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Hepco in Three Acts: The Disaster of Privatization in Iran

May 29, 2018
Ali Ranjipour
15 min read
Hepco workers donned in symbolic burial shrouds demand that the company be returned to the control of the government. The protesters wear the shrouds to convey the seriousness of the situation
Hepco workers donned in symbolic burial shrouds demand that the company be returned to the control of the government. The protesters wear the shrouds to convey the seriousness of the situation
Hepco workers began protesting in 2015, and the protests continue today
Hepco workers began protesting in 2015, and the protests continue today


The Heavy Equipment Production Company (Hepco) is a symbol of Iran’s dashed hopes for industrial development. Crippled by corruption, mismanagement, and a worsening economic situation, the company — as well as the hardship its employees have endured — represents a failure of epic proportions. On May 22, news emerged that Hepco would once again be put under governmental control.

The company was founded on February 10, 1973, exactly six years before the 1979 Islamic Revolution. The Industrial Development & Renovation Organization of Iran (IDRO) and the four Rezai brothers, members of one of the richest and most powerful families in Iran under the Pahlavi regime, owned the shares in almost equal measures.

Hepco was in fact a “consolation prize” for the big Sarcheshmeh copper mine Mahmoud Rezai was forced to turn over to the government in 1970 by the orders of Shah Mohammad Reza Pahlavi. The Rezai brothers were not happy with the arrangement, and Mahmoud Rezai wrote a letter to the Shah, protesting that his rights had been violated [Persian link]. The letter angered the Shah because he had expected that the brothers would be grateful for the deal. He sent a message back, threatening that if Rezai refused to accept his decision, he would “nationalize the copper industry like the oil industry.”

Following this threat, Mahmoud Rezai stopped complaining  and the situation calmed down. In February 1971, the Shah nationalized Sarcheshmeh copper mine and Rezai was not chosen as its CEO or to chair the board of directors. Rezai, who was heartbroken and despondent, appealed to the Minister of the Royal Court, Asadollah Alam, but he was told: “It is His Majesty’s command.” Rezai then asked to meet the Shah in person but the Shah rejected his request. The court ruled that, as compensation, he would be able to invest in cement factories — very popular at the time — or in the production of heavy machinery.

But Hepco never compensated the Rezai family for the loss of its copper complex. The company began operations in early 1975, and began setting up a sprawling complex in Arak, south of Tehran, in collaboration with its licensors, which included the American company International Harvester. But the revolution put a stop to the project, and it was left half-finished. The properties owned by the Rezai family, estimated to be worth around $120 million at the time, were confiscated as a whole, and the family was forced to escape into exile. Hepco became a totally state-owned company, and it was then up to the new Islamic Republic state to run the biggest heavy equipment production company in the Middle East.

Hepco After the Revolution

With the passage of the Law to Protect and Develop Industries in May 1979 [Persian link], Hepco was officially nationalized and was placed under the control of the Ministry of Industries and Mines. In the years between 1979 and 2008, the government invested around $4.1 billion in expanding heavy industries, including Hepco. By 1992, the expansion of Hepco was complete and the company, with a capacity of producing 3,000 heavy construction machinery units per year, started production.

At the time, Mohammad Hadi Nejad Hosseinian was the Minister of Industries for President Akbar Hashemi Rafsanjani’s administration and Abolhassan Khamoushi, a former acting Minister of Energy, was in charge of IDRO. In the years to come, figures including Akbar Torkan, the current CEO of Iran's Construction Engineering Organization and a senior advisor to President Rouhani, played a deciding role in turning Hepco into a publicly-traded company and in its eventual privatization.

The government continued to run Hepco, despite the fact that it was not agile enough to do so smoothly. Although questions about Hepco's productivity and profitability remained, workers were paid on time and production was relatively uninterrupted.

The Vicious Circle of Privatization

However, the push for privatization, a popular option for many in the mid-2000s, had a destructive impact on Hepco, upending what had been a stable — if not altogether ideal — outfit. 

