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In This Issue:
Volume 3, Number 11

- HUNGARY AND THE NABUCCO PROJECT: TIME TO END THE AMBIGUITY
- NAZARBAYEV APPOINTS CIVILIAN DEFENSE MINISTER
- KREMLIN LETS ADYGEYA KEEP ITS VIRTUAL AUTONOMY


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ARMENIA GAINS SHORT REPRIEVE FROM 100% PRICE HIKE ON RUSSIAN GAS

By Vladimir Socor

Tuesday, January 17, 2006

Armenia targeted by Kremlin gas diplomacy
At a December 16, 2005 meeting in Sochi, Russian President Vladimir Putin and Gazprom's top management informed Armenian President Robert Kocharian that the price of gas supplies to Armenia would rise from the existing level of $54 to $56 per 1,000 cubic meters to $110, effective on January 1, 2006. Russian-oriented Armenia was thus hit with the same price hike as Western-oriented Georgia.

On January 13-14, however, Armenian Prime Minister Andranik Markarian announced that Moscow ha consented to postpone the price hike until April 1, so as to avoid hitting Armenia hard during winter. Yerevan now hopes that Russia might consent to some form of payment mechanism that would cushion the impact on Armenia, once the doubling of the price takes effect.

In his televised statements announcing the three-month reprieve, Markarian ruled out various payment options that Gazprom and the Russian government are now proposing: either ceding Armenia's remaining industrial and infrastructure assets (most of which were ceded already in 2002-2003) to Russian state-controlled companies; or giving up Armenia's 45 percent stake in the country's gas transport and distribution system; or taking out a Russian loan and guaranteeing it, again, with those remaining assets. Any of these options, Markarian observed, would only constitute a short-term palliative, and loans are in any case available on more favorable terms from Western creditors.

Politically, Markarian noted that Russia seems to treat its ally Armenia in the same way it treats Ukraine or Georgia regarding gas prices, despite those two countries' NATO-membership aspirations and Georgia's insistence on closing Russian military bases on its territory. Therefore, Armenia should re-examine the notion of "strategic partnership" with Russia, diversify its security options, and advance its cooperation with NATO and the European Union, which in any case is not directed against Russia. Indeed, "Russia does not have a moral right to forbid Armenia going this way" (Arminfo, January 14).

Markarian seems to be, thus far, the only major Armenian political figure to call for linking the gas issue with political issues in the overall relationship with Russia. This can indeed become an effective response to Moscow's pretense of "de-politicizing" the gas trade. Since the Russian price hikes are not dictated by the market, but rather by Russia's monopolistic position (itself achieved through political and even military muscle in the region), countries targeted for arbitrary Russian price increases may have various forms of political or security counter-leverage available.

Armenian Parliament Chairman Artur Bagdasarian reacted to the Sochi meeting by calling publicly for billing the Russian military base at Gyumri for rent and utility costs. Bagdasarian also noted that such a step would meet with popular approval. After several statements by Bagdasarian to this effect, the Armed Forces Chief of Staff, Col.-General Mikael Harutiunian, intervened to claim that the base is "essential to Armenia's security and that of Russia's southern borders." Meanwhile, Russian Defense Minister Sergei Ivanov is happy with the free ride: according to him, maintaining the 5,000-strong Russian military base in Armenia is cheaper than maintaining a comparable force on Russian territory, because Armenia pays the utility costs for the Russian base (Vremya Novostei, December 26).

For his part, Minister of Foreign Affairs Vardan Oskanian acknowledges the political implications of Russia's pricing decisions, even conceding that Moscow's insistence on separating economics from politics is "not entirely correct." Oskanian, however, calls for protecting Armenia's alliance with Russia from the adverse political impact of the gas price hikes. In this context, Oskanian's remark that the alliance with Russia "ensures our security and physical defense" (Mediamax, January 16) highlights Yerevan's self-imposed limitations on strategic flexibility.

Gazprom and its affiliate Itera delivered 1.3 billion cubic meters of gas in 2004 and 1.7 billion cubic meters in 2005, and envisage deliveries of 2 billion cubic meters in 2006. The two Russian companies hold stakes of 45 percent and 10 percent, respectively, in the ArmRosGaz transport and distribution network; Armenia's Energy Ministry holds the remaining 45 percent.

The gas delivered comes from Turkmenistan, reaching Armenia via Kazakhstan, Russia, and Georgia. Thus far, Gazprom and Itera bought Turkmen gas at $44 per 1,000 cubic meters and resold it to Armenia at some profit to themselves for $54 to $56. In 2006, Turkmenistan will be selling its gas to Gazprom at $60 per 1,000 cubic meters. The Russian-proposed price hike to Armenia far exceeds Turkmenistan's price hike to Gazprom. Apparently, Moscow takes Armenia political fealty for granted.

(Mediamax, Noyan-Tapan, Arminfo, PanArmenian Net, January 3-16)

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