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Gasoline Smuggling through Fuel Import Origins
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When fuel, especially gasoline, is not
treated as a strategic matter, many inter-generational priorities are easily
ignored.
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By: Dr. Firouzeh
Khalatbari
During past years, I have talked a lot
about the injustice which is done to our people and pressures they are
tolerating. Gasoline is one of those issues, which has put enormous pressures
on our people while statesmen have always talked about low energy costs and
inexpensive fuel in the country. Gasoline is the main energy source for
transportation sector. The most basic issue about gasoline is that it should
not be controlled by the government, but decisions about it should be made by
the whole ruling system.
When fuel, especially gasoline, is not
treated as a strategic matter, many inter-generational priorities are easily
ignored. Facing this problem, our governments have done two things: increasing
price of gasoline and restricting people’s access to it under any title (such
as rationing). The result was that less attention was paid to efficiency of
such decisions and their long-term effects. They always say that such policies
lead to enormous saving, but before long, the main motive behind those
decisions is easily forgotten and objectives are never realized.
Elsewhere in the world, the issue of
fuel is looked upon from the viewpoint of people’s comfort. Therefore, no
program formulated for regulation of fuel takes a punishing approach and blame
people for the shortcomings. In Iran, they treat us in such a way that you
feel guilty when you are riding your car!
Transportation
is strategic:
What points should be taken into consideration in a strategic approach to
gasoline? Transportation enjoys a strategic position in national development
plans and this is confirmed by economic theories too. Transportation sector,
which ties various economic sectors together, has accounted for 15-20 percent
of our incomes. Figures show that transportation cost has increased from 6
percent of family incomes in 1996 to 11 percent. In 2006 and 2007,
transportation accounted for more than 11.8 percent of family costs. In
addition to its environmental costs, traffic costs and the time lost in
traffic jams further highlight the role of transportation in national
development. Transportation is connected to fuel which is among
intergenerational and non-renewable resources. In general, material, human,
and natural assets of our society are affected by transportation.
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We never use gasoline alone, but the
mileage of our cars indicates fuel demand for traveling on roads. Both
gasoline and vehicles have personal and group effects.
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Since fuel in an
intergenerational asset, our government should make appropriate plans on it. A
national energy plan should be drawn up to include trade regulations,
transportation and other matters. Such a plan should pay special attention to
security of energy supply.
Energy plan of
the world: Today,
long-term plans on energy in the world cover various issues such as
environmental protection, reduction of fossil fuel consumption, increased
emphasis on renewable fuels, as well as reducing price of various forms of
energy. A national plan for energy has been thus far lacking in Iran and it
has been dealt with through overall development plans. Governments have
focused on finding new energy resources. Therefore supply and demand for
energy has not been balanced inside the country. However, the Ministry of
Petroleum has announced that building refineries is not economical in Iran,
thus admitting to the imbalance between supply and demand for fuel. Therefore,
part of oil sales revenues have been allocated to fuel imports, but no
official has explained why building refineries is not economical. Refineries
in Nigeria are four times more efficient that those of Iran. Our officials
have only noted that fuel system of vehicles should change to use double
fuels. In August 2007, it was announced that vehicles that do not use double
fuels and consume over 6 liters of gasoline per 100 km will not receive a
license plate. That approval, however, changed after some time and they
reached the conclusion that an institution apart from the government should
take responsibility for preparing a national energy plan.
Excessive
consumption: We
never use gasoline alone, but the mileage of our cars indicates fuel demand
for traveling on roads. Both gasoline and vehicles have personal and group
effects. From a personal viewpoint, the cost of access and quality is
important. Therefore, our demand for transportation is a demand of two
commodities. Demands for gasoline and car are derived from something else.
That is, from demand for traveling on roads. Therefore, demand for combining
optimal form of gasoline with optimal car is the best combination for our
country. There are different types of gasoline in other countries. Type of
gasoline and its producer as well as its octane number are told to people.
Studies show that 36 percent of people trust a special form of gasoline. In
Iran there are ordinary gasoline and super. There are nongovernmental
institutions in advanced countries whose job is to give information on the
type of gasoline. Therefore, they have defined five factors to quality
gasoline: 1. Evaporation pressure, 2. Refining situation, 3. Ratio of steam to
liquid, 4. Drivability, and 5. Steam lock index. Two numbers are also
important: research octane number (RON) and motor octane number (MON).
