"WE ARE MORE ARMENIAN THAN MANY ARMENIAN COMPANIES"
Hrayr Manukyan
February 23, 2010
Yesterday the executive director of ArmRusGazard company Karen
Karapetyan met with journalists from Haykakan Zhamanak, Aravot, 168
Zham, Hayots Ashkharh and Golos Armenii newspapers and answered their
questions concerning the expected increase in the gas price.
Aravot: What are the factors resulting in the gas price increase?
– We have recommended to increase the price per 1000 cubic meters by
41% and make it 136,000 AMD instead of the existing price at 96,000.
We have also recommended to raise the price for large consumers by 19%
up to 256 USD instead of the existing 215USD. The objective reasons
resulting in the increase of the prices are the following: 1. The
price of the imported gas has grown by 17%, 2. the USD/AMD exchange
rate has grown by 27%, 3. there have been changes in the policies and
provisions of the use of the 11.2 billion dram investment made in 2009,
as well as the amortization and expected income from such investments,
4. the capacity of used gas has fallen down (in 2009 the consumers
used 20% less gas than in the previous years).
– What is the reason of disproportionate growth of prices? Why 40%
for citizens and twice less for large consumers?
– In the condition of 40% growth of the imported gas price in 2009,
when the price became 154USD instead of 110, the price of natural gas
sold to people has grown by 14.3% only, i.e. it became 96.000 from
being 84.000. This calculation was done based on the exchange rate of
303.69AMD per dollar. This price of 96.000 dram has been approved by
the committee on regulating the economic relations; it was approved
on February 27 and shall be enforced on April 1. However, on March 3,
when the new rate was not enforced yet, the exchange rate became 372.
It means that if the rate was approved on March 3, the price would be
117,000 AMD per thousand cm. On April 1 the exchange rate reached 385.
If the price was adopted on April 1, it would be 122,000 AMD/1000cm.
It turns out that citizens would have to pay more than 21-26,000
dram as a result of the currency exchange rate changes, which means
that during the entire year we have received less money with the same
capacity. If we compare the price of 117 or 122 thousand dram with 136
thousand, it will be like we are raising the price by 8-11.4%. Now
it is clear that the price we recommend (136,000 dram) will not be
approved and the approved price will be lower. I mean the price may
be increased by 10%. Maybe we’d be better to make a noise. Last
year we knew that we would not expect profit this year. Our main
goal was the full implementation of the planned project. We have
not taken out any article or any provision in case when the entire
world has done that, including Gazprom as well, which has fulfilled
only 30-40% of the entire planned projects. As for your question why
we increased the prices more for citizens, I should mention that 65%
of the entire expenses are caused by this group of consumers in case
when they consume only the 36% of the entire capacity. Small consumers
receive gas from low pressure distribution centers, thus the expenses
are more in this case. For example, we supply gas to Yerevan HES,
cement factory and other large consumers with high pressure tubes,
thus the expenses per unit are less. We proposed this recommendation
of dual rates several years ago.
Hayots Ashkharh: Why is the price calculated in AMD for citizens and
in USD for businesses?
– Practically it is impossible to tell people to calculate the exchange
rate every month and make different payments. For businesses it is
more convenient to do with calculations because they control and
export their businesses with dollars. We are a country that will do
its best to encourage the export. Our market is limited and in order
to have profit producers should export goods. Exporters should make
their calculations in dollars in correspondence with the requirements
of the foreign market. There are countries that allow circulation of
two currencies to encourage the export.
168 Zham: In 2002-2008, when the exchange rate of dollar was falling,
you were benefiting with the same logic as you are losing now. Why
did not you decrease the prices at that time?
– If the price was the same as now at the time when the exchange rate
was 580, the price was approved and then the exchange rate fell down
to 303 from 580, you would be right. But we can give you the entire
dynamics, which shows that at the time when the exchange rate was 580,
the price was almost 100$, i.e. 59,000 AMD. The initial price was 54$
at that time and we did not make money from the currency exchange
rate differences. There was time when we benefited, but eventually it
cost us more than we would benefit. In the same period ArmRusGazard
company invested $750 million (246 billion dram) on the entire system,
the fifth energetic plant of Hrazdan and Iran-Armenia pipeline. The
stockholders of the company did not get any incomes and the profits
were spent on the investment in the sector of gas supply. This 18.6
includes both the exchange rate difference and other relative factors.
