EurasiaNet Business & Economics - Gas Prices Prompt Armenia to Debate Alliance with Russia

BUSINESS & ECONOMICS

GAS PRICES PROMPT ARMENIA TO DEBATE ALLIANCE WITH RUSSIA
Haroutiun Khachatrian 1/30/06

Demands from energy giant GazProm for a gas price hike have prompted an unprecedented debate in Armenia about the value of the country’s strategic partnership with Russia.

On January 22, the day that explosions severed gas pipelines linking Russia with Armenia via Georgia, Armenian President Robert Kocharian and Russian President Vladimir Putin met in the Kremlin to reaffirm their commitment to a military and political alliance. [For background see the Eurasia Insight archive].

Plans by the Russian state-owned GazProm company to increase gas prices from $56 per 1000 cubic meters to $110 per 1000 cubic meters had foreshadowed the meeting. Armenian officials had taken umbrage at the fact that GazProm’s December 2005 decision was announced after Armenia’s 2006 state budget had already been approved. The two countries’ long-term alliance prompted many to expect that the price change would not apply to Armenia or that at least the country would be forewarned well in advance. Armenia receives all of its gas from Russia, which also controls an estimated 70 percent of the country’s energy network.

But though the gas price dispute was reportedly discussed during the meeting, it was not featured in either leader’s official statements.

For now, gas prices have been frozen at their current levels until April 2006, and negotiations between Armenia and GazProm are ongoing. But officials say that the best they expect is a price lower than that paid by neighbors Georgia and Azerbaijan. A final agreement is expected by mid-February.

Meanwhile, the squabble has put Armenia and Russia’s long-term alliance up for debate. Speaking to Kentron TV on January 13, Prime Minister Andrani Margarian said that GazProm’s plans to nearly double prices meant that Yerevan needs "to clarify with Russia what is meant under �strategic partnership.’ Which spheres does it concern? Is Armenia treated the same way as Georgia, from which Russian bases are being withdrawn?"

A presidential spokesperson later rejected a Russian Kommersant Daily report that Armenia’s desire for lower gas prices had prompted Kocharian during the meeting to offer Putin a 45 percent stake in a planned gas pipeline with Iran.

Scrutiny has also been brought to bear on Russia’s military base at Gyumri, 75 miles from Yerevan, and the destination for armaments from Russia’s two recently closed bases in neighboring Georgia. A December 2005 agreement signed between Armenia and Russia provides for expansion of the base, which Russia uses rent-free.

At a January 20 public discussion Tigran Karapetian, leader of the Popular Party and the owner of a popular television channel, ALM, charged that the Russian troops in Armenia "do not protect our border [with Turkey]. Just they need to have a military base here, and they do have it.’

Several politicians, including Parliament Speaker Artur Bagdasarian have argued that Armenia should charge Russia rent for the base in exchange for higher gas prices. Defense Minister Serzh Sarkisyan, however, rejected such proposals. "Under the conditions of our current agreement, we get more [from Russia] than we give to it," he said at a January 26 press conference in Yerevan with visiting Russian Defense Minister Sergei Ivanov.

The January 22 destruction of pipelines feeding Georgia and Armenia with gas gave a new impetus to the debate. The position taken by Georgian President Mikheil Saakashvili that the explosions were intended to engineer stronger support for Russia’s interests in the South Caucasus has gained currency among some media. The Haykakan Zhamanak newspaper wrote that the coincidence between the date of the blasts and Kocharian’s flight to Moscow to attend the opening of the Year of Armenia in Russia might not be coincidental.

Armenia was forced to rely on reserve stores of gas during the crisis. On January 30, gas began to flow again through the pipeline that connects Russia with Armenia via Georgia.

A January 16 statement by GazProm spokesperson Denis Ignatiev to Radio Free Europe/Radio Liberty that Armenia would have been offered a lower price if it had agreed to one of the preconditions set forth by Russia has only reinforced the belief that Moscow intended to reap advantages from the damaged pipeline. The conditions, as described by Ignatiev, included either granting Russia a stake in the Iran-Armenia gas pipeline, or providing for Russian ownership of the unfinished fifth unit of the Hrazdan Thermal Power Plant (TPP) or taking a loan from Russia under commercial interest rates.

One senior Armenian government official responded with outrage to the statement. "I think Gazprom’s decision damages the strategic partnership between Armenia and Russia," presidential national security adviser Garnik Isagulian told the daily newspaper Hayost Ashkharh on January 18. The daily reported Isagulain as saying that Russia’s position on gas prices could reorient Armenia toward the West, and away from Moscow.

Politicians, many of them known as pro-Russian, have responded in kind. Former Prime Minister Vazgen Manukian, leader of the National Democratic Party, described the price stance as hitting "below the belt," the Russian news agency Regnum reported, while Rafik Petrosian, a member of the Popular Deputy parliamentary faction predicted that "Armenia will be forced to find other friends," according to the January 19 edition of the daily Hayots Ashkharh.

Khosrov Harouitunian leader of the Christian-Democratic Party, has pushed for the government to exclude strategic energy assets from ownership by a foreign government. The appeal, made on January 26, would affect such properties as the four units of the Hrazdan TPP, which was given to Russia under a 2002-debit-for-equity deal.

Government ministers, however, do not appear to share the views that Armenia must abandon its political and military cooperation with Russia if gas prices increase. "Our relations with Russia are of a strategic nature," Foreign Minister Vartan Oskanian told reporters on January 16. "There is no need to change our relations due to gas prices, especially what concerns the sphere of security. . .".

But contrary to Russian assertions, few Armenians seem to believe that a price hike can be explained by economic necessity. More than 75 percent of 1,000 respondents in five different Armenian cities reported that they would think negatively of Russia if GazProm raised gas prices for Armenia, according to a poll performed in mid-January by the Yelk Social Reforms Center and quoted widely in the Armenian media. The vast majority of those surveyed � nearly 80 percent � said that they did not believe Russia would ultimately decide to double gas prices for Armenia, however.

Editor�s Note: Haroutiun Khachatrian is a Yerevan-based writer specializing in economic and political affairs.

The Central Eurasia Project aims, through its website, meetings, papers, and grants, to foster a more informed debate about the social, political and economic developments of the Caucasus and Central Asia. It is a program of the Open Society Institute-New York. The Open Society Institute-New York is a private operating and grantmaking foundation that promotes the development of open societies around the world by supporting educational, social, and legal reform, and by encouraging alternative approaches to complex and controversial issues.

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