Irandaily | No. 3857 | Domestic Economy

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Subsidy Cuts Leads to Lower Fuel Consumption

Domestic Economy Desk

Fuel consumption across Iran has fallen since the government began scrapping subsidies on energy goods, Managing Director of National Iranian Oil Products Distribution Company (NIOPDC) Farid Ameri said.
Consumption of gasoline in the country has decreased by five percent since implementation of the Subsidy Reform Law on Dec. 19, Ameri said.
“The average daily consumption of gasoline nationwide is 58 million liters. Since Dec. 19, the average daily consumption of gasoline has declined by 2.5 million liters. Furthermore, since Dec. 19 the level of consumption of kerosene and furnace oil has decreased by 50 and 18 percents, respectively and consumption of compressed natural gas (CNG) has decreased by two million cubic meters by day,” added Ameri, who was speaking to reporters, IRNA reported
Meanwhile, Deputy Economy Minister Mohammad Reza Farzin told AFP in an interview on Monday that in the first nine days of the launch of the subsidy removal plan, the energy consumption has fallen, adding the economic restructuring has been generally well received.
President Mahmoud Ahmadinejad’s government began scrapping subsidies on energy and food products since December 19 despite much debate and initial criticism from lawmakers and economists.
As a result, prices of petrol, diesel, cooking gas and electricity and water skyrocketed by up to five times.
The government plans over a five-year period to completely phase out the subsidies, which cost the state’s coffers about $100 billion annually.
Farzin said that since the plan came into effect the government had seen an across-the-nation fall in fuel consumption, something it had always wanted to achieve.
“In the past nine days, our petrol consumption which was about 60 million liters (13.1 million gallons) a day is now at 55 million,” he said.
“The oil ministry says that diesel consumption, which was at 54 million liters, is now at 40 to 41 million liters,” he said, adding that cooking gas consumption had dropped by six percent and water by five percent.

Stabilizing Consumption
Stabilizing energy consumption has been a key concern of Iran, the second largest oil producer of OPEC, after steady rises over the past 10 years which Farzin said averaged 6.5 percent annually.
“We are spending $100 billion in subsidies every year from a gross domestic product of $400 billion. We have realized that low energy prices cannot deliver social welfare,” said the government’s point-man on the subsidy removal plan.
“It can’t reduce poverty. We are determined to use the resources for managing prices more efficiently,” Farzin said.
The scheme, now welcomed by lawmakers and economists, faced stiff resistance initially in parliament which questioned the government’s ability to distribute the savings earned from it and warned that the plan was inflationary.
Farzin dismissed criticism that the plan would fuel inflation at a time when the economy was facing stiff international sanctions.
“We are returning the income generated back to the people. We are not creating more cash. So our plan will not increase inflation,” he said defending the long-awaited overhaul of the economy.
“We do not believe that the money generated should go to government coffers. On the other hand if we can activate the production sector, it will help control inflation.”

Privatization
He said a simultaneous plan to push ahead with privatization would help control inflation as more and more “chunks of (state-owned) industries” are sold to the private sector.
“The cash that will go from us will help create enough demand for production,” Farzin said, referring to cash handouts the government started to give to the population before the subsidy plan was launched.
According to official figures, some 60.5 million Iranians are receiving 890,000 rials (around $78) paid into bank accounts every two months, costing the government $2.5 billion a month.
Observers say that the price hikes have hit the transport sector significantly, especially truckers and inter-provincial bus operators.
Farzin said the government had anticipated this multiplier effect and discussed it with representatives of the business community, trade unions and transporters.
“Price hikes are being effected in the transport sector in different provinces but up to a maximum of 15 percent which would also ensure that inflation remains below this level,” he said.
Farzin acknowledged that there were some initial “hiccups” in implementing the plan, but overall it was receiving the backing of the population.
“The government and people are cooperating responsibly which has helped the plan to go well,” he said.

