Russian economic troubles spoil Armenian investment plans

By bne IntelliNews January 29, 2016

An economic decline in Russia and a weak ruble as a result of low prices of oil are creating a headache for the Armenian government as it fears Moscow may renege on multimillion loans and investment it had promised Yerevan ahead of its membership of the Russia-lead free-trade Eurasian Economic Union (EEU) in January 2015, Yerevan-based analyst Armen Grigoryan writes for the Jamestown Foundation.

Earlier in January Armenian Deputy Finance Minister Pavel Safaryan said that some loans Russia had previously promised, including $270mn for the reconstruction of a nuclear power plant, might not be issued altogether as the Russian economic situation worsens. “The reduction of the amount of hard currency available in Russia could, quite reasonably, be the core of the issue,” Grigoryan suggests.

The Armenian government has now made a U-turn on the country’s economic cooperation with countries and blocs outside the EEU as it didn’t want to upset Russia by expanding cooperation with, for example, the EU. “An understanding of the unfavourable economic reality may now be finding its way, although rather late: the possible consequences of the economic dependence on Russia could have been analysed and discussed much earlier,” the analyst said.

Armenia’s heavy reliance on Russian gas supplies via Gazprom Armenia, the Russian giant’s Armenian subsidiary, means that Yerevan has limited scope to negotiate with other suppliers whose price might be cheaper than that offered by Gazprom. Grigoryan notes that a 13% discount made by Gazprom in 2015 has benefited only Gazprom Armenia as the retail price for Armenian consumers was not reduced.

Before Gazprom got hold of Armenia’s gas-distribution networks in 2014, Iran’s ambassador to Armenia, Mohammad Reyisi, had repeatedly said that Iran would be ready to provide cheaper gas supplies than Russia but Armenian officials denied that Iranian gas could be cheaper than Russian. In response, Reyisi said that the Armenian government had not even tried to start negotiations with Iran about a possible price, Grigoryan recalls.

“The issue of energy cooperation with Iran has become especially significant recently as the lifting of international sanctions against the Islamic republic has been made possible. More generally, new trade partnerships are becoming vitally important. Although the Armenian officials continue expressing cautious and often also servile attitudes towards Russia, the economic reality suggests the need to diversify the energy supply and to find new export markets,” the analyst concludes.

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