The impending drastic increase in the price of Russian natural gas will raise production costs in Armenia’s manufacturing sector by at least 20 percent but will not make it less competitive, a senior government official said on Friday.
Russian gas is used for generating about 40 percent of Armenia’s electricity, and Moscow’s decision to double its price to $110 per thousand cubic meters will inevitably push up the cost of energy supplied to both individual and commercial users. Analysts and some government officials fear that this could considerably slow the country’s robust economic growth.
But according to the Armenian Ministry of Trade and Economic Development, the price hike’s impact on the Armenian industry will not be disastrous. “We have made calculations under three different scenarios and found that the average rise in production costs will be 20-25 percent,” said Meruzhan Hakobian, the top adviser to Trade and Economic Minister Karen Chshmaritian.
Government figures show Armenian industrial output, including electricity, growing by 7.5 percent to 651.4 billion drams ($1.45 billion) and making up about 30 percent of Gross Domestic Product last year. Chemical enterprises, notably the Nairit giant in Yerevan, registered the fastest growth in the sector, tripling their combined production in the course of 2005. They are highly reliant on natural gas and will therefore be hit particularly hard by the new Russian tariff.
Hakobian insisted, however, that their exports will not suffer significantly as a result. “I don’t think that Armenian chemical products, notably Nairit’s synthetic rubber, will become uncompetitive,” he told reporters. “After all, our competitors will operate under pretty much the same prices. Gas will hardly be cheaper for them.”
The Russian price hike’s impact on utility charges levied from individual consumers seems to be of greater concern to the Armenian government. Energy Minister Armen Movsisian admitted last month the existing price of electricity, which many Armenians already find too high, will likely grow by 15 percent.
The authorities in Yerevan say they still hope to convince the Russian government and the Gazprom gas monopoly to charge less than $110 per thousand cubic meters. Their negotiations with the Russians have yielded no results yet. The latter have so far only agreed to delay the entry into force of the new gas tariff until April 1.