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ARMENIA: CRISIS IN ENERGY SECTOR IS RESULT OF INEFFECTIVE MANAGEMENT
Vestnik Kavkaza, Russia
Jan 26 2015
26 January 2015 - 3:38pm
Susanna Petrosyan, Yerevan. Exclusively for Vestnik Kavkaza
A new increase of electricity rates is expected in Armenia. At
the moment, it is unclear when and at what level the rates will
be increased, but the Minister of Energy and Natural Resources,
Yervand Zakaryan, states that an increase is inevitable. According
to preliminary data from last autumn, the rate will probably be 51-52
drams per 1kWh. However, the calculations don't consider changes in the
dram exchange rate against the dollar. In the period of calculations
$1 cost 415 drams, while today it costs 470 drams.
Regarding the devaluation of the dram by 10%, the price for 1 kWh
will be even higher.
Last time the electricity rate was increased on August 1st 2014 by
almost 10%. Previously, 1 kWh cost 38 drams; it was increased to 41.85
drams in day and evening hours; the night rate (11 p.m-7 a.m.) was
fixed at the level of 31.85 drams instead of 28 drams.
Officials explained the increasing rates by a necessity to fill
financial gaps in the energy system and by the fact that the system
needs extra resources to function reliably.
Current explanations are the same. The Eclectic Distribution
Networks of Armenia (EDNA) (the company which belongs to the Russia
RAO UES) cannot pay its debts under the current rate, as the rate
doesn't reflect the necessary expenditures of EDNA. The company has
accumulated huge debts for the national electricity power-producing
facilities of Armenia - 15.8 billion drams, as well as to banks -
$220 million. The general debt of the energy system, including debts
to banks, enterprises and loans, is about $600 million.
It is difficult to imagine that such a profitable company as EDNA has
been working for a few years at a loss. According to official data,
actual losses of electricity energy in 2014 were 14.5% instead of
the planned 12.5%, while extra losses of 2% per year were about 5
billion drams ($1=470 drams).
However, the problem is not only in the ineffective management of
EDNA, but also in the fact that the Armenian authorities don't control
the activities of foreign companies on the territory of the country
strictly enough. 2% of extra losses in electricity networks have been
registered every year for 7 years, while the Armenian side, which had
to control the activities of the foreign company, didn't do anything.
According to Aik Gevorkyan, an economic observer of the newspaper
Armenian Time, in reality the 14.5% didn't disappear, but were
corrupted. And this is an index of the ineffective management in the
system. It is unlikely that the recently established commission, which
includes representatives of the Ministry of Energy and the Inter RAO
UES Company, can change the situation seriously. Armenia traditionally
solves problems with losses and debts at the expense of consumers.
Gagik Makaryan, the executive director of the Union of Employers
of Armenia, says that there is chaos inside EDNA: "40-year-old
power converters are still working there; users have been supplied
chaotically. The system has primitive cutouts. The Commission on
Regulation of Social Services is doing nothing to protect the interests
of consumers, avoiding the problems. It seems that when EDNA asks new
rate increases, the Commission will agree with it," Makaryan believes.
Experts are concerned about the absence of a serious control over
activities of energy enterprises, including foreign ones, untargeted
use of loans which have to be allocated for modernization of the
system. The typical practice of solving debt problems at expense of
consumers, chaos and poor management in the system are unacceptable.
The complex of reasons, the main one of which is corruption schemes,
led to the fact that previously profitable EDNA and other facilities
began to work at a loss.
In the middle of the 1990s, when the energy crisis began to be
overcome, Armenia established a clear diversified energy system, and
its enterprises were working profitably. Due to non-transparent deals
and corrupt schemes, the energy sphere found itself in a difficult
situation.
Experts believe that the $600 million debt is a sign of the bankruptcy
of the Armenian energy system. EDNA was sold for $50 million;
construction of a new power-generating unit of the Yerevan TPP costs
$250 million, the fifth unit of the Razdan TPP - $200 million. Thus,
the debts of the energy system come close to its market value.
