Iran MPs vote to change subsidy reform plan

TEHRAN (Reuters) - Iran's parliament voted on Sunday to change a key section of the government's plan to phase out subsidies, saying all Iranians must receive compensation for higher food and energy prices, not just low-income families.

Newspapers said earlier the government planned to compensate 36 million people, about half the population, for the higher prices resulting from the scrapping of subsidies and would open bank accounts for them to receive the cash.

The official IRNA news agency said that despite the vote to extend compensation to the whole population, the sum set aside in the bill was unchanged. If confirmed, this means the state budget would not be affected by the change.

Last month parliament backed other clauses of the same draft law, voting to end subsidies on basic goods ranging from gasoline to wheat and rice, a key plank of President Mahmoud Ahmadinejad's economic reform plans.

Subsidies have put a heavy burden on the budget but critics say removing them, even over a planned five-year period, would hurt the poor by pushing up inflation, now about 10 percent.

Some Iranian analysts and MPs have said there may be social unrest if subsidies are scrapped. The introduction of a gasoline rationing plan in mid-2007 sparked riots in Tehran. The government says hefty fuel subsidies benefit mainly the wealthy.

ENOUGH MONEY?

The parliamentary vote may force the government to raise the sum set aside for compensation, though IRNA said it could still distribute in cash and welfare payments only 50 percent of the money it saves on subsidies.

The amount given to each household would depend on income.

Parliament's support last month for an end to subsidies was a sign that Ahmadinejad was consolidating his position after the protests provoked by his disputed re-election in June, though Sunday's vote was a setback for him.

But higher consumer prices could prove unpopular among Iranians, many of whom are struggling to make ends meet.

The business daily Sarmayeh said a family of four with a monthly income of about $400 would receive $68 under the plan, but that this would only cover the expected increase in gas and electricity prices. Its report preceded the parliamentary vote.

"We will wire the money into your account ... it is not necessary to go and buy whatever you need on the first day," the paper quoted Ahmadinejad as saying.

Analysts say a cut in energy subsidies would reduce demand for gasoline and make Iran less vulnerable to any new sanctions on such imports imposed over its disputed nuclear program.

Iran is the world's fifth-largest oil exporter but has too little refining capacity to meet its gasoline needs.

The subsidy bill needs to be approved by the hardline watchdog body, the Guardian Council, to become law.

(Additional reporting by Hashem Kalantari and Hossein Jaseb; writing by Fredrik Dahl; editing by Tim Pearce)