Iran Newsletter Issue 1 June/July 2016 We Are Pleased to Present You Our First Issue of Iran Newsletter. in This Issue, We Cover

Iran Newsletter Issue 1 June/July 2016 We are pleased to present you our first issue of Iran Newsletter. In this issue, we cover developments in the energy and resources sector, banking and finance, sanctions, hospitality and tourism, aviation and automotive. We also offer some general updates on Iran’s FDI rules and regulations.

1. ENERGY AND RESOURCES 1.1 In a move eagerly anticipated by foreign oil and gas companies looking to enter the Iranian market, on 24 June 2016 the Iranian government made a provisional announcement of the names of the local companies that are able to partner with international energy companies. The list includes Petroiran Development Company, Petropars Company, MAPNA Group, Dana Energy Company, Industrial Projects Management of Iran, Persia Oil and Gas Development Company, Khatam-al Anbiya Construction Headquarters and Industrial Projects Management of Iran. The list is not yet finalised as other companies can be added by the Ministry of Oil. 1.2 Iran’s Oil Minister has indicted that the Ministry is in the process of finalising the new Iran Petroleum Contract which is likely to be launched this summer. 1.3 Iran’s oil sector witnessed a number of changes in its leadership roles in the last few weeks. On 28 June 2016, the Oil Minister announced the replacement of the current managing director of the National Iranian Oil Co (the “ NIOC ”), Rokneddin Javadi, with Ali Kardor who previously held the role of deputy head of investment and financing at the NIOC. 1.4 A further reshuffle saw Majid Hedayatzadeh returning as managing director of Naftiran Intertrade Company, a Swiss-based trading company which is part of NIOC. The Oil Ministry also replaced Abdul Hossein Bayat with Farnaz Alavi on the board of directors for the National Petrochemical Company. 1.5 According to the Minister of Oil’s report to the Parliament, Iran’s oil production now exceeds 3.8m barrels per day (an increase of 46% from 2013 to 2015). This is set to increase further over the coming months. Iran has also signed a new agreement for NIOC to deliver 1m barrels of crude oil to Repsol (a Spanish oil company) in July 2016.

2. BANKING AND FINANCE 2.1 The Financial Action Task Force (the “ FATF ”), an international group that monitors money laundering worldwide, has kept Iran in its list of high risk countries but has called for a one year suspension of certain restrictions on Iran’s banking sector. This decision Further information, including a list of our offices, can be found at www.cms-cmck.com

was prompted by the Iranian government’s high level political effort to address the deficiencies in Iran’s anti-money laundering and anti-terror financing regulations. However, in its statement the FATF noted that if Iran fails to make further progress in reforming its financial sector within the given period, the FATF will seek to reinstate the restrictions. 2.2 The deputy governor of the Central Bank of Iran, Akbar Komijani, has stated that due to the increased interest of international banks in Iranian market, the rating agency Fitch visited Iran in June 2016 and made an initial assessment of Iran’s economy and the financial and banking sector. Fitch has not indicated if or when it will issue a rating for Iran. 2.3 The Japanese government has opened a US$10bn credit line for Iran to assist in financing projects and exports to Iran. This credit line was discussed earlier this year during the visit to Japan by Iran’s Minister of Economy and Finance. 2.4 In June 2016, Iranian banks reached a consensus to lower interest rates from 18% to 15% on one year deposits. This action was taken independently of Iran’s Money and Credit Council, which has not yet reduced the 18% ceiling on interest rates. This reduction will likely result in more money being deposited into other sectors of Iran’s economy, including the stock exchange and industry. Furthermore, the Statistical Centre of Iran announced that for the first time in 25 years the rate of inflation in Iran has fallen to single digits (9.5%). This represents a dramatic fall in inflation, given that Iran’s inflation rate was as high as 40% only few years ago. 2.5 The Iranian government has announced plans to set up an offshore bank on the island of Kish in July. Kish is one of Iran’s seven Free Trade Zones and the new bank is intended to facilitate trade and foreign investments and process international payments. Kish Island is currently the most advanced Free Trade Zone in Iran and likely to become a financial hub for Iran. It currently has a 15 year tax holiday for all activities within the Free Trade Zone. CMS Cameron McKenna LLP has prepared a Guide on Iran’s Free Trade Zones. Please contact us if you would like to receive a copy.

3. SANCTIONS 3.1 On 8 June 2016, the US Treasury department updated the Treasury document ‘Frequently Asked Questions Relating to the Lifting of Certain US Sanctions under the Joint Comprehensive Plan of Action on Implementation Day’. This document clarifies the effect of the lifting of certain sanctions in February 2016 and highlights those sanctions that remain in place. Furthermore, the US Office of Foreign Assets Control (the “ OFAC ”) has begun to hire additional staff to cope with the increasing number of inquiries from businesses hoping to enter the Iranian market.

