Last week, Russian Gazprom’s Armenian subsidiary, Gazprom Armenia, announced its intention to apply to the Public Services Regulatory Commission for a lower tariff for household and companies in Armenia.
It is expected that the tariff will be lowered by about 10 drams – from current 156 to about 146 drams (33 to 30 cents) per cubic meter for ordinary users. For consumers using up to 10,000 cubic meters of natural gas a month (i.e. enterprises), it is suggested that the current price of $276.98 per thousand cubic meters be lowered to $257.56 in dram equivalents.
During the April 7-8 visit to Armenia by Russian Prime Minister Dmitry Medvedev it was announced that the price of the Russian natural gas supplied to Armenia will be lowered from $165 to $150 per 1,000 cubic meters at the border.
Gas tariffs for consumers are made up of the price of gas at the border and the cost of domestic supply, which is implemented by the Gazprom Armenia company. Now domestic supplies are more expensive than gas supplies from Russia to Armenia, and the consumer pays about $400 per 1,000 cubic meters, providing Gazprom Armenia with a very high margin of profit.
Experts call it a “political” publicity stunt – by reducing the price to $150, Russia seeks to show the allied nature of its relations with Armenia. However, the fact is that consumers in Armenia pay all but the highest price for Russian natural gas in the world.
Meanwhile, the cost of Russian gas to European consumers continues to fall. In March the average contract price for Gazprom gas on the border with Germany reached a minimum in more than a decade and amounted to $147.2. This is clear from the report of the Russian Ministry of Economic Development that cites IMF data.
During a month the price of the Russian gas fell by 14.6 percent, while in annual terms it fell by 56 percent.
At the same time, this slight decrease in natural gas prices for Armenia is presented as a big political favor and advantage of Armenia’s accession to the Russian-led Eurasian Economic Union (EEU). When urging Armenia to join the EEU, Moscow said it would remove customs duties on imports of natural gas and oil for EEU member states. However, Russia has not yet ratified this decision.
Armenian economists argue that expensive gas does not allow the country’s businesses to develop competitive production. In particular, farmers complain that at such a high price of gas, they cannot develop greenhouse production and it is more profitable to import inexpensive Turkish agricultural products.
At the last government session last week Prime Minister Hovik Abrahamyan said that he expected reduction of not only gas tariffs, but also tariffs for electricity. However, analysts say that the decrease of the tariff by just 10 drams is not adequate to the current global economic situation where prices are falling rapidly, encouraging the development of production.
Economists say that Armenia should review its gas agreement concluded with Russia in December 2013 during Russian President Vladimir Putin’s visit to the country. This agreement not only determines the high gas prices, but, in fact, forbids the purchase of natural gas from “third countries”. And this is despite the fact that Armenia borders on Iran, which is believed to have the second largest gas reserves in the world. Armenia now, too, receives natural gas from Iran by a barter scheme – supplying electricity instead, but it cannot increase the purchases because of its agreement with Russia.