Establishment of Iran-Syria FTZ Urged

Deputy head of the Chamber of Commerce of the Syrian Homs city stressed the necessity for the establishment of an Iran-Syria exclusive free trade zone in a move to boost and bolster economic interactions between the two Muslim countries.
Speaking at a meeting between a visiting Syrian trade and commerce delegation and the executive officials of Iran’s Central city of Qom, Farhan Rajjoub said that the establishment of a free trade zone is necessary for the expansion of bilateral ties.
“Exports and imports between the two countries should be done with the minimum customs tariffs and duties in a bid to give an eye-catching growth to our trade exchanges,” Rajjoub noted, Fars News Agency reported.
He described political, trade and social ties between Iran and Syria as “very good”, and stated, “Syrian traders and businessmen are very eager to expand and increase trade ties with Iranian investors and traders.”
In November 2010, a senior Iranian trade official announced that Iran and Syria have prioritized setting up a joint bank in a bid to boost their bilateral trade ties.
Addressing a meeting of Iran-Syria joint trade committee in Iran’s Southwestern city of Ahvaz’s Chamber of Commerce, Industries and Mines on Sunday, head of Iran-Syria Trade Delegation Seyyed Hassan Javad said that preparatory steps have been taken to set up a joint bank and that the bank would soon start registering investment bills.
Iran and Syria have forged an alliance ever since the victory of the Islamic Revolution in Iran and the two countries’ officials exchange visits on a regular basis.
The two countries enjoy strategic relations in a wide variety of areas, but their defensive pacts are amongst the most important areas of Tehran-Damascus cooperation which have caused deep worries in the US and Israel.
In October, Supreme Leader of the Islamic Revolution Ayatollah Seyyed Ali Khamenei in a meeting with Syrian President Bashar Al-Assad in Tehran underlined the necessity for the further bolstering of the good cooperation between Tehran and Damascus.
“The process of good cooperation between the two countries should continue at a higher speed than before,” Ayatollah Khamenei said.

Gas Deal With Azerbaijan

Tehran and Baku plan to ink a long-term agreement to ensure continued supply of Azerbaijan’s gas to Iran, a senior Azeri oil official announced.
Speaking after a meeting of the executive authorities of Baku’s Nizami district on Tuesday , head of Azerbaijan’s state Oil Company Rovnag Abdullayev said the capacity of the compressor station in Astara needed to be increased to ensure long-term supplies of Azerbaijan’s gas to Iran, Fars News Agency reported.
“Today the power of the compressor station in Astara allows us to supply a small amount of gas to Iran and Nakhchivan. I would like to note that the supply of Azerbaijani gas to Iran is based on a short-term agreement,” Abdullayev said.
“The volume of gas supplies to Iran will increase dramatically in autumn 2010, once a long-term agreement has been signed, the capacity of the compressor station in Astara has been increased and the gas pipeline repaired, “ he added.
Iran, which owns the world’s second largest gas reserves after Russia and is itself a major gas exporter, has recently faced numerous problems in supplying gas to its northern regions which are far from the national grid, specially in winter.
Therefore, Tehran has signed gas deals with its northern neighbors, including Turkmenistan and Azerbaijan, to ensure safe, secure and continued supply of energy to its Northern provinces in freezing cold.
Iran is currently importing 14 billion cubic meters of gas from Turkmenistan via two pipelines and plans to boost the volume up to 20 billion cubic meters a year in the long term.

Water Ties
Iran’s energy minister said important issues regarding water resources and common values among Iran, Afghanistan and Tajikistan demand the establishment of a tripartite committee in water sector.
Addressing the trilateral meeting of Iran, Afghanistan and Tajikistan’s energy ministers in the Iranian capital, Tehran, on Monday, Majid Namjou said disciplinary systems and suitable regulations on water management in the three states are among important issues that this tripartite committee can follow up, Presstv reported.
Namjou reiterated that the trio’s successful experiences served as a basis for the Tehran meeting and that the common religion, culture and language shared by the three countries make it necessary to exploit their existing potentials.
Iran, Afghanistan and Tajikistan have had considerable achievements in issues related to climate change, but they need to seriously pursue matters such as flood and drought and other issues surrounding climate changes, the Iranian energy minister opined.
Namjou went on to say that issues discussed during the current meeting of the three energy ministers would serve as a good basis for their next meeting to be held in April 2011 in Tehran.
The Iranian, Afghan and Tajik energy ministers are currently holding a three-day summit in the Iranian capital that began on December 26 in an effort to review ways to expand trilateral cooperation in various energy fields.

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