In advanced countries even the degree to
which engine performance is facilitated is determined. Other factors like
speed with which gasoline warms up inside the engine, low precipitation as
well as its impact on performance of vehicles in cold and warm weather also
affect fuel price. In Iran, the quality is low and specifications are not
announced to people, while nonstandard roads have increased fuel consumption.
The best gasoline in the world, called “Ultimate”, is produced by BP; its
octane number is 102 and it is free from pollution. That type of gasoline
increases efficiency of a good car by 30-40 percent.
In Iran, they use MTBE to remove lead
from gasoline, and the substance is a sustainable environmental pollutant. Its
only positive point is that MTBE solvent causes fuel saving and regulates
engine, but most people do not use it.
Gasoline supply:
There are nine
refineries in Iran. Abadan refinery is 90 years old. Refineries of Arak and
Bandar Abbas are relatively young and other refineries have been working for
more than 30 years.
Refineries have
not been updated and we have no budget to build new ones. Quality of our crude
oil as feed for those refineries has been on the fall. Our refineries have
been working at full capacity and sometimes more than full capacity. From 2000
to 2005, their performance has been on average 19 percent higher than their
nominal capacity. The government has been giving 1.6 million oil per day to
refineries during the Third Economic Development Plan, but most of that oil
has been wasted.
Main smuggling
does not take place at borders:
A good method to manage fuel
consumption is increasing its price. Of course, policymakers usually prefer to
use other methods. In terms of the dollar, Iranian gasoline is among the least
expensive in the world, however, this is not a good comparison. They usually
levy tax on gasoline which can total 30-87 percent of its price. Governments
have accepted that price is not a good lever and have chosen other methods. In
advanced countries governments encourage people to buy new cars. Reducing fuel
consumption by cars, producing fuel efficient vehicles, and producing vehicles
that run on non-fossil fuels are all good ways to manage consumption. As the
number of public vehicles has increased and need to transportation has reduced
due to promotion of electronic methods, fuel consumption has decreased. In
Iran, however, price hike has been the sole method used to regulate fuel
consumption. Despite rationing, consumption has been constantly on the rise.
Interestingly, the highest fuel consumption in proportion to the number of
cars has been reported from Kohgylouyeh and Boir Ahmad, Ilam, Markazi
(central) and Kordestan provinces and the lowest figure has been reported from
Tehran, Yazd, Hormuzgan and Fars provinces. Therefore, consumption is due to
inefficiency and the highest consumption has not been reported from border
provinces. Therefore, the lion’s share of consumption and smuggling is not
related to border provinces.
Gasoline
consumption per vehicle:
Unfortunately figures on total
vehicles in the country are lacking. However, considering all imported and
manufactured cars and excluding motorcycles, it seems that gasoline
consumption per car stands at 11 liters per day, which is very high. This
cannot be accounted for through smuggling. In border provinces, consumption is
not so high as to account for this high gasoline consumption. Even if our gas
stations worked round the clock and cars consumed gasoline, this high figure
could not be accounted for. Therefore, the origin of smuggling should be
sought elsewhere.
As for management of supply and demand,
we must focus on refineries. Abadan refinery receives about 22 percent crude
oil and produces gasoline with an output of about 11 percent. Standard
percentage of gasoline output in the world is over 50 percent. In California,
every barrel of crude oil yields 51.4 percent gasoline, 15.3 percent distilled
fuel and 12.3 percent jet fuel.
In Nigeria, every barrel of crude oil
yields more than 42 percent gasoline. Average gasoline production from every
barrel of crude oil in Iran stands at less than 19 percent in the most
optimistic state. So, it is natural that domestic gasoline cannot cover
domestic demand. If efficiency of our refineries reached 30 percent, we would
not need to import gasoline. If we were as efficient as Nigeria, we could have
both covered domestic demand for gasoline, and exported it. Under current
conditions, they will not give us modern technology and some refineries are so
old that they are better be shut down.
