Accessibility links

Breaking News

Analysis: Russian-Armenian Gas Talks Inconclusive

By Emil Danielian and Liz Fuller Where will Armenia get its energy now? (ITAR-TASS) The Armenian government and Russia's Gazprom energy giant have failed to reach a final agreement on the price of Russian natural gas for Armenia, which is due to rise significantly next year.

The issue dominated talks in Yerevan on May 19 between President Serzh Sarkisian and Prime Minister Tigran Sarkisian (no relation to Serzh), and visiting Gazprom CEO Aleksei Miller. Both Tigran Sarkisian and Energy Minister Armen Movsisian refused to comment on the talks when approached by RFE/RL on May 20.

In January 2006, Gazprom nearly doubled the price of the gas it supplied Armenia, from $54 to $110 per thousand cubic meters. However, the cost for Armenian corporate and individual consumers remained virtually unchanged until this month due to a controversial April 2006 agreement that left more Armenian energy assets under Russian ownership. In particular, Gazprom consolidated its controlling stake in Armenia's gas-distribution network and paid $249 million for an incomplete but modern thermal power plant located in the central town of Hrazdan.

By contrast, Gazprom raised the gas price for Georgia and Azerbaijan from $60 to $110 in early 2006, and again in November of that year to $230 per thousand cubic meters as of January 2007.

The Armenian government has since used the money from the sale of the Hrazdan facility to subsidize gas prices, but admitted last month that those funds are almost exhausted and that subsidies would end as of May 1. This resulted in a 50 percent increase in the retail price of gas supplied to Armenian households and business entities. With another Gazprom price hike planned for January 2009, they will likely go up further.

Karen Karapetian, chairman of the board of the Armenian natural-gas distribution company ArmRosGazprom, was quoted by Noyan Tapan on April 16 as downplaying the impact of the price hike on consumers. He said the 89,000 households that currently use up to 300 cubic meters per month will only pay an additional 700 drams ($2.20), while those consuming between 300-500 cubic meters will pay an additional 1,000-1,100 drams. The tariff for commercial consumers will remain unchanged at $159 per thousand cubic meters (compared with $257-$283 in neighboring Georgia.)

Gazprom said last week that by 2011, Armenia will have to pay for Russian gas at world prices that are currently above $200 per thousand cubic meters. According to the press offices of the Armenian president and prime minister, Miller reaffirmed this during his meetings in Yerevan. President Sarkisian's office said the two sides have agreed that the gas price will be raised to that level "step by step." In doing that, it said, they will take into account the fact that Gazprom now owns 72 percent of ArmRosGazprom.

A separate statement by the Armenian government said the first increase will come into effect on January 1, 2009. It said Miller and Prime Minister Sarkisian agreed that the extent of that price rise will be determined by Gazprom and the Armenian side through further negotiations that will be held within the "shortest possible period." "The parties expressed confidence that a final decision on the issue under discussion will be taken soon," the statement added.

The increased cost of natural gas has added to inflationary pressures on the Armenian economy mainly resulting from rising international prices of fuel, wheat, and other imported foodstuffs. Russian gas has become the No. 1 source of winter heating for the population. It is also widely used, in liquefied and pressurized forms, by public transport and private cars.

RFE/RL has been declared an "undesirable organization" by the Russian government.

If you are in Russia or the Russia-controlled parts of Ukraine and hold a Russian passport or are a stateless person residing permanently in Russia or the Russia-controlled parts of Ukraine, please note that you could face fines or imprisonment for sharing, liking, commenting on, or saving our content, or for contacting us.

To find out more, click here.