Gas Price Watch: Economist expects little impact of lower tariffs on general economy

Photo: Nazik Armenakyan/Armenianow.com

While Armenia’s government believes that a lowering of natural gas and electricity tariffs is going to take place soon, it is not yet clear to what extent it will impact the country’s economy.

“I am simply convinced that gas and electricity tariffs will be reduced,” Prime Minister Hovik Abrahamyan said during a question-and-answer session in parliament on Wednesday, reacting to the bid submitted by the Gazprom Armenia company to the Public Services Regulatory Commission for the revision of the current tariff.

According to the prime minister, the gas price for households is likely to be lowered from 156 AMD (32 cents) to 146 (30 cents) per cubic meter. For enterprises (consuming more than 10,000 cubic meters of natural gas), the gas price is likely to be lowered form current $277 to $257 per 1,000 cubic meters. “As to what we are going to have will be discussed by the independent commission,” he said.

During the last eight months the price of Russian natural gas supplied to Armenia has been cut twice – from $189 per 1,000 cubic meters in September reaching $150 in April. This decrease, however, was first of all for Russian Gazprom’s daughter company in Armenia which is in charge of the South Caucasus country’s gas distribution network.

Now the Russian-owned company is expected to also lower the price for consumers in Armenia.

Experts believe that a lower gas price will allow many households to cut costs and spend the money elsewhere, such as in the retail trade sector, which has been declining recently.

They, however, hardly expect more than that. Economist Vilen Khachatryan is skeptical about the prospect of a major boost for Armenia’s economy due to reduced gas prices.

“There will be certain advantages for the companies that consume a lot of gas in their manufacturing, but it won’t have any essential impact on our companies. It may only somewhat relieve them,” Khachatryan told ArmeniaNow.

According to the economist, the price reduction cannot have a particularly significant impact on export-oriented industries either, as shipment charges make an appreciable part of their final cost.

Nor does Khachatryan see a prospect of lower retail prices conditioned by the lowering of the gas price.

“[Retailers] won’t lower the prices. Simply they will have a higher margin of profits. In such conditions, businesses will try to improve their economic condition rather than think about the population and, for instance, at once lower the prices,” he said.