Publication: Eurasia Daily Monitor Volume: 3 Issue: 67

On March 31 in Moscow, the Foundation for the Orthodox Peoples’ Unity bestowed its annual award on Armenian President Robert Kocharian and Russia’s Gazprom company for their support to Russian spiritual and religious values (Noyan Tapan, March 31). By fortuitous coincidence, Gazprom doubled the price of gas to Armenia, effective April 1. The price hike will deepen Armenia’s economic dependence and structural indebtedness to Russia.

Russian President Vladimir Putin had personally announced in December 2005 that the gas price to Armenia would double as of January 1. In early January, however, Putin granted a reprieve until March 31, so as not to hit allied Armenia too hard in winter, but also to negotiate another transfer of Armenian infrastructure and energy-sector assets to Russia as payment for the higher gas bill after April 1. On April 5, Kocharian publicly hinted that such an arrangement is in the making (Armenian Public Television, April 5).

The gas price has now risen from $55 to $110 per one thousand cubic meters delivered at Armenia’s border. As a result, the price of gas consumed in Armenia is rising in one fell swoop by 52% to households and by 85% to industrial and commercial enterprises, effective on April 10. Armenia’s Public Utilities Regulatory Commission approved the new rates already on March 10 — an indication that Moscow was not prepared to grant any further short-term reprieve.

Furthermore, the Russian-controlled, gas-fired Hrazdan electrical power plant — the largest in Armenia — has announced its intention to raise the price of electricity by 90% for households and enterprises, in connection with the price hike on gas. Russia’s Unified Energy Systems (UES) operates the Hrazdan plant under a 99-year lease, as part of the debt-for-assets deal that settled Armenia’s debts to Russia in 2002-2003. Six Armenian industrial enterprises were ceded to Russia in that deal as well.

Previously, Armenia had ceded control of the national gas transport and distribution system to a mixed company, ArmRosGaz, in which Gazprom holds a 45% stake, Gazprom’s affiliate Itera another 10%, and Armenia’s Energy Ministry the remaining 45% stake, which may now be further eroded. Moscow wants the handover process to continue, so as to render Armenia’s economic dependence complete and irreversible.

Moscow is now making an offer that, by its reckoning, the destitute Yerevan can hardly refuse. It proposes either temporary price relief on gas, or a temporary price-offsetting mechanism to alleviate the social impact, on the condition that Yerevan transfers additional assets to Russia. These could include: part of Armenia’s remaining stake in ArmRosGaz, or Armenia’s stake in the Iran-Armenia gas pipeline under construction, or the fifth power bloc under construction by Iran at Hrazdan. That fifth bloc, Hrazdan’s largest and most modern, is co-owned by Armenia and Iran independently from the four Russian UES-operated blocs and is valued at some $250 million in the ongoing discussions.

If Yerevan hands over such assets, Moscow could recalculate the price of gas downward to $68 or $70 per one thousand cubic meters; or, alternatively, Yerevan can use the proceeds from such handovers in order to compensate the populace for the doubling of the gas price. According to credible reports, not denied by Armenian officials and partly corroborated by some of them, Yerevan and Moscow are now discussing a solution along those lines, to apply for a two-and-a-half year period. The Hrazdan plant’s fifth power bloc alone — the largest and most modern, co-owned by Armenia and Iran separately from Russia’s UES — is valued at some $250 million in these discussions.

Gazprom and Itera supplied Armenia with 1.7 billion cubic meters of gas in 2005 and intend to deliver 2 billion cubic meters in 2006. This gas originates in Turkmenistan, reaching Armenia by pipeline via Kazakhstan, around the northern bend of the Caspian Sea and through the North Caucasus and Georgia. This is the pipeline that was blown up (simultaneously with another pipeline and an electricity transmission line) by never-identified saboteurs on Russian territory in January, causing severe hardship to Georgia and Armenia.

Until 2005, Gazprom and Itera were buying Turkmen gas at $44 per one thousand cubic meters and reselling it to Armenia at $54 to $56. This year, Turkmenistan sells its gas for $60 per one thousand cubic meters to Russia. Thus, the Russian price hike to Armenia is highly disproportionate to the Turkmen hike.

Apparently, Moscow feels free to resort to economic extortion of Armenia and takes its political loyalty as an ally for granted. Moreover, by targeting the joint Armenia-Iran energy projects for takeover, Russia intends to rule out for the long term any alternative to its own monopoly in Armenia. For its part, the Armenian leadership seems content to accept the type of short-term price relief that goes together with long-term insecurity and debt servitude for the country.

(Interfax, Noyan Tapan, Armenpress, Mediamax, PanArmenianNet, March 30-April 6; Haikakan Zhamanak, March 29, 31; see EDM, January 17, 20)