Eurasia Review
Feb 21 2010
Russia Gas Price Hike Shocks Armenians
Sunday, February 21, 2010
By Naira Melkumyan
The company that has a monopoly on selling Russian gas to Armenia has
warned it will raise prices for ordinary consumers by 40 per cent in
April, sparking anger in the country.
Armrosgazprom, a Russian-Armenian joint venture, has sought permission
for the increase from the official regulator and also wants to raise
the gas price for businesses by 20 per cent. It is expected to be
approved.
With Armenia still struggling to haul itself out of recession ` the
economy contracted by 14.4 per cent in 2009 – the proposals could
severely harm the economy, as well as ordinary gas users, observers
say.
`This is just insane. My husband has an unpredictable salary because
of the crisis. I don’t work, and such a rise would seriously hit us in
the pocket, and then a massive increase in prices would follow. What
would we live on?’ asked Rita Sargsyan, a 55-year-old Yerevan
resident, reflecting a widely held view here.
Armrosgazprom said the price of gas will rise from April 1 to 136
drams (35 US cents) per cubic metre from the current 96 drams. The
increase follows a decision by Gazprom, the Russian energy giant that
owns 80 per cent of Armrosgazprom, to hike prices for gas exported to
Armenia by 17 per cent from the beginning of April.
Lusine Harutiunyan, spokeswoman for the energy ministry, said
Armrosgazprom had the right to raise prices and the government could
do nothing to stop it, since it was only a minority shareholder.
Experts said the price rise would immediately lead to increases for
electricity, transport and consumer goods, especially since three
water companies have already indicated that they want to raise their
tariffs by around two-thirds.
`Considering the increase in unemployment in the country, which in
2009 was already ten per cent, and the fall in the rate of economic
growth, a gas price rise will directly impact on a significant part of
the population,’ Abgar Yeghoyan, head of the Union for the Protection
of Consumer Rights, said.
The budget for this year includes no provision for increases in
pensions, unemployment benefits or anything else that could compensate
for the price rise.
`When we raised this question during discussion of the 2010 budget,
the government said that they were concerned by the question of
inflation, but it is already clear that the price rise for gas as the
main energy source will lead to increases in the prices of other
products,’ said Artsvik Minasyan, a deputy in parliament from the
opposition Dashnaktsutyun party.
`The government must propose salary and pension increases, or at least
work out a mechanism of subsidies.’
The government has said it is concerned by the price increases,
however, and promised to work out measures to limit their impact.
`The question of prices is permanently at the centre of the
government’s attention and it is preparing a package of measures aimed
at controlling inflation,’ Prime Minister Tigran Sargsyan told
parliament.
But he later said he was not considering subsidising gas prices from
the budget to help keep bills low.
`I have not considered this, and I advise everyone against it. I am
not a supporter of that,’ he said.
According to Vazgen Khachikyan, head of the state social security
service at the ministry of labour and social affairs, the effect of
the gas price alone ` without any associated rise in electricity cost
` would add one per cent to inflation.
But he said that between 2007 and 2010 pensions almost doubled, at a
time when inflation did not come close to that rate.
Last year, the state pension and unemployment benefit were 70 and 55
dollars a month respectively.
The government is forecasting that prices will rise by four per cent
and, according to Vardan Bostandjyan, deputy head of parliament’s
economic committee, it is unlikely that there will any increase in
pensions before next year.
The International Monetary Fund, which is currently lending to
Armenia, forecasts inflation of six per cent this year.
The fact that gas prices are rising twice as much for consumers as for
companies has angered consumer rights groups.
`We want to understand why, when the Russians raise prices by 17 per
cent, the Armenian company increases prices for companies by 20 per
cent and for people by 40 per cent,’ said Armen Harutiunyan, the state
ombudsman.
Armrosgazprom said that the steeper increases for private users was a
reflection of the higher cost of providing them with gas.
It also said that it was not seeking to profit from the price rises,
and was reacting to a 20 per cent contraction in the market caused by
the financial crisis, which had resulted in it ending the year with a
loss.
But, despite the explanations, its price rise caused public figures to
question the wisdom of Armenia’s dependence on Russia for gas
supplies.
Vahan Khachatryan, a representative of the opposition Armenian
National Congress, said that if Armenia had more diversified supplies,
it could resist such a dramatic price increase.
`Today Russia has a monopoly. Eighty per cent of the gas we use comes
from there but we also have a pipeline from Iran, which is hardly
used,’ he said.
Iranian gas started to arrive in Armenia in 2008, but it sends less
than three million cubic metres a day, while Russia sends an average
of more than double that.
Harutiunyan, the energy ministry spokeswoman, said, `Of course the
opposition gives this problem a political subtext, but the situation
is different. Russia as our strategic partner for many years has sold
us gas at a discount. We were receiving 1,000 cubic metres of gas for
110 dollars when Europe was paying 300 dollars.’
Naira Melkumyan is a reporter at Arka News Agency. This article
originally appeared in Caucasus Reporting Service, produced by the
Institute for War and Peace Reporting,