Iran Government Wants Reduced Footprint in Energy Industry

EghtesadOnline: Energy Minister Hamid Chitchian on Saturday called for incentives to encourage private investment in water and power projects in a bid to reduce the government footprint over the two key industries.

News ID: ۷۴۲۰۳۷

11 June 2017

"Water and more specifically the power sector have the capacity to reduce their dependence on government funding and financial resources. But to that end, (investors in) public utility companies should be able to generate revenues directly from the services they offer," Chitchian was quoted as saying by ILNA.

The statements by Chitchian reflect norms of an open utility market in which consumers have the freedom to choose their power supplier, just as they can choose their internet service provider from among dozens of companies.

European countries have made significant inroads in privatizing their power industry, from production to distribution and supply. In a competitive utility market, suppliers buy energy wholesale and sell it to customers who can pick and choose from attractive tariffs based on their demand and consumption patterns, according to Financial Tribune.

"Over the past four years, close to 60 trillion rials (more than $1.5 billion) worth of water and power projects started with private funds  as well as funding from international banks and companies," Chitchian noted.

But according to experts, little to no return on investments in many power projects and difficulty in breaking into the iron-clad government grip on the power sector in Iran has deterred private investment.

The minister did not explain how his ministry intends to convince  private investors to put their money in the water and electricity sector when the profit margins are miniscule or non-existent. He, however, did not rule out the prospect of higher water and electricity tariffs in the coming years.

"We should not assume that higher electricity prices will pile pressure on people. As stipulated in the sixth five-year economic plan (2017-22), subsidized electricity should become a thing of the past. We need to do this gradually," he said.

Earlier in the week the minister said that his ministry has no plans to raise water and electricity tariffs in the present fiscal that ends in March 2018.

He also censured unplanned and hasty decisions made during the tenure of former president Mahmoud Ahmadinejad (2005-2013) regarding urban development projects that now has created a mountain of serious challenges for the government with respect to the provision of water, electricity, gas, roads, schools, hospitals, public transport…

On developing the town of Pardis, 50 km east of Tehran, Chitchian said the town was originally designed to house 80,000 people, but the Ahmadinejad administration "made an unprepared decision to accommodate 330,000 people in the town without consulting the Energy Ministry or considering water and wastewater requirements."