An economic reform plan by the Ahmadinejad administration known as “targeting of subsidies” that has been passed in the form of a law several months ago is currently approaching its full implementation. The plan contains radical changes and many aspects of it will have lasting impacts on the Iranian economic system. One of these aspects, the provision for a revised pricing structure for energy sources, should be of particular importance for business prospectors in Iran. 

 

As regards domestic sale prices for energy sources such as gas, gas oil, fuel oil, kerosene, and LPG the law provides that these prices should not fall below the FOB Persian Gulf export price for such products by more than 10 percent (inclusive of transport, distribution, and legal charges).

 

A discount has been considered for the sale of crude oil and condensates to domestic refineries in a way that the sale prices to these refineries shall be minimum 95 percent of the respective FOB Persian Gulf Prices. 

 

Concerning the sale of electricity, the government has allowed to raise the prices to the level of the actual production costs within in 3 years, under the assumption of a minimum of 38 percent of output for the power plants.

 

 Although these changes will result in a cost increase for those who intend to perform projects in Iran (in terms of increased production costs as a result of higher energy costs), this may eventually help to boost feasibility of projects by increasing their prospects for better product off-takes upon operation of the projects. This aspect will no doubt be an area of increased scrutiny for project analysts in Iran.

 

For further information please contact: faezeh.tabatabaei@fichtelegal.com