Iran Struggles to Rebuild Economy : Mideast: Refinery at Abadan is a symbol of resurgence, but even when completely rebuilt, its technology will be dated.

“This was the biggest refinery in the world,” boasted Farzad Obaici, general manager of the Abadan complex, a fireplug of a man wearing a blue engineer’s coat and a silver safety helmet.

He stood in a circle of visiting journalists, amid the ruins.

War with Iraq shut down Iran’s Abadan refinery nine years ago, turning its 120 miles of piping into coils of twisted spaghetti and leaving its stacks and storage tanks perforated and squashed.

Among the refinery workers alone, Iraqi air raids and artillery fire claimed 500 casualties, Obaici said. He pointed out that Iraqi soldiers remain just 300 yards away, across the Shatt al Arab waterway to the Persian Gulf, the cease-fire line in this sector.

But the Iranian engineer wanted to talk about successes, not the losses of the war that ended in a ragged truce in August, 1988. His story was one of recovery and rebuilding, the economic theme of President Hashemi Rafsanjani’s new government.

The president’s score card on the economy will be the test of his regime. Iranians of all stations are watching for signs of improvement after the long war years of suffering and sacrifice. Rafsanjani is moving cautiously, picking his way through the political mine field that marks the Iranian revolution.

When the fighting stopped at Abadan, the technicians returned to the wrecked refinery. They were joined by laborers from the adjoining city, where the yellow mud-brick homes and shops sustained terrible damage in the war, particularly in the years when Iraqi troops crossed the waterway and surrounded both Abadan and its giant petroleum complex.

In less than five months, the workers got some refinery units up and running. Outside experts, Obaici said, figured the job would take nearly two years. Abadan resumed operations in March and is now producing 130,000 barrels of petroleum products a day. If the government approves the money for reconstructing more units, Obaici said, the output could be raised to 380,000 barrels a day by 1991.

Old Technology

But what the Iranians call the miracle of reconstruction at Abadan has merely reproduced portions of a complex with 10-year-old technology, according to many foreign petroleum officials.

A well-informed Iranian businessman in Tehran, the capital, insisted that reconstruction of a related petrochemical plant at Abadan is probably wasted effort.

“This plant was built for exports to the (Persian) Gulf states at a time when they had no petrochemical capacity,” he explained. “During the war, they built their own. That market is gone.”

For President Rafsanjani, the economic course lies between the xenophobic, go-it-alone political radicals and the pragmatic business community, which kept its counsel and its currency during the fervor of the Islamic revolution and the war. Unofficial estimates in Tehran put inactive private business reserves at $15 billion, considerably more than the current annual oil income.

“If the government does nothing but reinvest its oil income,” said the businessman, noting the fall in the world price, “it will take them 10 years just to get back to where they were in 1980.”

The key to development, and a better shake for the Iranian working classes, is foreign investment, according to businessmen and diplomats interviewed in the capital. Rafsanjani also agrees with this view.

Pre-revolutionary foreign investment was a casualty of war and politics. Then, just as the Europeans and other foreigners began returning to Tehran early this year, the late Ayatollah Ruhollah Khomeini issued his Islamic death sentence against author Salman Rushdie, and the barriers went up again.

High Hopes

Now Rafsanjani has come to power “riding the economic file,” in the words of one diplomat. Many Iranians, he said, have high expectations of economic reform.

In the president’s Oct. 23 press conference with foreign journalists, televised in its entirety that night, he used the forum to send signals to an eager country.

Foreign investment will be welcome, he said. “Serious” guarantees will be provided. Iranian merchants, the Middle Eastern traders known here as bazaaris , will be given access to hard currencies for imports under a three-tiered system, with those providing basic necessities--food, pharmaceuticals, certain raw materials--getting the most favorable exchange rate.

“That whole press conference . . . was designed for the domestic viewer,” the businessman said. “Rafsanjani wanted to present an image of reasonableness, to appear as though he was working on the economic problems and would liberalize the system, including the opening to the West.”

Many citizens of Tehran were impressed. “He seemed to us as if he wants change,” said an upper-class woman, outbound for London, at Tehran’s Mehrabad Airport. Added a banker: “I have no doubt he’s the right man at this time. I think he’ll make it.”

