Iran parliament moves ahead with fuel subsidy cuts

By NASSER KARIMI, Associated Press Writer

TEHRAN, Iran – Iran's parliament on Monday moved ahead with a bill to sharply slash energy and food subsidies, approving one article of a draft law that has the potential of stoking major unrest in a country struggling under international sanctions.

State radio said the article approved by lawmakers would gradually cut energy subsidies over five years, bringing the heavily discounted fuel prices more in line with international prices.

Officials say the cuts are needed to recoup some of the roughly $90 billion spent yearly by OPEC's second largest exporter on subsidies, and to target the funds more directly at helping poorer segments of the population as well as funding infrastructure projects.

Subsidies currently eat up about 30 percent of the government budget at a time when already high spending and the collapse of oil prices last year squeezed the country's economy.

"The plan would prevent an important part of excessive consumption (in Iranian society), as well as injustice in the redistribution of subsidies," state-run Press TV quoted President Mahmoud Ahmadinejad as saying in a live interview on Iranian television Sunday night.

Parliament had approved the broad outlines of the 17-article bill on Sunday.

The government had pitched a plan last year to revise the existing gasoline rationing system, but the proposal was withdrawn amid criticism in parliament.

Little was mentioned about it in the run-up to the contested June 12 elections — a race in which Ahmadinejad came under fire for economic policies critics say ran the country into the ground. His opponents maintain that massive spending on populist projects that did nothing but deplete the billions of dollars Iran earned as oil rallied to a record $147 per barrel by mid-2008.

A push in 2007 to scrap the fuel subsidy program resulted in widespread outrage, with gasoline stations burned to the ground in protest.

The latest proposal could present Ahmadinejad with one of his government's most serious challenges since the violence and protests resulting from the summer's presidential elections that critics and the opposition contend he stole through widespread fraud.

Iranians enjoy some of the cheapest gasoline prices in the world.

Under the current ration system, they pay $0.38 per gallon ($0.10 per liter) for the first 100 liters. Any gasoline bought beyond that limit costs $1.50 per gallon ($0.40 per liter).

The proposed plan would gradually strip away subsidies to bring the prices closer in line with international market prices.

Some economists contend, however, that the plan would only serve to sharply drive up inflation, further squeezing a country grappling with already high inflation and shouldering the weight of international sanctions.

Inflation has dropped in Iran to roughly 13.2 percent from highs last year of around 30 percent.

Iranian officials dispute that assessment.

Economy Minister Shamsoddin Hosseini was quoted Monday in the Doniay-e Eqtesad newspaper as saying the bill was aimed at "structural reforms to fight inflation."

The subsidy reduction plan also comes at a particularly pressing time for Iran, which is locked in a dispute with the United States and its allies over a nuclear program the West fears is aimed at developing weapons. Iran says the program is for peaceful purposes.

U.S. lawmakers have said they are ready to act alone with even tougher sanctions, including penalizing companies that export refined petroleum products to Iran.

Although Iran is one of the world's largest oil exporters, it imports over 30 percent of its gasoline because of insufficient domestic refining capacity.

The subsidy cuts, if approved, could further drive costs up — particularly if Iran does come under a gasoline import ban.

Iranian lawmakers must still re-ratify the vote on the article after reaching a decision on all 17 of the bill's provisions. A constitutional watchdog must then review the bill before it becomes law.