Private power producers accounted for 50% of electricity generated in Iran in 2020.
According to IRNA and based on information from the Energy Ministry and the state-run Iran Power Generation, Distribution and Transmission Company (Tavanir), privately-owned power stations produced 42,000 megawatts of power (200 billion kilowatt hours) in the last fiscal year (ended March 20, 2021).
Private sector investment in the power industry is said to be near $22 billion and 54% of the power demand are met by private producers.
Despite the key role of private power producers, the ministry has failed to fulfill its financial commitments and this is pushing private contractors over the edge.
Power plants, 60% of which belong to the private sector, have generated $9.5 billion worth of electricity over the last 11 years. Nonetheless, the ministry has only been able to settle less than 70% ($6.5 billion) of its debt.
The ministry’s massive debt to private contractors has now reached $4 billion and Energy Minister Reza Ardakanian blames it on the government and low power tariffs.
"The government’s debt to the Energy Ministry related to disparities between real electricity costs, including distribution, transmission and generation, and what consumers actually pay is on the rise," he said.
Power generation in Iran costs at least 3 cents per kilowatt-hour, but consumers are charged less than 1 cent per kWh.
Unless power prices increase, Tavanir’s problems will persist and possibly get worse, the minister warned.
Due to the huge gap between real energy costs and what consumers pay, the government must annually pay $1 billion in subsidies to plug the huge gap in real energy costs and the bills sent to consumers.
“The experience of countries like Turkey shows that the only way to convince subscribers to use power wisely is to revise pricing structures and oblige heavy consumers to pay real prices that include the cost for power generation, dispatch and transmission,” Ardakanian said.
Settling Debts
The Energy Ministry settled $1 billion of its debt to private power plants in 2020 and it is planning to repay another part of its debt ($1 billion) by the end of the current year (started March 21) by issuing Islamic Treasury Bills.
Iran began to issue Islamic Treasury Bills, a version of short-term sovereign debt, for the first time in 2015 to provide a fresh fiscal stimulus to its economy.
According to the minister, talks are being held to help address the financial problems of private power producers who built plants with forex loans from the National Development Fund of Iran (sovereign wealth fund) and are unable to repay.
“The Energy Ministry is trying to convince the fund to accept the unpaid debts in rials instead of foreign currency,” he said.
“We are aware of their financial crises. The ministry is doing all it can to help settle their debts in rials with easy installments.”
NDFI officials have agreed that the private sector pay the mounting debt in long-term installments (in foreign currency) “but this is not enough, as most companies are unable to repay unless the fund accepts local currency”.
The unprecedented rise in forex rates over the past two years has added huge financial costs on private electricity producers and pushed most of them near insolvency.
Following government appeals in 2014 to private firms to play a bigger role in power production, NDFI gave $300-400 million to private companies to build thermal power stations, the minister recalled.
At that time, the dollar was worth 40,000 rials. Now it is at least six times higher, but electricity tariffs are the same as in 2014!
Ardakanian said private power plants built with loans are obliged to repay at least $65 million a year ($1=25,000 rials) and this is not possible.
For instance, a company that borrowed $200 million must repay $1.2 billion to the lender and many companies are simply unable to pay such prohibitive rates. Annual power generation in Iran is 75,000 MW and average annual export is 10 million kilowatt hours, supplied largely to Iraq, Pakistan and Afghanistan.
As per the new government directive which took effect last October, Tavanir will no longer be the sole buyer of electricity from private companies.
Energy Bourse
Prior to this, private companies were not allowed to sell electricity (directly) and their output had to be delivered to Tavanir.
This strange policy added to the problems because private firms could not generate enough income by selling power via Energy Bourse in Tehran.
As per the new rules, after a contract is signed between a private power producer and private manufacturing unit, Tavanir will only play a regulatory role and help transfer electricity from the power station to end user(s).
