Energy Concerns: Gas, electricity issues in Armenia may impact regional geopolitics

Serious problems appear to be emerging in Armenia’s energy sector and they may lead to changes in the geopolitical situation in the region, where energy is one of the main components. Energy-wise Armenia completely depends on Russia, and if this dependence decreases, it will also have an impact on geopolitics.

Problems primarily emerge in the electricity generating industry. The Russian state corporation, Inter RAO UES, which owns the Armenian electricity distribution networks, has recognized that it approaches the boundary of insolvency. A company representative said that he intends to appeal to President Serzh Sargsyan with a request for debt restructuring.

The debts constitute, by various estimates, from $250 million to $600 million. In June last year during a similar situation the Public Services Regulatory Commission of Armenia (PSRC) accepted the application of Armenian electricity networks and raised the electricity tariffs. This year, apparently, the Commission does not intend to raise tariffs. Anyway, Chairman of the Commission Robert Nazaryan said in the Armenian parliament that people should not pay for the problems of the company.

The electric power system of Armenia is considered to be a fairly powerful one, and not only because of the presence of a nuclear power plant, but also good opportunities for hydroelectric and other renewable energy. According to Western experts, if Armenia can increase production of renewable energy and reduce its cost, the dependence on expensive natural gas can be reduced.

Last week, the Armenian government approved the sale of the Vorotan cascade to the American company, ContourGlobal, however, the deal has not been finalized yet. The American company promises to increase production of electricity at low cost.

According to some media publications, if the Vorotan Hydro-Power Plant starts offering cheaper electricity on the market it may lead to lower costs. But the Armenian electric networks are unlikely to turn to the PSRC with a request for lowering the tariffs.

It is not without reason that for already a year there is a speculation about the sale of the Armenian electric networks. In particular, media speculation that Russian-Armenian billionaire Samvel Karapetyan may be the buyer. But it is also possible that the American company that buys Vorotan can be a candidate for purchasing the electric power grid as well.

The situation is approaching a critical point in the gas sector as well. According to Robert Nazaryan, negotiations are being conducted between Armenia and Russia now for the natural gas price not to be raised. Armenia has an agreement with Russia until 2043 on purchasing exclusively the Russian gas. Now the Russian gas is the most expensive in the world, and though the prices of oil and gas in the world have fallen sharply, Armenian consumers have not felt it. Moreover, Russia, which has lost some of its dollar revenues because of the devaluation of the Russian ruble and the Armenian national currency, the dram, considers the possibility of raising prices.

Armenian experts say that if Russia decides to raise the prices, it may lead to a complete severance of energy relations between Armenia and Russia, especially that Armenia has a neighbor like Iran with its cheap oil and natural gas, and Armenia can produce its own electricity in sufficient amounts.