Iran MPs scrap fuel price hike in budget

March 10, 2009

, TEHRAN, March  10 – MPs in Iran on Monday scrapped a proposal in the budget which would allow the government to raise energy prices following protests that this would stoke inflation, a media report said.

Under a 298-billion-dollar budget, whose outlines parliament approved on Sunday, the government had planned to earn 20 billion dollars in the year to March 2010 by hiking prices for heavily subsidised energy and utilities.

In the debate MPs "omitted the clause about the effect of targeted subsidies" which included raising these prices and making cash payments to low- and middle-income groups, the semi-official Fars news agency reported.

Several MPs and a group of Iranian economists had earlier warned against the proposal, saying it would increase poverty and stoke already high inflation, press reports said.

They said prices could rise fourfold if the proposal was approved by the parliament, which is currently reviewing details of the budget bill before giving its final approval.

The budget — lower than the current year\’s 307 billion dollars — comes at a time when Iran is battling high inflation of around 26 percent and reduced revenue because of the plunge in world oil prices.

Oil revenue accounts for 80 percent of Iran\’s foreign currency receipts, making the economy highly vulnerable to shifts in global crude prices, which  have sunk to around 50 dollars a barrel from a high last year of 147 dollars.

In a letter carried by several reformist newspapers, 13 economists urged lawmakers "not to approve a sudden rise of energy prices," saying the measure was being taken "out of desperation" following the oil slide.

The bill "is a clear definition of shock therapy implemented in some countries in the 1980s and 1990s, bringing about uncontrolled inflation, deep recession, intensified poverty and inequality and social unrest," it said.

The letter said the government\’s calculation of real energy prices and its plan to raise them stems from its "incompetence in macro policy-making and managing its institutions."

Petrol in Iran currently sells for 36 cents a gallon and electricity is as cheap as six cents per 10-kilowatt hour.

The government planned to spend part of the anticipated 20 billion dollars on cash payments of 20 to 26 dollars to compensate people in low- and middle- income groups.

As part of his wider economic reform plan, President Mahmoud Ahmadinejad submitted a separate bill to parliament in December to abolish costly subsidies on fuel, electricity and water. This bill is yet to be debated.

In the Sarmayeh business newspaper, former central bank chief Tahmasb Mazaheri warned that implementing "targeted subsidies in the current situation will impose an inflation of 40 percent for a few years on the country."

He accused the government of not formulating policies that would contain such high inflation.

Ahmadinejad faces re-election in three months, and parliament could still vote for hiked energy prices within his December subsidy bill.

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