ARMENIAN STATE REGULATOR ALLOWS 37% INCREASE IN GAS PRICES, INCITING CRITICISM FROM BUSINESSES
Lilit Gevorgyan
World Markets Research Centre
Global Insight
March 1, 2010
Armenia’s Public Services Regulatory Commission (PSRC) endorsed
the gas price increase requested by ArmRosgazprom (ARG), a joint
Russian-Armenian national gas distribution company. ARG asked on 22
January to increase the price of natural gas from the current 96,000
drams (US$252) to 136,000 dram per 1,000 cubic metres of gas–a 41%
increase. The PSRC negotiated only a small decrease of the requested
new price and agreed that ARG will charge 132,000 dram per 1,000
cubic metres, a mere 4,000 dram difference.
The PSRC explained that it had to take the decision based on the 17%
rise in import prices for natural gas as well as the sharp appreciation
of the U.S. dollar against the dram. Another factor that determined
the price rise is the 20% drop in Armenia’s natural gas demand due
to the economic crisis. ARG hopes to recover some of its investments
through the new increase. The new price will be applicable from 1
April this year. The cChairman of the board and general director
of ARG, Karen Karapetyan, stated following the PSRC decision that
his company will not apply for further price increases even if the
dram continues to devalue against the dollar. Following the state
regulator’s decision, Armenia’s Ombudsman Armen Harutyunyan warned
the country’s authorities of a potential increase in social tension
the living standards are affected by the gas increase.
Significance:Higher gas prices will have a harmful impact on
the country’s small and medium businesses as well as the general
living standards of the 3.5-million population of this former Soviet
republic. A number of economists in Armenia estimate that the increase
will push up electricity, water and consumer goods prices by 15%. ARG
has a monopoly over the distribution of natural gas in Armenia which
is mainly imported from Russia via Georgia and partially from Iran.
The Armenian government owns 20% of ARG, and the remaining 80% is
owned by Russia’s Gazprom. Deprived of its own hydrocarbon resources,
it seems that the Armenian government has little say when it comes
to countering the requests made by foreign-owned ARG. The gas price
increase highlighted the need for energy diversification once again.
Armenia, which saw an 18% drop in GDP in 2009, needs to jump-start
its economy, but the latest PSRC decision is likely to have the
opposite effect.