Examining and comparing the productivity of the entire refining industry from the approaches of consolidated data and data coverage analysis

Document Type : Research Paper

Author

Associate Professor, Department of Energy Economics and Management, Tehran Petroleum Faculty, Petroleum University of Technology, Tehran, Iran

10.22034/epj.2025.21841.2609

Abstract

Purpose: The efficiency and performance of the refining industry has always been an important issue in the economic literature. The purpose of this research is to investigate the efficiency of Iran's refineries using a random frontier production function from consolidated data.
Methodology: Linear programming is a mathematical programming method that is benchmarked in order to compare and evaluate the efficiency of the minimum number of identical decision-making units with different amounts of used inputs and produced outputs. Cover analysis models can be based on two separate approaches including a) reducing the amount of inputs without reducing the amount of outputs (input-oriented approach), and b) increasing the amount of outputs without increasing the amount of inputs (output-oriented approach) (Farsijani et al., 2010).
The parametric production boundary using the production function as cross-sectional data can be considered as follows:
 
where the number of production enterprises in an economic sector (y) is the production of each enterprise, x is a vector of N raw materials (inputs) of production, and f(0) is the production boundary, which depends on the inputs and vector of technical parameters. It indicates the technical efficiency of the manufacturer based on the product, which is defined as the ratio of the realized production to the maximum possible production:
 
The above equation can be summarized as follows:
 
where the technical inefficiency shows how much production deviates from the efficient frontier. Being a positive value guarantees that it is consistent with the second equation above. The boundary of the specific production function is as follows:
 
When the parameters of the production structure are determined, it is possible to estimate the vector of coefficients and use the ideal planning and econometric methods.
Findings and Discussion: In the radial Anderson-Peterson model, in order to rank efficient and inefficient refinery units among the studied refineries, the average scores based on the super-efficiency model were from 1.9 to 1.18. The results show that Isfahan and Shiraz refineries have the highest scores, but Tabriz and Tehran refineries have the lowest super efficiency scores. An important reason for this ranking is the optimization of speeding methods and the fruition of refining projects, including improvement of the quality of oil products.
In general, the five-year average of the total productivity changes in the studied refineries has a significant difference. The refineries ranked first to ninth in terms of total efficiency are Shiraz Refinery (97.6) as the highest, Isfahan Refinery (95.6), Tabriz Refinery (93.6), Abadan Refinery (91.8), Shazand Arak Refinery (90.6), Lavan Refinery (89), Bandar Abbas Refinery (88.8), Tehran Refinery (81.6), and Kermanshah Refinery (71.2) as the lowest.
The inefficiency of the refining industry was calculated by the stochastic frontier production function, and the values ​​of 3.7% (assuming constant inefficiency over time) to 4.4% (assuming variable inefficiency over time) were obtained. Therefore, the efficiency values of the refining industry are 96.3 and 95.6. The difference between the values estimated by the two models is due to different assumptions about random effects. Also, the results indicate that the cross-sectional effects are zero, suggesting that the efficiency ratings of the refining companies are equal at a certain point in time, and that these companies have a level of inefficiency. Changes in inefficiency over time can be caused by factors beyond control of companies, such as exogenous economic shocks, laws and regulations, and the economic business environment. The change in the amount of investment in other economic sectors, growth of product demand, and, as a result, the increase in market volume cause changes in inefficiency over time. The noteworthy point is that, according to the results, efficiency is somehow increasing in Iran's refining industry. In microeconomics, it is argued that, if the sum of the elasticities of production factors in the production function is equal to 1, it returns to a constant scale, but, if it is less or more than 1, it is decreases or increases, respectively. In a situation where the efficiency of scale increases, the total cost of production increases at a decreasing rate, and the average cost of production decreases. Production does not take place in the economic zone, and firms are not profit maximizers. Also, the increasing efficiency shows that the producers of petroleum products in Iran have not reached the minimum scale of production efficiency.
The comparison of the two mentioned methods shows that, in the DEA data coverage analysis method, the estimated total productivity of the refining industry fluctuates from 0.71 to 0.95. The numerical average of the total productivity of the studied industry is 0.90, which almost seems to be more realistic. The estimation of the production efficiency frontier with the frontier production function technique shows that the total productivity value is high and is from 96.3 to 95.6%. This is related to the level of technology, and the state of Iran's refinery industries (management, manpower and the other factors affecting efficiency) does not fit.
Conclusions and Policy Implications: The obtained results show that Iran's economic sanctions, especially the oil and gas sector, can be a factor reducing the efficiency of refineries. The expansion of this sector and the technological dependence on modern refinery technologies has caused the efficiency of refineries to gradually decrease.
It is suggested to improve the productivity of the refineries or review the handovers. Also, the National Oil Products Refining and Distribution Company affiliated to the Oil ministry should assume the legal role of regulation in product development and improvement projects to increase productivity. In addition to the productivity of the refining industry, due to large discounts in the price of the input feed, refineries have not improved their productivity, nor have they made any effort to enhance the level of technology. Also, the waste of resources is considerable. In this regard, it is suggested to improve the pricing of feeds in refineries in order to increase the overall productivity of the Ministry of Petroleum.

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Main Subjects

References

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The Journal of Economic Policy
Volume 17, Issue 34
August 2025
Pages 337-371

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