But the privileged classes are not in charge of the Iranian revolution, whose leadership has fallen to Islamic clerics such as Khomeini and Rafsanjani. The mullahs hold power and are ideologically answerable to the lower classes, the oppressed in revolutionary terminology. No one is starving in Iran, according to Tehran-based foreigners, but many are just scraping by. Inflation is officially estimated at 25%, but it is obviously higher. Underemployment is widespread.

The 55-year-old Rafsanjani, who built his political machine as the longtime Speaker of the Iranian Parliament, has to put more food on the table if stability is going to come to the government of Iran.

“The economy is the No. 1 domestic issue here,” the diplomat remarked, “and for the man in (impoverished) South Tehran and the villages, there is no other.”

For now, the president has his more radical opposition--which wants to keep the economy in the hands of a centralized government--at bay, although he has to look at every move to avoid appearing revisionist.

“There are still some radicals inside; they hold a majority in the Parliament,” said the diplomat. He pointed out that political debate is open and lively in Iran, a sharp change from the ironclad, one-man rule of President Saddam Hussein in neighboring Iraq.

“And after all, Rafsanjani is a mullah. He’s part of the system,” the diplomat said. Such a system is based on Islamic principles, not economic engineering, he added. As Khomeini was said to have remarked, the revolution is not about the price of melons.

Nevertheless, the disappearance from the public scene for several weeks of former Interior Minister Ali Akbar Mohtashemi, who strongly opposes both Rafsanjani and foreign investment, raised widespread rumors that he had been placed under house arrest. The hard-line cleric, dropped from Rafsanjani’s new government, recently reappeared and said he had been on a trip to Lebanon.

There are, however, signs of change. One Tehran scorekeeper noted that the Cabinet of former Prime Minister Hussein Moussavi, another radical, logged a total of 24 years in jail under the pre-revolutionary monarchy of Shah Mohammed Reza Pahlavi and six years of U.S. education. Rafsanjani’s Cabinet was put at six years in jail and eight years of schooling at American universities.

Rafsanjani, however, told his press conference that there would be no role for American business in the reconstruction. Two days later, Oil Minister Gholamreza Aghazadeh said no U.S. participation would be invited in the Iranian oil industry and that no Iranian oil would knowingly be shipped to the United States.

Aghazadeh husbands Iran’s virtually sole source of the hard currency needed to buy essential imports, and he’s bullish. The government, Aghazadeh told reporters, anticipates $70 billion in oil revenue during the new five-year economic plan, or an average of $14 billion annually.

“But the economy even now needs $13.5 billion a year just to tick over,” said an outside analyst, noting that Iran’s skyrocketing birthrate will increase that need as the years pass.

Rafsanjani is counting on domestic investment from the bazaaris and their “sleeping billions” to bridge the gap, to spur sufficient government revenue to bring development to the countryside. “In terms of the revolution, just a water pipe into a village is a big benefit,” the analyst said.

Meanwhile, the military will be demanding a share to replace the weapons and equipment lost in the war. Overall war damage to indus try has been estimated at $100 billion to $150 billion, and Rafsanjani admits that factories are running at 30% capacity, largely for lack of raw materials and spare parts.

The current annual oil revenue is estimated by outside sources at no more than $11 billion. Supporting his optimism, Oil Minister Aghazadeh made the surprising prediction that within two years increased world demand will permit the Organization of Petroleum Exporting Countries, the oil cartel, to do away altogether with production ceilings imposed to sustain the world price.

Tourism is envisaged as another source of non-oil income, potentially adding to the less than 10% of hard-currency revenue brought in by such exports as carpets, pistachio nuts and caviar. But a tryout tour with Japanese, the most indomitable of tourists, was a failure, according to another Tehran businessman. The Japanese have not booked another group into Iran.

The Japanese also went sour on petroleum investment here, buying their way out of a joint-venture petrochemical plant at Bandar Khomeini.

Setbacks such as these tend to baffle the revolutionary leadership, according to Tehran-based diplomats.

“Iran wants the world to understand its difficulties,” one said, “but seems unable to understand others’ problems. The leaders are inexperienced. They invariably take on the role of the aggrieved party. Iran is the coy mistress. She wants to be wooed.”

Williams, who is based in Nicosia, Cyprus, was recently in Iran.

NEXT STEP

Watch for Iran and France to resolve a longstanding dispute over loans and revoked contracts, opening the way for improved relations and potential French investment. The hitch remains a related Iranian demand that France free a pro-Iranian Lebanese jailed for killing two Parisians in 1980 during an assassination attempt against former Iranian Prime Minister Shahpour Bakhtiar.