03 June 2006

741) THE COST OF DEPENDENCE

The sudden increase of natural gas prices in the last December resulted in a trouble for those states that import natural gas from Russia. Price increase varies from a hundred percent (Armenia) to four hundred percent (Ukraine); whereas, the price of natural gas provided to Belarus, acting as the ‘docile kid’ of Russia, remains the same.

As a matter of fact, it is understandable for Russia to increase natural gas prices to a reasonable level, since former Soviet Republics have long been provided with natural gas with a price quite below world average. However, sudden and enormous increase in prices creates serious economic problems for these states. It also shows that there might be political considerations as well as economic ones; in other words, Russia might want to show its power to some states through this price policy. The governmental crisis in Ukraine due to natural gas prices verifies that Russia acted also with political considerations.

Did Russia pursue some political aims against Armenia as well? When bilateral relations between these two states are examined, it can be observed that since its independence, Armenia has been the principle ally of Russia in Southern Caucasus. With Kocharian’s presidency and his establishment of close relations with the Armenian diaspora, Armenia began to develop its relations with USA and EU, without neglecting her relations with Russia. This policy, which is named by Armenian statesmen as ‘complementarity’ meaning to preserve good relations with both sides, has been losing lately its meaning because of Armenian inclination to USA and EU. With the efforts of the Armenian community, USA has always supported Armenia. What is more, the amount of direct aid to Armenia reached to 1,6 billion dollars; and with a new program, named as New Millennium Challenge Account, another 235 million dollars were allocated to Armenia to cope with poverty. Also, Armenia has signed an ‘Individual Partnership Plan’ with NATO under the influence of the USA. Furthermore, the EU included Armenia to its New Neighborhood Policy. On the other hand, Russia could not produce an alternative to these initiatives; therefore she is losing her primacy in Armenian politics.

Certainly, Russian decision to increase natural gas prices for Armenia reflects her concerns for Armenian inclination to USA and EU. Russia might decide to warn Armenia for her policy choices by using its almost monopolistic natural gas sector.

Armenia worked hard to change these new prices. President Kocharian met with Russian President Putin in Sochi. Although Russia did not reverse the increase in prices, two presidents decided to meet again in late January. While it was hoped that Russia might decrease the price of natural gas, on January 13, Armenian Prime Minister Markarian declared that Armenia accepted to pay 56 dollars for 1000 cubic meters of natural gas until April 1, 2006, and 110 dollars for 1000 cubic meters after that day. He added that the ultimate decision would be taken in line with the results of two presidents’ meeting. What is more, Markarian stated that the government was searching for resources to compensate these price increases and did not intend to increase the price of electricity. He also mentioned that the government would not get credit from Russia by delivering some industrial facilities; if necessary, Western states or international organizations might be applied for credit with appropriate conditions

The cost of new prices for Armenia is 110 million dollars. This is troublesome for a country whose national income is less than 3 billion dollars. It is not clear how Armenia would compensate this increase in prices. Armenia should find new resources, since the government does not want to increase electricity prices because of concerns for popular discontent, and since borrowing would be a temporary relief. Within this framework, it is possible that the government would take austerity measures as well as it would demand more aids from the diaspora. What is more, completion of the natural gas pipeline from Iran is necessary.

Certainly, this price increase would affect the bilateral relations between Armenia and Russia negatively. However, it is unlikely that Armenia will abruptly depart from Russian influence, since Russia has no alternative in terms of security, and as long as Karabagh problem still continues.

Although Armenian political circles are disappointed with these price increases, Armenian public opinion continues its confidence in Russia. In a public survey, which was made before Russian decision to increase prices, 76% of those participated to this survey said that they did not believe that Russia would increase prices a hundred percent. Since this increase is realized, if Armenian government has to increase electricity prices, Armenians would also be disappointed by Russia.

Ömer Engin LÜTEM, Retired Ambassador
19 January 2006 - �KSAREN

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