Armenian economist ‘pessimistic’ about single Eurasian energy market plan

Prime Minister Nikol Pashinyan’s proposal for creating a single energy market in the common Eurasian trade-economic zone raises questions and concerns in the practical domain where we may see technical difficulties, according to Vahe Davtyan, the director of the Institute for Energy Security.

In an interview with Tert.am, the economist noted that the idea, raised at the recent Eurasian Intergovernmental Council in Yerevan, was a key underlying principle behind the concept of the Eurasian Economic Union (EAEU) several years ago.

“Back in 2016, the heads of the EAEU member states arrived at a consensus over the implementation of integration projects. Today, certainly, lots of problems arise as we speak about the feasibility of those projects,” he said, admitting that the technicalities inspire a certain pessimism.

Davtyan noted further that the agreement "due to be signed later this month" raises also lots of uncertainties from now on. “The sides have agreed on the general principles; yet the countries integrated into the member states’ energy markets already raise alarm over conflicting interests.”

A single energy market implies, first of all, the creation of a common stock market to enable the member states to acquire the desired volumes of electric power, the expert said, noting that power generation is disproportionate in each of the states, causing naturally essential differences in the cost price.

''This is why Belarus periodically backs the implementation of the single market project before switching over to the single electricity market,'' Davtyan noted.

While Belarus receives about 90% of its electric power supply through hydropower plants, that record is above 42% in Armenia, the expert said, agreeing that the figure reflects the vitality of the problem for the country. Meantime, he highlighted the economic advantages of Kyrgyzstan, which he said secures a large part of its electric power generation through cost-effective hydrogenation methods, creating competitive conditions, especially for Russian hydropower plants

“Under such conditions, the electric power in Armenia and Belarus will be less cost-effective compared to the electricity generated in Russia and Kazakhstan - which have natural gas available for drilling,'' he said, admitting that individual countries remain restricted to their narrow interests.

''Russia is not unwilling to push for progress but rather pursues its own interests.  In 2018, Russia recorded a surge in the average export price for natural gas due to the fluctuation on the international oil market,'' he said.

As another pressing concern, the expert highlighted the security-related risks linked to market liberalization. He noted that the economic trend had earlier raised alarm among Russian major stake-holders. ''Only Armenia has been actively heading towards liberalization without considering those risks. Liberalization in fact is a very important process - potentially raising competitiveness on the market, etc., yet we have to be cautious too, in the light of the market liberalization problem across the EAEU region,'' he noted.

 But that, according to the expert, is not the only risk for Armenia ''whose economy is heavily reliant upon exports''.  ''Hence, if we reduce the export volumes, we will be facing security-related challenges. The liberalized market being thus formed across the EAEU region enables also Armenian private companies and trading organizations to access external markets – in Kazakhstan or Russia – to purchase and import energy to Armenia. That's an obvious risk directly impacting our status of an energy exporters in the region – and the EAEU in general – despite the high cost prices of the electric power generated in Armenia,'' he said.

The single market for natural gas too, will necessitate the creation of a common stock market 'with fluctuating tariffs "influenced by financial-economic dynamics''.

''Given that the natural gas tariff is a major factor directly linked to fluctuating oil prices - as well as the turbulence observed on daily basis – Armenia and the other states will have at times to purchase gas for tariffs not unequivocally meeting their interest. This is a very complicated problem for Armenia, which is a gas exporting country,'' Davtyan said.