Private Power Companies to Tavanir: Stop Flirting With Prices

EghtesadOnline: Privately funded power plants will continue to struggle with low profit margins in the months ahead unless government-affiliated Power Generation, Distribution and Transmission Company (Tavanir) buys their electricity at higher prices, secretary of the Electricity Industry Syndicate said Monday.

News ID: ۷۴۷۱۹۵

30 April 2019

"The government buys each kilowatt of power from power stations at 700 rials (0.5 cent). This rate has not increased in the past four years whereas operating and maintenance costs have climbed at least three times," Parviz Ghiaseddin was quoted as saying by Barq News.

Talks are underway with the Energy Ministry, he said, but no final decision has been made about new prices.

"Rates (new prices) should increase at least 3.5 times or 257%. If not private companies cannot cover their operating costs," he stressed, adding that Tavanir should be required to pay a minimum of 1.75 cents for each kilowatt, Financial Tribune reported.

The Energy Ministry is aware that it is not economically viable to operate power plants at current electricity prices and have promised to announce their decision soon, Ghiaseddin noted.

As per law, private companies cannot directly sell power to consumers. They must sell to Tavanir – a huge corporation in charge of producing and selling power.

Due largely to financial constraints in recent years, the government has not been able to meet its financial commitments to contractors. This explains their aversion to new projects.

Power projects worth $13 billion are on hold “unless contractors are given guarantees that they will be paid on time,” the power syndicate chief said.

Problems Persist

“The government is keen on privatizing the power sector, but with such low tariffs it is obvious that no one is interested,” Mohammad Parsa, head of the Federation of Iranian Energy Exports Industries said. “These problems will persist unless Tavanir raises the prices at which it buys electricity.”

Due to the huge gap in real energy costs and what consumers pay, the government annually pays $1 billion in subsidies.

Data released by the ministry show that among more than 200 countries, Iran has the cheapest power – less than 0.5 cent per kilowatt-hour after Burma, Egypt and Kuwait.

Energy experts including Ali Asghar Esmaelnia, a deputy manager at Tavanir, says privatization of power plants has not been compatible with Article 44 of the Islamic Republic of Iran Constitution based on which a large sections of executive responsibilities of the Energy Ministry ought to be delegated to private firms.

"Transferring power plants to the Social Security Organization, Bonyad Shahid (Foundation of Martyrs and Veterans Affairs) and banks in order to settle Energy Ministry cannot be called privatization,"  Esmaelnia rued.

Debt of the Energy Ministry to private power plants now exceeds $1 billion not only due to crippled privatization policies but also because of disparities between electricity prices, which include the cost for generation and transmission and what the people actually pay.

Producing a kilowatt-hour of electricity costs 0.5 cents and is sold for less than 600 rials (0.4 cents).