Share of Subsidy Payments Hampers Oil Industry

Share of Subsidy Payments Hampers Oil IndustryShare of Subsidy Payments Hampers Oil Industry

Annual investments in the oil industry should reach $50 billion according to the Fifth Five-Year Economic Development Plan (2011-2016), however, only $68.7 billion was invested in oil projects since the plan started four years ago, the deputy oil minister, Mansour Moazzami said, Shana News Agency reported Sunday.

Allocating huge amounts from oil revenues to fund the subsidy reform plan has been a major hindrance for the key industry's development. "One billion dollars of oil revenues are allocated for subsidies every month," he said, adding that several major projects have been put on hold by the ministry due to budgetary constraints," the official complained.

Under a five-year plan launched in late 2010, and promoted as an “economic revolution” by former president Mahmoud Ahmadinejad, Iran introduced a subsidy reform plan by slashing three-decades-old subsidies on sensitive energy and food items, replacing them with controversial cash payments.

Moazzami said $55 billion has been invested in the oil industry through the National Iranian Oil Company (NIGC), including $38.9 billion from domestic resources and $16.5 from overseas.

Underlining oil as the "driving force" behind the country's economic development, the official said economic growth, foreign investment and gross domestic product peaked during 2003-2005. Iran's oil and gas sector needs $220 billion for new projects and rehabilitation of existing assets, according to a Reuter's interview with an Iranian diplomat whose name wasn't disclosed.

In addition, Iran will need significant capital and advanced technology for higher growth levels in oil production as many huge and geologically complex fields have not been  maintained "in the best way" due to the US-led western sanctions over Tehran's nuclear energy program, Fatih Birol, chief economist at International Energy Agency said last week.