State Monopoly Hurting Private Power Producers

EghtesadOnline: So long as electricity export is the exclusive premise of the Energy Ministry, the power industry will remain far on the periphery due to the obvious reluctance of private firms to get involved with mega projects, an energy expert has warned.

News ID: ۷۵۰۳۳۸

29 June 2020

“Unless the private sector breaks the absolute monopoly of electricity export and the ministry allows for the presence of private enterprise in this sector, exports will not pickup” Bargh News quoted Alireza Kafshkanan as saying.

Stressing Iran's capability to turn into a regional electricity export hub with its untapped infrastructure and skilled workforce, Kafshkanan, who has work experience in electrical firms, added, "Iran's 10-year record in electricity exchange with neighbors, namely Pakistan, Afghanistan and Iraq is indeed commendable. But it’s rather strange that no plans have been made to make it a regional hub.”

“The underlying reason behind the total monopoly are not only the difference(s) between domestic and export tariffs. It is the inexorable rise in foreign exchange rates.”

Although electricity export tariffs vary and are based on a variety of factors namely fuel prices in the Persian Gulf region, power can be sold for at least 11 cents per kilowatt hour in international markets. The same power domestically barely makes 1.5 cents.

Currency rates have surged in Iran as a permanent feature of the troubled economy. According to prices quoted to Financial Tribune by local exchange bureaus, the dollar went up as high as 205,000 rials last week.

Pointing to measures taken by Iran's competitors, including Qatar and Saudi Arabia, to expand their national grids to export electricity to Europe, he said Persian Gulf Arabs are taking strong steps to sell electricity to Europe by extending a subsea cable from the Red Sea to the Mediterranean Sea.

On the advantages of linking Iran's electricity grid to other countries, he said this can benefit Iran both economically and technically, as it will have to keep pace with state-of-the-art technology to be able to remain competitive.

"Moreover, regular electricity trade with other countries can lead to more political stability.”

Electricity and gas sectors both have a key role in economic prosperity, yet the former's profit margin is much higher as natural gas cannot be converted into high value-added goods.

Iran Power Generation, Transmission and Distribution Management Company (Tavanir) is in charge of purchasing electricity from power plants and private companies must sell their electricity to the state giant.

Ali Shams Ardakani, head of Energy Commission of Iran Chamber of Commerce, Industries, Mines and Agriculture believes that power export should be the function of the energy bourse and the government should step aside.

"Whether by the Energy Ministry or the Oil Ministry, it is not only wrong, but also economically imprudent for the government to enter into such exports.”

As outlined in Article 44 of the Constitution, a large part of executive responsibilities of the Energy Ministry should be transferred to the private sector. But for whatever reasons this has not been fully accomplished so far despite the fact that private companies play an important role in power production.

Pattern of Failures

Despite the Energy Ministry’s claim that it has privatized over 50% of power plants in the past few years, the privatization plan has gone astray.

According to Amir Anvari, managing director of Saba Power and Energy Industry Holding Company, who also is a proponent of the sector activist, senior government officials have “never had a proper understanding of privatization” and this shows why their plans have always failed to produce the desired results.

"So long as executive officials see private enterprise as their rival, privatization policies will pale in front of Article 44 of the Islamic Republic Constitution," he said.

Under the sanctions regime empowering the private sector and helping it achieve its true potential is "a compulsion, not a convenience.”

Criticizing the process by which power plants were privatized in the past, he said semi-government enterprises, which know next to zero about power generation, should not be allowed to buy and own power stations.

By and large, privatization in Iran usually translates into selling a power plant to banks or other influential organizations like Bonyad Shahid (Foundation of Martyrs and Veterans Affairs), Khatam-al-Anbiya Construction Headquarters, an engineering company affiliated to the Islamic Revolutionary Guard Corps, the Social Security Organization, the largest pension fund, and Defense Ministry-affiliated firms with the aim of settling the Energy Ministry’s mounting debts.

According to Bargh News portal, between 2010 and 2013, 25 thermal power plants with the capacity to generate 22,000 megawatts were privatized, most of which were sold to banks (Tejarat, Mellat and Sepah) and semi-government enterprises.

Some of these power stations are Parand, Damavand and Motazere Ghaem in Tehran, Tabriz in East Azarbaijan, Tous in Khorasan Razavi and Sabalan in Ardabil Province.