Direct transfer of electricity bills consumers pay to the treasury is a wrong policy simply because the money is not used for critical development projects in the key power sector, a veteran economist says.
"As per law, power consumers pay the bills and the money goes directly to the treasury. The Management and Planning Organization is responsible for transferring the money to the Energy Ministry. However, the money is spent for paying cash subsidies," said Ali Shams Ardekani, head of the Energy Commission of Iran Chamber of Commerce, Industries and Mines, Fars News Agency reported.
Ardekani recalled that the private sector accounts for 40% of the power generation, meaning 40% of what the people pay should go to private contractors. It remains unclear on the basis of which law the MPO diverting funds critical to the key power industry to other purposes, like paying cash subsidies.
As part of the Subsidy Reform Plan, the previous government removed food and energy subsidies in 2010 and paid 455,000 rials ($4.55) to each Iranian on a monthly basis.
"Government monopoly over the power sector is a wrong approach and does not let the industry improve," he rued, noting that private companies should be allowed to sell the electricity they produce to whoever they like instead of selling it to the Iran Power Generation, Distribution and Transmission Company (Tavanir) that is solely responsible for producing and distributing power.
Price Disparity
Expressing concern over the existing unaffordable electricity subsidies, Ardekani said, "The disparity between electricity production costs, which include generation and transmission, and what consumers pay has created a quandary for power producers."
Iran sells power on average at 700 rials (about 0.7 cents) per kilowatt-hour.
Experts say consumers pay a fraction of the real cost and are oblivious to prudent energy use and the constant appeals for reducing consumption and waste
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.
Experts say consumers pay a fraction of the real cost and are oblivious to prudent energy use and the constant appeals for reducing consumption and waste.
Imposing higher tariffs on those who exceed reasonable limits is one effective way of convincing the public to consume prudently, the former diplomat said.
According to Ardekani, gone are the days when urging and appealing to the people helped.
Ardekani, a former government advisor who holds a PhD in economics, believes that large consumers must pay higher rates compared to regular users.
"There is a critical need for a tangible difference between electricity tariffs in peak and non-peak hours (time-of-use prices) so that subscribers see the need and necessity to adjust consumption," he said.
Energy experts believe that equipping households and commercial units with smart electricity meters can compel subscribers to consume power prudently.
As part of the National Smart Metering Program (known as Faham in Persian), 350,000 old electricity meters have been replaced with smart meters and the rest 100,000 will be substituted within six months.
A smart meter is a modern electricity meter that digitally sends meter readings to energy suppliers.
By adopting and expanding such approach, more consumers will purchase efficient appliances to ease power usage and officials will not have to plead to turn off the lights, he stressed.
Ardekani argues that policy and decision makers have long stuck to a wrong approach in not charging subscribers based on two-tier systems (higher the consumption bigger the bills). Consumers across the country are charged per kilowatt-hour and a small surcharge if consumption exceeds the announced limits.
He noted that the same pricing should be used for billing the inefficient industries and the agriculture sectors.
