By Abdul Kerimkhanov
With the winter approaching, Armenia’s gas problems start resurfacing. Particularly, the projected hike in the price of Russian gas for Armenia is high on the agenda in the country.
The negotiations between Yerevan and Moscow over gas tariffs have already stalled and it is not clear at what price Armenia will pay for Russian gas at the border starting from January 2020 and how this will affect tariffs for end consumers.
The financial side of the scheme according to which Russian gas has been supplied and distributed to Armenia since January 2019 does not add much optimism in terms of future prices and tariffs. At the end of 2018, the contract expired, according to which the price of Russian gas for Armenia was set at $150 per 1000 cubic meters. Since January this price has increased by $15.
Over the year, it was repeatedly stated that the $15 difference for the population was covered by Gazprom Armenia at the expense of its internal resources. No doubt, the subsidiary of the Russian giant has unlimited patience, and the longer negotiations take place, the longer the company spends its internal financial resources. Considering that the average annual gas consumption in Armenia is about 1.5 billion cubic meters, by the end of 2019, the company, compensating for the $15 difference in price and tariff, should lose about $22.5 million. This rather large amount will grow in proportion to the duration of the negotiations.
Unresolved issues, prolonged negotiations and an increase in the amount of compensation from Gazprom Armenia, the difference between price and tariffs weaken the position of the Armenian side in the negotiations. Therefore, there are few grounds for optimistic forecasts regarding the future price of Russian gas for Armenia, respectively, as well as with respect to domestic tariffs.
Nevertheless, Armenian Prime Minister Nikol Pashinyan is optimistic on this issue. Recently, in an interview with Russian Kommersant newspaper, he stated that a normal conversation was underway about gas prices for Armenia, emphasizing that this conversation would lead to concrete results.
“This issue is important for us not only in terms of gas prices, it is a matter of economic development. I think for our strategic ally, Russia, it is important that the gas price be such that it does not break the dynamics of Armenia’s economic development," Pashinyan said.
Theoretically, the price of gas can “break” the dynamics of Armenia's economy. This is possible if the positive dynamics are directly related to the gas consumption of the economy. However, the Armenian economy is completely independent of energy.
Meanwhile, in the first half of 2019, compared with the same period in 2018, natural gas consumption decreased by 55.4 percent in the energy sector and by 19.4 percent in industry. Therefore, it is unlikely that such a non-volatile economy and industry can be “broken” by gas prices.
Gazprom Armenia, a 100 percent subsidiary of Gazprom, distributes gas within Armenia. At the end of December 2018, the Russian company Gazprom raised the price of gas supplied to Armenia by 10 percent from $150 to $165.
Armenian authorities announced that gas will not be more expensive for consumers, and the difference will be compensated by reducing the costs of Gazprom Armenia.
Abdul Kerimkhanov is AzerNews’ staff journalist, follow him on Twitter: @AbdulKerim94
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