Tehran (Platts)--16Jan2013/612 am EST/1112 GMT

Iranian President Mahmoud Ahmadinejad said Wednesday that the country should stop relying on oil revenue in the state budget as one way to fight international sanctions.

In a speech broadcast on state radio, the Iranian president said "restrictions imposed on selling oil, the sanctions against the central bank and money transfers" were designed to pressure the Islamic Republic and prevent its progress.

Ahmadinejad, who has only a few months in office before his second term runs out in June, called for "fundamental changes" in order to survive the sanctions.

"We should once and for all decide to eliminate petrodollars in the spending budget [of the government]. Of course, it will bring pressures," he said.

Ahmadinejad, who was in parliament to discuss the country's economic problems, stressed that Iran should move ahead with the second phase of a plan to scrap subsidies on energy and basic staples under a so-called targeted subsidies plan, which replaces existing subsidies with cash payments.

The plan was introduced in 2010 to curb runaway consumption of energy, which was costing the state billions of dollars at a time when the US began to tighten sanctions against Tehran with a ban on exports of refined products such as gasoline to Iran.

The OPEC state was importing large volumes of gasoline at international prices and selling fuel at subsidized prices at the pump.

Parliament ordered a halt to the subsidies program saying it was having a negative effect on the lives of ordinary people after more stringent sanctions were imposed on Iran by the US, the UN Security Council and the EU over its controversial nuclear program.

"Every day, 1.883 million barrels of oil and [gas] condensates are being delivered to refineries and 150 billion cubic meters of gas are injected into the national grid on an annual basis," the president said.

Instead of using oil money, Ahmadinejad said, natural resources such as mines and wood should be used to generate income.

Income from oil exports, currently estimated at around 1.3 million b/d, accounts for more than 50% of state revenues and a higher percentage of foreign currency earnings, which have been slashed due to the sanctions targeting Iran's oil sales.

Ahmadinejad also blamed the West for "rushing into the sanctions despite the fact that negotiations were properly going on."

Several deputies voiced strong criticism of Ahmadinejad's proposals after the president left parliament. Some lawmakers complained about increased dependence on oil revenues, the president's repeated unfulfilled promises as he serves his final months in office and mismanagement of the economy.

Former oil minister Masoud Mirkazemi, who heads parliament's energy committee, said that Ahmadinejad's government had implemented only the subsidy plan out of a major, seven-point economic reform program.

Mirkazemi said spending hard currency after converting it to rials in the country was one of the reasons for the sharp devaluation of the rial, which has lost 50% of its value since late 2012 as Iran's access to international financial markets has been curtailed by sanctions as has its ability to receive transfers from abroad.

"Weakening the national currency has brought inflation...banks have performed improperly with regard to foreign currency", he said.

Ahmadinejad, in his speech, rejected as "baseless" accusations that the government had sold foreign currency on the unofficial free market rather than through the central bank in order to be able to pay the monthly handouts under the targeted subsidy plan.

There are at least three foreign exchange markets operating in Iran at present. The rial is currently trading at a rate of 12,260 and around 25,000 in the official markets, and around 33,000 rials to the dollar in the free market.

The president's opponents have blamed him for the deterioration in the country's economy rather than the sanctions, which have slashed the OPEC state's oil exports by an estimated 1 million b/d since the slew of sanctions came into effect in mid-2011.

Iran's oil production has fallen to 2.7 million b/d from an average 3.7 million b/d in 2010.

--Aresu Ebqali, newsdesk@platts.com
--Edited by Kate Dourian, kate_dourian@platts.com; James Leech, james_leech@platts.com

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