Private Power Producers Under Stress

EghtesadOnline: Unprecedented volatility in the currency market over the last 15 months is adding financial pressure on private electricity producers and most are on the verge of bankruptcy, head of the board of directors of the Power Generation Companies Syndicate said Tuesday.

News ID: ۷۴۹۲۹۱

25 December 2019

"Private power producers who built plants with loans from the National Development Fund of Iran (the sovereign wealth fund), are unable to repay their debts,” Mohammad Ali Vahdati was quoted as saying by IRNA.

Following the government’s appeals in 2014 to private firms to play a bigger role in the power production sector, NDFI gave between $200 million to $350 million to private companies to build thermal power stations, he said. At that time the US dollar was worth 40,000, according to Financial Tribune.

“Now the rate has tripled, but the electricity that is generated is still bought with tariffs used in 2014!”

Private power plants constructed with loans are obliged to repay at least $65 million a year (based on the new exchange rate USD = 13,000 rials) and this is unfair and impossible, the state news agency quoted him as saying.

For instance, a company that borrowed $200 million must repay $450 million to the lending fund and many such companies are unable to settle their debts calculated at such prohibitive rates.

Annual power generation in Iran is 75,000 MW and average annual export is 10 million kilowatt hours destined largely to Iraq, Pakistan and Afghanistan.

“Moreover, private companies are not allowed to sell electricity (directly) and their output must be delivered to Iran Power Generation, Distribution and Transmission Company (Tavanir). This (wrong) policy has added to the problems because private firms cannot generate income by selling power via the Energy Bourse in Tehran.”

Reza Hadadian, a member of the same syndicate, said  that the future of the power industry is in jeopardy. He called for effective measure to address the litany of problems of the key sector.

Private sector investment in the power industry is said to be near $22 billion and 50% of the power demand is supplied by private power stations.

“Failure to adopt new and efficient policies (allowing private companies to sell electricity directly or raising power tariffs) is indeed demotivating. This is why private companies are simply not interested in any new power projects.”

Government investment in the sector is out of the question as the economy stutters due to the huge decline in oil exports and the ballooning budget deficit.

Power generation cost, including production and transmission, is 2 cents per kilowatt-hour. Electricity is presently sold at 0.7 cents per kWh.

Data released by the ministry show that among 200 countries, power is the cheapest in Iran after Egypt, Kuwait and Myanmar.