Gas Tariff Reduction. Economic Step or Pre-election Campaign?
02.11.2016
13:00
The proposal of "Gazprom Armenia" company about reducing the gas prices looks like a short-term pre-election campaign and prices may rise again in July next year. On the other hand, the burden of reducing the tariffs for Armenia in terms of 105 thousand needy families will be at the expense of the state budget, and this is not a real gas price decrease, but just a change of a payer.

Newly-appointed Prime Minister Karen Karapetyan spoke about a differentiated reduction in gas prices after the change of the government. This provision is also enshrined in the government program, and corresponding instructions were made to the relevant departments.

According to the press release disseminated by a monopoly in the gas-transportation system of Armenia "Gazprom Armenia" company, the gas price did not change on the border. In other words, Russia will not lower the gas prices for Armenia. Only tariffs for domestic consumers are reduced. The gas price for socially vulnerable groups, consuming up to 600 cubic meters of natural gas annually, will comprise 100 thousand AMD per 1,000 cubic meters. For those consuming up to 10 thousand cubic meter gas per month, the gas price will comprise 139 thousand AMD (including VAT), instead of the current 146 thousand for 1,000 cubic meters of natural gas.

For greenhouse farms, every 1,000 cubic meters of natural gas will cost $ 212 per month (including VAT) from November 1 to March 31. The same tariff is set for processing organizations. For the consumers using 10 thousand cubic meters or more gas monthly, the price will be $ 242.1 (including VAT) for every 1,000 cubic meters.

A discussion entitled "What to expect from gas tariff revision. economic and political responses” was held at Media Center on November 2 with the participation of Aram Manukyan, Secretary of the "Armenian National Congress" faction, Artak Manukyan, Economist, Poghos Gevorgyan, President of the Association of Greenhouse Facilities, and Vahe Davtyan, Energy Expert.

Although the gas prices decrease in the world market, which is conditioned by the fall in international oil prices, the recent trends show signs of stabilization. As economist Artak Manukyan said the fact that "Gazprom Armenia" applied to the Public Services Regulatory Commission to review the tariffs now means that the residents had paid more for gas than its real value for a long time. "The gas price remains unchanged on the border, there is no change in the dollar-dram exchange rate, the gas price decreased on the international level but it cannot go down forever. These are the main factors that affect gas prices, decreasing or increasing it. On the other hand, if the gas price has not changed on the border (150 dollars per 1,000 cubic meters), and the price for greenhouse and processing farms is set at $212 for 1,000 cubic meters, and the monopoly organization costs are not optimized, losses are not reduced and the productivity is not raised, it means the company will work with loss and the government will try to compensate for them. In the large scale, we are subsidizing the inefficiency of "Gazprom Armenia"," Manukyan said.

Artak Manukyan recalled that according to the previous year’s decision of Public Services Regulatory Commission that "Gazprom Armenia" should have submitted an investment program on October 15 of this year but it did not. However, according to him, this is a short-term plan, since the state budget cannot afford to take “this load at the expense of its scarce resources." "If gas prices go down again in January, they will go up again in July," he said. 

Aram Manukyan is sure that the gas price has not decreased but “the payer has changed”. “The tariff reduction will be subsidized by the state. The government will pay for those 105 thousand needy families who should benefit from discounts if they consume up to 600 cubic meters of gas, and the tariff reduction will be paid by the government. This means that "Gazprom" guaranteed payments. This is, of course, good for consumers, but this will have an irreversible impact on the economy, the competition will suffer strongly," he said, adding, "this is only a pre-election act”. "There is another problem, as long as it is not clear who will pay for greenhouses, is it a subsidy again? There has been no response to this question,” Aram Manukyan said.

Especially with regard to the greenhouse farms, "a wide field of corruption opens." "There are many greenhouses that do not use the planned volume of gas monthly, so they have to use more gas or make an agreement with the inspector to do so that they are under the discount," he added.

Poghos Gevorgyan greeted the reduction of gas prices but expressed doubt that this will be a temporary action. Greenhouse gas consumption is about 40% of the total expenditure.

"So this can, to some extent, affect the prices of goods produced by greenhouse facilities unless it is a long-term plan. It can also encourage people to build greenhouses, which is very important for agricultural development. If it is short, nothing will change in the field. An investor will not make investments in such a situation, he needs low and predictable prices for future," he said, adding that currently there are about a thousand greenhouses, but in the conditions of these gas prices this number drops year by year as the business becomes much ineffective.

"On the other hand, the government is allowing the unimpeded access of Turkish tomato to Armenia, which does not allow the local producers to breathe," he added.

Arshaluys Mghdesyan, editor/events coordinator at “Media Center”

To contact the author please send an email to arshaluismghdesyan@pjc.am.

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