Subsidized Electricity Coming to an End?

Subsidized Electricity Coming to an End?Subsidized Electricity Coming to an End?

The huge difference between the actual electricity cost and the price people pay has put an intolerable financial burden on the ministry's shoulder, Energy Minister Hamid Chitchian said on Thursday.

Speaking on the sidelines of a ceremony to convert Ferdowsi Gas Power Plant to a combined cycle one in Mashhad, the capital of Khorasan Razavi Province, Chitchian added that generating each kilowatt-hour of electricity costs 880 rials (about 0.029 cents) whereas it is being sold for 530 rials (about 0.017 cents), IRNA reported.

"The ministry owes the private sector a whopping $11 billion, which cannot be paid as long as people are sold electricity at the subsidized price (about 0.014 cents)," he said.

"If the electricity was sold at a real price, which is more than 0.029 cents, the ministry would be able to not only settle its unpaid dues to the private sector but also make development plans for the industry," he said.

According to Chitchian, annual electricity sale is estimated to be around $4 billion, $1 billion of which are given to the Targeting Subsidies Organization to be extended to people as part of Iran's energy subsidy reform.

In other words, the ministry earns 430 rials (about 0.014 cents) for each kilowatt-hour, which is not adequate to cut its widening budget deficit.

The Subsidy Reform Plan launched in 2010 by former president Mahmoud Ahmadinejad removed heavy subsidies on food and energy, and instead paid 450,000 rials ($13) to almost all Iranians on a monthly basis.

Critics oppose a further rise in electricity prices because they maintain that a host of taxes, including for municipal services, are being levied on consumers. This has increased the electricity bill without benefiting the Energy Ministry.

  $28b in Foreign Investment

"Plans have been made to attract $28 billion in foreign investment to revolutionize the electricity sector in the coming years," he said, noting that Iran's power production capacity will rise by 50,000 megawatts in 10 years, boosting the country's total installed power capacity to more than 120,000 MW.

Iran's nominal power generation capacity stands at around 74,000, with 61,000 MW coming from thermal power plants, 12,000 MW from hydroelectric plants and only 1,000 MW from nuclear power.

According to the official, based on plans, 5,000 MW of electricity should have been added to the national grid annually, only 1/3 of which has been realized.

Electricity consumption has witnessed a 5.5% rise during the last 10 years, yet it is projected to increase by 8% next year, which explains why attracting foreign investments top the ministry's agenda.

Stating that Ferdowsi Gas Power Plant consists of six gas units each with a capacity of 159 MW, the minister added, "Three steam units will be added to the plant in two years, increasing the output by 480 MW. Moreover, as soon as the new units go on stream, the heat wasted by the gas turbines is routed to the nearby steam turbine, generating extra power."    

Converting Ferdowsi Gas Power Plant to a combined cycled one will be implemented at an estimated cost of $531 million by domestic companies.