to specialized commercial groups, cooperatives and entities, accordingly.

C- Shares of the large corporation shall be sold to the general public, while the controlling shares are preserved for the management.

Note- Employees of would-be privatized companies shall be granted privileged status in acquiring the preferred shares. All conditions being equal, priority shall be given to the War-veterans and government employees.

The executive by-law of this Article shall be proposed by the High Commission of Divestiture to the Cabinet for approval.

ARTICLE 17- Directives for preparation of contracts of ceding, management, rent, and mode of revocation of these contracts shall be approved by the High Commission of Divestiture. In preparation of the said directives, the Commission shall take the following measures:

A- To determine the extent of the buyers’ commitments toward employment, production program, new investment, special activities to protect the environment, and avoidance of certain restrictive commercial engagements, etc. .

B- To determine the manner of discounting in the share valuation by government in lieu of commitments on the part of the buyers, taking into account the by-laws of Item (F) of Article (14) of this Law.

C- To assess the impact of tax obligations in the share pricing and valuation.

D- To determine conditions for revocation of the contract by both parties.

E- To assess capacities, credit worthiness, obligations, and guarantee requirements of the buyers.

ARTICLE 18- In observation of Articles forty three (43) and forty four (44) of the Constitution, government may rent out through tender to cooperative companies and/or to the private sector, the industrial, agricultural and service companies and public properties held in its possession, against cash or kind, while retaining the ownership rights. In doing so the following conditions shall prevail:

A- On the basis of the rental contract, government shall be entitled to receive annually, certain amount in cash or kind against depreciation, renovation, maintenance, or expansion of the rented companies.

B- In the course of divestiture of state-owned enterprises or other properties specified in this Article, the party to the contract shall be charged with observing certain regulations and government policies with regard to pricing, production planning, distribution, and securing public interests.

C- Entrusting management of the state-owned enterprises to non-public sectors shall be permissible on the sole condition that the real or legal person to whom the management shall be assigned will perform the obligations and duties in person during the term of the contract. As such, the contract shall not be transferable to any other company or entity. Breach of violation of this condition will result in revocation of the divestiture agreement and conviction of the violator on the ground of unlawful possession of the government properties.

D- In the process of divestiture of the companies or other properties specified in this Article, and in screening the candidates, should the qualified employees of any of these entities set up a cooperative , this cooperative company will entertain preference over other candidates.

Note: Method of computing the compensation in cash or kind shall be determined within the framework of the criteria to be approved and promulgated by the High Commission of Divestiture.

ARTICLE 19- Revenues from sales of the companies’ shares, sales of properties, rental contracts and all other contracts content of this Chapter within the given fiscal period and after being transferred to the Treasury shall be spent as follows:

A- Fifty (50) percent for restructuring salable companies, rehabilitation and preparation of other companies for sale, as well as promoting industrial development, with preference given to paying off the salable companies’ debt. The amount shall be paid to the account of the holding companies.

B- Forty eight percent (48%) to support the country’s Treasury.

C- Two percent (2%) to support Bassij (Mobilization ) Forces.

ARTICLE 20- Dispute settlement pertaining to claims made by real or legal persons against any of the decisions on the matter of divestiture is entrusted to the Arbitration Commission. This subject shall be included in the divestiture contracts and shall be endorsed by both parties.

ARTICLE 21- The Arbitration Commission subject of Article (20) of this 1- Five experts in economics, finance, commerce, technical and legal Law is composed of the following members:

1- fields to be jointly nominated by the Ministers of Economic Affairs and Finance, Justice, and the Head of the “Plan and Budget Organization”, and to be approved by the Cabinet. The appointments shall be made for a period of six years.

2- Head of the Chamber of Cooperatives.

3- President of the Chamber of Commerce, Industries and Mines of the Islamic Republic of Iran.

The Arbitration Commission shall review the claims and disputes and make decision pertaining to the divestiture. The procedures governing meetings of the Commission and methods of decision making shall be formulated in a by-law to be approved by the Cabinet.

ARTICLE 22- A quorum of the Arbitration Commission will be reached by presence of at least five members; and decision will be made by the majority votes of the participants. (Opinion of the minorities must be recorded in a process verbal and endorsed.)

ARTICLE 23- Decisions of the Arbitration Commission shall be binding ten days after notification to the parties. Should any of the parties raise any objection, the party may put its objection in writing within the above grace period, or thereafter in case there is definite reason for delay, and submit it to the competent court. The Chief Justice shall refer the case to a special tribunal which will review the case extraordinarily and rule a judgment. The court ruling is final and binding.

ARTICLE 24-Government is required to insure at its own expense all the officials who individually or collectively are engaged in carrying out the divestiture operation, against any possible penal or financial conviction, that could be bought off and any indemnifying conviction, emanating from unintentional misconduct in connection with divestiture. The insurance coverage shall be such as to enable the insurer to compensate for whatever cost to be borne by the convicted official(s).

ARTICLE 25- Beginning with the date of sales of the shares, the holding company shall be liable for payment of any compensation in connection with losses incurred prior to the sales of shares of the nationalized or expropriated companies to the private or cooperative sector.

Note: The divested company shall remain liable for payment of any other debt.

ARTICLE 26- Shares sold according to this Law, as well as shares transferred between the executive agencies in enforcing this Law are exempted from transaction tax. Also, government or the concerned executive agency shall remain liable for payment of corporate income tax - finalized or not finalized - of the divested companies whose total (100%) shares belong to government (ministries and other public agencies) and state-owned enterprises, up to the end of the fiscal year prior to the sales

ARTICLE 27- Employees of the state-owned enterprises who are subject to the special pension funds affiliated to ministries, public agencies or the state-owned enterprises, and whose employment with the divested company will be terminated upon the sales of the shares to the private and cooperative sectors, may, upon reinstatement of their employment with the same company, continue to stay with the same pension fund , provided that they observe the regulations of the pension scheme in the payment of the insured and employer’s premiums.

Note: All laws and regulations pertaining to social insurance deductions and the authority of the Social Security Organization governing insurance charges, late payment /delinquent penalties including provisions of Article (49) and (50) of the Social Insurance Law of 1975 applicable to the above-mentioned individuals and funds shall remain in force.