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EghtesadOnline: The Majlis passed a bill last week based on which electricity tariffs for energy-intensive industries, namely cement factories, refineries and petrochemical and steel companies will increase fourfold to 1.6 cents per kilowatt hour.

Beginning from the next fiscal year (March 21), all industrial units that use more than 2 megawatts of electricity a day will be charged 1.6 cents per kWh, up 275% compared to the outgoing year (0.4 cent per kWh), ISNA reported.

The move has stirred controversy among economic and energy experts. The legislators argue that big industries export in huge volumes and as such higher tariffs will not affect inflation.

The cash-strapped Energy Ministry has been obliged to use its revenue not only to settle a part of its massive debt ($2 billion) to private companies but also rehabilitate ageing infrastructure and expand water supply to rural areas. 

However, economic experts warn that the decision will further push up the galloping inflation because at least 40% of goods produced by big industries (cement, steel, petrochemicals) are sold domestically to which the lawmakers seem to be oblivious.

"Such a mistake should have been avoided by learning from the past," Amir Mohammad Eslami, an independent energy expert, told ISNA, noting that whenever energy and power prices (whether it is gasoline or electricity) increase, the domestic inflationary impact is a foregone conclusion.

Referring to the abrupt government decision to raise gasoline prices in November 2019 from 5 cents per liter to 7.5 cents per liter, he said the 50% rise overnight resulted in paying more at the pump, leaving less to spend on basic needs such as food, health, education, housing and apparel.

Last but not least, high power tariffs can undermine economic growth by affecting the supply-demand chain for goods and services.  Increase in prices tend to depress the demand side because it raises the cost of production and end users may not be able to afford many things as time passes.


Declining Investment

In related news, Barq News quoted Mohsen Tarztalab, managing director of Iran's Thermal Power Plants Holding Company, as saying that investment in power plants, renewables and infrastructure decreased sharply in the past three years and the state-run Iran Power Generation, Distribution and Transmission Company (Tavanir) will face problems related to electricity security from 2022.

“Installed power capacity of 80 gigawatts is enough to meet demand. Declining private investment has become a major concern amid the likelihood that the key sector may face serious shortages come 2025.” 

He spoke of “risks for the future sustainability of power systems” and warned that financial constraints have become a major issue for infrastructure renewal and expansion.

“Policies that can mobilize investment for sustainable power systems, like raising power tariffs, should be given high priority.”

Tarztalab noted that lack of investment is rooted in the fact that private power producers have been hit hard by deferred payments because the Energy Ministry has failed to meet its financial commitments on time.

The Energy Ministry's debt has ballooned to $2 billion, of which $500 million is owed to the industrial giant Mapna Group.

Annual power consumption in Iran grows between 5% and 6%, but expansion plans have been undermined due funding issues, mismanagement and the energy subsidy policies.

“Power projects to the tune of $13 billion are on hold because contractors want strong guarantees that they will be paid on time,” the TPPHC boss said.

The number of electricity meters nationwide in the household, agro and industrial sectors, which now exceeds 37 million jumps 1 million a year.


Industries power Tariffs