CORRECTED: Japan to apply trade insurance to Iranian projects

Asian Economic News, March 6, 2000

TEHRAN, March 2 Kyodo

The Japanese government plans to provide trade insurance on contracts for large Iranian industrial projects granted to Japanese firms, diplomatic sources in Tehran said Thursday.

Contracts for two Iranian telecom projects, worth a total of 5.3 billion yen, were concluded last fall between Iran's state-run telecom company, the Telecommunication Company of Iran, and a partnership between NEC Corp. and Sumitomo Corp., the sources said.

The insurance scheme calls for the Japanese government to guarantee payment of a major part of the value of the contracts if the Iranian side defaults on its payments, they told Kyodo News.

The telecom coverage will mark the first time since 1992 that Japan has decided to apply trade insurance to an Iranian project valued at more than 5 billion yen, they said.

In 1992, Japan stopped providing trade-insurance coverage to any Iranian project in view of Iranian delays in repayment of its liabilities to Japanese parties.

Although the Japanese government decided late last year to apply a trade-insurance scheme to a 600 million yen traffic-signal project for Iran's state-run railway system, it was far less than the combined contractual value of the telecom projects, they said.

The railway-signal contract was landed by an alliance between NEC and trading house Marubeni Corp.

The Japan Bank for International Cooperation, a government-backed lending institution, and the Bank Markazi Jomhouri Islami Iran, the Iranian central bank, will shortly sign an agreement on the extension of official Japanese loans for the three projects, they said.

After the accord is signed, the Japanese government will formally apply trade-insurance schemes to the projects, they said.

The Japanese government believes that Iran is on the verge of stepping up efforts to expand its trade and investment ties with foreign businesses, after reform-minded legislators backing President Mohammad Khatami won a landslide victory in February's general election for the 290-seat Iranian parliament, they said.

The trade insurance will cover a 3.6 billion yen project to build advanced switching systems to bolster the capacity of the Iranian telecommunication system. A 1.7 billion yen project will expand mobile-phone ranges, they said.

The Japanese government has been reluctant to provide trade insurance to any Iranian project until recently due to its considerations for the diplomatic policies of the United States. U.S. ties with Tehran have been frozen since 1980 after U.S. diplomats stationed in Tehran were taken hostage in 1979.