Siemens' business surges in Iran

The German engineering giant Siemens AG witnesses a big jump in revenue in the Islamic republic, a year after it pledged to retreat from Iran under international pressure, the Wall Street Journal reported.

According to Siemens CEO Peter Loscher, the U.S. should emulate Germany and stress "real engineering" over "financial engineering" in order to boost exports. In an interview with WSJ's Jon Hilsenrath, Loscher also says Siemens sees real growth potential in the U.S. and is investing heavily.

Siemens has kept a promise not to pursue new projects in Iran. But its existing contracts there underscore how international efforts to curb Tehran's nuclear ambitions have had only limited impact on the state's ability to draw on the technology and expertise it needs to maintain its broader infrastructure.

The company's Iranian business also shows how Tehran depends on a powerful tool to maintain its commercial ties to foreign companies. The rules that govern international commerce make it tough for Siemens to sever ties with Iran even if it wanted to.

"Otherwise we could be accused of breaching contracts and face compensatory damages," Siemens CEO Peter Löscher said at the company's shareholder meeting in January.

The U.S. State Department and the European Union declined to comment on Siemens' business in Iran.

In Siemens' last fiscal year, which ended September 30, the company's revenue in Iran rose more than 20% to about ˆ680 million ($967 million) from the year before and more than 50% over a two-year period, said people familiar with the matter. Revenue for this year is still unclear.

Siemens hasn't violated any sanctions imposed by the U.S. and EU aimed at crippling Iran's nuclear program and the country's development of new oil and gas revenue. Its ongoing business in Iran stems from ongoing contracts from years past.

Until it ceased bidding for new orders last year, Siemens vigorously pursued and won billions of dollars in long-term contracts in Iran. In 2006, for example, Siemens won a ˆ294 million deal to supply 150 locomotives for Iran's railways and several multimillion-euro orders the following two years for gas turbines and compressors to power-plant producers.

An assessment by Siemens lawyers put the potential legal penalties for terminating its existing contracts in Iran at up to ˆ4 billion-if tried before a Swiss arbitration court, as many Siemens contracts in Iran specify, a person familiar with the matter said.

Siemens' decision to continue to fulfill those contracts, though, threatens to complicate the German firm's U.S. business. Over two decades of expansion, the U.S. has become Siemens' largest single market and accounted for one-fifth of its global sales of $103 billion in its fiscal 2010. Much of this revenue come from large, well-publicized government contracts, such as a $466 million deal struck last October with Amtrak to supply the government-owned rail operator 70 electric locomotives.

Yet, even with no new orders coming in, Siemens revenue from Iran rose sharply over the first half of 2010, and an alarmed Mr. Löscher ordered an audit to find out whether local managers were pumping up sales under existing contracts. The audit found no such activity, the people close to the matter said.

Iranian nuclear program has caused concern since 2003, when the IAEA became aware of its concealed activity. In late 2003, Iran signed the Additional Protocol to the Treaty on the Nonproliferation of Nuclear Weapons and voluntarily announced about the suspension of uranium enrichment. However, it returned to this activity.

Resolutions adopted by the UN Security Council, as well as additional unilateral sanctions approved by the U.S. Congress and the foreign ministers of all EU countries, were primarily directed against the banking, financial and energy sectors of Iran.

Restrictions imposed by the EU include the ban on the sale of equipment, technologies and services to Iran's energy sector; the same measure refers to the refining industry. New investments in Iran's energy sector have also been also prohibited as a whole. Because of lack of investments due to the sanctions, the production capacity is decreasing, and therefore, Iran cannot effectively increase production.


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