Instead of increasing rates, real steps should be made to improve the
effectiveness of the energy system and its management to change the
sad situation. However, it is impossible today, as energy problems
are a part of the systemic crisis which covers the whole economy of
the country.
http://vestnikkavkaza.net/analysis/economy/65279.html
From: Emil Lazarian | Ararat NewsPress
Vestnik Kavkaza, Russia
Jan 26 2015
26 January 2015 - 3:38pm
Susanna Petrosyan, Yerevan. Exclusively for Vestnik Kavkaza
A new increase of electricity rates is expected in Armenia. At
the moment, it is unclear when and at what level the rates will
be increased, but the Minister of Energy and Natural Resources,
Yervand Zakaryan, states that an increase is inevitable. According
to preliminary data from last autumn, the rate will probably be 51-52
drams per 1kWh. However, the calculations don't consider changes in the
dram exchange rate against the dollar. In the period of calculations
$1 cost 415 drams, while today it costs 470 drams.
Regarding the devaluation of the dram by 10%, the price for 1 kWh
will be even higher.
Last time the electricity rate was increased on August 1st 2014 by
almost 10%. Previously, 1 kWh cost 38 drams; it was increased to 41.85
drams in day and evening hours; the night rate (11 p.m-7 a.m.) was
fixed at the level of 31.85 drams instead of 28 drams.
Officials explained the increasing rates by a necessity to fill
financial gaps in the energy system and by the fact that the system
needs extra resources to function reliably.
Current explanations are the same. The Eclectic Distribution
Networks of Armenia (EDNA) (the company which belongs to the Russia
RAO UES) cannot pay its debts under the current rate, as the rate
doesn't reflect the necessary expenditures of EDNA. The company has
accumulated huge debts for the national electricity power-producing
facilities of Armenia - 15.8 billion drams, as well as to banks -
$220 million. The general debt of the energy system, including debts
to banks, enterprises and loans, is about $600 million.
It is difficult to imagine that such a profitable company as EDNA has
been working for a few years at a loss. According to official data,
actual losses of electricity energy in 2014 were 14.5% instead of
the planned 12.5%, while extra losses of 2% per year were about 5
billion drams ($1=470 drams).
However, the problem is not only in the ineffective management of
EDNA, but also in the fact that the Armenian authorities don't control
the activities of foreign companies on the territory of the country
strictly enough. 2% of extra losses in electricity networks have been
registered every year for 7 years, while the Armenian side, which had
to control the activities of the foreign company, didn't do anything.
According to Aik Gevorkyan, an economic observer of the newspaper
Armenian Time, in reality the 14.5% didn't disappear, but were
corrupted. And this is an index of the ineffective management in the
system. It is unlikely that the recently established commission, which
includes representatives of the Ministry of Energy and the Inter RAO
UES Company, can change the situation seriously. Armenia traditionally
solves problems with losses and debts at the expense of consumers.
Gagik Makaryan, the executive director of the Union of Employers
of Armenia, says that there is chaos inside EDNA: "40-year-old
power converters are still working there; users have been supplied
chaotically. The system has primitive cutouts. The Commission on
Regulation of Social Services is doing nothing to protect the interests
of consumers, avoiding the problems. It seems that when EDNA asks new
rate increases, the Commission will agree with it," Makaryan believes.
Experts are concerned about the absence of a serious control over
activities of energy enterprises, including foreign ones, untargeted
use of loans which have to be allocated for modernization of the
system. The typical practice of solving debt problems at expense of
consumers, chaos and poor management in the system are unacceptable.
The complex of reasons, the main one of which is corruption schemes,
led to the fact that previously profitable EDNA and other facilities
began to work at a loss.
In the middle of the 1990s, when the energy crisis began to be
overcome, Armenia established a clear diversified energy system, and
its enterprises were working profitably. Due to non-transparent deals
and corrupt schemes, the energy sphere found itself in a difficult
situation.
Experts believe that the $600 million debt is a sign of the bankruptcy
of the Armenian energy system. EDNA was sold for $50 million;
construction of a new power-generating unit of the Yerevan TPP costs
$250 million, the fifth unit of the Razdan TPP - $200 million. Thus,
the debts of the energy system come close to its market value.
Instead of increasing rates, real steps should be made to improve the
effectiveness of the energy system and its management to change the
sad situation. However, it is impossible today, as energy problems
are a part of the systemic crisis which covers the whole economy of
the country.
http://vestnikkavkaza.net/analysis/economy/65279.html
From: Emil Lazarian | Ararat NewsPress