The newly appointed Prime Minister of Armenia Tigran Sargsyan started his activity with a statement on the increase of natural gas price.
Although it was quite expectable as the deadline of subsidization of gas by the government was over at the beginning of this year there was still hope that the gas price wouldn’t be changed by the end of 2008. The General Director of the ArmRosGazProm Karen Karapetyan has hinted at that. In the beginning he said that it is possible that the RA government may find means to continue the gas subsidization. But a little later in the beginning of April during the conversation with us he insisted that the subsidization is not over and that it was going to continue for a ling time. However, as mentioned the subsidization was over at the beginning of the year but the RA government kept subsidizing by not updating the consumers on that. By the way Prime Minister Tigran Sargsyan didn’t specify at the expense of what means the government was subsiding for the gas during the past three months. Nevertheless the Armenian consumers starting from May 1 will have to pay 84.000 per 1000 cubic meters of natural gas instead of the current 59.000. Let us remember that from April 1 2006, the price of gas supplied to Armenia was raised from $56 to $110 per thousand cubic meters. Still at that time, to relieve the burden for households and the industrial sector the government decided to provide a subsidy. A sum of $188.8 million was transferred to ArmRosGazprom (ARG) as a partial compensation for the tariff. As a result, households could pay only 59 drams (about 20 cents) per cubic meter instead of 84 drams they were due to pay. Beginning on May 1, users who consumer less than 10,000 cubic meters of gas a month (commonly private households) will have to pay 84,000 drams (about $270) for a thousand cubic meters and those consuming more than 10,000 cubic meters (mostly enterprises) will pay an equivalent of $153.26 in Armenian drams. (It is estimated that annual consumption is 1.5 billion cubic meters of gas) Premier Sargsyan says that it is not a secret that consumption of electricity and gas sharply increases in wintertime and adds that the government’s goal will be to protect socially vulnerable sectors of the population from rising costs. “Naturally, our measures must be targeted. First of all, we will focus attention on 130,000 families receiving social benefits,” Sargsyan said. What impact can the increase of gas price have on Armenia’s economy and in general for any country? “First of all the price of gas, wheat, energy create inflation for other goods. It means that the gas price increase will increase the price of fuel, transport and stapled goods. And Armenia is going to face a quite high inflation,” says economist Edward Aghajanov. For example, the chairman of the Financial and Budgetary Committee of the NA Gagik Minasyan doesn’t predict any rapid increase of stapled goods because of the gas price increase. “Only the price of such goods, which are directly produced of gas will be increased,” says Minasyan. Two years ago when the government decided to subsidize the gas price they intended to relive the state of consumers. Besides that they were stating that all that is done to stimulate industry in the country. Economist Tatul Manaseryan says that the increase in the gas tariff will naturally impact the country’s economy. “Subsidizing is typical of many countries, but it is more affordable for those that have a budget surplus, and we fulfill our budget with a deficit. And the state should be as attentive as possible to make sure that only socially vulnerable families appear in the list of beneficiaries,” he says. Premier Sargsyan also stated that Armenia cannot insure itself against gas price increases, since Russia has adopted a clear policy of liberalizing the market to achieve a gradual increase in gas prices matching the international level. The newly appointed prime minister sounded confident that the decision that may be viewed as unpopular by many would not hit his rating. “I think my rating will suffer more if I am not open, honest and straightforward. We have adopted this policy, we have nothing to hide from our citizens,” he said. “Can you believe that oligarchs were benefiting from subsidization than socially vulnerable groups? Not to even mention the cement and other businesses, which expand a lot of gas. Those receive a lot of incomes due to their monopolized role. I don’t even think that the budget has been receiving much input from the cement production or gas-stations. The cement price has increased day by day and fills in the pocket of the oligarchs,” says the former chairman of the CB Bagrat Asatryan. “Gas price turns from 101 USD to 153 USD. Of course the cement price would be increased as well. I buy various goods for my factory and cement production. The fuel price, metal, parts increase in prices. It is like a chain,” says director of the Mika Cement CSJC Naira Martirosyan by adding it is hard to predict how much the cement price will be. This factory hasn’t done the calculation yet. It was known even two years ago that the price is going to go up. Moreover, in 2009 Russia is going to increase the gas price again. Kazakhstan, Uzbekistan and Turkmenistan announced that starting from the next year they are going to sell their gas to Russia at 270-270 USD. And Armenia receives the gas of those countries from Russia. And it not excluded that by the next year we will have a 350 USD fee for gas. “Yes, of course our strategic partner doesn’t want to sell its gas to its outpost at a cheap price,” says Asatryan. “First what happened to the gas pipeline of Iran? The government has been bragging about that as an alternative source for gas. And if I am not mistaken starting from spring of the last year we should have been receiving alternative gas. When the gas price was increasing we have been saying that it is going to rise up. We said that our state must process alternative energy source and conduct an energy saving policy just like the US. Tax privileges must be given to those entrepreneurs, who use energy saving and alternative technologies. They haven’t done anything in that direction. Back in 1975 the US, which is a leading gas producer and exporter adopted a law on giving advantages to the businessmen, who use alternative energy. This issue is more urgent with us and we should thought about it long ago,” says Aghajanov.