Losses of Electric Networks of Armenia, controlled by Inter RAO, are caused by the existing management system in that country, Boris Kovalchuk, chairman of the managing board of Inter RAO says.

Difficult situation in electric power complex of Armenia, where the government’s decision to raise electricity tariffs triggered mass protests, has purely economic not political reasons, Boris Kovalchuk, chairman of the managing board of Inter RAO told TASS on Tuesday.

Russia’s Inter RAO controls the Electric Networks of Armenia, which has the monopoly for electricity distribution in the country.

The Electric Networks of Armenia, which is now in a dire financial condition asked the national regulator to raise electricity tariffs by 49%. The regulator partially upheld the request and raised tariffs by 16%.

The tariff hike sparked mass protests which are still ongoing. Armenia’s President Serzh Sargsyan said the government was ready to cover costs related to higher electricity tariffs until the audit of the Electric Networks of Armenia is completed. The audit of the Electric Networks of Armenia by international audit firms is expected to take 3-6 months.

Kovalchuk said that Inter RAO welcomes the idea of the audit. He added that such an inspection would reveal the need to make serious changes in the whole industry.

The head of Inter RAO said that the losses of Electric Networks of Armenia are caused by the existing management system in that country.

“Longstanding losses of the Electric Networks of Armenia are caused by the existing system of tariff regulation and the rules of electricity market in the Republic of Armenia,” Kovalchuk said.

According to him, the existing management system provides for financing of generating companies at the expense of the Electric Networks of Armenia and also forces the company to buy more expensive electricity than it is foreseen by the country’s energy balance.

He said that insufficient tariff raising in the last 11 years, overhaul of the Metsamor power plant, as well as the decline of production by hydro power plants of Armenia led to the situation when the electricity distribution system of the country lost 37 bln AMD ($77.5 mln).

“Since the beginning of 2014 the company has been incapable of making timely payments to generating companies for supplied electricity due to insufficient funds and has been functioning on the verge of financial stability,” Kovalchuk said.