Energy Sector Pays $12b to Subsidies Body

Energy Sector Pays $12b to Subsidies BodyEnergy Sector Pays $12b to Subsidies Body

Iran’s energy sector pays $12 billion of its annual revenues to Targeted Subsidies Organization, a deputy oil minister said.

Mohammad Mehdi Rahmati also criticized the monthly payment of cash subsidies to a majority of Iranians under the Subsidy Reform Plan.

“Unification of energy management and liberalization of fuel prices were two issues removed from the final version of the sixth five-year development plan [2016-21],” Rahmati was quoted as saying by ISNA.

The plan, launched in 2010 by former president Mahmoud Ahmadinejad, removed heavy subsidies on food and energy, and instead paid 450,000 rials (around $13) to the nation on a monthly basis.

“Liberalization of fuel prices was excluded from the macro plan under the pretext of attracting more investment in the sector and the optimizing energy use,” he said. “Given the present policies of fuel pricing, energy firms, which have become very powerful in the past few years, owe money to electricity, oil and gas sectors, and there is no hope of them clearing their debts in the near future.”

The deputy minister further said about 90% of the gas projects of the devised five-year plan will materialize, including the completion of all phases of South Pars Gas Field, the oil production volume projected from the joint fields and also petrochemical plans.

“However, I am not hopeful about the realization of other energy plans such as increasing power plants’ efficiency and optimizing fuel use,” he said.

Referring to the energy sector’s $12 billion annual payment to Targeted Subsidies Organization, Rahmati noted that under these conditions, the energy sector will not achieve the goals envisaged, as it is a capital-intensive sector and the Oil Ministry has a whopping $50 billion in debts.

“According to the sixth five-year plan, oil, gas and petrochemical industries will have to attract $65 billion of their needed capital from the energy companies. This is while these companies do not have the capital and they cannot increase their efficiency from the current 11% to the planned 35%,” he said.

The Cabinet exempted the Energy Ministry, which had a similar status, from making payments to Targeted Subsidies Organization as of the beginning of the new Iranian year (starting March 20, 2016), Energy Minister Hamid Chitchian announced last month.

“The annual electricity sale is estimated to be around $4 billion, $1 billion of which have been given to Targeted Subsidies Organization since 2010 to be extended to people as part of energy subsidy reform,” he said.

Because of the exemption, the ministry can settle its whopping unpaid dues worth $11 billion to private sector contractors.

According to International Monetary Fund, the government had paid $118.2 billion in energy subsidies in 2013. Subsidies paid for petroleum, coal, natural gas and electricity stood at $62.9 billion, $0.19 billion, $39.5 billion and $15.5 billion respectively.