The Islamic Republic was a leading importer of gasoline in the world, but the scheme made the country independent of purchasing this strategic product from abroad.
The smart fuel system has currently more than 22 million subscribers. It gathers refueling data from 3,030 gas stations across the country and transmits them to a center for statistical analysis.
The smart fuel system curbed the unbridled consumption of gasoline and gasoil in the country. Thanks to this system, Iran has saved billions of dollars.
In order to make an assessment of this system, the Oil Ministry's website, Shana, has interviewed Nasser Sajjadi who founded the smart fuel system six years ago. He is currently deputy chief of the National Iranian Oil Products Company (NIOPDC).
Why did the country decide to ration gasoline distribution?
Gasoline consumption in the country was growing sharply in the country notably in the years following the Iraqi imposed war (1980-1988).
Every year, the country saw gasoline consumption rise drastically from the preceding year. Before the implementation of gasoline rationing scheme, fuel consumption grew 10 percent on an annual basis. Every fifteen years, the country saw its gasoline consumption double. That was the case while except for Arak and Bandar Abbas refineries which were launched after the imposed war, no new treatment facility was planned to increase production.
Based on our calculations for years 2002 to 2007, we concluded that we would need to import more gasoline in order to meet the growing domestic demand. But given the country’s rightful position on the international scene, it was high-risk. Moreover, my colleagues and I held out the possibility of numerous social challenges and crises should we not move to curb gasoline consumption in the country.
Given the fact that domestic gasoline production was lower than consumption, we had to make the necessary planning to import this product so that our gasoline supply and distribution would not be hindered.
In 2003 when I was director for planning at NIOPDC, I prepared a report to notify the authorities of the fact that we will not be able to meet people’s growing demand for gasoline. I proposed the smart fuel system in a bid to curb gasoline consumption. For that purpose, the government was required to make the prices realistic and it was not among the short-term policies of the Islamic Republic. Therefore, the only option for the government was to ration gasoline distribution.
The NIOPDC submitted its proposed gasoline rationing scheme to the parliament which legalized it. The country’s national budget obliged the NIOPDC to distribute gasoline across the country through smart cards. For that purpose, the NIOPDC set up a steering committee whose members were from Iran Fuel Conservation Organization (IFCO), Petroleum Ministry’s Planning Department and the Management and Planning Organization (MPO). The committee was tasked with defining goals for smart fuel cards.
Establishment of a fuel databank was a major objective agreed upon by the committee. At that time, there was no precise information about the number of vehicles and their fuel consumption. We had general information that for instance we distributed 60 ml/d of gasoline, but we did not have figures about fuel consumption by taxis, state-registered vehicles, public transportation, etc. This databank was supposed to provide information to that effect. Another objective of the steering committee was to prepare reports for managers and decision-makers so that they could make final decisions about fuel supply. The committee was also charged with implementing a modern system for fuel distribution in a way that consumption could be controlled. Over the past six years, the government has been able to implement all its fuel-related policies through this smart system.
Smart fuel cards reduced fuel smuggling to zero because it allowed monitoring of gasoline supply from beginning to end. With the implementation of this project, we managed to develop a tool to curb fuel smuggling. The smart system also facilitated the government’s job of distributing gasoline at different rates (subsidized, semi-subsidized and unsubsidized, regular, unleaded and premium). In other words, the systems we developed at that time could help the government to implement its policies.
Another objective we envisaged for smart fuel cards was electronic payment of gasoline. We had made arrangements with the operating bank (Bank Mellat) for people to pay with their debit cards. In this way, banknotes were no longer needed to change hands.
How was the idea of smart fuel card developed?
In 1999, fuel smuggling in Sistan Balouchestan province had spiraled out of our control. Each vehicle used to go to gas stations several times a day to gas up. Our negotiations with the provincial governor failed to cut fuel distribution in the province and we finally decided to find a solution to put an end to fuel smuggling. For that purpose, we implemented smart fuel system in Zahedan and Mirjaveh cities of the province. Nearly 50,000 cards were distributed in the two cities. Before this project was enforced in Sistan Balouchestan, NIOPDC had to impose tough restrictions on the refueling of vehicles. One of these restrictions was setting specific days for cars with odd or even plate numbers. After the development of smart cards, those restrictions were lifted.
