Sunday, January 20, 2008

A Notice Has Been Served

Infrastructure! Infrastructure! Infrastructure! Probably any economist with her dying breath would yell: Infrastructure! When oil price began its increasing trend, many Iranian economists also joined each other to press the case for infrastructure. However President Ahmadinejad won the competition by promising the public oil money. Last week a member of Majlis said: “Mr. President, The people of my constituency do not want the oil money; please do not cut the gas!” Snow has served Iranian government a notice that how inadequate the infrastructure is in Iran and how unprepared public executive are for such emergencies.

It is hard to draw an accurate picture of how heavy snowfalls and gas cuts have affected Iran in last week. Following Turkmenistan decision to stop its natural gas exports, using a maintenance excuse, to secure a higher price from Iranian government, gas pressure fell down in many cities and towns across Northern parts of Iran. This disturbed daily life for many households who rely on natural gas for their daily activities and shut down many small businesses, including bakeries. Distorting supply of bread resulted in a price hike for this most essential item on Iranian table.

Heavy snowfalls and severe cold increased demand for heat and demand for natural gas and heating houses in temperatures as low as -4’ F. This forced government to decide to cut the flow of natural gas from industrial sector and to divert it to residential and city consumers. This is a short term solution that affected the industries and forced many to question the robustness of investment returns in an industry subject to such demands.

Transportation sector was the next victim. Many roads were shut down by snow and cars were trapped on highways such as Tehran-Zanjan route, a major western highway. Passengers had to sleep over for three days at Iran’s largest international airport: Imam Khomeini Airport located 19 miles south of Tehran. Runways were closed by snow and aircrafts’ wings froze. Airport authorities canceled up to 100 flights. After 3 days of chaos the head of airport was dismissed, becoming the first authority to lose his job because of severe cold.

The recent energy-weather crisis in Iran, a country rich with oil and natural gas resources, may result in many questions and encourage a few enterprising ideas. Today more than 13 million households are natural gas consumers. Diversifying resources and developing natural gas fields in south become more and more important; a point that some already have started to criticize the present administration about. One wonders if this means an increase in the opportunity cost imposed by recent sanctions.

That is not all. 15’000 industrial units and 47 power plants rely on natural gas as well. Cutting the gas from industries in the time of crisis does not seem to be the perfect solution and in the long run would hurt industries. Power wise some might argue that given the growing domestic reliance on natural gas, developing a nuclear power plant is an alternative that reduces the negative effects of such extreme weather. Of course that is not as easy as it sounds.

The recent events have given power to those who have been arguing for infrastructure development in the past few years and criticizing the government on spending too much on irrelevant projects that might bring in votes, but not sustainable development. An example of such projects is the subway connection between Tehran and Imam Khomeini International Airport. Designed to make the airport more accessible, it has not been finished. Had it been completed, passengers wouldn’t have had to pay close to $150 to cab drivers to get back to Tehran.

Meanwhile government’s handling of economic affairs has been criticized by the both sides of aisle. Dr. Tavakoli an economist, a conservative member of Majlis and a president Ahmadinejad’s supporter, had to say in anguish: “The engineers do not understand and do not appreciate economics as a scientific methodology.” Government’s recent request for 1.2 billion dollars to import necessary products does not seem to be addressing the fundamental issues of Iran’s economy.

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