Armenia: Gas Price Hike in Yerevan Likely to Have Social Repercussions

Already struggling to scrape by amid the global economic downturn, many Armenians are confronting a new and daunting challenge - a 46-percent increase in natural gas prices.

On January 22, Hayrusgazard, a subsidiary of the Russian energy giant Gazprom, which controls most of Armenia's gas supply and distribution, sought permission from Armenia's Public Services Regulatory Commission to implement a rate hike. The commission has 90 days to decide on the matter. But in an interview with EurasiaNet.org, Hayrusgazard General Director Karen Karapetian indicated that approval was inevitable, and that Armenian consumers would start paying more on April 1.

"It's important that the tariffs are changing not during winter, when consumers use more gas for heating, but in April," Karapetian said.

Hayrusgazard on April 1 will start paying Gazprom $180 per thousand cubic meters (tcm) of gas. Currently the Armenian supplier is paying $154/tcm. It "is a favorable price," Karapetian said of the new rate. Armenian consumers will be paying at lot more than that, however. Following the price hike announcement, the retail cost of Hayrusgazard's gas will leap from $252/tcm to $370/tcm.

For many of Armenia's 500,000 gas consumers, the hike will inflict financial pain. But Karapetian suggested that Armenian society had to adapt to rising costs. "This is no tragedy. There is no need to be afraid of the changes," he said.

The increase in gas prices will also spark increases in prices for electricity, transportation and consumer goods, predicted State Commission for Public Services Regulation Chairman Robert Nazarian. "That's unavoidable because the gas-consuming companies cannot function by earning less than they spend," Nazarian said.

Given Armenia's 10-percent increase in its unemployment rates and 16-percent slump in economic growth for 2009, the gas price increase will leaves few Armenians indifferent.

For example, villagers from Tsovinar, a hamlet in northeastern Armenia, plan to write a letter to President Serzh Sargsyan to ask that the price increase be postponed. "We've got neither land nor animals," said 45-year-old Tsovinar resident Martin Simonian, who has been unemployed for a year since losing his construction job in Russia. "We don't know how we're going to live now that the gas prices go up."

Government officials acknowledge that the increase could sharpen social tension, as the economic slump has caused living standards to dip. Authorities are placing the blame for the price hike squarely on Russia. "Russia is increasing the tariff, not the Armenian authorities," sniffed Social Security Service Director Vazgen Khachikian. "Take your complaints to Russia."

Khachikian underlines that the government factored in Armenia's economic woes when it negotiated gas prices with Gazprom, "Of course, the ? situation will get tenser. These are not the best times," he said. "We do understand it, but we've spared no effort to negotiate for the lowest price."

The number of unemployed Armenians rose by 100,000 in 2009, according to statistics compiled by the State Service for Employment Data. That figure does not include the many unemployed who have opted not to register with the state employment agency, or labor migrants who have returned home after losing their jobs abroad.

One of Armenia's largest mining companies shut down in 2009, along with a number of small companies in the south and in Yerevan; economic activity in the construction sector alone, responsible for about 30 percent of Armenia's jobs, dropped by 38 percent, according to official data.

Economist Vahagn Khachatrian, a member of the opposition Armenian National Congress, pledges that protests will be staged against the gas price increases, but government supporters say that demonstrations will do nothing to change the situation. "The opposition may use the increases to stage new protests, but a thoughtful person will realize that Russia would increase the prices even if the opposition were in power," commented economist Vardan Aivazian, a former minister of environmental protection and member of the governing Republican Party of Armenia faction.

Khachatrian suggested that if Armenia reduced its gas dependency on Russia, the country would be in better position to prevent such drastic price hikes. "Russia today enjoys a monopoly: 80 percent of the consumed gas is imported from there. But we have a pipeline from Iran that stays almost unused," noted Khachatrian.

Gas supplies from Iran began in 2008, but the volume of Iranian imports is dwarfed by that of Russian supplies. Iran supplies up to 3 million cubic meters per day, compared with the 6 million meters per day Russia supplies Armenia on average year-round, according to Hayrusgazard data.

One Yerevan economist agrees with Khachatrian on the need for diversification. Obtaining gas via Georgia adds to Armenia's costs; no such transit country is required for Iranian imports, noted Andranik Tevanian, director of the Politeconomia analytical center. "The Iranian pipeline could be a good alternative," argued Tevanian, who blames "pressure from Russia" for the failure to increase gas imports from Iran.

A spokesperson for the Ministry of Energy and Natural Resources refuted those allegations. Armenia's average gas consumption is easily met by Russian supplies, said Lusine Harutiunian. "More gas from Iran is not imported because Armenia does not consume that much," Harutiunian said.