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IdentifierCreatedClassificationOrigin
09RPODUBAI494 2009-11-17 08:10:00 SECRET Iran RPO Dubai
Cable title:  

IRAN: IRGC CONSTRUCTION UNIT WINS ANOTHER BIG TENDER

Tags:   ECON IR PGOV PREL 
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PP RUEHBC RUEHDE RUEHKUK RUEHTRO
DE RUEHDIR #0494/01 3210810
ZNY SSSSS ZZH
P 170810Z NOV 09
FM RPO DUBAI
TO RUEHC/SECSTATE WASHDC PRIORITY 0626
INFO RUEHAD/AMEMBASSY ABU DHABI PRIORITY 0475
RUEAIIA/CIA WASHDC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUEIDN/DNI WASHINGTON DC
RUCNIRA/IRAN COLLECTIVE
RHEHAAA/NSC WASHINGTON DC
RUEKJCS/SECDEF WASHINGTON DC
RHMFISS/USCENTCOM TELECOM CENTER MACDILL AFB FL
RUEHDIR/RPO DUBAI 0627
					  S E C R E T SECTION 01 OF 02 RPO DUBAI 000494 

SIPDIS

E.O. 12958: DECL: 11/17/2019
TAGS: ECON IR PGOV PREL
SUBJECT: IRAN: IRGC CONSTRUCTION UNIT WINS ANOTHER BIG TENDER

REF: A. A. RPO DUBAI 394

B. B. RPO DUBAI 409

DUBAI 00000494 001.2 OF 002


CLASSIFIED BY: Alan Eyre, Director, Iran Regional Presence
Office, DoS.
REASON: 1.4 (b), (d), (e)


1. (C) SUMMARY: On November 11 the IRGC's Khatamolanbia
Construction Company (Gharargah Sazandegi Khatam-ol Anbia -
GHORB), won a USD 2.5 billion tender to build a railway network
in southeastern Iran, beating out six other bidders, five of
which included foreign partners. This award follows recent
acquisitions by the IRGC in Iran's telecommunication and banking
industries, and further demonstrates the IRGC's growing economic
strength and the diversification of its business interests. In
many sectors, IRGC-affiliated companies are increasingly
becoming the de facto lead on all government contracts, though
given the large number of contracts and the breadth of expertise
required to service them, IRGC companies often subsequently
sub-contract out tenders after winning them. As a result,
collecting commissions for many projects it ultimately
re-tenders is becoming a fundamental part of the IRGC business
model. Similarly, the IRGC is evolving into the investor of
first choice in the government's ongoing 'divestment' of
state-owned enterprises (ref A). END SUMMARY.



IRGC RAILROADS ITS WAY IN





2. (SBU) On November 11, Roads and Transportation Minister
Hamid Behbahani announced that the IRGC's contracting
subsidiary, Khatamolanbia Construction Company (Gharargah
Sazandegi Khatam-ol Anbia - GHORB), had won a USD 2.5 billion
contract to build a rail network in the Chabahar Free Zone in
Sistan va Baluchestan province in southeastern Iran. The
project will be completed in three phases and aims to have an
annual capacity of 20 million tons of freight. According to
state media, other bidders included the Ports and Maritime
Organization of Iran, a Japanese-Iranian consortium, a
Chinese-Iranian consortium, and three foreign companies. GHORB
previously won a contract to develop the Chahabar port as well
as a major road project in the province, both high-priority
development items for the government.





3. (C) Behbahani pre-empted questions about why IRGC won by
focusing some of his remarks on national security, a reason
cited in the past when non-IRGC bidders have been disqualified.
In making his announcement, Behbahani said the free zone and
Iran's coasts, in general, had been neglected for too long.
Developing the coast line through such infrastructure projects
was critical for "national security" and to fight against
"exploitative countries" who want "to prevent Iranian
development," he argued.





4. (C) This IRGC rail tender win reflects a growing and more
obvious political bias in favor of IRGC in the awarding of
government contracts. In previous bids, domestic,
private-sector bidders complained that IRGC subsidiaries held an
unfair advantage based on unfettered access to lines of credit
through government banks. In this case, domestic private-sector
bidders teamed up with foreign companies with access to capital
and rail expertise in an attempt to compete. As a result,
Middle East Economic Digest reported October 23 that the
Chabahar project looked likely to go for USD 2 billion to a
consortium which included a Chinese rail engineering firm as
well as Chinese financing. Ultimately though, the government
chose the GHORB at a USD 500 million premium with a total cost
of USD 2.5 billion.





5. (C) IRPO business contacts have complained about the IRGC's
encroachment in other projects. The Iranian owners of a large
road construction company doing work throughout the country told
IRPO that "the IRGC seems to be winning every tender since
Ahmadinejad (was elected President)." The businessman also said
that because of the IRGC's lock on construction projects, he had
stopping bidding on government tenders directly.



THE IRGC EVOLVING BUSINESS MODEL


DUBAI 00000494 002.2 OF 002






6. (C) With its influence over the business tender
decision-making process largely incontestable, the IRGC is now
positioning itself as a required bureaucratic pass-through for
all government works. Unable to keep up with all the work it is
being awarded, it is subcontracting to its former competitors,
which helps quiet discontent. The contact who quit bidding on
government work said that instead of complaining publically
about the unfair process, he now bids on re-tenders offered by
IRGC subsidiaries. Accordingly, more often than not, terms are
dictated to him and the "profit margin is 40 to 50 percent less
than bidding on the project directly," he claimed.





7. (C) This new process is not limited to IRGC wins for large
engineering and construction contracts. The IRGC is outsourcing
a myriad of other work, some of it intended for small companies
and consultants. An Iranian business professor told EconOff
recently that IRGC representatives contacted her through her
students to complete a "small strategy consulting job, creating
a quality-of-life and salary survey for re-located executives
working at an oil refinery in a small city," which she refused.





8. (C) COMMENT: The IRGC's latest win of the Chabahar rail
tender consolidates their control of almost all government works
in this high-priority development zone. More importantly, it
demonstrates the IRGC's multi-faceted domination of the economy.
In essence, the IRGC is buttering both sides of the bread, i.e.
using its access to easy government financing to win big public
contracts while also generating revenue and new no-bid business
from its growing stable of 'privatized' assets (refs A and B).
The Chabahar win has, so far, generated no public outcry even
though competition for the bid was strong, signaling perhaps
that a good part of the work will be sub-contracted to
competitors. Outsourcing in this fashion also means detecting
IRGC-backing on projects and certain assets is bound to become
more difficult. END COMMENT
EYREA