Fuel Consumption Falls in Iran After Subsidy Cut

December 29, 2010 - 6:18 AM

Tehran, Iran (AP) - Fuel consumption has fallen by a fifth since the government began slashing energy and food subsidies earlier this month, a top government official said Wednesday, claiming an early sign of success in the controversial program.

Gasoline prices quadrupled and bread prices tripled after the cuts came into effect Dec. 19, part of a government effort to boost Iran's ailing economy by reducing the massive drain on the state budget from the subsidies.

The economic shock has brought heavy criticism from reformists and even from some hard-liners -- the political base of President Mahmoud Ahmadinejad -- who say the price hikes are too fast and steep. There have been fears of unrest among a population already struggling economically, though so far there has been no serious outbreak of protests or violence.

Ahmadinejad has called the subsidy cut plan the "biggest surgery" in Iran's economy in half a century and vowed to fully cut all subsidies by the end of his term in 2013. The government says it is paying some $100 billion in subsidies annually, although experts believe the real amount is about $30 billion.

Under the subsidy-cut plan, the government says part of the budget savings will be returned to the people through cash payments. Every family member has already received the equivalent of about $80 for two months.

Another goal of the cuts is to reduce Iran's high fuel consumption, which has forced the country to import about half its fuel needs. One of the world's biggest crude oil producers, Iran lacks refining capacity, meaning it has to look abroad for gasoline, though it has been rushing to increase refining.

Vice President Mohammad Royanian said on state TV Wednesday that "overall, there has been a 20 percent fall in fuel consumption" since the cuts were enacted. Gasoline consumption now stands at 50 million liters (13 million gallons) a day and diesel consumption at 42 million liters (11 million gallons) a day, he said.

He also praised a rationing program that has been in place since 2007, saying that without it consumption would have passed 105 million liters of gasoline a day (27 million gallons) "given an increase of new cars and motorcycles by 6 million during this period."

Farid Ameri, a senior oil ministry official said the hike in fuel prices also reduced smuggling in Iran's border regions to neighboring countries, but he didn't provide details.

Before the cuts, subsidies ensured Iranians some of the cheapest gasoline in the world, at about 10 cents a liter (38 cents a gallon).

But under the reduced subsidies and the rationing system, each person can buy up to 60 liters (15 gallons) a month of gasoline at the equivalent of 40 U.S. cents a liter ($1.50 a gallon), and for any amount above that the price is about 70 cents a liter ($2.70 a gallon). Bread that used to sell at the equivalent of 3 cents a loaf now costs 10 cents.