The Effect of Eliminating Energy Subsidies on Industry Cost Structure in Iran

The main objective of this paper is to examine the effects of raising the prices of energies like gasoline, gas oil, LPG, kerosene and fuel oil on the cost structure of enterprises in Iran. To get the goal, the criterion of Compensation Variations (CV) has been used in a partial equilibrium approach. To calculate Compensation Variations (CV), the change fee imposed on energy prices is used during 2010- 2013. The elimination of subsidies leads to 30 percent increase in the cost of manufacturing industries of the country in 2010. For the years 2011, 2012 and 2013, the cost increases to 28, 30 and 32 percent respectively. The loss ratio imposed by increased prices on various industries has started in 2010 and continued to accelerate until 2013. Therefore, to secure the desirability level prior to the implementation of the policy in 2010, 6063831 million Rials must be paid to the enterprises active in this section. For 2011, 2012 and 2013 the sum is 7678227, 10365607 and 15030129 million Rials respectively.