Gas Politics: Russia tightens grip on Armenian energy sector with new Gazprom acquisition

Negotiations between Armenia and Russia around natural gas, which have been conducted since 2011, are finally over, the agreement has been signed, but events around the matter are still developing.

Through a complex system of agreements Armenia and Russia came to the conclusion that Armenia will continue to receive natural gas at the border for $189 per 1,000 cubic meters, in exchange for this the Armenian government gave Gazprom the remaining 20-percent stake in the local gas distribution company, ArmRosgazprom. In July it was announced that Russia had raised gas prices to $270, and the Armenian government undertook to compensate 30 percent of the price.

The deal raised discontent among the public in Armenia as well as among officials in neighboring Iran. Iranian Ambassador to Armenia Mohammad Raisi said that his country could sell gas to Armenia at a cheaper price. The Armenian authorities have not yet responded to the offer, but since 100 percent of ArmRosgazprom shares now belong to Russia’s Gazprom, it turns out that it will be not Armenia, but Gazprom that will or will not buy gas from Iran. And Gazprom is unlikely to do that.

Anyway, after the ‘unprecedented’ Armenian-Russian deal chief of presidential staff Vigen Sargsyan acknowledged that the price of gas for Armenian consumers will not decrease, it will just not increase as would have been the case otherwise.

Energy Minister Armen Movsisyan did not hide the fact that if Armenia had not agreed to join the Customs Union and had not sold the remaining 20 percent of ArmRosgazprom shares to Russia, it would have had to pay the debt of $300 million for natural gas accumulated since 2011. As it turned out, Russia actually raised gas prices for Armenia in 2011, but, by mutual consent, it was not declared in Armenia officially, because in 2012-13 Armenia held three national elections.

With the sale of its 20-percent stake in ArmRosgazprom to the Russian gas giant Gazprom Armenia has repaid only half of the total debt accumulated since April 2011 – or $115 million, said Minister Movsisyan. “Russia will undertake to repay the rest of the debt,” he added.

Armenian experts do not conceal the fact that the price of gas has become a key instrument for Russia to influence the Armenian authorities recently. With this tool, during the past two years Russia has achieved several objectives in Armenia - has kept the government and parliament loyal to it, prevented Armenia from diversifying its energy relations with Iran and has blocked the country’s signing of an association agreement with the European Union.

“Armenia had a choice – either to pay the debt in cash or to sell their shares in the ArmRosgazprom. The government chose the second option,” said the energy minister. However, as some experts insist, Armenia actually had no choice as the acquisition of the remaining 20-perecnt stake in ArmRosgazprom was Russia’s demand, as thus it would become a monopolist owner of gas distribution networks in Armenia and, therefore, would be able to set prices.

The minister added that the price of natural gas in Armenia is now linked to the internal Russian tariffs and it will be adjusted depending on the inflation rate in Russia. Russia has removed the 30-percent tax on oil and gas exports to Armenia.