Gov't Wants 'Structural Reforms' in Energy Sector

Gov't Wants 'Structural Reforms' in Energy SectorGov't Wants 'Structural Reforms' in Energy Sector

The energy ministry has called for reforms in the water and electricity sector and warned on the likely shortage of water and electricity in the summer if consumption is not constrained.

"Reforms are to be introduced this year," Hamid Chitchian was quoted by Mehr news agency as saying. The reforms, among other things, call for changes in the current state approach towards the private sector, the energy minister said.

Government should pave the way for elevating the role of private entities in the water and electricity sector in particular, and that is "a central feature of the anticipated reform." Government should increase participation of private companies, rather than private firms appealing to authorities for contracts, he was quoted as saying.

The budget allocated for the water and electricity sector this year is indicative of the two sectors' significance. A total of 15,600 billion rials ($5 billion) has been allocated for the two key sectors, which is more than half of the entire development budget stipulated last year.

"Funding must be apportioned properly, and that would be unfeasible should the current circumstances prevail," Chitchian said without elaboration. "Structural reforms are crucial to generate the potentials for appropriate budgetary allocations."

Given the "severe restraints" in water supply and electricity production capacities, water and electricity management is a major part of the reform plan. "It would be impossible to meet demand without adequate reductions in consumption."

The water crisis in Iran is a two-pronged problem. Global climate change - arguably helped along by the country's heavy greenhouse gas emissions - is intensifying the region's already arid climate. The other problem is a system of generous energy subsidies which long encouraged wasteful use of resources.

However, a subsidy reform plan was passed by parliament in January 2010. It primarily aimed at removing subsidies on energy and other products, with energy subsidies estimated at about 20 percent of GDP, according to an IMF report.

Earlier last year, Chitchian lamented that the substantial gap between real and subsidized prices of water and electricity has caused immense difficulties for his ministry. According to the subsidy reform plan, prices for electricity and water should be adjusted to reflect their full cost price.

"Water tariffs should correspond to real prices in order to provide adequate services," Hamidreza Janbaz, managing director of the Water and Wastewater Company said Friday. He added that despite the four percent increase in the number of consumers last year, water consumption increased by two percent.