The 7% rise in water and electricity prices that take effect as of today (April 21) is no panacea for the deepening financial issues that have impaired the Energy Ministry, head of the Iran Association of Energy Service Companies said.
“Disparities between real electricity production costs including generation and transmission, and the revenue of the state-run Iran Power Generation, Distribution and Transmission Company (Tavanir) is so huge that raising tariffs even by 20% cannot help,” Saeed Mohazab Torabi was quoted as saying by ISNA.
It is inconceivable that a small increase in prices can help tackle a problem that will worsen in the coming years, he said. Power generation in Iran costs at least 3 cents per kilowatt-hour but consumers pay less than 1 cent per kWh.
“Allowing the private sector to sell electricity directly, offering power on the energy bourse, charging heavy consumers higher tariffs and reducing costs of power stations are among long-term solutions that can help the loss-making sector grow.”
Tavanir is in charge of purchasing electricity from power plants and private companies are obliged to sell only to the state giant.
Referring to Tavanir data, Torabi said $2.5 billion was spent to generate 300 billion kilowatt hours in 2020. However, Tavanir’s earnings did not exceed $1.5 billion and the company’s expenses are projected to rise again in 2021. The deficit ($1 billion) will become more massive, he warned.
Private producers complain that the business is economically unfeasible because of the controversial and prohibitive subsidies.
Electricity, like water, gasoline, gas and some foods are subsidized in Iran – a decades-old economic policy the government cannot afford, but is hesitant to say or reverse.
Highlighting the need for investments in the industry, he noted that last summer consumption peaked to 58,200 megawatts on July 21 and it is projected to reach 62,000 MW a day in the coming weeks. To meet the exponential growth transmission and distribution lines need to be extended by at least 22,000 kilometers.
“More than 1.3 million new subscribers are expected to join the national grid this year for which $700 million in infrastructure investment is needed.”
The Energy Ministry is in the red to the tune of $2.6 billion and “so long as costs continue to overtake [limited] revenue, the debt cannot be settled”.
Referring to exports, he said 8,000 billion kWh of electricity was sold (by Tavanir) to Iraq, Pakistan and Afghanistan and is estimated to be the same in the current fiscal year that started in March.
Iran also exports electricity to Armenia and Azerbaijan in winter in exchange for natural gas and imports when domestic demand soars in summer.
Private Producers Averse
In related news, Mehr News Agency quoted Alireza Kafshkanan, an energy expert and an advocate of free enterprise, as saying that so long as electricity is sold only by government the power sector will not reach its full potential because of the reluctance of private producers to take megaprojects.
On Iran's ability and willingness to play a bigger role in the electricity export market, Kafshkanan says, "Iran's ten-year record in electricity contracts [export and swap contracts] with neighbors, namely Pakistan, Afghanistan and Iraq, is commendable. It is rather strange that no plans have been made to transform into a regional hub.”
One major reason behind the power sector monopoly is the steep increase in forex rates in the past several years. Currency rates have jumped to historic levels and are a permanent faultline of the sanction-hit economy.
The dollar fetched 250,000 rials on Tuesday. Last year this time it was near 150,000 rials. In the summer of 2013 when President Hassan Rouhani took office the greenback was in the region of 36,000 rials.
Established in 2012, the Iran Association of Energy Service Companies is aimed at managing and developing energy services in Iran efficiently.
