Officials Criticize Low Energy Prices

Officials Criticize Low Energy Prices Officials Criticize Low Energy Prices

A number of senior officials criticized Iran's energy policy at a time of economic restraint and slumping oil prices that are set to leave a big hole in the country's budget for 2016-17.

Energy Minister Hamid Chitchian said on Monday that the idea of supplying inexpensive water to people was "a wrong notion" that should not have been floated in the first place.

"The government is backing water and wastewater companies, but [water] services should have been offered at real prices from the beginning," Chitchian said.

Iran is grappling with a chronic spell of drought and excessive consumption that officials have had little success in dealing with. Analysts say roughly 90% of the national water resources are wasted in the traditional agro sector, at a time when rainfall has reached its lowest levels in recent history.

Chitchian also took a swipe at prevailing electricity tariffs last week, saying that the Energy Ministry cannot clear its massive $11 billion debt to the private sector as long as electricity is sold at the subsidized price of 530 rials (about 0.017 cents) per kilowatt-hour.

Mansour Moazzami, the head of Energy Commission of Tehran's Chamber of Commerce, Industries, Mines and Agriculture, also said Iran's energy consumption is three times the global average.

"[Dilapidated] equipment and a consumerist culture have led to excessive energy consumption," he said, describing the current rate of energy use as alarming.

"There is much talk about having the biggest energy reserves in the world … but it will cost billions of dollars to capitalize such reserves," he added.

Moazzami also censured Iran's subsidy program as a "strategic mistake".

"Persisting in this mistake is curious. The subsidy plan's [financial] resources were supposed to be provided from the rise in energy prices," he said. "But the number of [cash] subsidy subscribers is increasing every year while energy prices have remained the same."

Iran's Subsidy Reform Plan–aunched in 2010 during the tenure of former president Mahmoud Ahmadinejad—cut subsidies on food and energy items and replaced it with monthly cash subsidies of 455,000 rials (around $13).

The latest data show that around 74 million people currently receive the cash payment while, according to Moazzami, the government's forced subsidy cutbacks have sent the production, industrial and agricultural sectors spiraling downward in recent years.

Another official from the chamber's energy commission called for a reform in the country's energy economy.

Hamidreza Salehi said the government has anticipated an 8% rise in annual power production capacity over the past several years, but the goal has not been fulfilled due to the economic downturn and a setback in implementing energy efficiency programs.

Referring to studies on energy productivity, he said every barrel of oil in Iran translates into $257 in gross domestic product, while the figure stands at $870 and $1,700 for Turkey and Japan respectively.

Salehi noted that the government earns nearly $26 billion a year from selling electricity, while annual production costs account for $40 billion, a huge gap that necessitates the liberalization of energy prices.

Adjustment of water and electricity prices has turned into a bone of contention among analysts and officials.

The authorities say subsidy cut on energy carriers is inevitable, branding water as a "heavily-subsidized commodity" and electricity as "the most inexpensive in the world". Opponents, meanwhile, argue that current tariffs are already weighing heavily on consumers and there is no room for further price hikes.