My Biggest Project 1994-2002
Location – Iran
Project Value $1.8 Billion

For approximately 8 Years, I was the principal advisor to IDRO (an Iranian Industrial Conglomerate) on assisting their largest vehicle producer, Iran Khodro (IKCO), to expand its production and to create some 36,000 direct jobs in the industry. I worked closely with the IKCO President Manouchehr Gharavi, IDRO president Mr Khamooshi and the Governor of the Central Bank.

This work was started under the presidency of Akbar Hashemi Rafsanjani, but continued under President Mohammad Khatami

The basic problem that they wanted to address was that they were subservient to PSA (Peugeot/Citroen) of France for automotive technology, and they had little control over their own destiny and economic development.

I was asked to come up with an 8 year plan to help IKCO develop and the hope was that the benefits would cascade down helping others in the same industry.

In 1994 IKCO were producing 84,000 vehicles per year, most of which were Paykans (Hillman Hunter) and they were assembling Peugeot 405 from kits. PSA were controlling the price of the kits at an artificially high level which meant that IKCO were making very little margin. IKCO put me in their negotiation team against PSA and I was able to renegotiate a better deal.

In 1995 IKCO, under my direction, purchased the production facilities from a company in Taiwan for the Peugeot 405, which meant that we achieved over 50% local content in about 18 months. We were able to bring in supplier tooling and some JV partners to speed up this process.

Under my negotiations with PSA I was able to get an agreement on IPR. They agreed that any component that Iran invested in, they could use that component in future IKCO vehicles, with no royalty payments. PSA agreed this, on the basis that they thought IKCO would take 20 years to get to that point in their development.

When the Peugeot 405 facilities were purchase, IKCO, again under my direction, started the development of the Iranian National Car (Samand), which would use P405 components. In order to grow the technological understanding of vehicle development, we commissioned a new R&D centre and we used this project to train approx 1500 engineers. This engineering centre is now self supporting and is a centre of excellence for Iran

The Samand project had a target of 90% local content, so we localised all the key technologies in order to achieve this. IKCO itself had 12,000 people in 1994 which grew over the life of this project to 36,000 with another 12,000 jobs being created in privately funded suppliers and JV’s.

In order to protect the interests of foreign companies investing in Iran, I was able to get the Majlis to agree to incorporate some new laws. These laws gave investors some initial tax incentives and very importantly protected their investment in capital, through a Swiss insurance scheme, should Iran find itself in a conflict with another country. This provided a degree of comfort to allow this industrial development to commence.

During the development of the Samand project, I started to realise that the foreign currency flows into Iran were affecting our project and I got involved with the Central Bank in order to find a solution to the problem. IKCO were very wealthy at this time, but they were holding too much local currency and when they went to convert it, often they would have to wait weeks for this to happen.

We came up with a two pronged solution. Firstly we got Total and Elf of France to buy $2billion of Oil futures at a fixed price and set this up as a revolving facility. So that this worked for everyone, the money was not paid to Iran, but to PSA group for Kits for IKCO. This meant that IKCO did not need any hard currency for 2 years whilst it funded the Samand project. Secondly, IDRO owned the majority of the shares in IKCO and I came up with a plan for a new placement of shares on the Tehran Stock Exchange to assist in the funding of the project. In 1996 we raised $480M in 1 day; half of the money was in Rials and half in hard currency. At this time, there were a lot of US dollars being traded on the black market, on street corners etc, so we said that anyone applying for shares had to pay this way. The Governor of the Central Bank was very happy with the result, as it took a lot of dollars off the street and allowed the Government to better exercise exchange rate control. We had already developed a prototype of the National Car and we used this in car advertisements on TV in order to stimulate demand. We also said that the new shareholders would be first to have an option to buy the new cars.

Although the Samand Project was a major part of the 8 year plan, we also developed partnerships and JV’s with other companies for other vehicle types. We broadened the IKCO product range to include, Pick-ups, Vans, Mini-buses, Coaches, LGV’s, HGV’s and airport buses

The Samand has been a great success story for Iran. They export to around 20 countries and they have assembly operations in 6 countries. IKCO turnover for 2008 was $8.2Billion

IKCO today makes around 650,00 vehicles per year and is the largest producer in the Middle East, followed closely by Siapa Corporation (another IDRO company) at around 500,000 units.