Iran Khodro signed a deal with Peugeot during President Hassan Rouhani's trip to France last month to form a joint venture that is expected to invest up to 400 million euros over five years.
Peugeot is the first Western carmaker to announce a return to Iran since many economic sanctions against it were lifted last month upon implementation of a landmark nuclear deal with world powers.
"To compensate for suddenly leaving Iran under sanctions", Iran Khodro CEO Hashem Yekkeh Zare said Sunday, Peugeot has agreed to waive 80 million euros of outstanding debts and provide free car parts worth 25 million euros, and a free production line for the Peugeot 207 model worth 11 million euros.
Instead of 100 euros, "Peugeot will receive 30 euros in royalty for two million cars," Yekkeh Zare said.
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As part of last month's deal, Peugeot and its French partner Citroen will work with Iran Khodro to eventually produce 200,000 vehicles a year using parts manufactured in Iran.
The aim is to make the Peugeot 208, the 2008 sport utility vehicle and 301 compact models, with the first vehicles expected to roll off the production line in 2017.
Peugeot spokesman Olivier Salmon told AFP the deal with Iran Khodro was "a balanced agreement".
"The joint venture that will be established will help to provide vehicles to Iranian customers for sustainable mobility," Peugeot added.
Yekkeh Zare added that talks were under way with Germany's Mercedes Benz and Volkswagen as well as Italian carmaker Fiat.
Iranian conservatives have been critical of Rouhani's government for restoring trade with Peugeot and other foreign firms whose departure under sanctions dealt a blow to the economy, saying the international partners proved themselves unreliable.