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                                        Volume. 11987

Subsidies account for 74% of electricity, fuel costs in Iran: report
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TEHRAN - Subsidies account for 74 percent of the cost of electricity and fuel in Iran, ranking the country in fourth place among members of the Organization of the Petroleum Exporting Countries (OPEC), according to the International Energy Agency (IEA) and the International Monetary Fund (IMF).
 
In cash terms, the world’s biggest subsidies are in Iran, Saudi Arabia, and Russia, all of which are major oil producers. Subsidies cost these three countries a combined total of $180 billion per year in 2012, Reuters reported, citing the IEA and IMF reports.
 
Iraq, Kuwait, Iran, Saudi Arabia, Venezuela, Libya, the United Arab Emirates, Qatar, Algeria, Nigeria, Ecuador, and Angola are the OPEC member states.
 
The Iranian government announced petrol price hikes as high as 75 percent on April 25, signaling the start of the second phase of the subsidy reform plan.
 
The first phase of the subsidy reform plan kicked off in December 2010, when prices of staple foods and utility bills, as well as gasoline, soared overnight.
 
In the first stage, the government paid 455,000 rials (about $18) per month to citizens to compensate for a partial cut of subsidies.
 
Fossil fuel subsidies cost governments in emerging markets more than $500 billion every year and are a major contributor to climate change, according to the IEA’s Fossil Fuel Subsidy Database.
 
The biggest subsidies are concentrated in the Middle East, North Africa, Asia, and parts of Latin America. 
 
Moreover energy-exporting countries accounted for three quarters of all consumption subsidies in 2012, according to the IEA, and OPEC members account for more than half the world’s subsidies.
 
Subsidies account for 82 percent of the cost of electricity and fuel in Venezuela, 80 percent in Libya, 79 percent in Saudi Arabia, 74 percent in Iran, and 56 percent in Iraq and Algeria. By contrast, the average rate of subsidy is just 18 percent in India and 3 percent in China.
 

Reform efforts
 
Policymakers in most countries acknowledge the need to reduce or remove subsidies, and the approach has strong backing from the World Bank, the IMF, and the IEA. But efforts to reduce subsidies have met with limited success.
 
Iran, Indonesia, Ghana, Kenya, the Philippines, Mozambique, and several other countries have all pushed through substantial price increases over the last two decades.
 
To succeed, reform programs need to be accompanied by a strong communications strategy which points out that most of the benefits from subsidies go to wealthy households who can afford to pay the full cost of energy, and carefully targeted social measures to compensate the poorest households.
 
Timing is important. Reforms are more likely to be successful if the oil price is falling, when households are less likely to notice the removal of subsidies, than when energy costs are already rising. China and Indonesia both took advantage of lower oil prices in 2009 and 2010 to reduce support.
 
Even if it proves impossible to remove subsidies altogether, energy prices can be depoliticized by explicitly linking the retail cost of gasoline, diesel, and kerosene to international benchmarks with fixed but adjustable formulas.
 
“Establishing an automatic pricing formula… can help distance the government from pricing of energy and make it clearer that domestic price changes reflect changes in international prices which are outside the control of the government,” according to the IMF.
 
Even so, removing subsidies remains fiendishly difficult. “Many countries have successfully implemented reforms only to see subsidies reappear when international oil prices increase,” the IMF laments. The temptation to reintroduce price controls to help households with rising living costs is strong.
 
And in the biggest petro-states, including Saudi Arabia, Iran, Iraq, Russia, Kuwait, Venezuela, Libya, and Algeria, there has been virtually no progress towards more sensible energy pricing.
 
The result is a prodigious waste of energy. The petro-states are among the world’s biggest and fastest-growing oil consumers and some are now having to import natural gas for power generation to meet electricity demand. And the greenhouse emissions are enormous.
 
MG/HG

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