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MILLIONS THAT WERE WASTED
James Hakobyan
Lragir
Dec 3 2007
Armenia
When in 2006 Russia raised the price of gas for Armenia, and in order
to tackle the high price the fifth generating unit of the Thermal
Power Plant of Hrazdan was sold and 190 million of 250 million dollars
from the sale of the generating unit was directed at subsidizing gas,
the rulers of Armenia starting from Robert Kocharyan said thereby
they sustained the competitiveness of Armenian producers. In other
words, Russia made gas expensive for Georgia and Azerbaijan as well,
consequently gas became expensive for consumers there too. The same
happened in Armenia but since our government sells the fifth generating
unit and subsidized gas for three years for consumers, including for
producers, it turned out that for our producers gas is cheaper than
for producers in Georgia and Azerbaijan, therefore the cost of our
products should be lower. At first sight, it seems logical. Although
it is amazing that Georgia and Azerbaijan were not guided by the same
logic and did not sell any industrial unit to the Russians to subsidize
gas. But it is their business. Let us see how our business benefited.
As we view the official statistical picture of export and import
in Armenia, we see that import grows faster than import. Even if
we were eager, we would not say that this picture is the result of
competitiveness of our production. The government has its standard
explanation that industrial technology dominates import. In other
words, Armenia imports much technology to produce more and better.
But this explanation, to put it mildly, is not logical because not more
is produced. Consequently, either they import technology and change
their mind or it turns out that these are not industrial technology but
sausage, juice, detergent, shampoo and other goods imported in boxes
labelled technology. Hence, possibly some tax and customs juggling
takes place as well. Although importer do not need it because the
revaluation of the dram has turned import so profitable that even
if the importer has as much honesty as one millionth of the value of
import and pays all the taxes, import generates huge profit. However,
we should not forget about the violent force of habit. If a person
is used to avoiding taxes, he will not pay taxes even if someone else
gives him the money for taxes.
Hence, it appears that the industry of Armenia did not gain competitive
advantages in the past three years but became uncompetitive due to
the monetary policy of the government.
Consequently, the millions spent for subsidizing gas were wasted.
They did not serve the goal they had been assigned for. However, this
conclusion is true if we consider that the goal was to support industry
in Armenia. Meanwhile, there is doubt that the real goal is populism
in the pre-election period to show to people with a year to go before
the parliamentary election how caring the government is that it won't
let the Armenian producers and consumers face Russia alone. It is not
accidental that the price of gas is now rumored to go up in mid-2008
because the money for the sold fifth generating unit is finishing. It
was expected to finish because at the moment when the money was paid
one dollar was 400 drams, now one dollar is 300 drams. Meanwhile, in
drams the price of gas almost has not changed, it has changed very
little, for industries it has not changed at all. In this context,
in 2009 the price of gas will go up in the world, in other words,
Russia is again going to raise the price.
James Hakobyan
Lragir
Dec 3 2007
Armenia
When in 2006 Russia raised the price of gas for Armenia, and in order
to tackle the high price the fifth generating unit of the Thermal
Power Plant of Hrazdan was sold and 190 million of 250 million dollars
from the sale of the generating unit was directed at subsidizing gas,
the rulers of Armenia starting from Robert Kocharyan said thereby
they sustained the competitiveness of Armenian producers. In other
words, Russia made gas expensive for Georgia and Azerbaijan as well,
consequently gas became expensive for consumers there too. The same
happened in Armenia but since our government sells the fifth generating
unit and subsidized gas for three years for consumers, including for
producers, it turned out that for our producers gas is cheaper than
for producers in Georgia and Azerbaijan, therefore the cost of our
products should be lower. At first sight, it seems logical. Although
it is amazing that Georgia and Azerbaijan were not guided by the same
logic and did not sell any industrial unit to the Russians to subsidize
gas. But it is their business. Let us see how our business benefited.
As we view the official statistical picture of export and import
in Armenia, we see that import grows faster than import. Even if
we were eager, we would not say that this picture is the result of
competitiveness of our production. The government has its standard
explanation that industrial technology dominates import. In other
words, Armenia imports much technology to produce more and better.
But this explanation, to put it mildly, is not logical because not more
is produced. Consequently, either they import technology and change
their mind or it turns out that these are not industrial technology but
sausage, juice, detergent, shampoo and other goods imported in boxes
labelled technology. Hence, possibly some tax and customs juggling
takes place as well. Although importer do not need it because the
revaluation of the dram has turned import so profitable that even
if the importer has as much honesty as one millionth of the value of
import and pays all the taxes, import generates huge profit. However,
we should not forget about the violent force of habit. If a person
is used to avoiding taxes, he will not pay taxes even if someone else
gives him the money for taxes.
Hence, it appears that the industry of Armenia did not gain competitive
advantages in the past three years but became uncompetitive due to
the monetary policy of the government.
Consequently, the millions spent for subsidizing gas were wasted.
They did not serve the goal they had been assigned for. However, this
conclusion is true if we consider that the goal was to support industry
in Armenia. Meanwhile, there is doubt that the real goal is populism
in the pre-election period to show to people with a year to go before
the parliamentary election how caring the government is that it won't
let the Armenian producers and consumers face Russia alone. It is not
accidental that the price of gas is now rumored to go up in mid-2008
because the money for the sold fifth generating unit is finishing. It
was expected to finish because at the moment when the money was paid
one dollar was 400 drams, now one dollar is 300 drams. Meanwhile, in
drams the price of gas almost has not changed, it has changed very
little, for industries it has not changed at all. In this context,
in 2009 the price of gas will go up in the world, in other words,
Russia is again going to raise the price.