After this project proved successful in curbing fuel smuggling in Zahedan and Mirjaveh, I envisaged its implementation for the entire country. In 2003, I proposed it to NIOPDC.
So the gasoline rationing was evoked in the beginning of the eighth administration.
No. The parliament had initially obliged the National Iranian Oil Distribution and Refining Company (NIORDC) in 2004 to distribute gasoline in smart cards in the country. After the execution of smart fuel distribution system, the government started rationing fuel. Studies on the objectives and details of gasoline rationing and the smart fuel card lasted nearly nine months up to March 2004. Months later, the parliament signed it into law. A tender bid was then held and a contractor was picked for the job. Iran Telecom Industries Company in Shiraz was to handle the job, but it was privatized abruptly and the project was delayed for months. Finally, operations for the implementation of the smart fuel distribution system started in 2005.
Can you tell us about the implementation of the smart fuel distribution system?
Based on the objectives I already mentioned, we prepared the grounds for the tender bid to be held. To that end, a technical committee, headed by me, was set up. Other members included Gholam Hossein Mohammad Talebi, head of NIOC’s IT Department and Ahmad Tavallaei, his deputy. As I told you earlier, the successful implementation of the project in the cities of Zahedan and Mirjaveh prompted us to implement it across the country. This system required a specific design. The only experience of electronic cards in the country was banking debit cards which had their special magnetic system. Sometimes people hit snags in using their credit cards and we decided not to use magnetic cards to avoid problems of bad connection.
The chip installed in the smart cards is in fact a small computer holding all data about refueling. At present only four companies in the world are capable of manufacturing such chips. When the owner inserts the smart card, the system identifies the card based on information registered in the center. Then, he is allowed to refuel. The advantage is that the fuelling system does not depend on phone communications and people can easily gas up. This structure has been key to the success of this project.
Since the smart fuel distribution system was launched, any changes to quotas or any new policies have been implemented through this system. Some gas station owners were worried that their revenues may decline after fuel rationing and they resisted smart fuel distribution. Anyway, it was necessary to make all pumps digital. The technology used in some pumps dated back to the1970s and they needed to be revamped.
There are nearly 3,000 gas station owners who are affiliated with the private sector. How did you convince them?
In a bid to allay their concerns, the NIOPDC adopted measures based on which the government had to increase their service fees by 10 percent in case of decline their sales.
How did you take the project into the execution phase?
In a bid to assess public reaction to the smart fuel cards, we equipped pumps sporadically across Tehran and then in five other cities. We had to make sure that the system will function properly. We could not implement it while it might experience technical failure in the middle of the way. Many said this system will fail and they did not recommend it. In order to promote the culture of using smart fuel distribution cards we carried out extensive cultural activities.
That was not all the scheme. How did you issue a smart fuel for each car owner?
We faced a difficult road to personalize smart fuel cards because police had told us that their data were not updated. In cooperation with police and Post Company, we gathered the latest data about car owners. We still didn’t have the necessary facilities for personalizing smart fuel cards and we decided to send our data abroad for that purpose. But security officials opposed. Then we found out some Defense Ministry affiliates including Shiraz Electronic Industries Company have imported machinery for that purpose but have not installed them yet. German and Chinese experts helped Iranians to activate the machinery. It lasted six months. Then for the first time personalization of smart cards was done on a wide scale.
After that, we found that a large number of cars had been registered without any address so that we could send cards to their owners. We announced them to mass media so that they could follow up on their cases. Despite all those measures, two million cards had not been distributed. Their data had been registered in our system, but their cards did not exist. We had issued cards for former regime officials. The problem was that the police databank had not been updated. So an advantage of smart cards was that we updated the information about car owners.
