Minnesota pensions struggle to divest from Iran

Minnesota's pension funds are dumping millions of dollars in stock they invested with Russian oil and gas giants vying for business in Iran.

A seven-year-old state law requires the sell-off, revealing how states like Minnesota must continue pushing back against Iran's government even after President Obama and Western allies agreed to lift economic sanctions in exchange for Iran curbing its nuclear program.

The State Board of Investment's largest target is Lukoil. The board is scheduled to sell $1.3 million of stock in Russia's second-biggest oil producer this year as the company looks to renew exploration in Iran.

The board flagged Lukoil nearly a year and a half ago for possible ties to Iran, a designation that Lukoil contested to Minnesota investment officials. The company wrote to the board that it made its final sale of gasoline to Iran in 2010, and wound down its business there that same year.

But as Iran opens its borders for business again — particularly to the energy industry — Lukoil is one of many foreign companies in talks to develop oil there as it faces declining reserves in Russia. Lukoil has not contested Minnesota's final decision to sell off 39,175 shares of stock: half by the end of March, and the rest by October.

The state last year sold half its holdings in Gazprom for $830,039, and is scheduled to sell the rest by June. The Russian company is looking to expand Iran's natural gas industry.

Former Gov. Tim Pawlenty signed Minnesota's law in 2009 with the hopes that local governments could play a significant role in applying economic pressure to Iran, which had been sharply criticized for its nuclear program and for allegations it aided international terrorism.

More than two dozen other states have similar laws, while more are considering them.

Last year, Republicans nationally announced a Defund Iran initiative that sought to put constitutional amendments on the ballot strengthening Iran divestiture laws in presidential battleground states such as Colorado, Arizona and Ohio. The movement promises to "combat the terrible abuse of federal power" under Obama.

Minnesota has been required to sell its holdings in 14 companies since the law took effect, records show. Given that Iran holds the world's second-largest reserve of natural gas and fourth-largest of crude oil, it's not surprising that foreign energy companies made up most of the list.

They include CNOOC, a Chinese offshore oil and gas company; Saipem, an Italian oil and gas contractor; Sasol, an energy and chemical company in South Africa; PTT Exploration and Production, a Thai oil and gas company; OMV AG, an Austrian oil and gas company; and Petrofrac, a British energy services company.

Mansco Perry, the investment board's executive director, declined to be interviewed. But as more companies race to profit from Iran's open doors, it's possible Minnesota could be forced to divest additional foreign energy stocks this year.

In January, Vermont Gov. Peter Shumlin called for the state pension system to divest from coal companies in an effort to curb global climate change, while California's retirement funds are just starting to sell their coal stock.

A U.S. Treasury spokesperson said the nuclear agreement doesn't require states to change their Iran divestiture laws, though the federal government is keeping states abreast of Iran's commitments to roll back its nuclear program.

One of the sponsors of Minnesota's law, Sen. Terri Bonoff, DFL-Minnetonka, shared a legal opinion from an attorney with the state Senate saying that the divestment requirement ceases to be in effect only if Iran is removed from the State Department's list of countries that have been determined to support international terrorism, or the president finds that the state law interferes with foreign policy.

Critics see such measures as local overreach into foreign policy matters best left to the U.S. government. State pension funds are under great political pressure to ensure high returns, so placing new restrictions on how they are allowed to invest can be an added burden.

"It's hard enough to get these plans funded and earning decent returns, and then to add this issue — which is really unnecessary — on top is not helpful," said Alicia Munnell, director of Boston College's Center for Retirement Research.

But Bonoff said she believes such laws "did help support Iran being willing to come to the table."