Tweet
ARMENIA SNUBS RUSSIA AFTER GAS PRICE HIKE
Business New Europe
June 18 2013
Clare Nuttall in Astana
June 18, 2013
An apparent Russian attempt to use energy supplies to force Armenia,
one of its closest allies, to choose membership of the Customs Union
over closer association with the EU, appears to have failed. With
a hike in the price of Russian gas coming into effect, Yerevan said
it's looking at alternative suppliers like Iran and holding talks on
the sale of its largest hydroelectric power plants to a US company.
Armenia's Public Services Regulatory Commission (PSRC) announced
on June 7 that consumers will pay AMD156,000 ($374) per 1,000 cubic
meters of gas, 18% higher than the current rate of AMD132,000. This
figure is still well below the 60% price hike requested by gas
distributor ArmRusGasProm after Russia increased its wholesale gas
export price. Since Armenia generates some of its electricity at
gas-fired power stations, electricity prices are also going up in July,
sparking a wave of anti-Russian sentiment in this relatively poor
country. A small group of protesters gathered outside the Russian
embassy in Yerevan on June 5 and at the PSRC building on June 7,
calling for Gazprom to go home.
To avoid a more widespread popular backlash, the Armenian government
has been forced to introduce costly subsidies for energy customers,
with Prime Minister Tigran Sargsyan announcing on May 16 that the
government would subsidise consumer gas prices by as much as 30%,
as well as providing support for poor families. There are also
concerns that the increase in energy prices will spark a sharp rise
in inflation.
Given Armenia's high poverty rate, energy pricing is a highly
sensitive political issue. Opposition MPs have accused the government
of striking a secret deal with Russia not to increase gas prices
until after the 2013 elections. The government only confirmed the
widely anticipated price increase after Serzh Sargsyan was returned to
the presidency in February, and his party emerged victorious in the
May local elections. At a parliament session on June 12, Energy and
Natural Resources Minister Armen Movsisyan even claimed he couldn't
remember when the agreement had been signed, Arka reported.
Choosing sides
The decision to raise the gas price is believed to be linked to
Armenia's pursuit of an EU Association Agreement, which includes the
development of political, trade, social, cultural and security links
between the two. As Yerevan moves closer to Europe, the prospect that
Armenia will join the Russia-led Customs Union, which also includes
Kazakhstan, Belarus and soon Kyrgyzstan, becomes less likely. While
Ukraine is Moscow's top target for Customs Union membership, Armenia
has long been one of Russia's closest allies, so the move westwards
is a blow for Moscow.
"The gas price increase is part of a broader effort to switch to market
conditions and end state subsidies, but there is also a political
dimension," Richard Giragosian, director of the Regional Studies Cente
in Yerevan, tells bne. "The scale of the price increase indicated that
Russia is using energy as leverage to deter integration with the EU."
However, Giragosian believes that the pressure from Russia was "too
little, too late", coming as it did when Armenia was already at an
advanced stage of negotiations with the EU. "Armenia has made it
clear to Moscow that it will proceed to the Vilnius summit," he says.
Having chosen its path towards the EU, the Armenian government has
been looking for alternatives to the current dependence on Russian
gas imports. But because of the country's geo-political situation,
these are limited.
Armenia's neighbour Azerbaijan is one of the Caspian region's largest
oil and gas producers, but the hostile relationship between the two
countries effectively rules out any gas from there. Azeri officials
seem to have enjoyed the plight of their neighbour, with the president
of Azerbaijan's state oil company Socar, Rovnag Abdullayev, saying
in an interview with ANS TV that Azerbaijan had enough gas stored
in underground reservoirs to more than cover Armenia's entire annual
consumption immediately. Socar followed up Abdullayev's comments with
a June 10 statement that Armenia could "participate in regional energy
projects" if Yerevan changes its position on the occupied lands around
Nagorno Karabakh, an ethnic Armenian enclave that lies in Azerbaijani
territory and over which the two fought a war in the 1990s.
Persian possibility
The chief option being discussed in Yerevan is whether to look to Iran
for gas imports. Armenia already imports some gas from its neighbour,
exporting electricity in return. Potentially, Armenia could ramp up
its imports of gas from Iran, but there are some obstacles, mainly the
fact that even following the Russian price increase, Iranian gas is
still more expensive. According to local press reports, ArmRusGasProm
CEO Vardan Harutyunyan told a press conference on June 7 that the
company would consider importing from Iran if the price was lower
than that from Russia.
Giragosian points out additional problems. "Iran is an alternative,
but there are questions about prices and the capacity of the pipeline.
Armenia is also very hesitant about expanding its energy relationship
with Iran at a time when sanctions are increasing."
Armenian government officials are also close to negotiating the sale
of three of Armenia's largest hydropower plants to US-based energy
company ContourGlobal - a surprising move in a sector previously
seen as Russian territory. ContourGlobal, which has assets in other
emerging markets including Latin America and Africa, said in a June 12
statement that commercial terms for the deal are still being finalised,
and the purchase price is expected to be "very significant". Together,
the three hydropower plants on the Vorotan river account for over 30%
of Armenia's electricity generation capacity.
http://www.bne.eu/story5073/Armenia_snubs_Russia_after_gas_price_hike
Business New Europe
June 18 2013
Clare Nuttall in Astana
June 18, 2013
An apparent Russian attempt to use energy supplies to force Armenia,
one of its closest allies, to choose membership of the Customs Union
over closer association with the EU, appears to have failed. With
a hike in the price of Russian gas coming into effect, Yerevan said
it's looking at alternative suppliers like Iran and holding talks on
the sale of its largest hydroelectric power plants to a US company.
