TBY talks to Mohammad Rostami Safa, President of Safa Industrial Group.
TBY Safa Industrial Group has a long history in Iran. What are its origins?
MOHAMMAD ROSTAMI SAFA This is a 100% privately owned company established by my great-great grandfather. The group was first established for steel trading over 160 years ago, and I am the first generation to take the business from trade into industry. We now have 35 years of experience in the production and manufacturing business. Under Safa Industrial Group there are 22 companies, and of them five are trading companies, one is in the oil business, one is in the baby food industry, and another company produces pens. The rest of the companies in the group are related to steel. For example, they manufacture pipes and structural materials. With an annual production of 4 million tons of a variety of pipes from an outside diameter of 10 mm up to 3,000 mm, we are one of the biggest pipe manufacturers in the world and are responding to the huge demand present in the Iranian market. We employ some of the highest technology means in the global pipe industry in our manufacturing processes to ensure quality.
What does your production focus on?
Industrial pipes, housing structures, construction materials, the automotive industry, as well as water, gas, and oil pipelines. There are some different methods of pipe production. We started 35 years ago with structural steel sections. Pipe production started 30 years ago, and 20 years ago oil pipeline production began with an outside diameter of up to 168 mm. Ten years ago we started to produce larger diameter pipes of up to 3,000 mm in size. Iran is sitting on one of the world’s biggest oil and gas fields, so we decided to move into this business. Before then all the pipes were imported, especially the large diameter pipes used in the oil and gas industry. You can easily say that 95% of the current domestic demand for oil and gas pipelines is supplied domestically by Safa Industrial Group and its local competitors. As Safa Pipe Mills, up to now we have produced some 50,000 kilometers of oil and gas pipeline. More than 80% of domestic projects in the water, gas or oil sectors belong to us. Of course, we use a different technology when producing pipes for water transportation.
Does Safa Industrial Group export its products?
Just over 95% of all Iranian steel pipe exports are made by our companies. We mainly export to Germany, Britain, Canada, Finland, most of Europe, Australia, Iraq, Afghanistan, Turkey, CIS countries, and Armenia. The fact that we can supply Australia with our pro-ducts should be seen as a huge success, and we have very competitive prices to compensate for the high transportation costs.
When energy subsidies in Iran are removed are you going to be able to maintain these competitive prices?
If you calculate all the factors and make an average price for energy then you will find that energy is not that cheap here. You must also calculate other things like labor and other costs. Energy may be cheap, but if you consider it as one of the factors and calculate the other costs, you cannot say energy is cheap. If you are comparing it to Europe, of course we are cheaper. When the energy subsidies are removed then the cost will probably become equal to Europe. The government is obliged to come up with an average cost for energy. If the energy cost itself increases, then the government is obliged to reduce the cost of other factors so as to make the average cost less than Europe in order to allow us to compete with Europe’s cost base.
Are there new markets that you are targeting for exports?
There are some restrictions on exports. If the restrictions become smoother and easier, then we should develop our exports to new markets. That is our aim. We are currently negotiating with the government precisely over this issue.
What is the capacity target for the new production facilities you are bringing online?
The target is mainly to go ahead and develop our existing capacity. One of the main expansion projects we have is the Karun Rolling and Pipe Mills project, which will be the largest steel manufacturing facility in the region. We intend to produce 9.2 million tons of a variety of steel coils and plates. The coils are up to 2.2 meters in size and the plates are a width of up to 5 meters. Also in our Safa Rolling and Profile Mills Company there is an ongoing project for the production of coil and plates of a width of up to 2.2 meters. We are entering the steel production business because we were not so happy with the materials we were acquiring from other domestic producers, which are mostly state-owned companies. We will enter the market as the first major private steel producer.
Why did you select production and manufacturing over trading? Was it to create jobs?
My main interest was in production and manufacturing. Getting people into jobs is also a part of that. For your information, the unemployment rate of the city of Saveh is zero or as close to being zero as can be possible when compared to the rest of Iran. The reason we consider it close to zero is because of the immigrants who come to Saveh to work. We have employees from every province in Iran.
What are your thoughts on privatization in Iran?
Privatization in the past years was in the best interests of the government. The reason is obvious, because the government is trying to reduce its deficit and expenses. Privatization is also one of the main issues of the current government. Of course, these privatizations give a chance for competition to emerge in the market. Competition will be there, and therefore every field of business becomes more successful. If there is no competition, there is no success.
© The Business Year