TEHRAN, Jan 24: More than $1 billion worth of gasoline and other oil products is smuggled out of Iran each year, the government spokesman said on Monday, criticising parliament for maintaining heavy fuel subsidies.

Iran's hard line-dominated parliament, which draws support from the poor, voted this month to maintain fuel subsidies that keep Iran's petrol prices among the lowest in the world at just 10 cents a litre for another year.

Under a five-year economic plan developed by the pro-reform government, petrol prices were due to rise gradually to international levels from March 2005. "Each year, more than five billion litres of fuel and oil products are smuggled out of the country," Abdollah Ramazanzadeh told a weekly news conference.

"It costs the state 1,000 billion tomans ($1.13 billion)," he added. The difference in gasoline prices between Iran and its neighbouring countries has initiated large-scale contraband of the product through to Pakistan, Afghanistan, Iraq and Turkey.

Ramazanzadeh said President Mohammad Khatami's government wanted to kill off the motive behind the billion-dollar business, but the parliament's ruling had paralyzed the move.

Iranian officials say fuel subsidies cost the state $16 billion each year, more than 10 per cent of the GDP. Iran's Oil Minister Bijan Zanganeh said the country's budget bill proposed a dual price system for gasoline for the second half of next Iranian year starting March 21.

"Imported gasoline should be sold at the total cost and local production by rationing using smart cards," he told reporters on the sidelines of an oil congress on Monday. But the proposal, part of the budget bill currently under discussion by the parliament, must be approved by lawmakers who voted to freeze fuel prices. Ramazanzadeh said fuel was partly smuggled by villagers with jerry cans but declined to say how the majority was trafficked.

In a report to parliament, Iran's Intelligence Minister Ali Yunesi on Sunday described a number of major cases of contraband involving ships using the country's ports in the Gulf.

"More than 100 million litres of oil products have already been confiscated from smugglers," Yunesi was quotes as saying by Economic Hayat-e No daily. "But the fundamental solution is changing the supply-demand system," he said. -Reuters