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3.2 The European Union Transport Commissioner announced on 16 June 2016 that, following a technical assessment in May 2016, most of Iran Air’s (Iran’s flag carrier airline) aircraft will now be allowed to re-enter European airspace.

4. HOSPITALITY AND TOURISM 4.1 Oman’s National Ferries Company has announced the commencement of a six month trial of ferry services from the Port of Khasab in Oman to Bandar Abbas and Qeshm Island in Iran. The services are due to commence on 23 July 2016 and are expected to attract greater tourists to Iran from the Gulf region. 4.2 Iran Cultural Heritage, Handcrafts and Tourism Organization (the “ ICHTO ”) has indicated that a planning law for the tourism sector has been drafted and will be sent to Parliament for approval. The ICHTO’s plan sets out short, medium and long term goals to meet the needs and demands of the tourism sector. In addition the Deputy Governor for the province of East Azerbaijan has indicated that one of the major problems facing the tourism sector is a lack of coordination for registering, renovating and investing in various tourist sites in different provinces. The Deputy Governor has stated that this would impact the overall growth of the sector in Iran.

5. FOREIGN DIRECT INVESTMENT 5.1 Iran has attracted a far larger amount of foreign direct investment (“ FDI ”) since January 2016 than in previous years. Data from fDi Markets, a Financial Times service that monitors cross-border greenfield investment, indicates that in the first quarter of 2016 Iran received nearly US$3.5bn of capex investment in 22 FDI projects. This equates to 11.11% of the Middle Eastern FDI market. These investments have made Iran the third most attractive FDI destination in the Middle East in 2016. This year’s FDI has been led by Korean and German companies, which together have invested US$2.15bn in various sectors in Iran. 5.2 The Deputy Minister of Industry, Mines and Trade, Valiollah Afkhami, has stated that Iran will need US$8bn of investment to reach its target of 8% economic growth. The Deputy Minister further stated that in order to attract the required investment, greater economic cooperation between the public and private sectors is needed and the current investment climate must be reformed. 5.3 The Eurasia Economic Union’s (the “ EEU ”) Trade Minister, Veronica Nikishina, has announced that Iran and the EEU are working towards establishing a free trade zone in a bid to improve economic co-operation. This free trade zone will operate between Russia and Iran and is intended to be in place by the second half of 2017.

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5.4 Iran’s risk classification (for the Participants to the Arrangement on Officially Supported Export Credits) has been reduced from grade 7 to 6 by the Organization for Economic Cooperation and Development. This improved ranking has been expected since the lifting of sanctions in February 2016. Prior to the imposition of sanctions in 2007, Iran held a rating grade of 4. This classification is a reflection of country’s risk, which includes the risk that a government will impose capital controls and the risk of force majeure (such as war, revolution or natural disasters).

6. AVIATION 6.1 Boeing announced that it had signed a memorandum of understanding with Iran Air for the purchase of commercial passenger planes. The head of Iran’s civil aviation authority, Ali Abedzadeh, reported that the agreement was for 100 Boeing 737 and 777 planes. The deal could be worth around US$25bn. The planes are going to be financed through lease purchase agreements. It has been stated that Iran will be paying 15% of the cost of each plane on delivery and the remaining 85% will be repaid through ticket sales. According to reports, Boeing is currently working with the US regulators to obtain the necessary approvals from the US government. Iran Air reportedly needs to purchase 400 to 500 aircraft over the next 10 years in order to modernise its fleet. A deal to purchase 118 planes from Airbus was signed in January 2016. Under US law, the OFAC should provide the appropriate approvals for these deals, but it now faces new political restrictions imposed on it by two measures passed by the US House of Representatives on 8 July 2016. As at the date of this publication, the measures have not yet been passed by the US Senate.

7. AUTOMOTIVE 7.1 Iran Khodro and France’s PSA Group (the owner of the Peugeot and Citroen brands) signed a US$450m joint venture agreement to manufacture new cars in Iran and to promote research and development between the two companies. PSA Group announced that it intends to assemble three car lines in Iran (the Peugeot 208, the 2008 sport utility vehicle and 301 compact), with many of the parts being manufactured in Iran. Many of these cars are intended for the Iranian market, however up to 30% will be exported to other countries in the Middle East. This could make the PSA Group the first car manufacturer to return to Iran since sanctions were lifted in February 2016.

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DISCLAIMER:

This Newsletter is intended to be a useful reference point for our clients and contacts with an interest in Iran. The primary purpose will be to keep our readership updated on some of the current legal and economic issues in Iran. Special legal advice should be taken before acting on any of the topics covered as some sanctions do remain in force.

Further information, including a list of our offices, can be found at www.cms-cmck.com