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ARMENIA: GAS PRICE HIKE POSES CHALLENGE FOR GOVERNMENT
Marianna Grigoryan
EurasiaNet, NY
April 24 2008
While striving to repair the rift created by the March 1 political
violence in Yerevan, Armenia's new government is confronting a new
challenge over rising natural gas prices.
In his first press conference as prime minister, Tigran Sarkisian
announced on April 18 that the government will lift natural gas
subsidies beginning May 1, meaning retail gas prices will increase
from the current 59 drams per cubic meter (about 19 cents) to 84 drams
(about 27 cents).
In April 2006, the government opted to subsidize prices for imported
gas in a bid to soften the burden placed on private consumers and
companies. Officials indicated that roughly $190 million dollars from
the 2006 sale of Unit No. 5 of the Hrazdan Thermal Power Plant would
be allocated to cover the subsidy for three years. But now, almost a
year ahead of schedule, the government is saying that funds for the
subsidy have run out.
In April 18 remarks on Public Television, Energy Minister Armen
Movsisian told viewers that "an unprecedented growth in gas consumption
meant that just under $2 million from that amount remained by the
beginning of this year.
"As a result, the compensation was to have been discontinued in
January, but on [then] Prime Minister Serzh Sarkisian's immediate
instruction, measures were taken to ensure the continuation of the
compensation until the end of the heating season," Movsisian said.
Measures are reportedly in the works to provide compensation to 130,000
families "to protect the socially vulnerable strata [of society] from
rising prices," according to Prime Minister Tigran Sarkisian. How
these families will be defined is not yet known in detail.
Some economists say that the higher gas prices could carry heavy
consequences for many Armenians. Over 26 percent of the population
still lives beneath the poverty line, according to official
figures. "No matter how much authorities speak about 'targeted
measures', the increase in gas prices will badly hit people's wallets,"
pro-opposition analyst Aghasi Yenokian commented. Increased political
tensions will be the result, he added.
Slavonic University economist Eduard Aghajanov fears a domino
effect. "The increase in the gas price will entail a sharp increase
in prices for consumer goods, building materials [and] cargo
transportation," Aghajanov said. "People, especially pensioners and
needy people, will find themselves in quite a hard situation."
Yerevan State University professor of economics Tatul Manaserian
believes there will be an adverse impact on agricultural product
prices and the competitiveness of those products geared for export. A
value-added tax on agricultural products which goes into effect in
2009 will add to the burden, he says. "[I]t becomes clear what the
future holds in store both for village farmers and town residents,"
Manaserian said.
Government officials were not available on April 24, a national
holiday in Armenia, to respond to the criticism.
Prime Minister Sarkisian, however, has stated that it is impossible to
protect against increases in energy price, since Russia has adopted
a clear policy of liberalizing the market. Russian company Gazprom,
which supplies Armenia with gas, recently agreed to raise the prices
it pays for imported natural gas from Central Asia to "European"
levels. [For background see the Eurasia Insight archive].
Many pensioners are having a hard time coming to grips with the new
reality. Pensions were increased the month before Armenia's February
presidential elections, but many elderly Armenians complain that they
are still scrambling to keep up with steadily rising prices for food
and utilities. "Inflation is so high that at present . . . we simply
run up big debts," complained Yerevan pensioner Gayane Hakobian,
who receives a pension of 13,000 drams (about $42) per month.
The International Monetary Fund in February announced that Armenia's
6.6 percent inflation rate was the lowest of any country in the
Commonwealth of Independent States. The IMF's Armenia representative
Nienke Oomes noted, though, that if gas subsidies were removed,
inflation would likely take a big jump. Armenia's economy grew by
13.8 percent in 2007, according to official figures, but wages have
not managed to keep up with price increases. The average monthly wage
stands at just over $242, or about 75,000 drams.
Individuals interviewed by EurasiaNet complained bitterly about
the move. For example, Hasmik Harutiunian, who lives in western
Armenia's Armavir region, said that her family installed gas heating
in their home last winter thinking that they would be able to heat
their house at a more affordable price. With the subsidies gone, so
are the potential savings, she said. The family now faces potential
costs of 40,000 dram (about $146) on a monthly budget of 110,000 drams
($356). "[I]t is not clear why the authorities could not keep their
promise and subsidize people for another year."
Despite the broad gulf that divides the government from
opposition political forces, exacerbated by the March 1 events,
some administration critics nevertheless applauded the move to
lift subsidies. Suren Sureniants, a member of the Republic Party's
political council, described the subsidies as "artificial assistance
from the state, and mostly unrealistic from the point of view of
economic development."
