Gasoline Price Reformation
Following the arrival of the first car in Iran by Mozaffar al-Din Shah in 1902, the tendency to use cars grew day by day. To that end, those who had imported cars and drove them needed gasoline. First, an English company distributed gasoline through various means: kerosene retailers, grocery stores, and garage caretakers. Oil products were sold in jars, which were even until recently used for storing lemon juice and verjuice. Afterwards gasoline was offered in 17- liter tin cans known as gasoline containers. On the other hand, Russia started selling oil by establishing a company called Press-Az-Oil in Tehran, located on Amir Kabir Street. And British Petroleum offered gasoline, kerosene, etc. on Imam Khomeini Street (formerly Sepah) on the corner of Estakhr Street.
Given the growing trend of gasoline demand, consumption and its relevant hazards, and whereas purchase of gasoline in containers was not economical; the first gas stations were gradually constructed to reduce the risks of gasoline storage and supply in the container. Although there is much to say about the date of the construction of first gas stations in Iran, it is clear that gasoline pumps have been used in Iran since more than a century ago. The proof for this claim is the petrol pumps on display at the Tabriz Measurement Museum dating back to almost hundred years ago.
The first gas station in Tehran was built and opened at Amiriyieh Avenue, Gomrok intersection. The philosophy behind choosing this location for the construction of a gas station was largely due to the fact that majority of car owners and wealthy people lived in that neighborhood. The second gas station was on Bouzerjomehri Street, at the Darkhoongah station, the third on Saadi Street, Darvazeh Dowlat, the fourth in Baharestan Square, opposite the Majlis, and the fifth in the Simetri Nezami street (current Kargar Avenue) near Lashkar intersection. In this way, by 1951, ten gas stations were in operation in Tehran, and the NIOC began to organize them.
Since 1976, the price of gasoline has gradually soared. Given the growing number of cars and of course rising trend of gasoline consumption in Iran and in proportionate with inflation trend the price of all oil products, particularly gasoline in the global markets and domestic market has witnessed changes.
For instance, in July 2007, in a bid to curb gasoline consumption, the government decided to rationalize gasoline and the plan was implemented until 24 May 2015.In that period of time rationalized gasoline was supplied through fuel smart cards provided by petroleum ministry, but when domestic gasoline production level improved , gasoline rationalization was quitted. However, due to high consumption of gasoline and necessity of controlling the unbridled trend of gasoline consumption in the country, once more the government recently decided to rationalize gasoline, i.e. supply gasoline at two rates: quota and quota -free.
Therefore, in the last hours of Thursday, 14 November 2019, the government suddenly announced without prior notice that the quota gasoline is provided at IRR1500 and quota-free gasoline is supplied at IRR 30000.In addition quota-free premium gasoline is sold at IRR 35,000.
Although there are pros and cons on the decision made with regard to reforming gasoline price and gasoline rationing plan, there is almost consensus among economists on the necessity and appropriateness of making such a decision. However, observers argue that apart from pricing mechanism, improving public transportation fleet can contribute effectively to curbing gasoline consumption. That is to say, availability of effective public transportation system could be an incentive to encourage people not to drive, unless it is pretty essential.
On average, 100 million liters of gasoline is produced daily in the country. In case we manage to reduce fuel consumption by 10 million liters per day and sell this volume at a rate of equal IRR 50,000 in the Persian Gulf, taking into account the difference between the domestic price and export price, we can make something like IRR 40 billion per day. In this way, IRR 140,000 billion of income will be generated.
However, the point is that although the government's economic policy is to distribute fuel at a fairer rate, at present people cannot afford buying gasoline at IRR 50,000.Nevertheless, given the higher price of gasoline in the neighboring countries and in order to prevent smuggling gasoline, the long-term plan for raising gasoline price would be still on the agenda.
The price of gasoline in Saudi Arabia is equal IRR 62,000, in the UAE IRR64, 000, in Afghanistan IRR 70,000, Pakistan IRR 80,000, in Turkey IRR132, 000 and in some developed countries such as the Netherlands and Sweden is something equal IRR 20,000, and in Turkmenistan is equal IRR 50,000.
On average, gasoline cost accounts for 2.5 percent of Iranian households' expenditure basket averaged; therefore, gasoline price hike would only affect household's economy at 2.5 percent.
The increase in gasoline prices does not mean that other goods and services would become expensive in proportionate with that. If the gasoline rate rises 50 percent, it does not mean that the road freight rate will increase by 50 percent, rather than that we need to figure out the share of gasoline in road transportation."
In fact if you take it for granted that gasoline real price is IRR 50,000, when gasoline was recently supplied at rate of IRR10, 000, the gasoline subsidy paid per liter was IRR40, 000. Now the intention is to divide this difference in a fair way. Indeed, more subsidies are allocated to vulnerable members of the society. This is called "profit of redistribution of income".
Under this approach, those with higher incomes should pay more for fuel but those with lower income benefit from this. According to the government model, each 4-person household will receive a subsidy of IRR 1720,000 per month. Of course, they also receive a 60- liter gasoline quota for one vehicle.
When fuel price goes up, people are encouraged to buy more economical and efficient cars and automakers would be urged to upgrade their production line to produce more efficient cars, so less fuel is consumed and less pollution is witnessed.
"Under the targeted subsidies law, the government could take up to 20 percent of the gasoline price increase to offset its budget deficit, but that is not the case, so the government would not benefit from the current circumstances at all.
To wrap up, it can be argued that the whole logical decision made on gasoline price reformation is aimed at preventing gasoline smuggling, mitigating GHG emissions, reaching gasoline self-sufficiency and availability of surplus gasoline for export, fostering proper paradigm of gasoline consumption and fair distribution of subsidies on fuel, particularly gasoline among nation.