Gas Equals Power in Russian-Armenian Relations

Friday, 7 June, 2013

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Armen Karapetyan

The Russian-controlled firm that holds a monopoly over natural gas in Armenia has secured an increase in retail prices, as part of a move towards charging the same as western customers pay.

The state commission that regulates prices for monopolies allowed ArmRosGazprom to raise its prices by 18 per cent. That was not the 67 per cent the company wanted, but experts warn that even the lower increase will harm the country’s already fragile economy.

From July 8, Armenian consumers will pay 156,000 drams, 374 US dollars, for 1,000 cubic metres of gas compared with the 132,000 drams they currently pay. The increase will have a knock-on effect on the price of electricity, since 40 per cent of Armenia’s power is generated by gas-burning stations.

ArmRosGazprom’s argument for charging 221,000 drams per 1,000 cu m was that it was paying more for the gas it bought, and as a result it had been operating at a loss for two years.

The Russian gas giant Gazprom has an 80 per cent stake in the firm, and the Armenian government owns the remaining fifth.

Gagik Makaryan, head of the national Union of Employers, said rising gas and electricity prices would be a “major blow” to productivity.

“Even if the gas price increases by 18 rather than 67 per cent, there’s no guarantee that we won’t see… electricity becoming more expensive,” he said. “That will have a negative impact on small and medium-sized businesses, which have still not recovered from the financial crisis of 2008-09.”

Armenak Chatinyan, economics columnist for the Orakarg daily, predicted that the forthcoming limited price increase would not be the last.

“I want to remind you that Gazprom’s leadership has said many times that from 2015, the price of gas sold to Armenia has to be the same as the international price,” he said. “We can therefore expect an increase next year as well.”

Armen Poghosyan, head of the Union of Consumers, warned that higher energy prices would have an inflationary effect across the economy.

“It’s no secret that gas and electricity play an important role in shaping the prices of key goods. If gas and electricity prices rise, this will result in increased prices for many foodstuffs and transport,” Poghosyan said. “To put it mildly, that isn’t the best news for Armenia, where a third of the population officially lives below the poverty line.”

Officials promised that the government would take steps to limit the effects on the poorest members of society, but opposition members doubted that would be possible.

“While this government has been in power, 200,000 people have left Armenia, mostly because of the socioeconomic problems. Those problems still exist,” Artsvik Minasyan of the Dashnaktsutyun party said. “When the government says it will take steps… I don’t take it very seriously.”

Armenia imports its gas through two major pipelines, one coming from Russia via Georgia, and the other from Iran. Both belong to ArmRosGazprom.

Chatinyan says current ownership structures leave Armenia over-reliant on Russia.

“In recent years, the government has taken no steps to diversify the energy system and at least partly remove it from Russian control. They built the Iran-Armenia pipeline in 2007, but the government handed it over to ArmRosGazprom,” he said. “Why did they do that? Why has financial management of the entire gas and electricity distribution network, the Hrazdan power station, the Sevan-Hrazdan hydroelectric plant, and the Metsamor nuclear power station been transferred to Russian companies?”

Last year, ArmRosGazprom imported two billion cu m of Russian gas and another 500 million cu m from Iran, most of which is burned by power stations rather than households.

Asked why Armenia remained so dependent on Russian gas, Energy Minister Armen Movsisyan said the Iranian fuel was more expensive. He did not furnish any more details, and many experts remained unconvinced.

“Because of the international sanctions, Iran has no access to markets and lacks the options that Russia has for exporting gas. So Tehran tries to remain competitive by lowering prices,” Ruben Mehrabyan, an expert at the Armenian Centre for Political and International Studies, said.

Mehrabyan said Moscow had a habit of using energy supplies for geopolitical ends.

“You mustn’t forget that supplying gas through a pipeline is political leverage which Russia will naturally use against Armenia just as it does against other countries,” he said. “Russia has made it its aim to maintain its political influence in Armenia and to get Yerevan to join the [proposed] Eurasian Union.”

Armen Karapetyan is a freelance journalist in Armenia.