Now the profitability of our capital turns out to be equal to 1.9%. As
a manager I did a foolish thing because the money that we could hardly
receive, would bring more incomes if we deposited it with a bank; it
would bring minimum 6%. Would anyone invest money in a business, which
would return less money than the refinancing rate of banks? But we did
it consciously and for the purpose of enlarging the market to make it
easier for people. We have gasified about 94% of the country (when we
took this work, only 22-24% had gas). Currently 528 communities out
of 937 ones are gasified, but 94% of the population in the gasified
communities has gas supply. With this rate we are in the second place
in the world, after the Netherlands, where this rate has reached 99%.
The countries, which don’t have gas, are dreaming of 37%. We are one
of such countries that don’t have gas. We are not interested in the
other 6% from the point of view of business because these are like
several houses on a hill. We have been the first one among the CIS
countries since 2006. Russia is investing billions to gasify the 62%
of the territory at least in 2011.
– Don’t you think that if the prices are increased the consumption
capacities will be cut down?
– Yes, in 2009 the consumption capacity was cut down by 20% while we
were expecting it would grow by 11-12%. The real difference is 32%.
According to our estimations and number of applications on part of
consumers, we expect that this tendency will continue in 2010 as well.
Thus, if the tube is intended for a certain capacity of gas, and if
less gas sold, the expenses will grow because the current costs will
be higher for maintenance as well. We have shown the analysis proving
this point. Generally the company develops the price policy in a
long-term and has the goal to keep the consumption markets. Analysis
show that if we offer higher prices to large consumers, it may result
in reduction of the produced products and energy, which will in its
turn result in growth of prices. These consumer markets are very
important for the company, and if we lose them, even if we get more
money from citizens, the maintenance costs will be much higher and
the prices offered to citizens will be higher as well, thus it will
be very difficult to take care of the gas supply system. Citizens
have no alternative other than the gas. The wood is more expensive
than the gas even if the price is higher.
– Do you have any calculations showing what would be the load on
ordinary citizens as a result of the price increase? Are there any
mechanisms to resist the price growth?
– We worry about the situation and results. Products have their prices
in the market and it is impossible to sell cheaper. According to our
information, the government is working on mechanisms to resist the
impacts resulted from this change. According to our calculations,
ordinary citizens will pay approximately more 2000 dram every month.
Socially vulnerable groups will suffer less as the ones who have
more are consuming more too. More than 55% of people are consuming
more than 700 cm of gas. We are trying to resist it and are trying
not to increase the price. With these efforts we are helping to poor
to save 1000 dram and the rich to save 120.000 dram. For example, I
have always said that subsidizing is not a fair solution. It was not
a proportional support because ones got more, others less, and those
who did not have gas did not get anything. This heavy load will be
mainly born by the large consumers. As a result of the price changes
additional 5 billion dram will be collected by the budget. His money
will be taken from the rich and large consumers, thus the increase of
the prices for the vulnerable groups could be resisted on the account
of this one. Ultimately we can seat and talk to the consumers face
to face because we have been able to provide the lowest price in
the region, and also have announced and justified these prices in
transparent conditions.
Haykakan Zhamank: People say that in the conditions of the crisis it
was not a justified decision to provide a borrowing to the company.
– We get nervous when people write that we are a foreign company. Our
company has foreign participation in the charter capital but we are
more Armenian than many Armenian companies. We are investing money
in Armenia, pay salaries to people, the managers are Armenian, we pay
taxes, we are the biggest taxpayer, and we give benefits to the state.
People ask why this borrowing of 40 million was given to a foreign
company. This borrowing was given to us with the highest interest
rate (11%) and for 6 months covering period. As for January 1, 2010,
it remained to cover 9 million out of that sum. We spent this money
to provide communities with gas, pay salaries, and we are giving this
money back to the government sooner than planned. We are giving about
2 million as an interest rate payment,; we have invested all that
money in Armenia.