How did you deal with the motorcycle owners?
We didn’t have any information about motorcycles. We did not know even their exact number. The police finally obliged motorcycles to report their specifications. Only 1.2 million motorcycles were registered. We launched a website and asked motorcycle owners to register. In a short period of time, more than 4.5 million motorcycles registered in the site. That was incredible.
To implement rationing, telecom infrastructures were needed across the country. Between 500 and 600 gas stations were initially found to have no telephone line. Therefore, the president issued a directive for laying phone line in all gas stations. Despite all efforts undertaken for that purpose, some 400 stations located mainly on interurban roads or in villages had no access to phone. They were finally connected through VSAT.
When the smart fuel system was launched in the country without any technical problem we couldn’t believe it. There were numerous complicated problems in this project, but we overcame them all.
You said a tender bid was held for the implementation of the smart fuel distribution system. How many contractors were involved?
A main challenge was that we had not found experienced and skillful contractors. In the end, an Iranian contractor teamed up with two foreign contractors to handle the job. In the meantime, several Iranian and foreign advisors were also involved.
The project had so many beneficiaries including security and law enforcement authorities, Telecom Company, Post Company, police and the banking system.
How do you list the achievements from the implementation of smart fuel project?
I can summarize them as follows:
Creation of economic and social opportunities for the implementation of subsidy reform plan
Improving public transportation
Establishment of an updated databank about vehicles and motorcycles
Avoiding fuel smuggling
Fuel distribution and consumption management
Preparing public opinion for the implementation of subsidy reform plan
Upgrading the level of information and telecommunications technology
What if gasoline rationing had not been implemented?
Had gasoline not been rationed we would have seen a 10 percent in the annual gasoline consumption. In 2012, 132 ml/d of gasoline should have been distributed, but we slashed the figure to 64 ml/d. Moreover, without smart fuel cards, subsidies could not have been reformed. Many believe that the smart fuel card was the biggest IT project in West Asia. The project insinuated a sense of self-confidence into Iranian industrialists, convincing them of their potentials.
Has people’s tendency to CNG been effective in lower gasoline consumption?
Yes, of course. We are currently consuming nearly 19 ml/d of CNG in the country. In 2012, CNG consumption has helped save more than 50 ml/d of gasoline.
How much has been saved from the implementation of smart fuel distribution system? How much was invested in the project?
Precisely speaking, nearly 60 billion dollars have been saved since the start of gasoline rationing up to March this year. More than 43 billion dollars was due to gasoline no-import and the rest was due to CNG consumption. In total, nearly 1.5 trillion rials has been invested in the project.
Gasoline rationing elicited protests. You must have had a tumultuous night. Do you remember anything special to share with us?
Yes, that night I and some of my colleagues proposed that the decision should not be made public in the night so that people would realize it the following day. But it did not happen and the news spread the night before. Some opportunists poured on the streets and torched some gas stations.
How many gas stations were set afire? What were the consequences?
In that night, 14 gas stations were set ablaze in Tehran, but the NIOPDC reactivated all of them in less than 24 hours. The gasoline rationing scheme was implemented with the cooperation of people. Six months before the rationing scheme, we had held meetings with all gas station owners.
How did foreign advisors see the fuel rationing scheme?
Given the country’s infrastructures, they were not hopeful enough and they predicted the failure of the project. Iran is the only country to have ever implemented such a system. Iraqi, Syrian and Venezuelan petroleum ministers came to NIOPDC to see how the project was to operate.
When then Venezuelan president visited our facilities he said he could not believe that such a complicated project has been implemented.
The project was high-risk, but we managed it so that a turning point is marked in Iran’s economic and technological history.
Do you have any plan for gasoil and CNG rationing?
In the transportation sector, more than 54 ml/d of gasoil is distributed through smart cards. No rationing is envisaged for gasoil distribution.
Due to gasoline restrictions, the government decided to let people use as much CNG as they want. We have no plan for CNG smart cards.