Subsidy is referred to as cash or noncash payment paid either directly or indirectly by the government and is meant to serve a series of objectives, namely increasing consumers’ purchasing power or producers’ selling power, improving income distribution, securing economic stability and offsetting the externalities associated with government welfare schemes. Nonetheless, excessive subsidy payments can give rise to numerous problems. Improper Energy subsidy system in the Iranian economy has generated a number of issues, including unjust distribution systems, distortions in resource allocation, as well as imposition of onerous financial burdens on the government. In response to the above problems, the "Targeted Subsidies Act" was approved and implemented.
Since the launching of the first phase of the Targeted Subsidies Act in December ۲۰۱۰ and the ensuing multiple fluctuations in different markets, the question of implementing the subsequent phases of the Act has been the topic of heated debates among government officials. On the one hand, due to changes in foreign exchange rates, energy prices need to be revised more drastically, compared to the time the Act was approved; and on the other, considerable foreign exchange rate fluctuations cast doubt on the realization of the expected results of the remaining phases of the Act. That said, a diagnosis of the first phase of the implementation of the Targeted Subsidies Act, and a comparison of the findings with the experiences of other countries can pave the way for the successful implementation of its subsequent phases.
To this end, the Institute for Trade Studies and Research (ITSR) has carried out a research project seeking to diagnose the shortcomings of the first phase of the Targeted Subsidies Act and to predict the possible outcomes of implementing the second phase of the Act. This book discusses major elements of implementing the first phase, including the method of energy pricing, the way the first phase of the Act has been implemented, the experiences of other countries in subsidy reform, as well as an evaluation of the impacts of implementing the second phase of the Act.
I wish to thank the author, Dr. Alireza Garshasbi and his co-writers Ms. Bahare Oryani and Ms. Rezvan Aghamirzaei for carrying out the original study. The book was translated to English by Mr. Mahdi Moharami under the supervision of Dr. Moosa Moosavi Zonooz, to both of whom I am thankful. I would also like to appreciate the efforts of the staff at the Commerce Printing and Publishing Company, as well as the Documentation and Information Statistical Databases Office who made the publication of this book possible.
Marjan Faghih Nasiri
Institute for Trade Studies and Research