Energy Ministry Cannot Afford Subsidies

Energy Ministry Cannot Afford Subsidies  Energy Ministry Cannot Afford Subsidies

Energy subsidies lead to improvident consumption, and also bring about inequality as consumers are entitled invariably, energy minister Hamid Chitchian was quoted by ISNA as saying Saturday in a televised interview.

"Subsidies impede growth and development and exacerbate injustice," Chitchian said. "It is unreasonable to allocate cash to high-consuming customers," he added.

Fuel, transportation, and distribution costs are part of electricity production costs. Excluding fuel prices, power is being generated at a cost of 800 rials ($0.02) per kilowatt hour (kWh). Added to this amount 13 cents for gas, total cost of power generation stands at 2,200 rials ($0.06) per kWh. Nevertheless, it is sold 500 rials ($0.01) per kWh and the differential is subsidized.

The energy ministry's debts are piling up at an increasing speed, the minister said. Its debts in the electricity sector alone amount to 240 trillion rials ($7 billion).

Subscribers are heedless of their consumption when electricity prices are subsidized, the minister noted. "Low-income households should not bear the brunt in this situation. Instead, subsidy payments must be halted for those consuming heedlessly, while prices should be reduced for low-consuming customers."

On the oil ministry's recent announcement expressing readiness to export electricity, Chitchian said the initiative is "beyond the oil ministry's mandate," and noted that everyone is allowed to export electricity provided half the production is supplied domestically, in the electricity market or at the energy bourse.

Electricity is purchased within two competitive mechanisms, namely the energy bourse and the electricity market.

Power generation from associated petroleum gases (APG) is currently carried out at a cost which makes production less economically viable, owing to the low price at which electricity is purchased from private suppliers.

"Measures need to be taken to reduce the cost of electricity production from APG," Chitchian said, suggesting that the APG, which was burnt so far, could be supplied free of charge. Mindful of the exorbitant waste of valuable fuel sources, in November 2014, the oil ministry announced a public tender to put APG to better use by selling it to private firms or individuals for electricity generation.

Using liquid fuels, such as mazut and diesel, has also escalated production costs. However, the issue was addressed to some degree in the current Iranian calendar year (ends March 20) as gas supplies to power plants increased 36 percent, replacing liquid fuels.

The 13 billion cubic meters increase in the volume of gas supplies to power plants instead of liquid fuels helped save $10 billion during the first 339 days of the current Iranian calendar year.

Iran's electricity network is linked to seven neighboring countries. It exports power to Pakistan, Turkey, Iraq, and Afghanistan, and imports from Azerbaijan and Turkmenistan. There are also swap arrangements between Iran and Armenia.

Iran exports 12 billion kWh of electricity per annum. Moreover, via 236 projects Iranian companies have exported equipment and provided engineering services, valued at $1.6 billion, to 27 countries. Currently, 90 projects are being carried out, the value of which is estimated at $4.5 billion. Preparations are underway for 47 new projects.