Will Gas Prices Rise? What Challenges Has Russia Presented to Armenian Authorities?

The price of Russian gas in Armenia may remain stable if the country ensures the operation of the 5th energy block of the Hrazdan Thermal Power Plant (TPP). This was stated by Deputy Prime Minister Mher Grigoryan during a press briefing on October 19 in Yerevan at the Armenian-Russian Interregional Conference.

Discussions on gas pricing with the Russian side are still ongoing, and no official announcements have been made regarding the results so far. Meanwhile, the Hrazdan TPP continues to remain inactive.

To clarify the situation in this sector, Sputnik Armenia reached out to Gazprom Armenia LLC. They did not respond to questions about the conditions the Russian side has imposed on the Armenian government in exchange for maintaining gas prices and preventing a hike. Instead, the company indicated that due to the Hrazdan TPP's non-operation, they incur approximately 6 billion drams in losses annually. According to Gazprom Armenia's calculations, the maintenance costs of the Hrazdan-5 facility amount to about 2 billion drams, with loan servicing costs ranging from 3 to 4 billion drams.

“The low operational load of the Hrazdan-5 plant has not generated free financial resources from its operation to date, resulting in an increase in the loan amount involved in the plant's construction, which reached around 102 million USD by 2021, considering the necessary loan servicing costs,” the company explained.

Notably, in 2013, when the 5th energy block of the Hrazdan TPP was handed over to Gazprom under an intergovernmental agreement, the company expected a 9% return on its investments from its operations. However, the revenues remained only on paper, with only expenses being incurred. This pattern has persisted for eight years.

In 2021, a significant technical issue arose in the operations of the Hrazdan-5 plant, related to the gas turbine installation. Gazprom Armenia estimates that over 17 million euros are needed for its capital repair. Since such expenses were not covered under the existing tariffs for electricity supplied from the plant, the company decided to temporarily halt operations. In April 2021, the plant ceased operations and has not been restarted since.

This situation is further complicated by Iran's involvement. The contract stipulates that the majority of the electricity produced at the Hrazdan-5 facility, specifically 467 MW, should be exported to Iran. This export was supposed to occur via the high-voltage overhead line between Iran and Armenia, which remains incomplete.

As a result of not meeting all these agreements, the Hrazdan-5 facility has only operated at about 30% of its capacity for eight years. Consequently, the Russian side has set a dilemma for the Armenian authorities: fulfill the agreements or compensate for the losses by raising gas prices, which may burden consumers.

It is worth noting that the 5th energy block of the Hrazdan TPP was handed over for full operation on December 2, 2013. On the same day, a corresponding document was signed, by which Gazprom acquired 20% of the shares of HayRusgazard, becoming the sole owner of the company.

As for the construction of the Iran-Armenia electricity transmission line, its deadline was last postponed in 2019, with a new deadline set for the end of 2020.