Privatization has been on the Iranian government’s agenda ever since the early 1990s, but it has suffered as a result of politicized approaches under different governments. News has emerged that the new administration will slow down the privatization pace, which may be a positive step if it returns the campaign to its original goals.

The main objectives of Iran’s privatization program which were defined in various five-year development plans included a restructuring of the Iranian economy, especially reducing the government’s role and promoting the private sector’s role in economic activity; generating revenue for the government and reducing the financial burden of state companies on the country’s budget; and increasing productivity levels in large enterprises.

Initially, one major obstacle was the strict interpretation of Article 44 of the Iranian Constitution, which calls for all major industries to be owned and dominated by the government. However, a reinterpretation of that article in the mid-2000s, with an eventual decree signed by Supreme Leader Ayatollah Ali Khamenei in 2006, paved the way for the government to withdraw from most sector activities. In fact, this reinterpretation allowed private sector participation not just in light industries, but in all major industries including downstream oil and gas and large mines (excluding upstream oil and gas). The original idea was that the government would keep a 20% share block in all privatized companies, but would sell 80% of the shares to nongovernmental entities.

However, former President Mahmoud Ahmadinejad twisted the program based on his populist agenda by introducing so-called “justice shares,” that is, shares of public entities that were transferred to vulnerable social classes. Consequently, the government ended up controlling two significant share blocks in any privatized company, that is, 20% based on the actual privatization law and another 20% as the caretaker of “justice shares.” In other words, two out of five board seats were controlled by the government — a fact that compelled the private sector to stay away from such companies.