On May 22, 2005, Supreme Leader Ayatollah Khamenei issued the order for privatization, entitled “General Policies of Article 44 of the Constitution,” which aimed to accelerate “national economic growth, the promotion of ownership among the general public with the intention of dispensing social justice, increasing the efficiency of economic establishments, boosting competition in national economy, raising the share of private and cooperative sectors in national economy, reducing the government's financial commitment and control with regard to economic activities, raising the level of employment in society, encouraging the public to make savings and investments and improving the standards of living.”

However, in the 12 years since that order was issued, not only have none of the stated aims been achieved, but Hepco and other privatized entities have gone into a tailspin and largely, and in many cases disastrously, failed. 

For all practical purposes, privatization in Iran turned into a costly vicious circle. Big companies were transferred to the private sector only to fail, and they were then returned to the government. The cost was borne by the workers, who did not receive their wages, and by the public coffers. Privatization neither led to positive developments in the economy and the industry, nor did it benefit the private sector. In fact, the Supreme Leader’s order only benefited a specific group.

Many of the privatizations that took place were seen as shady and dishonest. Besides military institutions such as the Revolutionary Guards and revolutionary foundations grabbing a significant portion of the privatized landscape for themselves, those in the “private sector” who did benefit from the move were often accused of corrupt and sweetheart deals and having close links with the country’s most powerful elite. The names of many of these influential people appeared on the list of directors for privatized companies.

In addition to the unstable political and economic situation over the last 12 years, the pathology of privatization in Iran has also been characterized by corruption, coupled with the people involved in these processes lacking experience and often acting hastily. Furthermore, the intervention of powerful political and military institutions has also hampered progress. Together, these factors have turned privatization in the Islamic Republic into a failed experiment.



In 2001, officials turned Hepco into a publicly-traded company. Two years later, almost 40 percent of its shares were auctioned off at the Tehran Stock Exchange [Persian link], but the government still controlled the company and the Ministry of Industries’ IDRO owned more than 60 percent of its shares. Then, in March 2007, state shares were transferred to the “private sector" [Persian link] and, with 60.7 percent of the shares, Kowsar Wagon Company took control of Hepco.

A couple of months earlier, Ali Asghar Attarian, Kowsar’s CEO, had deposited 15 billion tomans, or over $3.5 million, into the Privatization Organization’s bank account, and then raised funds to pay the rest of the money. Attarian was determined to beat his resolute and well-financed rivals, including Astan Quds Razavi, reputed to be the biggest religious endowment in the world, estimated to be worth $15 billion. Attarian was in a strong position. He had Bijan Namdar Zangeneh on his side, an influential politician and Minister of Petroleum under both presidents Mohammad Khatami and, later, Hassan Rouhani. As his first act after taking over Hepco, Attarian placed Zangeneh on the company’s board of directors.


Who Is Ali Asghar Attarian?

Ali Asghar Attarian was born in the city of Isfahan in 1952. He controls not only Hepco and Kowsar Wagon Company but also Kaveh Safe Box, Mobarez Manufacturing and Research Company and Silica Sand MFG. His résumé [Persian link] states that he started his career after the revolution by working for Construction Jihad. At least at the beginning, the organization was a voluntary effort to provide services and facilities to rural areas, including building roads and irrigation canals, electrification, and setting up clinics and schools. During the 1980s Iran-Iraq War, the organization also held a combat engineering responsibility.

Early on after Attarian joined Construction Jihad, he was shot twice by armed assailants when he was in the province of Sistan and Baluchistan. It was never clear what he was doing in the province and who the assailants were. After recovering from his wounds and while the war was still going on, he began his industrial activities by inventing equipment to protect against chemical contamination and special armor for loaders and graders. In 1988 he founded Mobarez Manufacturing and Research Company.

