TEHRAN: The price of gasoline will rise four-fold in Iran in the coming days, state television announced late on Saturday, as the most politically sensitive part of President Mahmoud Ahmadinejad’s subsidy cuts plan takes effect.
Iranians have been expecting a big rise in the price of gasoline for the past three months as the government starts to phase out the $100 billion spent annually to hold down prices of essentials such as fuel and food.
People rioted when the government started rationing subsidized petrol in 2007, and some analysts say big price hikes could reignite unrest that flared after Ahmadinejad’s disputed re-election last year.
Gasoline subsidies have allowed Iranians — who see cheap fuel in the oil-rich country as a birthright — to fuel their cars for just 1,000 rials (about 10 US cents) per liter for the first 60 liters they buy per month.
The price hike will push that up to 4,000 rials, and beyond the 60-litre ration the price will be 7,000 rials, TV announced. Further price rises, on other essential subsidized items, were to be disclosed overnight, it said.
Ahmadinejad said in a live televised interview that the government would seek to soften the price hike.
"So that the plan starts in a good way and with less tension … we have made extra moves including announcing gasoline (at the fully subsidized price) for one extra month," he said.
Mohammad Reza Farzin, spokesman for the subsidy plan, said the average price of household electricity was now 450 rials per kilowatt an hour, water 250 rials per cubic metre and cooking gas 700 rials per cubic metre.
"The expenses (for households) will depend on consumption. The lesser the consumption, the lesser the cost will be," Mehr quoted him as saying.
That softener will mean Iranians can buy 50 liters of fuel at the old 1,000 rial price next month, before having to pay the new price, according to the television announcement.
Iranian politicians have discussed cutting subsidies for years to stem wasteful consumption of valuable resources, but Ahmadinejad has finally pushed the measure through at a time when Iran is under increasing pressure from sanctions imposed by countries concerned about its nuclear program.
The Tehran municipality announced the rise in fuel prices would not lead to hike in fares of public transport such as the metro rail network, buses and taxis plying in the capital, media reports said.
The government plans to phase out subsidies on energy products petrol, diesel, gas, kerosene and electricity, and food items such as water and bread as part of the overhaul which had been in the pipeline for several years.
According to official estimates, subsidies on these products cost state coffers about 100 billion dollars a year.
A 2007 attempt by government to ration petrol had triggered riots in Tehran, and, on Sunday, police were guarding several fuel stations in the capital to prevent any repeat of the violence.
In an interview on state television, Ahmadinejad announced the scrapping of subsidies would start to take effect from early Sunday.
"For the moment we do not have plans to free the prices, but the prices will be corrected. New prices will be announced tonight," he said.
Soon after Ahmadinejad’s announcement, motorists were seen queuing outside Tehran petrol stations to fill up their tanks before the introduction of the new fuel prices.
Ahmadinejad has been severely criticized by various groups for the subsidy removal plan which was initially to start in September.
Inflation fears
Ahmadinejad has said the plan will be a boost to the economy and that direct payments to poorer families, due to start being paid from Sunday, would make it painless.
"This is the country’s greatest economic overhaul and also the most popular," he said.
Consumers and many politicians fear subsidy cuts could cause inflation to soar from the official rate of around 10 percent, something that could increase dissatisfaction with Ahmadinejad’s government.
One member of parliament, Dariush Qanbari, said direct cash payments would not make up for price hikes.
"Based on what economy experts have said, the country’s inflation rate will increase by 20 to 70 percent in the coming year, and the government’s compensation policy should be such that the weaker segments of society can meet their basic needs," Qanbari told the semi-official ILNA news agency this month.
The total amount of fully subsidized fuel sold in Iran will be cut to 39 million liters per day from 45 million liters, Mohammad Royanian, head of Iran’s Transportation and Fuel Management Office, was quoted as saying by news agencies earlier on Saturday.
Iranians consume some 61 million liters per day, according to the Oil Ministry.
Sanctions have targeted a vulnerability caused by Iran’s lack of refining capacity, which means the world’s fifth-largest oil exporter has until recently had to import up to 40 percent of its gasoline needs.
US sanctions punish companies that sell gasoline to Iran and European Union measures ban the sale of equipment that can be used in Iran’s refining sector.
Officials announced in September that an emergency plan to refine gasoline in petrochemicals plants now meant Iran no longer needed to import the fuel. Iranians fear the home-made fuel is of lower quality and has contributed to a big increase in pollution, something the government denies.
The Islamic republic’s supreme leader, Ayatollah Ali Khamenei, has backed the plan despite the concerns of some conservatives.
An Iranian analyst said the government intended to drain liquidity out of the system by implementing the plan.
"Ahmadinejad had to think of a way to collect the floating liquidity in people’s hands. So by implementing these gradual subsidy cuts, prices will be freed and liquidity would be cut to some degree," he said on condition of anonymity.
To offset the rising prices, the government has begun to pay part of the expected savings from subsidy removals in the form of direct aid to the people.
According to official figures, some 60.5 million Iranians have already started to receive 810,000 rials (74 dollars) paid into bank accounts every two months. This represents 2.5 billion dollars a month in the state budget.
