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Transportation Sector Reels from Subsidy Cuts

by ALI CHENAR in Tehran

22 Dec 2010 22:555 Comments
602568_orig.jpgFrom taxicabs to airlines, shock and dismay at effects of economic overhaul.

[ dispatch ] The Iranian transportation sector is the first to feel the full burden of the new economic reforms. Many, on the ground and in the air, worry how long they are going to remain employed.

On Sunday, as President Mahmoud Ahmadinejad was telling the Iranian people that the much debated subsidy cuts were finally being enacted, Farzad, a 28-year-old cab driver in Tehran, had no doubts about the impact on his line of work: "Right away, I knew that I was bankrupt." Farzad drives a Samand, a vehicle designed and produced by Iran Khodro, in central Tehran. Before the cuts, he paid 1,000 Iranian rials (10 cents) per liter of fuel. Now his ration costs him 4,000 rials per liter; if he needs fuel beyond his ration, he has to pay 7,000 rials per liter. "Overnight my expenses went up four-fold." He shrugged his shoulders and added, "I do not how long I am going to last."

Mohammad, a 52-year-old cab driver who has been working in his car for three decades, was shell-shocked by the news. "I get out on the streets every day to support my family. Now I do not know how I can do it." He was frustrated and angry at the authorities. "I do not work to pay for my fuel; I work so I can put bread and butter on the table for my family. Now the fee does not even cover my maintenance costs. I have two daughters -- how I am supposed to support them? The prices are going up and I do not know how to make ends meet."

All over Tehran, drivers are looking for someone just to listen to their plight. I took a ride in Resalat yesterday and asked Reza, a 36-year-old with a son in elementary school, how he was faring. "Look at my face and see what is going on inside me," he answered, sounding like a condemned man, hopeless and resigned. He grabbed his maintenance notebook and opened it so I could look at the figures. "See, last month, my oil change cost me 260,000 rials. Yesterday, it cost me 380,000 rials." He raised his voice in anger. "They tell people that only fuel prices have gone up for us, my ass! I have to pay more for everything now." He drives a dual-fuel car that uses both gasoline and compressed natural gas (CNG). "Last night I went to fill my CNG tank. It used to cost 7,000 rials. Now it is 70,000."

CNG still costs less than gasoline, but it is not drivers' first choice. "CNG hurts the engine. It forces us to check and to change the cylinders more often," another driver, Djavad, said. Djavad used to have a factory job, but he was laid off when the operation shut down due to competition from China. "I had to support my family, so I took my car and went to work for a taxi service." He admitted that driving was not his first choice. "What else could I have done? There is no work, no factory is hiring, and all the companies are laying off people."

Djavad, who is in his 20s, worries that his last line of defense had been breached. "I do not know how to pay for food, rent, and medicine." He views the direct cash subsidy of 400,000 rials per month as a ridiculous joke. "I want to return the money to the government and put another 500,000 on it and tell them to shove it." Mohammad shares his anger and frustration: "I want to tell the government to stop thinking we are idiots. They are doing this to us because they are bankrupt. Now we have to pay for their mistakes."

Taxi drivers are not alone in their concerns. The government also increased the price of jet fuel from 1,000 rials per liter to 4,000 rials per liter for domestic flights and to 7,000 rials for international flights. "This is a disaster," says an airline commercial agent. "Now every ton of fuel is going to cost us four times more."

The rise in operating costs compounds a difficult situation for Iranian airlines, which have been grappling with a decline in demand after an early autumn fare hike. According to a consultant who works with private airlines, they are already "facing accumulated losses, and this will swallow up any profit margins they have left." He added, "Now the only profitable flights are the foreign ones, but there Iranian airliners are facing increasingly strong foreign competition and are losing their market share." He is certain that some private airlines will soon have to halt their operations. "It is insane to keep this Russian-manufactured fleet operational -- a TU-154 uses 5.5 tons of fuel per hour."

The government has promised a review of airfares in two weeks. The commercial agent is not hopeful that even another fare increase will save the airlines. "We are already seeing that demand is hampered by the autumn increase in prices. Another price hike could reduce it even more." Around Tehran, he said, "the travel agencies are calculating which airline will last and which will crash." All of a sudden, the cost of fuel has become the decisive factor in this game.

With the transportation sector in jeopardy, there is little doubt that other sectors will soon confront the true meaning of subsidy cuts. That knowledge is of little value to those whose livelihoods are already being affected. "They are telling me others will join us soon. That means there won't be any job for me anywhere else," Farzad said with a bitter laugh.

Copyright © 2010 Tehran Bureau

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I feel sorry for Iranians back home. As if life wasn't hard enough already!

This is just the beginning. increased energy costs will trickle down the economy. Good luck putting bread and butter on the table then.

What do you expect when Mollahs play economics instead of Rozehkhooni.

Ahvaz / December 23, 2010 1:38 AM

It's funny how this "report" is so much like the news on Iranian TV, only opposite.

Going from a command to market economy while enduring the effects of externally directed economic warfare, will be a grand achievement if it can be pulled off successfully.

Pirouz / December 23, 2010 3:16 AM

@Pirouz: With all due respect, for I know you yourself are trying to raise a family (and thus have little choice in spreading IRI propaganda), but please don't call this a grand achievement. Do you think the thousands of war veteran turned taxi drivers who are already under severe pressure call this a grand achievement? Do you think the thousands of construction workers who receive barely $20 a day call this a grand achievement? Do you think the thousands of families in your oh so familiar South Tehran call this a grand achievement? Hell no they don't! So please refrain from calling the epic failure of the government in its duty of providing for the people of Iran a grand achievement.

@Frontline: could yall not use Rials? I mean I know it's the official currency but nobody uses the term rials and the extra zero (though it aint much) distorts figures (especially when speed reading). Thank you!

12th Imam / December 23, 2010 6:34 AM

"while enduring the effects of externally directed economic warfare, will be a grand achievement if it can be pulled off successfully."

Go, tell it to your beloved IRGC corporate raiders who are destroying our country's economy with their contraband trade, profitable imports from China and by looting domestic companies!
We need no foreign enemies, AN and his cronies are already staging a war against the Iranian people.

Arshama / December 23, 2010 6:46 AM

I agree with Pirouz that a successful move toward market economy would be a grand achievement. However there are many signs that this remains a command economy. Now government, instead of subsidizing products and services, is forcing severe price controls. Eliminating subsidies by itself does not create a market economy.

Ali Chenar / December 23, 2010 3:00 PM