The Armenian authorities seem to have managed to localize the public outcry about their plans to raise the electricity tariff, but things still look like it will be a long-lasting psychological confrontation. Fewer mass media in the West see today this protest as an omen of one more post-Soviet “color revolution.” Today it is time for a sober analysis.
Many experts believe that for ordinary people the protest was driven by social reasons, while the country is facing uneasy times. Others see this all as an attempt of the West to undermine Russia’s position in the South Caucasus. Role of the Armenian government has somehow faded away, while politicians, public figures and expert community tend to present their ‘innermost’ vision of the continuing geopolitical confrontation between the West and Russia.
However, the question remains if there is a cause-and-effect link between the Armenian authorities’ decision to raise the electricity tariff for consumers and the current confrontation between Russia and the West.
We doubt that the Armenian authorities are so competent in geopolitics so as to be able to turn this confrontation into their advantage with guaranteed success. But we can’t but mention certain signs of it. Today, everybody is talking about the displeasure in the streets of Yerevan, but there is one more displeased party in this story – the Russian company called Electric Networks of Armenia (ENA). It was not a momentary decision for that company to raise the electricity tariff by 40%. The Armenian subsidiary of Inter RAO has accumulated many complaints against the national regulating body and the government of the country which for half a year has been a full member of the Eurasian Economic Union.
The first time the ENA expressed its displeasure was Apr 7 2015, when it urged the Armenian Government to declaring bankrupt Nairit, an Armenian rubber producer that owes the ENA as much as 1.1bn AMD or $2.3mn. On May 8, the company informed Armenia’s Public Services Regulatory Commission of its plans to raise the electricity tariff. On June 8, the Armenian government gave the Vorotan Complex of HPPs to US companies.
What was the reason for the ENA’s and Inter RAO’s displeasure? Their official position is that in Armenia they are facing unfavorable economic and administrative conditions.
But we believe that the Armenian government’s decision to give the Vorotan Complex to Americans might also be a reason.
This story has quite a long background. The negotiations with potential buyers from the United States were started at the moment the Armenian authorities said they were going to join the Eurasian Economic Union. This purely economic deal had a clear geopolitical purpose: the sale of an attractive asset to Americans was supposed to make the Russians angry.
Today the Vorotan Complex generates almost 16% of Armenia’s electricity and almost half of what the country’s HPPs produce. Consisting of three HPPs, this complex is quite an attractive asset as it has the highest tilt with respect to the sea level among all post-Soviet HPPs and therefore can produce quite cheap electricity.
This all makes the complex much more profitable than any of the power plants owned by Russians in Armenia. The cost of KW produced by the complex is 8 AMD ($0.02), while the cost of KW produced by Hrazdan TPP and the 5th unit of the Hrazdan TPP is as high as 40 AMD. The electricity made by the Yerevan TPP from Iranian gas costs 18 AMD.
So, we can see that the ENA is facing unfavorable price conditions. Recently CEO of Inter RAO Boris Kovalchuk said that Armenia’s energy rules oblige the ENA to sponsor power producers and to buy electricity at a higher price than stipulated by the country’s energy budget. So, it was exactly in order to overcome this imbalance that the company decided to raise its tariff.
As far as Nairit is concerned, that plant has long gone to the Chinese province of Shanxi, where the Armenians and the Chinese have a joint venture. What is left in Armenia is employees who have not received wages for months and a huge loss-making factory wasting Inter RAO’s money.
It was here that the Armenian authorities decided to use the reaction of their people as a new argument for their Russian and American partners. For the Russians the argument was, “unless you want to new Maidan, you should take measures.” The $200mn loan for the Armenian army was first but the last such measure.
On June 30, Russian President Vladimir Putin ratified a protocol prolonging tax-free supplies of oil, gas and diamonds to Armenia.
Last year, Russia supplied Armenia with 1.8bn c m of tax-free gas and 222,000 tons of tax-free oil products and lost $104mn and $48mn, respectively, as a result. On top of this, the price of gas for Armenia will shortly be reduced from $189 to $165 per 1,000 c m.
But the main result of the June contacts with the Russians was their consent to audit the ENA and to see if its decision to raise the electricity tariff was economically expedient.
For the Americans, the Armenians’ argument was that they are still committed to build democracy and the best proof of it was their tolerance towards those who kept disturbing public peace for several weeks. The Armenian authorities also made it clear to the Americans that they will be persistent in their intention to give the Vorotan Complex to a US company. One of the authors of this deal is former Prime Minister of Armenia and current Armenian Ambassador to the United States Tigran Sargsyan. When Prime Minister Sargsyan was one of the most ardent advocates of Armenia’s Eurasian integration. Now as Ambassador he advocates active trade and investment contacts with the United States and was one of the initiators of the trade and investment deal signed by President Serzh Sargsyan in Washington on May 7.
It should be noted that the Armenian authorities acted ad hoc throughout the whole story. When they failed to stifle the protests, they decided to scare the Maidanophobe Russians with a threat of new Maidan. And that worked.
But the geopolitical confrontation between Russia and the West is not the only concern for the Armenian authorities. One more factor that worries them is Russia’s active military-political contacts with Azerbaijan and its plans to also involve that country its Eurasian project. Here the Russians forgot about Armenia. It seems they simply thought that now that the Armenians have been made part of the Eurasian Economic Union, they have no more options in their foreign policy. So, the Armenians were forced to show that the Russians were mistaken.
The Armenian authorities were really brilliant in their campaign to demonize the ENA in the eyes of their people. Obviously, the ENA deserves criticism but not humiliation.
The next tactical move of the Armenian authorities may be the “bad” results of the first six months of Armenia’s membership to the Eurasian Economic Union.
Today Armenia is turning into a “Greece” for that Union: everybody wants to save it but nobody knows how to do it. Armenia’s position is as follows: “you, the Russians, have forced us to join the Eurasian Economic Union and to stop our association talks with Europe, so, be so kind now as to supply us with whatever we need. And please let us decide ourselves what to do with the Americans. It’s our own business to decide how to cope with them – by giving assets or by signing trade deals. The only thing we want is to avoid a Maidan.”