Improving Transport Project Appraisals
In the Islamic Countries
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transport infrastructure projects, cost-benefit analysis (CBA) is the methodology most
frequently adopted.
A more specific legal basis for project appraisal, complementing the general PBO obligation,
concerns PPP projects in particular and is contained in the 2015 By-Law on Implementing the
1987 Act for Civil Construction Projects in Roads and Transportation Sector through the
Participation of Banks and other Financial and Monetary Sources of Iran, commonly known as
“PPP Act ”. Art. 5 in the 2015 By-Law, specifying the general PBO obligation to carry out an
appraisal, provides a list of all studies and assessments that projects financed through PPP must
provide in order to be approved by the MRUD (e.g. Feasibility studies, Environmental studies,
Financial plan50). In addition, the 2002 Foreign Investment Promotion and Protection Act, or
FIPPA51 , includes executive provisions52 which specifically apply to foreign investors. For
example, in case of investment projects proposed by foreign investors, the appraisal phase
includes a screening by OIETAI (the Organisation for Investment, Economic and Technical
Assistance of Iran53 ) concerning mainly the investor’s characteristics, the investment method,
its time schedule and the conditions for transferring profits.
Finally, rules on transport project appraisal can be found in internal regulating instructions of
MRUD-affiliated organisations (e.g. RAI, PMO), which for practical needs have developed own
appraisal practices and rules (depending on the type of project) specifying the general PBO
requirement to carry out project appraisal.
Scope of application
In Iran, appraisal is performed on individual projects. The same general obligation to carry out
an appraisal applies to all transport projects. De facto , the requirement to carry out an appraisal
is considered less binding in the case of smaller projects54. The decision whether or not to
perform an appraisal on small-scale projects resides with the MRUD and its affiliated
organisations. It may be noted, however, that projects under the MRUD’s responsibility are
mainly mega-projects, on which appraisals are systematically performed.
50 See Section “Content” – Paragraph “Items” for the full list.
51 FIPPA covers two categories of foreign investments: a) Foreign Direct Investments (FDI); b) Foreign Investments within
the framework of “Civil Participation”, “Buy-Back” and “Build-Operate-Transfer” (BOT) schemes. Ratified in 2002, FIPPA
is the law designed to mitigate foreign investment risks in Iran. Also, the act provides a range of incentives for the
investors and the projects that employ foreign funds. Being a government guarantee, the investors must apply to the
government organization to receive an investment permit. This license is known as the FIPPA license or the foreign
investment permit. The license is the highest guarantee that Iran provides to foreign investors. The Minister of Economic
Affairs signs the license for every single approved case. Obtaining the permit is not mandatory for making any
investments in Iran. However, foreign investors need to get the FIPPA license to benefit from FIPPA’s coverage and
incentives. The FIPPA license does act as a sovereign guarantee if the project’s off-taker is Iran’s government or one of its
affiliate organizations.
52 They contain regulations on issues such as: investment methods; importation, valuation and registration of foreign
capital; repatriation of capital and capital gains.
53 OIETAI, which operates under the supervision of the Ministry of Economic Affairs & Finance, is the main authority in
charge of promoting and protecting foreign investment in Iran. In particular, the Foreign Investment Services Centre,
established within OIETAI, facilitates all issues related to the admission of foreign direct investments.
54 The distinction between large-scale projects (“mega-projects”) and small-scale ones is made by the MRUD on case-by-
case basis.