June 15, 2007	Friday	Jamadi-ul-Awwal 29, 1428

TEHRAN: As Iran reluctantly begins implementing on Thursday a plan to reduce consumption of mostly imported petrol by cutting massive consumer subsidies, it is with an eye to possible tightening of international sanctions for the country’s controversial nuclear programme.

Saeed Laylaz, economic observer and former consultant to Iran Khodro, the country’s largest automaker, told the news agency that sanctions were an important factor in implementing a plan that could prove unpopular but still be insufficient to address the problem of rising costs of importing petrol and refined oil.

“The government wants to reduce its dependence on gasoline imports but with what they have in mind demand is going to decrease only by around 20 million litres and we will still be hugely dependent on gasoline imports. The security aspect of the problem is very serious and compelling. Sanctions on gas imports can bring the system down to its knees within 48 hours and create havoc if the problem is not urgently and effectively addressed,” Laylaz said.

In December the United Nations Security Council imposed the first round of sanctions on Iran and tightened them in March as Tehran refused to suspend uranium enrichment which it insists are intended purely to meet energy requirements.

On Wednesday, in a joint-statement, Britain, France and Germany hinted at further sanctions. “Iran continues to ignore its obligations and has not taken any steps to build confidence in the exclusively peaceful nature of its programme,” the statement to the International Atomic Energy Agency said.

Besides sanctions, there has been concern at the rising cost of petrol imports. Although a major petroleum producer Iran has limited refining capacity.

“Consumption of gasoline has been increasing at the rate of 10 per cent annually over the past few years. The government will soon have to import around 40 million litres of gasoline a day if demand for gasoline is not cut down,” Laylaz said. “Importing this much gasoline will be an almost impossible task for economic reasons and for limitations of the domestic transportation structure.”

Iranian automakers have flooded the market with nearly a million cars a year over the past few years. Laylaz believes that with a record liquidity growth of 42 per cent the increase in the price of gas may lead to a drastic increase in inflation. “Having this in mind, the government of President (Mahmoud) Ahmadinejad is very reluctant and very cautious about any increase in the price of gas,” he said. Ahmadinejad’s reluctance to implement restrictions on petrol consumption, in the face of parliament’s urgent insistence, could be seen in the fact that the first phase starting on Thursday only covers government users. Rationing was to have been originally implemented from Jun 8.

“The start of first phase of petrol rationing is only for government vehicles and will begin from midnight on Wednesday,” Ali Akbar Mehrabian, head of special plans, was quoted as saying by the Islamic Republic News Agency (IRNA).

Smart cards have been introduced, but the owners of Iran’s nearly eight and a half million cars are still anxiously waiting to find out the quantity of subsidised fuel that will be allocated to each car by the government and the price at which non-subsidised gasoline will be sold.

Smart cards have not yet been delivered to around one million car owners but gasoline is now sold in more than 90 per cent of the stations only to those who have smart cards.

A deputy oil minister was quoted in Iranian newspapers as advising those who have not received their smart cards to use the smart cards belonging to others for the time being.

The Iranian parliament has allocated $2.5 billion to the government for gasoline imports in the current fiscal year (Mar 21, 2007-Mar 20, 2008). Last year the government, initially allocated the same $2.5 billion budget, spent $5 billion to import gas to sell at a subsidised price of Rls.800 (approximately 8.5 cents per litre).

Daily consumption of gasoline and domestic production stands between 75 to 80 million litres, leaving at least 30 million litres a day to be imported. In addition to gasoline there is also a demand for nearly 80 million litres of subsidised gas oil. There are no plans for rationing gas oil and the government recently managed to convince the parliament to restore the price of gas oil from Rls.450 (4.9 cents) per litre to last year’s price of Rls.160 (1.7 cents).

With an allocated budget of $2.5 billion for gasoline imports the government needs to reduce its consumption to between 50 and 60 million litres a day in order to avoid recourse to the Oil Stabilisation Fund for more gasoline imports as it did last year — spending nearly all the government savings from higher oil prices in the world market than envisaged in the budget.

A closed session of the Iranian parliament with interior minister Mostafa Pour Mohammadi, held on Jun 11, on government plans to begin implementation of rationing reached no specific conclusion, Aftab News Agency quoted a member of parliament’s Energy Committee as saying. Full implementation of rationing, to be carried out in three stages as proposed by the interior minister, will need a month, the member said.

“Rationing gasoline is going to be one of the most difficult economic reforms since the Islamic revolution of 1978. The difference between the price it is sold at now (10 cents) and its real price (43 cents) has reached a dangerous level and any attempt to sell gas at its real price may lead to economic and social disaster or upheavals,” he added.—Dawn/The IPS News Service