Hidden subsidies paid to industry, mining and petrochemical sectors last fiscal year (March 2018-19) for gas and electricity reached a staggering $9.5 billion, according to a new report by the Majlis Research Center.
Total consumption of gas in the three sectors then was 55.1 billion cubic meters and 78.4 terawatt hours of electricity -- around a fifth of the total power annually produced in Iran was consumed in the sectors, ILNA reported.
The report used export prices for natural gas (11 cents per cubic meter) and electricity (5.5 cents per kilowatt hour) as the base to calculate to what extent the two key sources of energy have been subsidized.
It said $5.2 billion was paid in subsidies for gas and $4.3 billion for power sold to industries, mines and petrochemical companies.
The figures mentioned in the study suggested that consumption of energy in the three sectors had increased by more than 10 times compared to the 12-month period ending in March 2017.
The sharp increase could have come mainly due to a significant increase in activity over the past year in Iran’s petrochemical complexes as well as in mines.
Fossil Fuel Subsidies
According to the International Energy Agency, fossil fuel subsidies in Iran in 2017 stood at $45.1 billion, the highest in the world.
Fossil fuel subsidies paid by the government are 21 times more than the direct subsidy payments.
The gradual removal of subsidies to energy carriers and equal distribution of cash subsidies in the form of universal basic income (an unconditional government payment made to all citizens as a supplement or replacement for wages) is the most effective way to achieve economic justice, some economists have been quoted as saying.
The Plan and Budget Organization has said that in the current year both hidden and direct subsidies are estimated to reach $63 billion, based on the current USD rate in the open market ($1=115,000 rials).
About one third of subsidies is directly paid from the government budget. These include cash subsidies, financial assistance to farmers and the industrial sector, etc. Hidden subsidies are close to $46 billion.
Hidden subsidies mean subsidized basic goods, from food to drugs and energy carriers (gasoline, gas, etc.). If the government exported these products or if it charged people the true value of imported basic goods, there would be no “hidden” or indirect subsidies.
In other words, the government would save $46 billion if it charged consumers the real value of a long list of goods and services.
