Armenian electricity tariffs hiked again, sparking social unrest

By bne IntelliNews June 19, 2015

Monica Ellena in Tbilisi -

 

Armenians took to the streets to protest as the utility regulator gave the green light to a 16% electricity price rise by power distributor Electric Network of Armenia (ENA), a monopoly under Russian ownership. The increase is the third in just two years, and opposition parties and rights groups complain it will have a severe impact on Armenian households and the economy at large.

ENA had actually requested on May 8 a 40% tariff increase, the fifth since Inter Rao’s fully-owned subsidiary acquired the electricity distribution company in 2006. Since then, the Russian company has been piling on ever more debt, creating increased discontent at the way the power company is being run.

As of August 1, 1 kilowatt hour (kWh) of electricity will rise by AMD6.93 (€0.012) compared with the AMD17.08 (€0.031) requested by ENA, the public services regulatory commission (PSRC) said. As a result, the daytime tariff will be AMD48.78 (€0.09) per kWh, while at night it will cost AMD38.78 (€0.071).

Protests have been mounting for weeks. On May 27 in Yerevan and in more than 15 cities across the country protestors voiced frustration at the expected price hike. According to the Union of Informed Citizens (UIC), a civil rights group, Armenia, one of the poorest countries in the former Soviet Union sphere, now has the highest electricity rates of among all countries in the Commonwealth of Independent States. “Ordinary consumers have been hit hard, exacerbating the situation for the population of a country where one-third of the Armenian population lives in official poverty,” explains Richard Giragosyan, founding director of the Regional Studies Centre in Yerevan. “This latest increase will only further escalate mounting socioeconomic tension.”

Prices went hiked by 27% in July 2013 following the increased cost of Russian gas that generates more than a third of Armenia’s electricity. In July 2014 an additional 10% rise led to clashes between police and demonstrators and resulted in 27 arrests.

Bad management

The government has tried to reassure people that it would support low-income families, but was in favour of the increase. In May, the minister of energy and natural resources, Yervand Zakharyan, stated that the company’s huge debt of AMD106bn (€196mn) to power plants and commercial banks resulted from external factors like the unplanned halt of the Metsamor nuclear power plant and a dry 2014 that affected hydropower plant output.

However, outrage is growing against the company’s management, who are accused of the inefficient use of funds, embezzlement and corruption. The 3,000-page document ENA presented to justify the case for the price hike included evidence that the company was paying out $12.5mn annually to rent luxury housing and cars. PSRC head Robert Nazaryan reportedly admitted management shortcomings and added that “no single penny of costs from poor management or presumably slapdash work will be included in the electricity tariff.” However, he insisted that the higher tariffs are needed to enable ENA to repay its outstanding debt.

The compromise price hike that PRSC opted for pleased no one. As protests erupted, ENA’s Russian chief executive, Yevgeny Bibin, said that the price rise does not go far enough and accused the commission of ignoring most of its “economically justified operational costs”. He warned that the company will not be able to meet the necessary “requirements for the quality and reliability of electricity supplies” if the PRSC refuses to accept its tariff application in full. Nazarian publicly condemned the warning as “blackmail.”

The electricity price hike is bound to have wider impacts. “An increase in power prices on this scale won’t just hit people’s pockets, it will do great damage to our economy,” the speaker of the parliament, Galust Sahakyan, warned in May. According to economists, rising electricity costs will have wider inflationary effects, as local manufacturers will have to raise retail prices as production becomes more expensive.

In 2006, the state-owned ENA was sold to Russia’s Inter Rao USE (United Energy Systems), in which the Russian state is the majority shareholder. But it is not the only Russian company present in the Armenian economy; over the last 15 years, the Armenian government has systematically relinquished control of state assets, mostly as a means of debt repayment, according to a recent studyRussian companies now manage and operate Armenia’s key energy supplier, the nuclear plant of Metsamor, as well as Hrazdan Thermal Plant and the country’s gas distribution system, while most of the banking, telecommunication and transport sectors are also in Russian hands. Armenia scrapped its policy of closer European integration and this year joined the Russian-led trade bloc the Eurasian Economic Union. With Moscow also maintaining a military base near Armenia’s second largest city Gyumri, critics see the ENA saga as yet another sign of Moscow’s control of the country.

To add to discontent, the World Bank stated in a recent report that the country is in need of reforms to confront serious energy security challenges in the near future. For Giragosian, “Armenia will certainly face a long, hot summer, although driven less by the weather and more by mounting dissent and discontent.”

 

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