At first Attarian was very hopeful that Hepco would be successful and it appeared to be so at the beginning. The first year after he took over, Hepco broke its own record by manufacturing 2,145 machines. But it did not last long, and his calculations proved wrong [Persian link]. “When Hepco was acquired,” he says, “the prospectus provided by the Privatization Organization envisioned that in the following five years Hepco would make a total profit of 175 billion tomans [around $42 million]...but it did not happen that way.”

The decline started in 2008. The factory had a capacity for manufacturing 3,000 pieces of machinery per year, but the total number manufactured in that year was 1,400. For the next two years, it somehow managed to manufacture 1,000 machines per year. But after 2011 the number fell to less than 500 and, eventually, in 2006, the factory in Arak turned out no more than 140 pieces of heavy machinery. In summary, during the 10 years while Attarian was at the helm of Hepco, production fell by a factor of 13. The number of employees and workers also fell by around 450 between 2011 and 2016 — from 1,577 to 1,135. (The numbers are quoted from the Board of Directors’ annual reports for 2012 and 2016, published by Iran’s Securities and Exchange Organization [Persian link].)

Sanctions and Crisis

The first signs of crisis at Hepco appeared in 2011. With the imposition of nuclear sanctions on Iran, manufacturing enterprises such as Hepco found themselves in a tight spot. Half of the parts Hepco used were imported from Europe and its operation was disrupted by the virtual halt in related trade between Iran and the European Union.

At the same time, the unstable and brittle economic situation in Iran in the years 1390 and 1391 (March 2011-March 2013), disrupted numerous businesses. The jump in interest rates on one hand and the recession in production on the other wreaked havoc on Iranian manufacturers. Factory owners’ capital was reduced to their existing inventory and to pay for daily expenses, such as paying their workers’ salaries. They were forced to take out loans with exuberant interest rates of over 20 percent — without any hope that their manufacturing units would produce any income.

As a result, in the late 2000s and early 2010s, most Iranian factory owners resorted to speculation over financial and real estate deals. During the sanctions, the real estate market was the only window of opportunity for investment, and for making a profit at a rate higher than interest rates. Hepco directors got into the act as well. In 2014, they saved the company from bankruptcy by selling 10 hectares of the land they owned.

But the real estate boom in Iran did not last. The market was saturated and, with the onset of a long recession in the market, even the infusion of capital from outside the company could not provide the minimum amount of cash necessary to pay wages and keep production going. So from 2015 on, a labor crisis set in at Hepco. It began with the workers’ fear of downsizing and losing their jobs. Then they were squeezed by delays in payment of wages and benefits and the accumulation of unpaid salaries. The livelihood of workers and their families was tied to a factory that was on the verge of bankruptcy and annihilation.

Signs of the Crisis

The 2011 countdown to Hepco’s crisis started when the Privatization Organization announced it planned to sell the company again because Kowsar Wagon had failed to pay installments it owed. A combination of miscalculations by Attarian and his colleagues, the heightened effects of sanctions and the turbulent Iranian economy engulfed Hepco in a crisis just five years after it started production.

Attarian’s own account of the crisis is worth attention. “Within five years, our total profit reached to around 25 billion tomans [close to $6 million], whereas during the same period we had to pay more than 140 billion tomans [over $33 million] in interest,” he told the Iranian Journal for Transport Economics [Persian link]. “The sanctions broke our back, but instead of supporting us the government rubbed salt in our wounds. Instead of lowering interest rates, the government fined us for delay in payments. The banks told us to pay back the debt in whole to get a reduction in fines...And our debt does not consist of only bounced checks. We have 2,000 workers and a debt of 300 billion tomans [over $71 million]. In the current year we lost three billion tomans [close to $713,000]. We could have turned it into profit of 10 billion tomans [close to $2.4 million] if we had fired a number of workers. But we did not do that...We had 80 pipe-laying machines worth $700,000 each, and it was reported that the Asaluyeh Project [part of the big South Pars Gas Field Development Project] needed 400 pipe-laying machines. The Gas Company ordered the 80 units and we delivered it but up to now they have not had even one customer and it is Hepco that is paying interest on them.”

