Two-Tier Gasoline Prices Bad News

EghtesadOnline: The decision to sell gasoline at two rates is a breeding ground for corruption, head of the Iran Gas Station Owners Union’s board of trustees said.

News ID: ۷۴۹۰۱۵

24 November 2019

“Although the National Iranian Oil Products Distribution Company’s output has not changed (115 million liters per day), the new rationing scheme introduced last week has created a black market and resulted in long lines at the pumps,” Valiollah Mahmoudi was quoted as saying by IRNA.

Based on the new decision private car owners, CNG hybrid taxis, non-hybrid cabs, CNG hybrid vans, non-hybrid vans and ambulances can buy 60, 250, 400, 90, 250 and 500 liters of subsidized gasoline every month, respectively.

Despite the fact that unused gasoline can be saved for 6 months, car owners who have excess fuel in their cards have started selling it either directly or with the help of middlemen and filling station attendants, Financial Tribune reported.

The Iranian fiscal month ended on Nov. 21 (Thursday) and the rationing scheme started only one week earlier on Nov.15. In short, all the vehicles got two rations in one week and some decided to sell the fuel to make some money!

Experience of the past (in 2007 selling fuel at two different rates started for the first time) shows that despite mid-term gain like curbing consumption and waste, black markets popped up and middlemen started selling their quota near the gas stations, Mahmoudi recalled.

“Two different prices for fuel creates the temptation for illegal sale of subsidized fuel.”

New Dilemma

Stressing that long queues at the pumps have nothing to do with the NIOPDC’s production levels, he concurred that gas stations are expected to be more crowded during the first week of each month as car owners rush to fill up at subsidized rates and the last week of each month to sell the unused gasoline.

Referring to other problems at pumps that have caused irritatingly long lines, he noted that there are 3,600 stations in the country, some of which are out of service, especially in Ahvaz, Tehran, Shiraz, Isfahan and Karaj due to the violence and attacks that followed after gas prices were suddenly raised by 200%.

“Some pumps are badly damaged and repairs take time.”

Depending on the districts and size of filling stations in the metropolises, the stations can supply between 40,000 liters and 300,000 liters of gasoline per day.

Last but not least, he added that selling fuel with cards is more time consuming compared to the time when motorists do not have to use a card.

Prior to the implementation of the new plan on Nov. 15, Oil Minister Bijan Namdar Zanganeh had often said he is strongly against any legislation that would mandate the sale of gasoline at two rates (subsidized and non-subsidized).

"Having two rates for gasoline leads to corruption and the Oil Ministry is against [selling] gasoline or any other petroleum product at two rates," Zanganeh had said.

Two-tier pricing scheme for gasoline (which has been the subject of much debate and controversy) started in 2007 when car owners could buy 60 liters of subsidized gasoline every month with a fuel card at 1,000 rials and additional purchases cost 4,000 rials. (At the time one dollar fetched 10,000 rials.)

In 2010, price for the former rose to 4,000 rials and the latter to 7,000 rials. (At the time the USD rate was 32,000 rials)

In 2014, subsidized gasoline was sold at 7,000 rials and non-subsidized fuel at 10,000 rials. (At the time one dollar fetched 37,000 rials.)

In a sudden move on Nov. 14 midnight the government announced that gasoline was rationed again and pump prices for non-subsidized fuel went up 200%.

Private car owners can now buy 60 liters of subsidized gasoline every month with a fuel card at 15,000 rials (13 cents) a liter, up 50%. Additional purchases (maximum 250 liters a month) costs 30,000 rials (26 cents) a liter --  up 200%.

Experience in countries like Indonesia, Nepal, El Salvador strongly indicates that the two-rate mechanism  is like a double-edged sword and very difficult to implement without prohibitively costly levels of leakage and illegal diversion.

There are very few success stories because the plan has financial incentive and temptation for corruption that apparently outweigh the anticipated gains.