Mr. Matin Janatian in an interview with Setabran Magazine
stated that the contracts of the electricity industry are lead to losses for various reasons such as overdue claims of contractors, unprecedented fluctuations in currency and fluctuation in price of raw materials, budget deficit and recession caused by the Covid-19 pandemic. Losses that harms mostly the contractor companies, he provided solutions and suggestions to get out of the current situation.
Mr. Janatian emphasized the importance of the private sector consensus to agree and find appropriate solutions and interact more efficiently with the electricity syndicate and the country’s electricity industry trustees, and emphasized on formulate brigade contracts in which more forecasts can be seen to face the changeable economic conditions of contracts.
Private sector consensus is the key to resolving the contract crisis
Electricity industry contracts have faced many fluctuations and problems for many years, but today the destructive foundation of overdue receivables, budget deficits, recessions, unprecedented fluctuations and inflammations in the prices of currency and raw materials and also Covid-19 pandemic has made the terms of the industry’s contracts more complicated than ever.
The lack of a consolidated legal structure to distribute and cover the increased risks, costs and losses that are often beyond the control and managing the construction companies and contractors is one of the most important challenges to these problems.
In fact, the lack of such a structure imposes all the accumulated costs and losses caused by the unfavorable business environment and the country’s economy on the private sector.
Meanwhile, Mr. Matin Janatian, CEO of Peymabargh Company, believes that the electricity industry relies on its significant internal capacities considerably that only if the Ministry of Energy pays back 4,000 billion Tomans from the Organization making Targeted subsidies and provides the necessary liquidity for this Industry, it is able to save itself from the effects of the crisis.
Here is the result of our written interview with the CEO of Peymabargh Company
Currently, the electricity industry is facing several challenges in its contracts.
In your opinion, what is the most important reason for these challenges and what are the solutions can be found for private sector encountering these issues?
Unstable economic conditions in Iran, exchange rate instability and rising metal prices have been challenging the implementation of electricity industry’s new contracts for many years, and since the end of last year, the Covid-19 pandemic has been another factor that has raised concerns and created new conditions.
These factors have imposed heavy costs on contractors and manufacturers in the industry, and many contracts have been suspended or terminated, but by far the most important current challenge making failure to meet the demand of the 4,000 billion dollar to be paid to the electricity industry from Targeted Subsidy Organization.
If our colleagues in the electricity industry can have a minimum management of cash flow, they will be able to use their managerial and experimental measures to reduce some of the risks arising from this challenge.
Due to the electricity’s network need to increase the existing facilities’ capacity and its maintenance, the continuation of the current trend will definitely lead to tough days for the power industry.
In my opinion, comprehensive follow-up by trade unions and government institutions to repay claims and gain new financial independence of regional electricity companies are the most basic steps in this regard.
What are the main measures that should be put on the agenda of Tavanir and the Ministry of Energy for the economic and commercial management of contracts that have been affected by exchange rate and metal fluctuations?
Making policies, providing systems and codified processes that are able to be updated with changing in unexpected conditions, is always one of the most important factors for the desired progress in all areas and the electricity industry isn’t excepted to this rule.
Over the past 10 years, we have repeatedly witnessed unforeseen actions by government agencies or exchange rate fluctuations due to harsh sanctions, for example:
The sudden increase in the price of gasoline or the ban on the import of goods and equipment since 2018 and the several times increase in the exchange rate have left the delivery of projects based on the basic principles of the contract in an aura of ambiguity.
The government has also tried to prevent the termination of contracts using private sector activists’ ideas, but in my opinion, delays in assigning tasks have led to the disruption of projects and imposed double head costs on companies.
It should be mentioned projects in the electricity industry with frequent pauses will certainly end uneconomically.
In your opinion, how will the formulation and implementation of the brigade contract prevent the recurrence of problems in the electricity industry’s contracts?
What factors should be forecasted in an ideal brigade contract to include the interest of the employer and contractor?
If the brigade contracts are prepared by examining the conditions of the parties, it will definitely have a positive effect on increasing the level of security for the parties, in the timely and appropriate implementation of projects.
The issues that arise during the execution of contracts are not the only issues of the contractor and the employer must accompany the contractor in all stages of the project after concluding the contract to remove obstacles.
These days, after concluding the contract, the employer does not consider himself responsible for the problems created, and therefore, the main losses are on the contractors, and this causes the bankruptcy and reduction of the capacity of these companies, and when it happens, it completes the projects to the extent of national self-sufficiency.
Unfortunately, despite the long-term follow-up to the previously obtained results, no action has been taken by the Ministry of Energy to announce these contracts, and with every economic fluctuation or conditions of economic war in the international extent, we will continue to see the resources’ wasting, losses and the forfeiture of private sector interests.
The point is that in any case, due to the special and complex conditions of economic war, by concluding this type of contract and reducing the risks of the parties, a win-win contract should be achieved.
In addition to the problems the electricity industry has faced in the past, the Covid-19 pandemic has exacerbated these problems today, with the private sector believing that force conditions have prevailed over contracts.
How can the costs of covid-19 pandemic be managed in contracts?
This goes back to the same flexible system that can respond to unexpected issues, such a mechanism would be smarter when facing the factors like covid-19 pandemic.
As I mentioned before, the prevalence of pandemics is an example of the current special and complex conditions that can suspend projects in the limbo of uncertainty.
In my opinion, the lessons learned from the conditions caused by the corona virus should be studied by experts and be included in the framework of the contracts of the construction industry in the coming days until it subsides or the future outbreaks of this type of disease.
How do you assess the role of the union in resolving the issue of contracts?
The union can have an ideal interaction with the Ministry of Energy by creating a consensus and taking advantage of the companies’ collective potential. In order to overcome the current situation, all the pillars of the electricity industry need to be determined and available.
The active part of private sector in electrical industry could protect the integrity and dynamism of the electricity industry at the front line of the economic war with the successive sanctions.
In my opinion, the union should create a consensus among the members in order to draw all the aspects of the challenges facing the member companies for the directors and legislators of the electricity industry.