Azeri agency downplays Iran-Armenia-Europe gas pipeline project

Turan news agency
26 Mar 04

BAKU

The Iran-Armenia gas pipeline, the construction of which is expected
to begin by late 2004, will go across Georgia’s territory through the
Black Sea and Ukraine to western Europe. Thus, the Iranian and Turkmen
gas will go to the European Union countries bypassing Russia, Armenian
Energy Minister Armen Movsisyan told reporters yesterday 25 March .

The idea of laying the pipeline emerged in 1994, when the Georgian
section of the gas pipeline supplying gas to Armenia from Russia was
constantly out of operation due to chronic instability in Georgia. To
create an alternative source of power supply, in 1995 Armenia and
Tehran signed an agreement on laying the 141-km-long Iran-Armenia gas
pipeline.

Armenia, however, could not start implementing the project: either the
sides could not agree on the gas price (Iran does not agree to supply
gas at Russian prices), or financial problems arose etc. Since early
2004, the Armenian side has been saying at all levels that a contract
will be signed soon and the construction will begin this year.

If we believe Movsisyan, Armenia is about to launch a large-scale
project which in the first place jeopardizes the energy security and
political ambitions of the country’s strategic partner, Russia. The
latter will sustain huge losses if gas is successfully transported via
the Turkmenistan-Iran-Georgia-Ukraine-Western Europe route. Russia
will lose at least transit tariffs from supplying Turkmen gas to
Ukraine, gas markets in Georgia and Armenia, and partly in Ukraine,
sales markets in eastern and partly western Europe, and finally the
economic levers of exerting pressure on its CIS neighbours.

Despite a very difficult geographic route, the project is feasible
technically, but will require huge investments. The implementation of
its subwater part will cost at least 2bn-3bn dollars. In addition,
many players along the route have great expectations concerning
transit tariffs, which in the long run will make the project
commercially unattractive. Given the fact that Armenia’s entire gas
market, including its gas distribution and gas transport network, is
managed by Russia, the project is unlikely to have bright future. The
project is based not on realities of the current market economy, but
on illusions of an Armenian myth similar to “Greater Armenia”.