Iran: $500 Million in Government's Grant to Retrofit Cabs, Vans

EghtesadOnline: The government’s Economic Council has approved a proposal by the Oil Ministry based on which the state-owned National Iranian Oil Products Distribution Company has been tasked with helping convert 1.5 million gasoline-powered vans and taxis to compressed natural gas hybrids.

News ID: ۷۸۵۱۱۱

09 December 2019

As per a directive issued by the key council last week, NIOPDC will get a grant of $500 million to help the conversion of the polluting gas-guzzlers to hybrid CNG engines, ILNA reported.

The move is aimed at curbing public transportation costs and improving air quality in mega cities.

NIOPDC will pay the money either directly to eligible car owners or to factories manufacturing CNG pieces and equipment namely tanks, kits and compressors, Financial Tribune reported.

There are approximately 1.1 million gasoline-powered vans in the country and each uses at least 1,000 liters of expensive fuel a month.

Conversion of the vehicles to CNG hybrids (when the plan is fully implemented) will reduce gasoline consumption by at least 13 billion liters per year and if the saved gasoline is exported at 50 cents/liter, it can generate $6 billion per annum.

Iran accounts for 1% of the world’s land area and population. Nonetheless, it owns 7%, 17% and 11% of the globe’s natural resources, natural gas and oil respectively.

Put simply, the country’s share of natural gas is 17 times more than other states, but CNG industry has had a lackluster performance over the last two decades not only due to reluctance of the private sector to invest in the low-profit margin market but also because of sharp decline in manufacturing local natural gas vehicles.

The first phase of converting vehicles to CNG hybrids in Iran started in 2002 when a limited number of gasoline-powered vehicles were converted and three CNG stations were piloted.

As time passed, the industry developed and in 2005 the first CNG tank manufacturing plant became operational. There are now more than eight CNG tank manufacturing companies and 2,400 CNG stations across the country.

CNG consumption peaked in 2012 when it accounted for 25% of the energy basket for vehicles.

Price Discrepancy

Between January 2012 and November 2019, the use of clean and cost-effective fuel experienced a downward trend apparently due to price discrepancy between CNG and gasoline that was as low as 4 cents before November 15 when NIOPDC suddenly increased gasoline prices by between 50 to 200%.

Each cubic meter of CNG is sold for 5,000 rials (4 cents), while a liter of subsidized gasoline costs 15,000 rials (13 cents) and non-subsidized fuel 30,000 rials (26 cents).

The Economic Council’s plan to inject $500 million into the gas related industries will increase CNG tank manufacturing capacity to one million per year and create 120,000 jobs.

According to Hashem Oraee, a lecturer at Sharif University, now that the National Iranian Gas Company cannot export more than 50 million cubic meters of gas per day (NIGC’s daily output is 750 mcm/d), replacing gasoline for cars with CNG “is the most viable economic option” under the present difficult conditions.

Turkey and Iraq are the main buyers of Iranian gas as an estimated 25 mcm of gas is supplied to each neighbor on a daily basis.

Criticizing the hubristic domestic state-owned automakers, the university teacher expressed the hope that the seemingly corrupted lobby protecting the carmakers would show more interest in producing CNG hybrids and cars that have advanced engines and better mileage.

While the country is gradually moving towards expanding the use of gas in commercial vehicles, some countries have already taken a leap. Japan, Russia, China, Norway, and Argentina are among nations encouraging and promoting use of gas-powered vehicles.

CNG is projected to comprise up to 35% of Iran's total fuel consumption by the end of the Sixth Five-Year Economic Development Plan (2017-22).