Marianna Grigoryan
EurasiaNet, NY
April 24 2008
While striving to repair the rift created by the March 1 political
violence in Yerevan, Armenia's new government is confronting a new
challenge over rising natural gas prices.
In his first press conference as prime minister, Tigran Sarkisian
announced on April 18 that the government will lift natural gas
subsidies beginning May 1, meaning retail gas prices will increase
from the current 59 drams per cubic meter (about 19 cents) to 84 drams
(about 27 cents).
In April 2006, the government opted to subsidize prices for imported
gas in a bid to soften the burden placed on private consumers and
companies. Officials indicated that roughly $190 million dollars from
the 2006 sale of Unit No. 5 of the Hrazdan Thermal Power Plant would
be allocated to cover the subsidy for three years. But now, almost a
year ahead of schedule, the government is saying that funds for the
subsidy have run out.
In April 18 remarks on Public Television, Energy Minister Armen
Movsisian told viewers that "an unprecedented growth in gas consumption
meant that just under $2 million from that amount remained by the
beginning of this year.
"As a result, the compensation was to have been discontinued in
January, but on [then] Prime Minister Serzh Sarkisian's immediate
instruction, measures were taken to ensure the continuation of the
compensation until the end of the heating season," Movsisian said.
Measures are reportedly in the works to provide compensation to 130,000
families "to protect the socially vulnerable strata [of society] from
rising prices," according to Prime Minister Tigran Sarkisian. How
these families will be defined is not yet known in detail.
Some economists say that the higher gas prices could carry heavy
consequences for many Armenians. Over 26 percent of the population
still lives beneath the poverty line, according to official
figures. "No matter how much authorities speak about 'targeted
measures', the increase in gas prices will badly hit people's wallets,"
pro-opposition analyst Aghasi Yenokian commented. Increased political
tensions will be the result, he added.
Slavonic University economist Eduard Aghajanov fears a domino
effect. "The increase in the gas price will entail a sharp increase
in prices for consumer goods, building materials [and] cargo
transportation," Aghajanov said. "People, especially pensioners and
needy people, will find themselves in quite a hard situation."
Yerevan State University professor of economics Tatul Manaserian
believes there will be an adverse impact on agricultural product
prices and the competitiveness of those products geared for export. A
value-added tax on agricultural products which goes into effect in
2009 will add to the burden, he says. "[I]t becomes clear what the
future holds in store both for village farmers and town residents,"
Manaserian said.
Government officials were not available on April 24, a national
holiday in Armenia, to respond to the criticism.
Prime Minister Sarkisian, however, has stated that it is impossible to
protect against increases in energy price, since Russia has adopted
a clear policy of liberalizing the market. Russian company Gazprom,
which supplies Armenia with gas, recently agreed to raise the prices
it pays for imported natural gas from Central Asia to "European"
levels. [For background see the Eurasia Insight archive].
Many pensioners are having a hard time coming to grips with the new
reality. Pensions were increased the month before Armenia's February
presidential elections, but many elderly Armenians complain that they
are still scrambling to keep up with steadily rising prices for food
and utilities. "Inflation is so high that at present . . . we simply
run up big debts," complained Yerevan pensioner Gayane Hakobian,
who receives a pension of 13,000 drams (about $42) per month.
The International Monetary Fund in February announced that Armenia's
6.6 percent inflation rate was the lowest of any country in the
Commonwealth of Independent States. The IMF's Armenia representative
Nienke Oomes noted, though, that if gas subsidies were removed,
inflation would likely take a big jump. Armenia's economy grew by
13.8 percent in 2007, according to official figures, but wages have
not managed to keep up with price increases. The average monthly wage
stands at just over $242, or about 75,000 drams.
Individuals interviewed by EurasiaNet complained bitterly about
the move. For example, Hasmik Harutiunian, who lives in western
Armenia's Armavir region, said that her family installed gas heating
in their home last winter thinking that they would be able to heat
their house at a more affordable price. With the subsidies gone, so
are the potential savings, she said. The family now faces potential
costs of 40,000 dram (about $146) on a monthly budget of 110,000 drams
($356). "[I]t is not clear why the authorities could not keep their
promise and subsidize people for another year."
Despite the broad gulf that divides the government from
opposition political forces, exacerbated by the March 1 events,
some administration critics nevertheless applauded the move to
lift subsidies. Suren Sureniants, a member of the Republic Party's
political council, described the subsidies as "artificial assistance
from the state, and mostly unrealistic from the point of view of
economic development."