Gas Issue: Economists say slashed prices at border could lead to reduced prices for end-consumers

Photo: Nazik Armenakyan/Armenianow.com

Although Russia has reduced the price of natural gas supplied to Armenia by 9 percent at the border, it is still unclear at what price the final consumers in the South Caucasus country will get it.

Russian Prime Minister Dmitry Medvedev, during his visit to Yerevan at the end of last week, made an announcement about the Russian gas price reduction of 15 dollars for Armenia following a proposal made by the authorities of Armenia a few months ago.

Armenia’s Prime Minister Hovaik Abrahamyan said that the government should make calculations, and in the near future it will be clear to what extent the price of natural gas will be reduced for households and businesses. Until the beginning of this month, Gazprom Armenia used to buy the natural gas at the border at $165 and sell it to consumers in Armenia at the average price of $320, that is, almost twice as much.

The Public Services Regulatory Commission, according to procedures, or by the request of Gazprom Armenia, or on its own initiative, shall consider the revision of the tariff. According to some experts, if the Commission wishes, it can review the natural gas price reducing it by $24 to $40 per 1,000 cubic meters, though Russia has reduced it by $15.

Assuming that Gazprom Armenia does not intend to make investments and increase salaries, according to MP economist Mikael Melkumyan, natural gas price reduction for consumers is possible.

“Logically, the price of natural gas should be reduced for ordinary citizens at least as much as it has reduced at the border,” Melkumyan during a discussion at the Media Center in Yerevan.

According to economist Artak Manukyan, the price of natural gas for the population could be reduced by more than 9 percent, at the expense of Gazprom Armenia’s product – the natural gas price difference between buying and selling. According to Manukyan, experts’ calculations have shown that the net profit of the company amounts to $46 for 1,000 cubic meters of gas, which makes it possible to reduce the natural gas price.

He believes that by comparing Gazprom Armenia’s net income, the prime costs of natural gas at the border and expenses, it can be said that the natural gas tariff for the population could be reduced by about $40. Moreover, according to the economist, in terms of flexibility and affordability of gas for the population, seasonal prices can be set.

“For example, in winter when residents use more gas, lower tariffs could be set, while in conditions of warmer weather, when households consume less gas, higher tariffs could be applied. This is important for households, because even though they consume about one quarter of the amount of natural gas, they pay more than 50 percent of the total amount,” said Manukyan.

According to Vazgen Safaryan, the chairman of the Union of Domestic Manufacturers, the reduction of the natural gas prices is firstly important for the economy, because it will lead to the electricity price decrease, reduced production costs, as well as a further fall in prices, which can be considered as only positive for trade, which is on the decline today.