Defiant Iranians take action to beat Rouhani’s fuel price rises

FT.com

Fuel prices in Iran jumped by up to 42 per cent on Friday in the latest of a series of measures taken by the centrist government of President Hassan Rouhani to tackle the country’s soaring budget deficit.

The price of petrol rose 42 per cent, from 7,000 rials (27 US cents) per litre to 10,000 (39 cents), while diesel and compressed natural gas rose by 40 per cent and 32 per cent respectively.

The move will have an immediate impact on the many Iranians who rely on cheap fuel to help make ends meet by taking extra jobs as taxi drivers.

It comes after increases of at least 20 per cent in the cost of electricity, water and gas over the past month – price rises described by Mr Rouhani as “very mild” and likely to continue in the coming years as he reduces subsidies on basic commodities and energy that are estimated to be worth about $100bn a year.

Ordinary Iranians are unhappy with the price rises and many who voted for the president last year are beginning to express disappointment with his economic policies, which they claim have failed to curb increases in consumer prices and youth unemployment – which is currently about 24 per cent.

Despite the growing dissatisfaction, however, the government has reduced inflation by about 5 per cent since it took office last summer – it is now 35 per cent – by raising interest rates. It has also created relative stability in the currency market after the value of the rial declined by 50 per cent due to international sanctions over the country’s nuclear programme. Iranian officials have promised their new policies will lead to inflation dropping to 25 per cent by March next year.

However, ordinary people are not impressed. In rural areas, those unhappy with high inflation and rising energy bills have taken matters into their own hands, tampering with their gas meters to reduce the amount they register.

“There are many people who pay technicians to make changes in their gas meters which can hardly be detected,” said Feizollah, a 30-year-old carpenter in Khoy, a town in north west. “This helps to bring down a monthly bill as high as 12m rials ($470) to about 120,000 rials ($4.7).”

Villagers are defiant about the practice and openly discuss tricks for stealing electricity.

“If a gas agent finds out, I will bribe him. They are usually happy with only a small payment,” said Asghar, a 67-year-old rice farmer in a village near the Caspian Sea who insists that he has the right to steal energy. “I couldn’t even afford my old bills and now the government has increased prices.”

Despite the price increase, fuel remains heavily subsidised, which has encouraged smuggling to neighbouring countries. Analysts say about one-third of diesel produced by Iran is smuggled abroad.

When Mr Rouhani took office, he inherited what many economists describe as an economy in “ruins”. His predecessor, the populist president Mahmoud Ahmadi-Nejad, is accused of wasting record oil revenues of more than $600bn in eight years and leaving in place an economy that shrank by 5.8 per cent in the year ending in March 2013.

The previous government had already begun to slash subsidies – a move admired by many reform-minded economists. But it then compensated for the measure by committing to pay every Iranian individual 455,000 rials per month, helping fuel the deficit that has ballooned to about $30bn.

After taking office, Mr Rouhani’s government announced that the monthly payments must end but a recent call for people to voluntarily withdraw from the scheme failed to attract more than 2m withdrawals from the 76m-strong population.

“It was difficult for some families to do without this monthly income,” said Mohammad-Baqer Nobakht, a government spokesman. “We respect their decision . . . and will continue to pay them.”

But it is unclear how the government is going to meet its obligations to the cash payments – which are costing it more than $3.9bn each year – while slashing the deficit.

“Why should we ordinary people pay for the mess created by Ahmadi-Nejad?” asked Asghar, the rice farmer.