We can think about using substitute
fuel, which is compressed natural gas (CNG) in Iran. Other countries used
alcohol and fuel produced from garbage. However, we are inefficient both in
terms of improving fuel consumption and managing supply and demand. We levy
high tax on imported BMW cars which is tantamount to total price of the car.
If we considered current expenses as well as purchased capital when
calculating price of traveling in the country, we would find out that our
country ranks 40-50 among 70 countries.
Strategic plan:
To improve the
existing structure, we must give priority to several issues. Firstly, car
engines should be optimized and we must encourage engines that work on two
fuels. Secondly, gasoline can also be a suitable substitute fuel, but since
Iranian gasoline is of low quality, we don’t pay attention to it. Thirdly, we
must phase our dilapidated cars. Taxes levied on car imports should be
revised. When handing out smart fuel cards, geographical distribution and type
of cars should be taken into consideration. Any form of inequality resulting
from state-ownership or private ownership should be removed. Unfortunately,
gasoline quote allocated to old cars is as much as new ones, thus, encouraging
use of such cars. For policies to be sustainable, situation of production,
consumption and fuel quality should be made more transparent. The cost price
of gasoline should be regarded as a basis for determining fuel price. We must
bear in mind that cost of traveling 100 km is the lowest in advanced cities
like Los Angeles and Chicago and is the highest in poor cities like Lima and
New Delhi.
Smuggling means
gasoline illegally imported:
After Dr. Khalatbari’s speech, the
audience posed their questions. First, Alviri quoted deputy minister of
petroleum, Nematzadeh, as saying that one million fuel cards have been issued
with no corresponding cars. “Therefore, despite rationing, gas stations are
overcrowded and traffic jams are heavy. Yet they claim that 17 million liters
of gasoline has been saved. It is not clear how that saving has been
achieved,” he added.
He further noted, “Gasoline smuggling is
not done by people. Most of smuggling is illegally imported. That is either
resources allocated to gasoline import have been used on smuggling, or part of
the imported gasoline has been used elsewhere outside framework of domestic
laws. Every liter of gasoline is sold for 20,000 rials in Turkey, 7000 rials
in Pakistan and 4000 rials in Afghanistan. If we considered the cost of
traveling, we would have a real consumption difference of 15-20 million liters
per day. Therefore, rationing has only served to make origins of smuggling
more transparent.”
Dr. Khalatbari, then noted that most of
what is announced as fuel consumption has not been legally imported. “As for
price correction, if we eliminated car import tax and other taxes levied on
the real price of cars, then introducing actual gasoline price would be
logical.”
She added, “Prices should be
rationalized. We cannot be much different in price compared to our neighbors.
The same is true for power. Another example was cell phone lines which were
sold at 5000,000 rials, 4000,000 rials of which was tax. People should not pay
the price for government’s inefficiency. The cost of gasoline production in
our country is three times that of standard costs in the world. This is much
more important than gasoline smuggling in border areas. In fact, the
government is not paying subsidies on fuel, but it is making up for its
inefficiency.”
Dr. Soltanifar also quoted former
minister of petroleum, Zanganeh, as saying that building a refinery with a
capacity of 150,000 barrels oil will cost one billion dollars while producing
net profits of about 7 percent.
“We do not have enough crude oil for
delivering to refineries and we must buy the needed oil at Persian Gulf FOB
price. As for rationing, Mr. Nematzadeh had offered a plan proposing that the
price should suddenly rise from 800 rials per liter to 1800 rials per liter
instead of introducing rationing system which will be followed by economic
corruption. In that case, we could have covered total consumption through
importing 2.5 billion dollars of gasoline and spending 30,000 billion rials
which would have resulted from price change. However, at present, 2.5 billion
dollars appropriated to fuel imports has been finished and the government has
asked for 1.5 billion dollars more. At the same time, people are dissatisfied
with the current system of fuel supply at multiple prices and the country has
been economically at loss,” he added.
Khalatbari then noted that the cost of
issuing smart fuel cards has been estimated at 1280 billion rials.
“I am not agreed to high prices under
present conditions, but if I had to choose between the current situation and
selling gasoline at 1800 rials per liter, I would have opted for the second
choice. Let’s not forget that selling gasoline at several official rates would
have been better than selling it at unofficial prices, which is currently
happening at gas stations,” she said. |
