Private Power Companies on the Edge, Says PGCS

EghtesadOnline: Low power tariffs and the volatile currency market have put private electricity producers under mounting financial pressure, head of the board of directors of the Power Generation Companies Syndicate said.

News ID: ۷۵۱۰۳۱

19 September 2020

"Private power producers who borrowed from the National Development Fund of Iran (the sovereign wealth fund) to build plants are now unable to settle their debts,” Mohammad Ali Vahdati was quoted as saying by Barq News.

Power generation cost, including production and transmission, is at least 3 cents per kilowatt-hour, but consumers are charged less than 1 cent per kWh – a government policy the private companies have long opposed.

The government is supposed to pay the difference (2 cents per kilowatt-hour) to the power stations. However, it either does not pay, and when it does it is was long delays, the PGCS boss added.

The bigger problem is now that the government cannot pay its dues, why officials take turns in proudly announcing that plans are underway to supply 30 million subscribers with free power.

As per a recent government proposal, households that use electricity within a certain range (less than 100 kilowatt hours per month in regions with moderate climate and less than 400 kWh in hot areas) will be exempt from paying bills from November.

“Over the last five months, inflation has increased 27% and foreign exchange rates have surged by more than 58%. But power plants still have to sell electricity at low prices to the government and that is why most are under colossal [financial] pressure.”

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

Bigger Role!

Following the government’s appeal 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 rials.

“Now the rates have risen seven times, but the electricity that is generated is still bought with 3014 tariffs!”

Private power plants constructed with cheaper loans are obliged to repay based on the new exchange rate USD=270,000 rials and this is unfair and impossible, but NDFI is pushing them to repay their loans sooner rather than later, Barq News quoted him as saying.

For instance, a company that borrowed $200 million must repay $1.4 billion and many companies are unable to settle their debts at such prohibitive rates.

Annual power generation in Iran is 60,000 MW and average annual export is 10 million kilowatts to Iraq, Pakistan and Afghanistan.

Reza Haddadian, a member of the same syndicate, said that the future of the power industry is in jeopardy unless effective measures are taken to address the array of problems in the key sector.

Private sector investment in the power industry is said to be near $22 billion and 40% of the power demand is met by private power stations.

“Failure to craft new and efficient policies [allowing private companies to sell electricity directly or raising power tariffs] is indeed demotivating. This is why private companies are not at all interested in 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, the ballooning budget deficit and tough US economic sanctions that have completely cut off foreign investments in all major industries.