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Tue 22 May 2007 12:46 AM

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Iran hikes gas price by 25%

Government says higher price will help reduce reliance on expensive imports.

Iran will hike the price it sells gasoline by 25 % to 1,000 rials (about 11 U.S. cents) a litre from Tuesday, but it has delayed rationing fuel as previously planned, the state broadcaster reported on Monday.

Iran imports 40 % of its gasoline needs because of a lack of refining capacity. Subsidies for some of the cheapest fuel in the world - even after the price rise from 800 rials a litre - are a drain on state coffers of OPEC's No. 2 producer.

Parliament had backed a plan to ration fuel and raise the subsidised price in a bid to rein in consumption. But officials had been hinting at delays in recent days, citing technical and other reasons. A minister said rationing could start on June 7.

Fuel rationing and price rises are a sensitive issue in Iran where cheap, abundant fuel is considered a national right. Fuel price hikes in the past have quickly fed through to price rises for other goods. Inflation is already running at 17 percent.

"Based on the budget bill 1386 (the Iranian year starting March 21), from ... Khordad 1 (May 22), the price of gasoline, based on the price mentioned in the budget bill, is 1,000 rials per litre," a joint Oil and Interior Ministry statement said.

The statement, published on the state broadcaster's Web site, added that "the amount of rationed gasoline (allocated to drivers) will be announced later."

President Mahmoud Ahmadinejad's government says rationing and a higher price will help reduce Iran's heavy reliance on expensive imports, particularly when Tehran faces further United Nations sanctions over its disputed atomic programme.

BUSY GASOLINE STATIONS

But Ahmadinejad had hinted the scheme might be postponed following reports of technical hitches in distributing the electronic smart cards motorists will use to buy the rationed fuel at subsidised prices.

The official IRNA news agency quoted Oil Minister Kazem Vaziri-Hamaneh as saying he hoped the smart cards would be fully distributed by June 7 and "from that day the gasoline will be rationed officially."

Some Iranians have not received cards. State radio reported that the government said rationing would not start until everybody had one. It has yet to say how much fuel drivers will get.

Witnesses said several gasoline stations in the capital were busier than usual on Monday evening as Iranian drivers filled up their tanks with fuel at 800 rials a litre, the old price which ends at midnight.

Economists say the subsidies encourage waste, hurt the environment and burden the budget. Iran last year spent $5 billion on gasoline imports.

World powers have imposed sanctions on Iran for refusing to rein in its nuclear work, which they suspect is aimed at making atom bombs. The United States has said Iran's dependency on fuel imports gave Washington "leverage."

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