Armenia's Public Services Regulatory Commission (PSRC) announced
on June 7 that consumers will pay AMD156,000 ($374) per 1,000 cubic
meters of gas, 18% higher than the current rate of AMD132,000. This
figure is still well below the 60% price hike requested by gas
distributor ArmRusGasProm after Russia increased its wholesale gas
export price. Since Armenia generates some of its electricity at
gas-fired power stations, electricity prices are also going up in July,
sparking a wave of anti-Russian sentiment in this relatively poor
country. A small group of protesters gathered outside the Russian
embassy in Yerevan on June 5 and at the PSRC building on June 7,
calling for Gazprom to go home.
To avoid a more widespread popular backlash, the Armenian government
has been forced to introduce costly subsidies for energy customers,
with Prime Minister Tigran Sargsyan announcing on May 16 that the
government would subsidise consumer gas prices by as much as 30%,
as well as providing support for poor families. There are also
concerns that the increase in energy prices will spark a sharp rise
in inflation.
Given Armenia's high poverty rate, energy pricing is a highly
sensitive political issue. Opposition MPs have accused the government
of striking a secret deal with Russia not to increase gas prices
until after the 2013 elections. The government only confirmed the
widely anticipated price increase after Serzh Sargsyan was returned to
the presidency in February, and his party emerged victorious in the
May local elections. At a parliament session on June 12, Energy and
Natural Resources Minister Armen Movsisyan even claimed he couldn't
remember when the agreement had been signed, Arka reported.
Choosing sides
The decision to raise the gas price is believed to be linked to
Armenia's pursuit of an EU Association Agreement, which includes the
development of political, trade, social, cultural and security links
between the two. As Yerevan moves closer to Europe, the prospect that
Armenia will join the Russia-led Customs Union, which also includes
Kazakhstan, Belarus and soon Kyrgyzstan, becomes less likely. While
Ukraine is Moscow's top target for Customs Union membership, Armenia
has long been one of Russia's closest allies, so the move westwards
is a blow for Moscow.
"The gas price increase is part of a broader effort to switch to market
conditions and end state subsidies, but there is also a political
dimension," Richard Giragosian, director of the Regional Studies Cente
in Yerevan, tells bne. "The scale of the price increase indicated that
Russia is using energy as leverage to deter integration with the EU."
However, Giragosian believes that the pressure from Russia was "too
little, too late", coming as it did when Armenia was already at an
advanced stage of negotiations with the EU. "Armenia has made it
clear to Moscow that it will proceed to the Vilnius summit," he says.
Having chosen its path towards the EU, the Armenian government has
been looking for alternatives to the current dependence on Russian
gas imports. But because of the country's geo-political situation,
these are limited.
Armenia's neighbour Azerbaijan is one of the Caspian region's largest
oil and gas producers, but the hostile relationship between the two
countries effectively rules out any gas from there. Azeri officials
seem to have enjoyed the plight of their neighbour, with the president
of Azerbaijan's state oil company Socar, Rovnag Abdullayev, saying
in an interview with ANS TV that Azerbaijan had enough gas stored
in underground reservoirs to more than cover Armenia's entire annual
consumption immediately. Socar followed up Abdullayev's comments with
a June 10 statement that Armenia could "participate in regional energy
projects" if Yerevan changes its position on the occupied lands around
Nagorno Karabakh, an ethnic Armenian enclave that lies in Azerbaijani
territory and over which the two fought a war in the 1990s.
Persian possibility
The chief option being discussed in Yerevan is whether to look to Iran
for gas imports. Armenia already imports some gas from its neighbour,
exporting electricity in return. Potentially, Armenia could ramp up
its imports of gas from Iran, but there are some obstacles, mainly the
fact that even following the Russian price increase, Iranian gas is
still more expensive. According to local press reports, ArmRusGasProm
CEO Vardan Harutyunyan told a press conference on June 7 that the
company would consider importing from Iran if the price was lower
than that from Russia.
Giragosian points out additional problems. "Iran is an alternative,
but there are questions about prices and the capacity of the pipeline.
Armenia is also very hesitant about expanding its energy relationship
with Iran at a time when sanctions are increasing."
Armenian government officials are also close to negotiating the sale
of three of Armenia's largest hydropower plants to US-based energy
company ContourGlobal - a surprising move in a sector previously
seen as Russian territory. ContourGlobal, which has assets in other
emerging markets including Latin America and Africa, said in a June 12
statement that commercial terms for the deal are still being finalised,
and the purchase price is expected to be "very significant". Together,
the three hydropower plants on the Vorotan river account for over 30%
of Armenia's electricity generation capacity.
http://www.bne.eu/story5073/Armenia_snubs_Russia_after_gas_price_hike