In a situation where the majority of the production activities of the metallurgical industries depend on natural gas , the mandatory interruption of gas flow in the winter to compensate for the shortage of domestic consumption is in fact a hidden subsidy from the pockets of production to the consumer basket. This approach, at its most optimistic, is a kind of “interim crisis management”, not “sustainable economic governance”. It is time to move beyond the stage of accepting this chronic incapacity and look for solutions that either eliminate the risk or at least compensate for its damage.
Losses beyond production reduction
The costs of forced winter shutdowns go far beyond simply reducing production volumes.
Direct production loss: Every day of gas outage means a loss of daily production capacity and unrealized export revenues. This loss directly affects the financial statements of companies and, consequently, the stock price on the stock exchange.
Equipment damage: Sudden shutdowns of furnaces and metallurgical production lines result in technical damage and heavy maintenance costs.
Export penalties: Our largest steel companies have international obligations to deliver their products. Failure to meet these obligations due to gas outages will result in heavy fines and long-term loss of credibility in global markets.
Psychological effect on investors: For investors, the unpredictability of production is the biggest factor in volatility. A shareholder who knows that in the winter, his stock will fall due to energy policies without any fundamental reason, prefers to take his capital to safe and unproductive markets.
Three innovative financial solutions to tackle energy risk
1. Energy risk insurance
The insurance industry is a classic risk management tool. However, in Iran, there is no specialized insurance policy that effectively covers losses resulting from government decisions (orders to cut off gas or electricity).
Demand from the Central Insurance: New insurance models should be designed in cooperation with the Stock Exchange Organization so that companies can cover financial losses resulting from forced outages (including loss of income, export delay penalties, and damage to equipment) by paying a specific premium. This measure would transform the systematic risk resulting from energy mismanagement into an insurable risk and directly increase the attractiveness of investing in the stock exchange for steel companies.
Insurance as a government guarantee: In fact, the government can compensate for part of its imbalance costs in a more transparent and market-oriented manner through an insurance mechanism (instead of paying cash subsidies or complex clearing) .
2. Financing self-sufficient power plants through the stock exchange
To permanently escape the deterministic trap, steel industries must move towards dedicated power and gas plants. These projects require huge capital that neither the government can provide nor the banking network has sufficient capacity.
Project Finance Bonds: The stock exchange can play a role here. Issuing lease or partnership sukuk bonds with the specific objective of developing dedicated energy infrastructure for metallurgical companies can focus private and public sector liquidity directly towards the construction of power plants and gas production units.
Advantage for the investor: The return on these bonds can be guaranteed to exceed the return on unproductive markets, and investors can be confident that their capital is directly solving a national super challenge.
3. Creating a parallel gas market on the energy exchange
As long as gas is only in the hands of the government and is supplied at a regulated price, the imbalance will continue. For large industries, the possibility of purchasing guaranteed gas through a secondary and transparent market on the energy exchange should be provided.
Attracting small investments in the energy sector: In this market, small gas producers and new investors can be encouraged to invest in the development of small gas fields by guaranteeing sales to large industries.
Cost prioritization: This mechanism allows the steelmaker to purchase gas at a higher price to ensure the sustainability of its production in the winter. This economic logic is much more efficient than the loss caused by stopping production.
Iran’s steel and metallurgical industry is fighting on two fronts: one on the international stage against sanctions and the other on the domestic front against regulatory instabilities and energy imbalances.
It is no longer acceptable for our largest industries to be in a state of suspense and fear every year on the eve of winter. Kish Invex and Iran Metafo are an opportunity to announce a new approach from the government: one that removes the risk of energy imbalance from production and, through new financial instruments, paves the way for sustainable investment and escapes the trap of forced outages.
To maintain production, employment, and national credibility, this question must be answered: Does the government have the will to save the country’s largest industries from the bondage of a seasonal imbalance? The positive answer lies not in promises, but in the unveiling of energy risk insurance policies and dedicated power plant financing bonds at upcoming exhibitions.
