ARMENIA: ALARM AT RUSSIAN GAS DEAL
By Rita Karapetian in Yerevan
Institute for War and Peace Reporting, UK
April 27 2006
Gas prices to stay low – but the opposition says the political cost
is too high.
Politicians from various parts of the Armenian political landscape
are voicing concern over a deal which hands over an important part
of the country’s energy sector to the Russian gas giant Gazprom.
Opposition member of parliament Arshak Sadoyan last week called on
the government to annul the deal agreed on April 6 to sell Gazprom
the fifth as yet unfinished generating unit of the Hrazdan gas-fired
power station. The unit was the only part of the plant not already
in Russian ownership.
In a sign of how controversial the deal is, the speaker of parliament,
Artur Baghdasarian, a leading member of the pro-government coalition,
has also expressed concern that the sale places too much control of
the energy sector in Russian hands.
Baghdasarian, who heads the Orinats Yerkir party, said the deal was
a good one from an economic point of view but “politically, it’s
worrying that Armenian energy capacities are being concentrated in
Russia’s hands”.
The Armenian government has justified the deal on the grounds that
it will guarantee low prices for consumers.
Russia, currently the sole supplier of gas to Armenia, announced
a price rise at the end of last year. Although Armenia is regarded
as a strategic partner of Moscow, it was offered the same price as
Georgia – 110 US dollars per 1,000 cubic meters instead of the earlier
56 dollars.
The Armenian authorities immediately said they were negotiating with
the Russians to find ways of compensating for the price hike and
mitigating the potentially damaging social and economic repercussions.
These negotiations led to the 249-million dollar Hrazdan deal with
Gazprom. Of the total sum, 188 million will go towards subsidising
retail gas prices over the next three years, according to Energy
Minister Armen Movsesian. The rest will be taken as government revenue.
Gazprom has pledged not to alter the cost of its wholesale gas supplies
to Armenia until 2009. Movsesian said the price controls would also
have the side effect of holding down electricity charges.
Ahead of the agreement, President Robert Kocharian’s office released
a videotaped speech in which he said the price Armenian consumers
pay for gas would not increase by more than 10-15 per cent.
Gazprom has undertaken to invest 150-160 million dollars to complete
the fifth generating unit at the Hrazdan plant over the next two years.
The Hrazdan thermal station is the most productive power station in
Armenia, generating around 20 per cent of the country’s electricity.
Russia acquired the four current units in 2003 in return for writing
off Armenian government debt. Construction of the fifth unit began
in the 1980s but has never been finished.
Russian companies now have a firm grip on the entire Armenian energy
sector.
The electricity giant UES owns Armenia’s electricity-distribution
networks too, having bought them last year from the British-registered
offshore company Midland Resources.
In 2002, UES acquired the Sevan-Hrazdan hydroelectric cascade,
consisting of six linked power stations – the country’s largest –
in exchange for clearing debts for the Russian-supplied nuclear fuel
on which the Metsamor nuclear station runs.
Metsamor, which supplies a significant part of Armenia’s energy,
is due to close in 2016 at the latest.
The latest deal with Gazprom has met with mixed reactions even within
the governing coalition.
Prime minister and Republican Party leader Andranik Margarian said
the sale was a very successful transaction which had been handled
with skill.
“This does not threaten our energy security; on the contrary, it
strengthens it,” said Margarian.
Defence Minister Serzh Sarkisian said it would take a minimum of
180 million dollars to complete the unit, and the costs could not be
recovered for a decade. “I mean, we would have an enterprise working
to profit by 2017 at best,” he explained. “But how big would those
profits be? How much will gas rise in price? These are questions to
which only Nostradamus knows the answer.”
But the leader of the pro-government faction in parliament, United
Labour Party leader Gurgen Arsenian said gas was “a new Russian energy
weapon that could potentially be used against Armenia”.
The opposition has been more outspoken, with Viktor Dallakian of the
Justice parliamentary group warning that handing over Armenian energy
resources to the Russians was a threat to national security.
Dallakian also disputed the economic benefits of the deal, saying
it undermined efforts to boost energy cooperation with neighbouring
Iran. If an agreement had been concluded with Tehran, he said the
Hrazdan power plant would be running on Iranian gas and selling the
electricity generated back to Iran. As a result, he went on, Armenia
would have enjoyed annual profits of 100 million dollars for the next
20 years, while retaining ownership of the Hrazdan plant.
Instead, said Dallakian, the government had simply given the power
plant as a “present” to the Russians.
Initially, there were reports, including on Gazprom’s own website,
that the Russian firm had bought a 40-kilometre section of the
Iran-Armenia gas pipeline which is currently under construction,
and that the Russians would also help build a new stretch, which is
due to be finished by the end of this year.
Several hours later, the information was corrected on the Gazprom site,
with the parts regarding the Iran-Armenia gas pipeline struck out.
However, many people in Yerevan do not believe this is the end of the
matter. Independent deputy Manuk Gasparian predicted that the Armenian
section of the gas pipeline would be sold off by the end of the year.
Rita Karapetian works for Noyan Tapan news agency in Yerevan.