No decrease in price for gas and new monopolies for “Gazprom Armenia”

Yesterday the RA Government session endorsed the project of replenishing the sale agreement of “HayRusGasArd” and the agreement on order of price formation during natural gas delivery signed between Armenia and Russia on December 2 of 2013 by one protocol each.

The first one gave new privileges to “Gazprom Armenia” and the second one determined the new tariff for gas on the border.

New Monopolies

Instead, new monopolies are given to “Gazprom Armenia” by this agreement. Article 1 of the agreement stipulates that “Gazprom Armenia” will be given preference for exporting electricity to Iran and Georgia by Iran-Armenia and Georgia-Armenia high-voltage electric transmission lines still under construction.

In other words, the agreement gives “Gazprom Armenia” the monopoly to export electricity with the voltage of 400 kW from Armenia to Iran and Georgia. And the electric transmission lines are going to carry the electricity produced by “Hrazdan-5” thermal power station that belongs to “Gazprom Armenia”.  In fact, this deprives other electricity producers (including Yerevan thermal power station belonging to the Republic of Armenia) of the possibility to enter the regional market.

Here we should also take into account the fact that currently Armenia has a barter agreement “Gas in exchange for electricity” with Iran (1m3 in exchange for 3kW/h) thanks to which part of electricity produced in Yerevan thermal power station enters the internal market with almost 0 cost price. And in case of construction of new Iran-Armenia electric transmission lines, the barter amount would increase and electricity cost price in Armenia would decrease.

But signing this agreement will deprive Armenia of the possibility to increase the barter amount as the monopoly of use of high voltage electric wires to be constructed will be given to “Gazprom Armenia”.

Hence, we can state that this agreement also eliminates one of the main possibilities of lowering price for electricity in Armenia.

Price for Gas

Currently “Gazprom” sells gas to its branch organization “Gazprom Armenia” by 190 USD for 1 thousand m3 and according to the new protocol of the agreement, it will become 165 USD.

However, both the reference of the aforementioned Government decision and statements of “Gazprom Armenia” make it clear that Armenian consumers are going to pay the same tariffs for gas: resident-consumers are going to pay 156 AMD (0.33 USD) for 1m3, and large enterprises – 277 USD for 1000 m3.   It means that we Armenians will not feel the effect of the price of 165 USD for 1000 m3 in any way.

In other words, it results that if the margin for 1000 m3 sold to large enterprises forms 87 USD, it will become 112 USD after the decrease of gas price.  As a result of that 25 USD difference, we, the residents of the country, will provide additional 20 billion AMD annual surplus profit to “Gazprom Armenia” through inflation and electricity price hike.

Moreover, the preservation of that surplus profit in “Gazprom Armenia” is ensured by the last paragraph of Article 1 of the first agreement.

Besides, as the Armenian Dram has depreciated against the US dollar, we can record that the gas price for large enterprises has increased by 20 per cent. The latter is already a violation of the promise made in December 2013, according to which the gas price in Armenia would not increase during 5 years.

“Union of Informed Citizens”

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