Wednesday, September 30 2015 12:52

The Public Services Regulatory Commission (PSRC) of Armenia has all chances to curb the electric power price hike in 2016-2017, according to the report of Deloitte & Touche CIS, which sums up the results of the first phase of its survey in the energy sector of Armenia.

 

The report points out the need to divide the maintenance program of the Armenian Nuclear Power Plant (NPP) into two tariff years and to increase the intensity of the Hrazdan-5 power unit. At the same time, to stabilize the situation in the long-term outlook, the regulator needs to determine the internal cost saving reserve and the relevant state structures need to clearly determine the priorities of the sector development, particularly, in construction of new capacities.  The authors of the report point out that in 2000-2015 the electricity tariffs in Armenia were increased for 4 times: in 2009 by 24% and for three times in 2013-2015, when the total growth (70%) was four times as high as the inflation. The comparison between the tariffs for the population and the inflation growth starting from 2000 has revealed parity. The share of electric power in the real income of Armenian households remained at 5%, because amid the irregular revision of tariffs, the 50% growth in income was compensated for by commensurable rise in specific consumption (from 37 to 53 kWh per person per month). Nevertheless, the latest 16.6% rise in the tariffs sparked public protests.  The demonstrators blamed the sole electric power supplier - Electric Networks of Armenia (ENA) CJSC for excessive expenditures and demanded that the regulator restore the previous tariffs.

 

To assess the accusations against the ENA, Deloitte & Touche CIS has analyzed the tariff structure to reveal the items controlled by the company's management. Such items include the direct expenses approved by the PSRC, which constitute only 23% of the tariff. Deloitte & Touche CIS has found out that over the past five years these expenses have grown by 13%, twice as low as the inflation. It is obvious that the ENA direct expenses could increase the ultimate tariff so much in none of the periods under review. At the same time, the growth of the price of 1 kWh in 2013, along with the specified factors, was mostly due to the first (since 2009) growth of the base pay in all enterprises of the sector. The wages in the energy sector increased by 40% and became equal to the average wages in the public sector.  This decision of the PSRC determined the 1.8 AMD and 6.7 AMD/kWh growths in the ultimate tariff. The remaining part of the growth was due to the regulator's decisions to return the profit to the Vorotan Hydro Cascade and to increase the expenses on acquisition of low-scale generation electricity. Deloitte & Touche CIS has also found out that over the past two years the tariffs have grown due to two factors: growth in the purchased electricity prices and compensation for the short-received tariff margin due to the gap between the planned and actual generation in the country. As regards the share of the purchased electricity price in the ultimate tariff, it is determined by two parameters - by the generators' tariffs approved by the PSRC and by the share of each of them in the structure of ENA's purchases.

 

Along with the growth in wages, the prime cost of the electricity generation underwent pressure of the following factors: redoubling of gas expenses caused by 25% of AMD depreciation and 14% growth in USD prices of gas. That factor determined 80% of growth in generators' expenses in the ultimate tariff. The growth of investment in modernization of the plants (from 13.5 bln AMD to 20 bln AMD) ensured 20% of growth in the plants' expenses. The report also points out the enhancement of safety at the Armenian NPP (5 bln AMD) and the planned maintenance of the new power unit of the Yerevan TPP in 2013 (4.6 bln AMD).