Keyvan Sarafraz
Economic analyst.
One of the strategic policies for industrial development that has gained significant attention among Iranian and global analysts and policymakers in recent decades is supporting domestic industries through various means, including providing appropriate infrastructure and facilitative measures to enhance industrial efficiency and productivity.
Economy and industry are interconnected in a mutually reinforcing cycle. The effects of any economic strategy, policy formulation, and, on the other hand, industrial trends and performance, influence each other. The examples and instances of economic and industrial interactions, particularly since the development and implementation of five-year development plans and the role each has played in advancing national macro objectives, are clearly evident. Economic governance and the quality of regulatory policies in the global economy are always considered crucial factors in determining the rankings of countries. Where policy direction is designed with inclusive and integrated approaches aimed at improving diverse economic indicators, its functional impact inevitably leads to strengthening fundamental structures and fostering leadership in regional and global competition.
What is the difference between strategies and approaches, and how should governments position themselves to ensure stability and progress in the face of a multitude of global transformations, as well as both endogenous and exogenous opportunities and challenges? Naturally, active engagement in the planning structure can maximize the benefits of economic policy by controlling risks. From a specialized perspective, the outcomes and origins of this path lead to achieving sustainable development—a process that seeks to achieve continuous growth across all sectors, not only to create stability and balance but also to maximize the expected benefits for all active national sectors.
Energy imbalance and the change in the model of industrial development.
The industrial sector is one of the core and strategic areas within government programs, and its development undoubtedly requires fundamental strategies and the creation of a professional and appropriate environment within decision-making structures. Over the past two years, this sector has faced new challenges, particularly in the form of energy imbalance and the policies governing the country’s energy sector, which have exposed it to various risks. Today, major industries, especially the mining and steel sectors, following the implementation of energy policies—particularly in terms of energy distribution—have not only caused a noticeable shift in investment trends but have also taken a portion of the steel production capacity out of the wealth and income-generating cycle.
This situation has now become a major challenge not only in Iran but also at the global level and it affects most of all steel industries. According to the report of the International Energy Agency, on the one hand, the consumption and reduction of energy consumption, and on the other hand, the increase in the price of energy carriers affected by the increase, has been a barrier to the advancement of industries, the speed of which has been greatly reduced. In the meantime, steel and other mining industries are at the forefront of these conditions. Today, the statement that “energy imbalance will change the model of industrial development” has gained more meaning, and its examples have become evident in various sectors.
Energy imbalance and the slowdown in industrial growth.
The reduction in supply and the increase in energy prices have been the two disruptive factors for the industrial sector. This situation not only impacts production costs but also compels companies to invest in infrastructure, which can lead to reduced efficiency. However, if companies respond intelligently by investing in energy supply sources and improving the efficiency of equipment, the reduction in supply or seasonal energy outages, as well as the potential removal or temporary elimination of energy subsidies, could create a unique opportunity for them to compete in the market. Although this is not easily achievable, especially with the emerging challenges of financing and working capital for industrial units, the important point is that the demand for electricity and gas for residential and commercial use has deprived industries of a sustainable supply of these energy carriers. Since production at full capacity is not possible, operational costs have increased significantly.
These changes have hindered the rapid growth of the steel industry. The government, by failing to provide infrastructure to the expected capacity for supplying the energy inputs required by the current industry, while simultaneously granting approvals for the establishment of new factories, has deprived itself of opportunities for wealth generation and activating the engine of economic growth. Additionally, the private sector investors in this area have been squeezed by reduced production and revenue, making it impossible to cover investment costs. This trend is especially amplified for publicly traded companies, which are required to meet the minimum profit expectations of shareholders. In this situation, the outlook for employer-shareholder relations, overshadowed by these changes, is unclear and ambiguous, leading to an increased likelihood of early capital exit from the shareholder cycle of capital market companies. In fact, this situation increasingly embodies the meaning of a “glass market,” where the stock market, in a transparent environment, will push shareholders away if it shows any sign of uncertainty. Disruption in the supply chain is another aspect of facing energy shortages. The inevitable production reduction caused by this situation has led to delays in goods and product supply and dissatisfaction among investors, leaving many profit-making opportunities unresolved. On one hand, the lost opportunity from power outages during summer and similar effects from reduced or complete gas supply cut-offs in winter have changed the face of the steel industry, and when analyzing its current condition, no positive or motivating outlook can be foreseen. Statistics show that most steel companies have been producing, on average, about 10% less than their annual nominal capacity, and forecasts indicate that this figure will drop by 20 to 25% below the designed capacity by the end of the year (during the peak of winter).
The season for revising strategies and regulations.
The interaction between economic policies and industrial performance has become more apparent than ever, with major industries, particularly steel and petrochemicals, simultaneously preparing for proactive responses to the risks arising from the energy distribution plan during peak-demand seasons. While the effect of alternative measures by industries, the development of energy supply infrastructure, and the construction of power plants, such as solar power plants, can be a professional reaction to address the current challenges, the key point is that today’s energy limitations have also become a source of economic imbalance. In response to this situation, the government must create investment opportunities in the energy sector, design, and implement regulations and professional principles for energy optimization. Additionally, by effectively utilizing “Article 12 of the Production Obstacles Removal Act” and reducing common bureaucratic hurdles, along with providing legal support alternatives to mitigate the reduction in energy supply, such as granting tax exemptions and insurance relief to steel companies and major industries, it can minimize the multiple risks overshadowing this sector.
Today, especially on the brink of implementing the requirements of the seventh national economic development plan, the government must, more than ever, reorganize and reform previous processes to establish an efficient system for managing and optimizing energy. This includes reducing and replacing the energy consumption of non-productive residential and commercial sectors through the development of capacity and the construction of gas and steam power plants, as well as supplying electricity instead of distributing vast amounts of gas in the consumption network. This approach will enable the optimal use of the country’s valuable energy resources, which have been harvested through large investments in major oil and gas fields, such as the South Pars field. Through continuous measures, particularly by creating stability, this strategy will lay the groundwork for elevating the position of Iran as the 10th largest steel producer globally, facilitating non-oil exports, and fostering economic growth through the professional use of energy in productive industries.