In the end, Kowsar Wagon paid one installment of the debt to the Privatization Organization, and Hepco was not resold. But perhaps the reason that Hepco was not sold was that nobody wanted a company whose share price had fallen from 560 tomans to 100 tomans. And, as time went by, more signs of the crisis emerged — from a public protest in early 2014 by Ghorban-Ali Dorri-Najafabadi, the current head of the Supreme Administrative Court who was then Arak’s Friday Prayers Leader, to protest rallies by Hepco’s workers that began in September 2015 and continued [Persian links]. As recently as May 22, 2018, Hepco workers blocked a major railway in protest against working conditions.

Over a six month period in 2014, Hepco suffered a loss of 194 billion tomans, or more than $46 million, meaning that more than half of its capital was lost [Persian link]. According to Article 141 of the Commercial Code of the Islamic Republic, in “the case of the loss of a minimum of half the company's capital, the board of directors is bound to call an extraordinary general meeting immediately." Its task was to decide whether the company should be liquidated and dissolved, or whether some other solution could be found. But thanks to more than $33 million from the sale of 10 hectares of land, Hepco was pulled back from the precipice.

Nevertheless, since 2011, Hepco has been engulfed by a total crisis, and the most tangible cost of this crisis has been paid by shareholders and workers. The crisis, however, did not make a dent in Attarian’s other businesses. When Kowsar Wagon Company signed a sweetheart deal to sell 400 wagons, some media outlets published humorous pieces about it and reminded their readers of Hepco’s fate under his stewardship [Persian link].



Acts 1 and 2 of this tale are tragedies, but the third act is a veritable tragicomedy.

The 10-year period during which Attarian was at the helm of Hepco was a total disaster. When he and Kowsar Wagon left Hepco, the company was left with 233 billion tomans, a little over $55 million, worth of capital and an accumulated loss of 366 billion tomans, close to $70 million.

The Privatization Organization sent Hepco back to the auction block at the stock exchange on May 22, 2017. The 61 percent of shares that had belonged to Attarian and Kowsar Wagon Company was offered for 216 billion tomans, or around $52 million [Persian link].

The winner was Hydro Atlas, a company with extensive experience in the field. It started in 1975, around the same time as Hepco, as a licensee of the German company Atlas GmbH and was the first company in the Middle East to manufacture cranes and backhoe loaders. This record raised hopes for the future of Hepco. 

In early 2018, the family of Asadollah Ahmadpour, the CEO of Hydro Atlas, officially took over Hepco. It planned to use its knowledge and experience in the heavy machinery business to pull Hepco out of the crisis, especially since it had been promised lucrative contracts [Persian link].

But things were worse than they had imagined. After a short while it became clear that Hepco was in a deeper financial hole than the seller — ie the Privatization Organization — had led the family to believe.

Iranian government officials believed that the problem with Hepco and similar companies rested with their management and that the problem would be solved by selling them to somebody else [Persian link]. But after a few short months it became clear that even selling to an experienced company was not the solution. Hydro Atlas did not last at Hepco more than a few months; it returned Hepco to the Privatization Organization after paying one month of unpaid salaries to its workers. The situation was so bad that nobody objected, and no official from the government or the Privatization Organization uttered an unkind word about Hydro Atlas.

The government had no choice but to go back 10 years, and again take the responsibility of running a company that by that time had much bigger problems and was less productive — even though, under current conditions, the Iranian government can hardly afford yet another money-losing enterprise.

On May 22, following on from a meeting to discuss the future of Hepco, economic affairs official Saeed Farrokhi announced that Hepco had been returned to the Privatization Organization and that it would be taking over the management of the bankrupt company [Persian link] — unless a new buyer emerged, prompting the vicious circle to begin again .

It was not so long ago that Hepco was regarded as a positive symbol of an industrialized Iran. But a toxic mix of corruption, negligence, mismanagement and political and economic crises spurred on by sanctions and a malfunctioning banking system has turned the company into an icon of bankruptcy, crisis, unemployment and debt.


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