Several days ago, during the parliamentary discussions on the currency exchange rate changes, head of the Central Bank Tigran Sargsyan asked whether the prices for energy resources were justified. Particularly, the current rate for gas has been fixed on the basis of a higher USD exchange rate. “ArmRusGazard” company buys gas in dollars, but sells it to citizens in drams, thus it makes extra profits. It is strange, but T. Sargsyan said that some prices connected with USD exchange rate should be revised.
Sargsyan said that by decreasing gas prices it would be possible to decrease the prices for energetic resources as well, thus cutting down the net expenses in production. This factor may help domestic production.
Of course the CB is not entitled to revise prices and that is up to the state committee on regulating public services (CRPS). The CB president does not say anything for no reason; thus after the mentioned announcement people hope that something may change. Furthermore, some papers were informed that the CRPS is going to revise energy prices on its own. However, prices haven’t changed yet. The head of the mentioned committee, Robert Nazaryan has given an interview to “Azatutyun” radio station, where he didn’t say anything in particular; he only said that since 1999 (when the price for one kilowatt of energy was fixed at 25 drams) “the prices for all the maintenance materials have grown by 200-250%.” It means that there are enough reasons to increase the prices. As for the growth of the AMD rate, it has an 20% impact because the rest of the income is in AMD.
However, Mr. Nazaryan said that he couldn’t give any concrete information yet. We asked head of the price regulation department of the CRPS, Armen Arshakyan, to explain the issue. He said that the committee periodically revises the prices and that it’s a difficult process: “It is like creating a budget”.
Mr. Arshakyan said that the 25 drams was fixed taking into consideration different factors. Accordingly, if either of those factors is changed, the prices should be revised regardless of the influence on the other processes.
What if the gas price goes down? Will it enable them to reduce the energy price as well? According to Mr. Arshakyan, that will not have a huge impact due to the fact that the energy stations working with gas provide 30% of the energy in the country. “The rest of the energy is produced by hydro electric stations and the atomic station and they each have different prices. The 25 dram price is the median of those prices. As a result, the price for the energy that the hydro electric stations produce may be decreased, however, it will not have that big of an influence on the median price” said Mr. Arshakyan.
As for the possible reduction of gas prices, Mr. Arshakyan said that that was not clear either. Arshakyan said that the prices for gas supplied to citizens might be revised, however they had calculated the gas prices for big producers in USD and that would hardly be revised. In other words, the exchange rate changes are not a huge problem for big producers since the more the AMD price grows, the less they pay. Over 70% of the gas supplied to Armenia is used by big producers, the biggest of which is the hydro electric station.
This is how they do things: they speak about inflation whenever they like and say that it is impossible to reduce the prices. Nevertheless, whenever they want to praise our economic growth, they say that the inflation level is too low. I don’t want to discuss the inflation issue since it will seem that I am trying to criticize the CB again. Anyway, if they want they can reduce the prices for energy and electricity for citizens. They may try to revise the prices and find out that in parallel to that reduction, there is an increase in prices for other products too and may keep the prices stable after bringing it to a balance. Anyway, people will be satisfied even if they don’t change the prices at all. However, it will happen soon or later.
There is an interesting thing here. According to the legislation, the prices (in the energy sector) fixed by the CRPS are not subject to trial for the purpose of revising the decision. The commission can revise the prices on its own and reduce them. As for the companies, they have no alternative but to agree with it. It is evident that these factors are not conditioned only by economic calculations. There are both internal political and geopolitical factors that have had an influence on that process. Almost all the energetic systems, gas supply and distribution networks are concentrated in the Russian businesses. To go against these companies means to go against Russia. Such things can never happen. No, we are not afraid (even after what happened to Georgia). It’s just a shame and they should do that to their strategic ally.