Under 40% of shadow economy single gas tariff should be defined: Hrant Bagratyan

Interview with Hrant Bagratyan, former RA Prime Minister, NA MP.

Mr. Bagratyan, the Government’s action plan has been approved, and currently the budget of the forthcoming year is being debated, which, however, as you stated, won’t provide sufficient growth. How sufficient is the growth and what can be anticipated in that case?

To define sufficient growth we should look to the world’s average and that of our neighbors. Growth of our country shouldn’t be less than that if we want to approach world’s average, and not stay behind.

The Government’s action plan put an emphasis on engaging investments from external sources, however, it’s known that there are considerable financial resources in Armenia, which are withdrawn from the country. Which is the issue, that internal resources aren’t productively used and there is an intention to attract funds from outside?

The point, that the Government attempts to bring much money to the country, is correct. However, there is the reverse of the coin as well. External investments, if not accompanied with the growth of internal savings, and if consumption level equals GDP, for instance comprising 90-99%, let me mention that it comprises 45% in China, then those investments can’t be productive, as for instance, in that case a plant is being established, production of which doesn’t have consumption. This way transfers may be regarded as investments, they comparably raise dollar prices. As the Central Bank of Armenia (CBA) is responsible for rise in price, it leads to evaluation of Armenian dram, and the effect of those investments is reduced by 30-60%.

It turns out that it’s in vain. That’s why we warn, that it’s called not macroeconomics, but mega economics, that even if there are plenty of external investments, attention should be paid to internal savings and GDP structure. This is a rather crucial methodological observation.

If in 2008 Serzh Sargsyan made a professional analysis, he should appoint not Tigran Sargsyan as the PM, but generally alienate him from the system. One shouldn’t repeatedly state, when we were the president, the economy was recording constant growth. It’s in that period that GDP consumption level sometimes even surpassed 100%.

This is a society that isn’t absolutely able to save. For instance, it’s rather clear that internal state debt comprises about 1/6 of external state debt—15%. Italy’s debt comprises 120%, which is mainly external. Japan’s internal debt comprises 300%, it doesn’t have an external debt.

However, Japan doesn’t have any issue, as by paying interests of internal debt, it compensates that money, which it sells to the population as securities. I bring these examples to say that the levers, which are meant to raise internal savings, including specific gravity of state securities’ sales, or external sterilization of transfers by the CBA, these concepts aren’t those of macroeconomics, but respective departments of the Government aren’t aware of this toolset.

One shouldn’t be proud that, e.g. not rise but drop in prices has been recorded. It’s not something to boast with. This is the reason that the budget hasn’t been implemented this year, and there is no economic growth. This is an outdated macroeconomic assessment. Mega economic assessment of the same phenomenon is the following—it’s not correct.

The Government planned to establish a foundation, investment fund, on necessity of which you have repeatedly stated.

Yes, the Government, attempts to introduce elements in its action plan. It’s another mechanism, whether it’ll be productive or not, which shows professionalism of the government system. We’ll wait and see. The new Government should show that it can handle resources more professionally.

What the tendencies are like? What signals are observed?

There are two types of them. Sometimes it seems to the people that it depends on a person, i.e. what the PM is like. Former PM wasn’t calling everyone to waste resources, there is nothing like that. There is no such a PM. It’s another issue how decisive you are in that phenomenon. This is the operational side of the issue. The issue has structural side as well. If you want that those means were productively used by the state, we should have a powerful opposition and you, as the Government, will be interested that any oppositional figure repeatedly raised that issue. If you don’t have a powerful opposition, you don’t have a feedback, as productivity of expenditures is its availability, which provides information on productivity of those expenditures.

After being appointed as the PM, Karen Karapetyan 2-3 days latter assigned to observe the possibilities of gas price reduction. And now “Gazprom Armenia” applied to PSRC for tariff review. Mr. Bagratyan, you have repeatedly raised the issue of gas price formation. What do you think is this decrease sufficient?

First and foremost, I welcome that reduction, as gas is expensive both for the citizens and the production, and our production is becoming uncompetitive, and individual consumption of the citizens is uncompetitive as well. However, the point is that upon the EEU agreement of May 29, 2014, which was later than we signed the gas agreement on December 2, 2013, we obtained the formula of a single market. Under these conditions “Gazprom Armenia,” which is RA resident, although its founder is a company of another country, sooner or later should have the right to purchase gas in Russia by the price which “Orenburg gas” or “Yekaterinburg gas” obtain. The same issue faces Kyrgyzstan, which receives gas from Kazakhstan. That gas is sold by USD 80 in Kazakhstan, and by USD 220 in Kyrgyzstan. We receive gas from Russia, which is sold to the consumer by USD 105, and in our country—by USD 300. Tell me please, is this an index of a single market? No. I don’t mean only gas price reduction. With time prices should be closer.

They won’t be equal, however, they should approach, transit price, expenditures and etc. should also be taken into consideration. I consider justified price should be USD 150-180.

And now just the contrary, more differentiations are being introduced for different consumers.

Assistance to the socially needs sounds good, however, it’s impossible to define those social layers under 40-50% shadow economy. For a long period it’ll generate a serious negative effect.

How may Armenia set that issue before Russia and solve the issue of unification of gas price, when our Government representatives don’t touch upon it for themselves?

I don’t know, we haven’t signed likewise agreements, which should be regulated throughout the years. Is a single market established or not? It’s been one year that Tigran Sargsyan is there, he should have seriously observed it. Creation of a single market is within the liabilities of the Eurasian Economic Commission. For instance, average electricity tariff in our country is AMD 45, which is 10 times more expensive, than in Kyrgyzstan. Of course, there is an issue, that electricity is produced in Kyrgyzstan’s water power plants by 100% and etc., however, is it’s a single economic space, we should be able to buy that cheap electricity.

These days the Armenian side signed a memorandum of understanding linked to gas, which should be provided to Georgia through the territory of Armenia. What will this change in the energy market?

Nothing essential. That transit pipeline, as much as we’re informed, is on the balance of “Gazprom Armenia” and that company will earn some money as a result of that business. It’s not mandatory, that Armenia’s citizens felt any change. Although, maybe due to that transit “Gazprom Armenia” has applied for tariff review.

By Gayane Khachatryan