The Subsidies for the Increased Electricity Price Don’t Cover Big Businesses and SMEs
20.08.2015
12:00
Armenia’s Government cannot ensure the long-term subsidization of the increased electricity price since the country has a constant budget deficit and it lacks financial resources to subsidize all sectors.

Gagik Makaryan, Head of the Employers’ Association, and Daniel Ioannisyan, Project Coordinator at the Union of Informed Citizens, shared thoughts on how the increased electricity price will be subsidized and what impact it will have on big business.

The hike in electricity rates saw prices rise more than 7 drams from August 1, 2015.

Earlier on August 2, in Gyumri Prime Minister Hovik Abrahamyan said that the Armenian Government will use funds received from the deal of Vorotan Cascade Hydro Power Plants to subsidize electricity supplies.

On August 13 the Prime Minister announced the Government will help only common citizens with the increased electricity tariffs until the audit is conducted in ENA. The subsidization does not cover big business.

The authorities, according to the Prime Minister, are looking for ways to assist the small and medium-sized enterprises which consume about 250 kWh.

“The Government could never vow more funds because there is a constant budget deficit, with a bunch of social issues. Thus, the fact that the Government initially set 250 kWh per month is normal and it will cover the electricity consumption of an average household in the country. Both big and small and medium-sized enterprises are left out,” Makaryan said and added that the Government will spend USD 24 million per month as estimated.

“Consequently, the subsidization will make USD 50-70 million per 2-3 months but the process cannot last long. And as soon as the audit is over and given the price hike is justified, the Government will cut subsidies to the whole society and small enterprises. It will support only some 50-60 thousand families with low income and have done with it,” Makaryan said.

Gagik Makaryan pointed out three main big business fields: alcoholic beverages, mining and telecommunications.

“As for alcoholic beverages, enterprises have to cover the spending through their profit. Mining companies cannot change prices since there are market-fixed prices and telecommunications sector has to adopt a more flexible policy of services. The business somehow connected with oligarchs will come up with better ways to evade taxes.”

The increase of seven drams will make 36 billion drams annually, Daniel Ioannisyan said.

“The Government, thus, will annually pay the ENA 36 billion drams more: 12 billion drams – citizens and 23-24 billion drams – different legal entities,” said Ioannisyan, adding given the price increase is not subsidized and followed by an inflation, an average family in the country will pay 100 thousand drams more per year.

“So far the exact sale price of Vorotan Cascade has not been announced. Some say it is USD 180 million. In any case only one part of the sum has been transferred to Vorotan Hydro Cascade, with the rest to be transferred next year. And that money has to get to the budget of Armenia,” Ioannisyan said.

The possible price growths, Makaryan believes, will reduce the profitability of businesses and exporters since people, in the majority of cases, are not financially solvent.

“Many of enterprises can’t increase prices as they will be forced out of the market and it will evolve into a disaster for small business. Secondly, those 100 thousand drams per month will reduce a citizen’s participation in the maintenance of purchasing power in the economy,” said Makaryan.

Lilit Arakelyan, Editor-Coordinator

Please contact the author at lilitarakelyan@pjc.am.

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