Armenia Reviews Gas Options

The cost of renovating Armenia's ageing gas infrastructure has been estimated at $1.3 billion

Armenia Reviews Gas Options

The cost of renovating Armenia's ageing gas infrastructure has been estimated at $1.3 billion

The Armenian government is set to implement a package of initiatives aimed at restoring domestic gas supplies across the former Soviet republic.


The programme is fraught with political overtones since Armenia is currently dependent on Russia for its supply of natural gas.


But plans to build a gas pipeline from Iran could usher in a new era of political and economic independence for Yerevan.


Armenia's problems date from the beginning of the war in Nagorny Karabakh when Baku shut down two major pipelines carrying natural gas across Azeri territory.


For the past eight years, Armenia has been reliant on a single pipeline which passes through Georgia into Russia. However, even this facility has been targeted by terrorist attacks, particularly in Azeri-populated regions of Georgia.


Grachy Khachatrian, a spokesman for the Ministry of Energy, said gas deliveries to Armenia currently totalled five million cubic metres a day, compared to 26 million in 1990.


Since the bulk of these supplies are absorbed by local industry, most Armenian households are dependent on electricity or gas cylinders.


But the new initiatives have a political context. Russia remains Armenia's sole gas supplier and is prepared to use this monopoly for political leverage.


Last year, Moscow unexpectedly cut off supplies to the former Soviet republic, explaining that Armenia's debt to the Russian company Itera stood at $24 million. However, local observers noted that the move coincided with a decision to eliminate Itera from an international tender to privatise Armenia's energy distribution networks.


The most realistic alternative is a 140 km pipeline bringing gas into Armenia from Iran. The project which has been on the drawing board for the past nine years would cost an estimated $120 million and provide a billion cubic metres of gas annually.


An agreement was signed between Yerevan and Tehran in 1992 and revised in May 1995 but recently officials from both sides have hinted that construction will start soon.


The project will have ramifications across the region. Greece is particularly interested in a positive outcome since it is anxious to reduce Turkey's political influence over the South Caucasus. Consequently the government in Athens has offered to finance technical work carried out by the Greek firm Asprofos.


Armenian expert Igor Muradian said the project also enjoyed support in France and Germany who are both eager to reduce European dependency on Russia by importing Iranian gas.


And Irakly Shekridze, an energy spokesman for the Georgian government, said that the gas issue would invest the South Caucasian states with vast political significance over the next 20-30 years as Europe negotiated deals with Russia, Turkmenistan, Azerbaijan and Iran.


However, despite the political imperatives, Armenia has dragged its feet over the Iranian pipeline project and recent negotiations have been shrouded in secrecy.


Roland Adonts, general director of Armrosgazprom, said Yerevan and Tehran needed to agree on a price for Iranian gas before the plan could be realised.


Armenia currently pays Itera $53 for every 1,000 cubic metres of gas while Iranian prices are thought to be nearly three times higher.


The price issue was last discussed in 1995 when Armenia was in the depths of an energy crisis. Most experts agree that Yerevan is now in a stronger bargaining position and the rate should be set before any construction work is started.


The new initiatives are also part of the government's pledge to restore the pre-war gas supply to Armenians over the next three to four years.


According to experts in Armrosgasprom, a joint Armenian-Russian venture launched in 1997, domestic gas is four times cheaper than electricity. This in a country where the local wages average just $40 a month.


A tentative "gasification" programme was launched in May 1997 with a projected completion date in 2001. However, the long hiatus has caused the local distribution network to deteriorate and substantial investment is required to renovate the infrastructure.


Roland Adonts, general director of Armrosgazprom, said renovation work had been delayed by the low payment rate among both domestic and industrial customers - currently around 56 per cent.


As a result Armrosgazprom was owed around $40 million -- $25 million from the distribution network and just over $4 million from the population at large.


Ashot Ovsepian, a member of the government's energy commission, said it was vital to establish an acceptable tariff for gas supplies. The current figure of just over $80 per 1,000 cubic metres was enough to cover running costs but yielded almost no profit.


Ovsepian went on to say that possible solutions included reducing the tariff during the winter months in bid to boost the payment rate and recover old debts.


According to Ovsepian, the privatisation of the electricity distribution network could have a positive effect on the gas sector. A recent privatisation bill adopted by the National Assembly called for future investors to enforce a 100 per cent collection rate for electricity supplies. Since 80 per cent of Armenia's natural gas is pumped into local power stations, such a move would serve to galvanise the entire energy industry.


The long-term plan is to restore the gas supply to homes across Armenia over the next three to four years. Armrosgazprom has calculated that, together with the complete renovation of the distribution system, this process will cost around $1.3 billion.


Susanna Petrosian is a correspondent for the Yerevan news agency Noyan Tapan


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