Gov’t Mulls Higher Power Tariffs to Help Cut Subsidies

The disparity between real electricity prices, which include the costs for generation and transmission, and what consumers pay for electrical power has compelled the government to pay 70 trillion rials (about $1.75 billion) in subsidies per annum, excluding expenditures on feedstock for power plants, a deputy energy minister said.

"Given the subsidy paid to power plants for their natural gas as feedstock, the subsidy will amount to 150 trillion rials ($3.75 billion) annually," Houshang Falahatian was also quoted as saying by Mehr News Agency on Tuesday.

Pointing to the ministry's willingness to regulate low power tariffs, Falahatian said, "Among more than 200 countries, Iran sells the cheapest power on average at 700 rials (about 2 cents) per kilowatt-hour after India, Kuwait and China.

According to the official, in the country's neighboring states like Azerbaijan and Armenia, each kilowatt-hour of power is being sold at 9 cents, making it four times costlier than that of Iran.

"The proposal by the Energy Ministry to hike electricity tariffs has not been approved by the government yet," Falahatian said, adding that as long as the bill is not ratified, the huge price difference must be compensated by the administration via subsidies.

Energy officials, including Falahatian, believe that if electricity is not sold at higher prices, investments in the sector will remain sluggish as many power companies are currently incurring huge losses due to the unreasonably low prices.

The official added that if electricity were sold at real prices, not only would the ministry not have to struggle in the face of mounting debts to the private sector but it could also implement key development plans.

Experts say consumers pay a fraction of the real power cost. This has caused them to be oblivious to prudent energy use, which inflicts a heavy toll on the Energy Ministry’s finances.

"Reasonable prices will also lead to judicious consumption, more investment and stronger participation of private companies in the power industry," he said.

  Export-Import Balance

Asked about power exports, Falahatian said Iran's electricity exports rose nearly 25% in the first seven months of the current fiscal year (March 21-Sept. 22) from the same period of a year ago.

Highlighting the country's annual power exports at 10 million kilowatt-hour, he noted that the ministry imports close to 4 million kWh per year, which means the electricity trade balance is positive.

According to the official, the country's revenue from power exports has varied between $700 million and $1.2 billion in different years.

"Iraq has been the biggest customer of Iran's electricity over the last four years," Falahatian said, noting that the country has recently started to import natural gas from Iran to generate power in its own power plants, which explains why it will decrease its power import from Iran drastically in the near future.

According to reports, Iran also exports electricity to Armenia and Azerbaijan in winter and embarks on imports when domestic demand soars in summer.

The official added that Iran's electricity network has already been synchronized with those of neighbors on its northwestern borders, namely Azerbaijan Republic and Armeni,a and plans are underway to connect it with that of Iraq in a collaboration that could potentially be extended to other neighbors.

Attaching great importance to the initiative, Falahatian said, "The synchronization project can play a major role in exchanging power among neighbors, especially during peak demand hours."