Iran approves elimination of subsidies

Iran's top legislative body has approved a controversial plan to phase out energy and food subsidies, as major powers prepare to discuss new sanctions against the country in New York tomorrow. The Guardian Council's final approval of the plan, which would make Iran less vulnerable to sanctions on fuel imports, followed a compromise agreement reached last week between Mahmoud Ahmadinejad, the president of Iran, and the parliament over control of the money the state stands to save.

Mr Ahmadinejad hopes to save as much as US$100 billion (Dh367.35bn) a year by eliminating subsidies on petrol and other oil products, gas, electricity, water, food, health and education. He had wanted the government left free to spend the money as it pleased but in November, parliament passed an amendment linking subsidy cuts to the budget. Mr Ahmadinejad threatened this month to kill the plan over the dispute. Parliament refused to allow the bill to be withdrawn and sent it to the Guardian Council for ratification.

"The Guardian Council approved it in its last session," said Abbas Ali Kadkhodai, a council spokesman. "The Guardian Council studied the amended bill, which was sent by parliament, and found no contradiction with Sharia law and the constitution." Iran's official English-language Press TV said the council had approved "a targeted subsidies legislation aimed at gradually cutting the government's energy and food financial supports".

"The economic reform plan has won an approval from the 243-seat parliament, with 134 lawmakers allowing the government to establish a reform subsidy organisation to enforce the plan," it added. Tehran estimates it could save up to 30 per cent of Iran's annual budget by lifting subsidies on fuel and some food items, the news station reported. Under the compromise reached last week, a government body would be established to receive and spend the savings without being required to provide details of its operations. The money, however, would be included in Iran's budget.

The amended plan calls for Tehran to lift subsidies by stages over five years ending in March 2015. State-mandated prices for petrol, kerosene, liquid petroleum gas, gas oil and other oil derivatives are supposed to reach no less than 90 per cent of Gulf prices by the end of the period. The government proposes to distribute cash to poor Iranian households to compensate for higher energy and food costs. State media said the government would open bank accounts for 36 million people to transfer the payments.

But critics including Mirhossein Mousavi, the Iranian opposition leader, argue that removing subsidies will still hurt ordinary Iranians by stoking inflation. That stood at about 15 per cent two months ago, Iran's central bank said. Massoud Mirkazemi, the oil minister, has blamed Iran's lack of self-sufficiency in fuels including petrol and gas on wasteful energy consumption encouraged by subsidies.

Iran, which has the world's second-biggest gas reserves, yesterday agreed to import up to 425 million cubic feet per day of gas from Azerbaijan between now and the end of March, and is reportedly working on a longer-term gas deal with its neighbour. Last week, Mr Ahmadinejad inaugurated a new pipeline to import gas from Turkmenistan. Iran's national oil company is building new refining capacity, but for the next few years OPEC's second-biggest oil exporter would be vulnerable to international sanctions on petrol imports unless it finds ways to conserve fuel.

Iran's fuel prices are among the lowest in the world, but Tehran rations subsidised petrol supplies. The introduction of fuel rationing in 2007 provoked riots, which has left some politicians concerned about further civil unrest related to the subsidies bill. In its worst internal crisis in 30 years, Iran has been rocked by anti-government protests since last June, when Mr Ahmadinejad was given a second term as president amid opposition allegations of electoral fraud.

After his re-election, Tehran has repeatedly rebuffed western overtures aimed at resolving the long-running international spat over its nuclear programme. That has led to the imminent threat of further sanctions. The five permanent members of the UN Security Council will meet in New York tomorrow to discuss the options. @Email:[e-mail]