Tehran, May 18:

Although Iran has a daily oil production of 4.2 million barrels, it still spends five to eight billion dollars for petrol imports. Of the petrol consumption of some 73 million litres daily, over 40 per cent is imported - but at the pump, Iranians have to pay only 11 cents per litre, or only about one-fourth of the actual cost.

The lavish subsidies for keeping petrol prices low and people’s spirits high have not only caused a huge hole in Iran’s budget but have also increased the number cars in Iran. Numerous related problems, including traffic jams and pollution in big cities and petrol smuggling into neighbouring countries are other the impacts of petrol subsidies.

Since 2004 the Iranian administration has tried to confront this problem but all plans were dropped in order to avoid angering the people and not to add to inflation, which is already at a critical level of 20 per cent.

Now, President Mahmoud Ahmadinejad and his administration aims to put end to the dilemma by rationing petrol with the so-called “smart card” initiative scheduled to begin on May 21. The plan of reducing lavish consumption of petrol is basically supported by most Iranians, but Ahmadinejad seems to have gotten cold feet about the plan’s social and economic consequences. The initial idea was to issue smart cards for about eight million cars in Iran, setting a daily ration of three litres for private cars and 15 to 20 litres for taxis at the current price of 11 cents. Above the ration quota was to be sold at 33 to 44 cents.

Although approved by the parliament, the plan however turned out to become more complicated than initially predicted. With the plan scheduled to be implemented next week, one million car owners still have not yet received their smart cards and are not expected to before the deadline.

But the project has de facto no meaning, as the government has not yet announced the monthly ration. Parliament has already criticised the president and urged him to disclose the ration and the rate for the additional quota. The government is, however, afraid that the move would not only further increase inflation but also harm its popularity with the next parliamentary elections looming eight months away.

A defeat by Ahmadinejad’s Abadgaran (Construction) Party in the parliamentary elections would also affect his own destiny in the 2009 presidential polls.

Another problem is that although smart card machines have been installed at 2,300 petrol stations, it is yet unclear whether all of them would work properly. Several technical problems have been reported in the recent weeks during the test phase and the glitches are increasing, rather than decreasing. Amid the glitches, scepticism about the smart card plan is spreading. The ISNA news agency had this comment: “Big deal, now we tank exactly like before - just with a (not functioning) smart card.” Furthermore, no software has yet been introduced for enabling people to charge their cards. Another problem is that due to little control at petrol stations, the card can actually be used by anyone.

Many observers believe that the government would be eventually forced to drop the smart card and rationing plan and just simply increase the petrol price.