Iran will have 10,000-megawatt power deficit in the coming summer, said Tuesday the head of the Federation of Iranian Energy Exports Industries in Tehran.
Referring to government measures in recent years to sell struggling state-owned power plants to the private sector, Mohammad Parsa said: “Currently, the Energy Ministry owes $2.6 billion to private power plants,” ILNA reported.
As per law, private companies cannot directly supply consumers with electricity they generate. Instead, they should sell to Iran's Power Generation and Distribution Company (Tavanir), a subsidiary of the Energy Ministry.
However, due to financial constraints and shrinking budgets in recent years the government has been unable to meet its commitments to contractors and pay its bills on time.
As a result the private power producers are facing problems with their development plans, namely to raise production and help ease the projected power shortage in the coming year.
This is while power projects worth $13 billion are on hold unless the contractors are given guarantees that they will be paid on time.
The Energy Ministry has said Iran's average electricity consumption growth rate is around 7% per year, almost 3.5 times over and above the global average, which is alarming. One reason for the heavy consumption, it says, is low tariffs. Other independent experts, environmentalists and economists seem to have similar views.
Data released by the Energy Ministry show that among more than 200 countries, Iran has the cheapest power -- on average 700 rials (about 2 cents) per kilowatt-hour after Burma, Egypt and Kuwait
Data released by the ministry show that among more than 200 countries, Iran has the cheapest power -- on average 700 rials (about 2 cents) per kilowatt-hour after Burma, Egypt and Kuwait.
“The government keeps on reiterating that it wants to privatize the power sector. The key question is how can private companies invest in this sector with such unrealistic (low) prices,” Parsa said and added that unless prices become real the problems will persist and possibly get worse.
Due to the huge gap in the real energy costs and the bills sent to consumers, the government must annually pay about $1 billion in subsidies.
“We have often reminded the government that the energy subsidy they pay is four 4 times the national budget.” He rejected the long-held subsidy policies as unwanted, unhelpful and something future governments will find prohibitive and impossible to sustain.
In December 2010, Iran launched an ambitious and controversial energy subsidy reform program. Energy prices that had been kept well below international levels for decades were raised by 2 to 9 times.
As part of the so-called Subsidy Reform Plan, the government at the time removed energy subsidies and instead paid 455,000 rials ($41.5 then and $3.25 now) to each Iranian on a monthly basis.
According to the International Energy Agency, by spending $45 billion on energy subsidies in 2017, Iran ranked first globally.
The amount, which increased 55% year-on-year, is 10.4% of the national GDP and 15% of total global energy subsidies.
Iran's fuel consumption volume is far more than the global standards. Natural gas is the largest source of fuel for electricity generation in Iran, accounting for 70% of total generation.
Iran’s consumption of fossil fuels increased in 2017, especially for power generation, as decline in precipitation caused hydroelectric dams to produce less electricity.
Some experts believe that paying heavy subsidies would hinder the country’s economic development.
