Armenia: Alarm at Russian Gas Deal

Gas prices to stay low - but the opposition says the political cost is too high.

Armenia: Alarm at Russian Gas Deal

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.
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