Up until February 28, citizens of Armenia actually thought that Armenia’s “big brother” wouldn’t raise the gas price or would at least lower it a little. People hoped that the short negotiations would lead to a positive outcome and our strategic ally wouldn’t be so cruel and suddenly double the price.
But the negotiations between the two countries kept the same gas price for a minimum of three months. Armenian authorities considered that a great achievement, based on the fact that those three months were during the winter and 50% of gas is consumed during that time.
In any case, the gas prices are in effect. Starting from April 1, Armenia will pay Russia 110 dollars for 1000 cubic meters of gas. Meanwhile, “ArmRusGazard” will sell gas to Armenian citizens for a high price starting from April 10. We can assume that the company is awarding those 10 days to the citizens and losing 70 million dollars at the same time. As to how much “ArmRusGazard’s” consumer, the citizen and producer will lose after April 10, that is still too early to predict.
Back in the beginning of this year, Minister of Energy of Armenia Armen Movsisyan announced that the price for electricity would go up three to four times in case the gas price went up. But the increase in the price for electricity will bring to the inflation of transportation and other products as well. Citizens of Armenia will not only pay a higher price for gas and electricity, but also bread, eggs, dairy products, conserves and construction materials. Even carrots and potatoes will be sold at a higher price because the farmers will have to bring their products to the market by paying a high price for transportation. Despite all this, Armenian authorities and economists have come to the conclusion that Armenia will only have a 3% inflation in 2006, in other words, prices for products will go up by 3%. However, experts say that prices will go up by 22-25% by the end of the year. The inflation rate has exceeded the 3% mark as we speak.
“Producers and those offering their services are not waiting until the price factor has an impact on their own or imported products. They are raising the price of their products beforehand. If the gas price really does go up, it will be much harder to earn a living and this will lead to a social/economic crisis,” says economist Edward Aghajanov.
It is a fact that the Armenian authorities didn’t really achieve much after the negotiations with Russia on the gas price. Wasn’t there any possibility of actually lowering the gas price just a little? The public services regulatory commission has also included the average salaries of the 40 workers for “ArmRusGazard”, and additional fees for use and maintenance along with the fixed gas price. Basically, not only the Russian, but also the “local” factor has had an impact on the gas price increase. During the session, someone asked if the “local factors” were the reason for “ArmRusGazard” to appeal for the gas price increase. Director of the company Karen Karapetyan said no. In that case, how come the gas price increase is not the influence of Russia? If “ArmRusGazard” has already provided half of Armenia’s population with gas and, according to Mr. Karapetyan, plans on providing the rest by the end of the year, why should its expenses be more? Specialists from the company predict that many people will stop consuming gas after the inflation. Wouldn’t it be better if “ArmRusGazard” lowered the prices consumers pay for gas and still go along with the gas price increase? According to specialists, in this case it is absurd to include the rise in expenses for usage and salaries. Head of the bargain prices department of the commission said that the expenses for use and maintenance only make up 5-6 AMD in the bargain price and another 2-3 AMD for salaries. Let’s add the reduction in losses and it turns out that they could have reduced the price by 10 AMD. The Public Services Regulatory Commission could have done this, but it didn’t. But there still is time. Mr. Aghajanov disagrees that the government, which owns 45% of “ArmRusGazard”, should have given up its profit and not charge a value added tax for the imported tax. According to the economist, Armenia must hurt the state budget and “ArmRusGazard” a little. We can prevent the gas price increase from having a large impact on the prices of other products.
“Armenian authorities should have made some reforms in the law and given some taxing privileges to those involved in providing energy. In other words, the producer who uses equipment which doesn’t use up a lot of energy would get benefits. There is no other way. This will help keep the price constant and benefits both the producer and the people. For example, take Bush who came up with a “new energy initiative” at the beginning of this year. This is a system, which will help save energy, lower the usage of energy and the U.S. plans on reducing the price for gas imported from the Middle East by 70%. China spends 11.5 times more energy on a one dollar product than Japan. This is the only way. In Armenia, there is no field where gas is not used. That is why energy saving technologies must turn into a national project. America takes that route to produce gas and oil. Armenia neither has gas or oil, but the authorities don’t really pay attention to the effects that the gas price increase will have on the country. Gas has an impact on other products as well.”