Russia Gas Price Hike Shocks Armenians

Already hit by recession, people fear pain from massive price rise.

Russia Gas Price Hike Shocks Armenians

Already hit by recession, people fear pain from massive price rise.

Sunday, 28 February, 2010
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 freelance reporter.
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