Industrial Productivity Growth Low Despite Rising Power Consumption

EghtesadOnline: Power consumption of industries has increased by 12% since the beginning of the current fiscal in March compared to a year ago, but the rise has not transformed into decent productivity growth, head of the Mining and Mining Industries Commission of Iran’s Chamber of Commerce, Industries, Mining and Agriculture said.

News ID: ۷۵۱۱۲۴

28 September 2020

“More than 50% of manufacturing units in industrial towns are either closed or work at half capacity. As such, rise in power consumption has little, or nothing, to do with their productivity growth. What it does show is that most of the machinery is old and have outlived their usefulness,” Bahram Shakouri was quoted as saying by Barq News.

Industries have used 42 billion kilowatt hours of electricity over the last six months. However, the annual gross domestic product has been declining in the period, he noted.

Reflecting on a 2019 survey conducted by the Institute for Trade Studies and Research, the research arm of the Ministry of Industries, Mining and Trade, he said contrary to what Energy Ministry officials say and believe, share of the industrial sector in Iran's GDP has actually fallen in the last decade.

According to the ministry data, the industrial sector uses 36% (22,000 MW) of power produced in the country (58 gigawatts per day).

Close to 1,000 MW are added to industries consumption every year. “Nonetheless, the fact of the matter is that a large volume of power is wasted in the sector instead of helping manufacture value-added goods.”

Sounding the alarm on current industrial policy (or lack thereof), he said, "The industrial sector over the past three decades has lacked value-added, domestic value and global value."

A World Bank report estimates that Iran's economy shrank 8.7% in 2019 compared to the previous year. Its forecast for Iran's GDP growth is 0% in 2020 and 1% in 2021 and 2022.

The report also shows Iran's economy contracted by 4.9% in 2018 after experiencing a 3.8% growth in 2017. The contraction in 2019 was mainly due to external shocks in the key oil and gas sector.

Power Outages

In related news, Barq News quoted Mohammad Parsa, head of the Federation of Iranian Energy Exports Industries, as saying that frequent power outages in industrial towns have had adverse effects taking a toll on machinery and electrical equipment and reducing efficiency.

As per a contract between industries and the Energy Ministry, the latter had announced a daily timetable of blackouts in industrial towns (between June and September). However, Parsa says, “Unplanned outages have led to disruption and decline in production, in addition to damaging machinery.”

Following its calls to reduce power consumption and avoid outages in the summer months, the state-run Power Generation, Distribution and Transmission Company (Tavanir) has signed 300,000 contracts with heavy consumers (industrial and farming communities) to shift consumption from on-peak to off-peak hours.

Pointing to the costly subsidies given to power consumers, he noted that so long as electricity is not sold at higher prices, investments in the sector will remain sluggish as power companies are grappling with high and rising losses due to the unreasonably low prices.

The official added that if electricity is sold at real prices, not only would the ministry struggle in the face of mounting debts to the private sector but also be able to undertake development projects.

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. This has caused subscribers to be oblivious to prudent energy use further hurting the Energy Ministry finances.

"Reasonable prices will lead to judicious consumption and attract investment and active participation of private companies in the power industry," Parsa was quoted as saying.

At present, heavy consumers are charged 7% more than those whose consumption level is within acceptable limits (less than 300 kilowatt hours per months). So long as the difference is not tangible, heavy consumers will hardly be obliged to reduce consumption.