IRAN SUBSIDIZING DRIVERS WITH ULTRA-CHEAP GAS

by Kimia Sanati

(IPS) TEHRAN -- Iran is among the world's largest crude oil exporters, but domestic political pressures have compelled the government of President Mahmoud Ahmadinejad to squander oil revenues and pamper motorists with heavily subsidized, imported gasoline.

Last week, amid criticism, parliament voted to allocate an extra $2.5 billion towards gasoline imports, reversing earlier plans to reduce by more than half a four-billion dollar allocation for the fiscal year that ends in March 2007.

"Parliament has approved a populist proposition on gasoline imports to please the masses. The decision means returning to the past and continuing the ever-increasing gasoline consumption trend," Iranian Labor News Agency quoted Gholamreza Mesbahi Moqqadam, a conservative legislator and member of parliament's economic committee, as saying.

"Unfortunately, the legislators have now chosen to allow the government to import five billion dollars worth of petroleum in total and have given it an additional one billion to distribute among various bodies," he said.

The bill approved Nov. 1 did reduce, by one billion dollars, the $3.5 billion the government had asked for and allocated an extra one billion from oil revenues for development and current expenses such as purchasing additional public transport fleet, completion of airports and railway projects, health, and funds for Friday prayer facilities in smaller towns.

The sum, however, will not cover gasoline import costs until the end of the Iranian fiscal year in March and the government will have to seek parliamentary approval once again to draw more from the fund -- that economists warn is being constantly drained by the government.

Parliament's decision was taken against options such as rationing all gasoline at its current subsidized price, favored by the Plan and Budget Committee, or establishing a combination of rationing domestically produced gasoline alongside higher prices for imported gasoline.

The government demand was met by the parliament despite huge opposition from reformists, conservatives and even the hard-line factions within the house itself.

"To prevent more gasoline imports the budget law for the current fiscal year had stipulated that the government import only $2.5 billion worth of gasoline during the year and rationed or offered gasoline at two -- subsidized and real -- prices to prevent more imports," Moqqadam said.

"The government doesn't have the courage to put an end to gasoline imports," Mohammad Khoshchehreh, a hard-line parliament member, former ally and now outspoken critic of president Ahmadinejad's administration, told the Iranian Students News Agency.

Another hard-line member of parliament, Mohammad Reza Mir Tadjeddini, said administrations have become adept at extracting money from the parliament. "Billions of dollars worth of gasoline will continue to turn into smoke while the country needs the money badly for development, employment and solving people's economic problems," he was quoted by 'Etemad,' a reformist daily.

"It is interesting that criticism of the bill came from all directions, many of them from the hardliners' own camp, but it was eventually approved without much debate. Nobody was even able to defend the government bill because continuation of the present situation is so obviously harmful and futile it can't be ignored but they ratified it anyway," an observer in Tehran told IPS.

"The fact is Ahmadinejad succeeded in intimidating parliament with predicting a possibility of unmanageable inflation, for which the parliament then would look responsible, and national security crises like riots if the price of gasoline went up or it was rationed as well as with the urgency of the need to please the masses," he added.

Daily consumption of gasoline, very highly subsidized in Iran, stands at between 70 to 80 billion liters a day, more than one-third of which has to be imported. Consumption has been increasing by ten percent (annually) over the past few years. The average fuel consumption in Iran, 10.75 liters, is four times more than in the European Union.

The price of gasoline stands at nearly 9 cents per litre, less than one-fifth its price in neighboring countries like Turkey, Afghanistan and Pakistan. The huge difference has resulted in a thriving contraband trade of 40 million barrels of fuel annually to those countries by small-time smugglers and organized bands alike, Fars News Agency reported on Nov. 4.

Cheap gasoline has done little to encourage domestic automakers to optimize fuel consumption. High levels of air pollution led to the closing schools in Tehran for several days last year.

"It is very important to note that in practice both parliament and government have approved of continuation of making a gift of nearly 2,200 dollars only in gasoline subsidies to the top 10 percentile of the population annually. Let's take the daily gasoline consumption at 75 million liters. According to official figures half of all this is consumed by the top 10 percentile, i.e., seven million people." Saeed Laylaz, economic and political analyst in Tehran, told IPS.

"On the other hand, with much propaganda and as part of its populist campaign the government has started to distribute an equivalent of 2,200 dollars (worth) of shares of state-owned enterprises to each of the members of the poorest 20 percentile of the population. This is meant to bring equality to the society and the shares are called 'justice share,'" he said.

"Shares worth only the equivalent of one-fourth of that sum are to be distributed to each individual by the government and the rest will be given to them in the future, within the next ten years. And the shares can't even be turned into money now. How can the payment of direct gasoline subsidies to the top 10 percentile and distribution of the so-called justice shares to the lowest 20 percentile be compared in terms of expanding justice," he asked.

The reformist government of Mohammad Khatami offered a bill to the hard-line dominated parliament in 2004 to gradually increase the price of gasoline, but the parliament that had newly taken over from a reformist one did not approve the bill. This was seen as an attempt on their part to attract popular support for hardliners in the presidential elections to follow.

"I work two shifts and I use my own car in the evenings and on weekends to transport people. I still can't meet the ever-increasing expenses of my children's education and other things. If the price of gasoline goes up, or if it is rationed, I won't be able to compete with officially licenced taxis that will get enough subsidized gasoline," says Mohammad Reza, a 48-year-old government employee who drives one of Tehran's thousands of unlicensed shared-taxis.

"I have to augment my scanty salary by driving this old car. But the government is on our side and it is trying to protect vulnerable people. If gasoline is sold at higher prices, only the rich will be able to pay for it," he says.

Economists are constantly warning about lavish expenditure of oil money by the government of Ahmadinejad to reach 68 billion dollars, according to the latest International Monetary Fund report. This year, 60 percent of the annual budget will be supported by oil revenues.

There are also fears that dependency on imported gasoline could make the country more vulnerable to international sanctions under discussion to get Iran to roll back its nuclear program -- which Tehran says is meant to improve its energy situation but the West believes has a weapons potential.

"The government is spending currency reserves freely. It has no wish or will to reform the economic structure through cutting back subsidies or helping production and investment. President Ahmadinejad very well knows what the masses want and he is buying their loyalty and allegiance with the oil money. Loyalty and allegiance bought with money, however, has always been short-lived," Laylaz observed.