III Omen

Now Iran challenges contracts

Ever since the followers of Ayatullah Ruhollah Khomeini seized power in Iran four months ago, many foreign companies have been haunted by a worry:

Would Tehran's avowedly anti-Western regime honor the contracts for providing modern new industries and services signed during the Shah's long buying spree? The first strong hint came last week, and it was not encouraging--especially for U.S. firms, which hold an estimated $10 billion in Iranian orders.

In a sudden move, a Tehran court handed down a ten-day injunction blocking further payments to General Telephone & Electronics, which has been drawing down a huge letter of credit for services rendered on a $700 million project to modernize Iran's telephone system. A team of GTE negotiators had believed they were making progress toward an amicable settlement. But then GTE's local client, state-owned Telecommunications Company of Iran, sued to halt payments on the outstanding credit to GTE worth $194 million, charging that the company had installed inoperative equipment.

GTE hopes to renegotiate the contract, arguing that the equipment is not working only because other contractors had not yet installed the necessary cables. Failing that, GTE and the Iranians are likely to get into a court brawl when the injunction expires. As if to leave no doubt about its intentions to rap U.S. firms, the Iranian regime next day announced that it was abrogating a large contract with Anaconda, involving the building of a $1.7 billion copper purification plant.

Several of the largest American contractors, notably Textron's Bell Helicopter Division, Grumman, Lockheed and Boeing, are protected from big losses by the standard U.S. guarantees for arms sales. But other companies involved in civilian projects have no recourse, except to Iranian courts. For example, Brown & Root, the Texas-based construction company, whose $1.2 billion contract to build a naval base was canceled, has made little progress in persuading the Iranians to settle on termination damages. Fluor had completed 95% of a refinery near Isfahan before the revolution made further work too hazardous and is insisting upon back payments of nearly $100 million before it will finish the project.

American officials fret that bitterness over the contracts may handicap the small progress made by Washington in improving ties with the regime. The men close to Khomeini could not care less. One suspicion is that the Ayatullah is willing to single out U.S. firms for harsh treatment, thus hoping to trigger a total rupture in American-Iranian relations.

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