Whispers of Electricity Price Increase in Iran

A few days after the Deputy Minister of Energy announced the ministry's proposal to the government for an increase in electricity prices, Iranian media reported a significant gap between the cost of electricity production and its sale price. According to the Mehr News Agency, Houshang Fallahian, the Deputy Minister of Energy for Electricity and Energy, announced on Saturday, November 6, that a proposal for an increase in electricity prices had been submitted to the government. He stated that it is not feasible for the government to cover the difference between the production cost and the mandated rates, which is a very large amount. Now, the ISNA news agency reported on Wednesday, November 10, that Iran ranks among the three countries with the lowest electricity tariffs out of 200 countries worldwide. The report adds that in the electricity sector, there is an annual minimum of 7 trillion tomans in the difference between the production cost and the mandated rate, excluding fuel costs, and 240 billion kilowatt-hours of subsidized electricity is sold domestically, turning the gap between production costs and mandated sales into debt. 'Moreover, if the fuel for power plants is accounted for, the subsidy the government pays for this difference amounts to over 15 trillion tomans annually.' The report also mentions electricity prices in some European countries and highlights the significant difference compared to the low electricity prices in Iran. According to the IRNA news agency, Mr. Fallahian recently stated that 'the unbalanced economy of the electricity industry has led to the accumulation of claims from the private sector, to the extent that the Ministry of Energy currently owes 30 billion tomans to the private sector.' This ministry also has a heavy debt to the Ministry of Oil for the gas and liquid fuel consumed by power plants. In July of this year, Hamid Chitchian, the former Minister of Energy, announced that a proposal had been made to the government to increase electricity prices by 10%. He stated that 2016 was 'the last time the price of water and electricity was increased by 10%, and since then, there has been no increase in prices for water and electricity.' The household electricity tariff in Iran increased by 10% in March 2016 at each consumption tier, and in March 2015, the price of this energy rose by 24%. Each tier depends on the amount of electricity consumed in each household. The price of electricity consumption in Iran also depends on the time of use. Mr. Chitchian further stated that currently, the cost of producing one kilowatt-hour of electricity is 120 tomans for the Ministry of Energy, but it is sold for 66 tomans, resulting in a loss of 54 tomans for the ministry. Government subsidies for fuel in Iran are very significant, and according to statistics from the International Energy Agency, Iran provides the highest level of fuel subsidies in the world. Based on these statistics, Iran incurred about 18 billion dollars in gas subsidies, over 13.5 billion dollars in electricity subsidies, and about 20 billion dollars in oil product subsidies in 2015. However, part of the gap between the costs and revenues of electricity production in Iran is related to the very low efficiency of Iranian power plants, which, according to official statistics, is about 37%. This indicator in modern power plants today is over 50%. On the other hand, according to Iranian officials, electricity losses in the transmission network are currently about 10.7%. Iran also consumes a massive amount of liquid fuels in power plants due to gas shortages. For example, last year, over 11 billion liters of diesel and fuel oil were consumed in power plants, which could have been replaced with cheaper gas.