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42ROLE OF ARMENIA IN ENERGY SECURITY ENSURING FOR THE SOUTH CAUCASUS REGION
Karen Karapetyan
The problem of energy resources and energy security supply is one of the global challenges. In this article we touch on the potential of Armenia to resist those challenges and possibilities and prospects of liberal energy market formation. There are some indices characterizing economy and production in this article.
In this context the current situation of Armenian energy system as well as the reforms and their results are studied. The forecasts of the demand for electricity and facilities produced in Armenia let us regard our republic as crucial actor on the energy market of the region.
Energy is one of those spheres, which problems are discussed in the context of both current and prospective developments of world economy. The current global challenges, which stand in the way of civilization, require comprehensive solution for the problems of the supply of the demand of energy resources, for the problems of the development of the stable schemes of delivery. The solution of the aforementioned problem will make a valuable contribution to the energy security of the country (or region), it will reduce the dependence on the prices or price variations on fuel and energy resources, the risks dependent on climate changes and will also ensure the stability of economy development, will help to create new jobs and solve some environmental problems.
The following principles are basal for the strategy of economic development of Armenia: the diversification of enterprise and production, human capital (resources) and the investments in the development of innovations. At the same time it is clear that it would be very difficult for the government of the Republic of Armenia, which stated its resolution to move into the stage of second generation market reforms, to imply social and economic policy without efficient and reliable energy system.
The reforms of the energy system of the Republic of Armenia were rather radical (fundamental) and took place in quite a short period. According to the differ-
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ent international organizations (World bank, International Monetary Fund, European Bank for Reconstruction and Development and etc) estimates, Armenia rightfully takes first place among the countries of South Caucasus in terms of the intensity of the reforms in the energy sphere (Table 1), directed to the creation of liberal energy market. Such a high estimate is based on the realities, in accordance to which the consumers’ interests are provided; there are equal and non-discriminatory conditions for economic activity; the interests of foreign investors are protected.
The sharp growth of the necessity in energy resources, which is connected with the expansion of consumption of those resources, is observed all over the world. Such tendencies are also observed in Armenia, which geographic location is rather difficult but at the same time interesting and attractive from the point of view of regional partnership. South Caucasus and neighbouring Turkey and Iran are at the crossroads of oil and other energy carriers supply programs. The availability of the vast supplies of hydro-carbon resources in a number of countries of the region as well as the proximity to the largest energy resources consuming markets and the fast-growing economic centres makes that region even more attractive for the inflow of the international capital.
We should pay attention on the issue of the place of Armenia on the energy map of South Caucasus. What will be the guiding line for Armenia amid global resource competition, which includes companies from the countries, which do not have hydro-carbon resources enough to provide their economic development?. The other important issue concerns the factors, indices, which should be at the heart of regional energy security.
We can elaborate efficient energy security policy for Armenia only in case we answer those questions. In our opinion, that policy should be mainly directed on the implementation of qualitatively new export policy.
In modern world energy is the most important driving force of the economic process and it may directly influence the welfare of billions of people living on the Earth. One of the main challenges at current moment is the ensuring of the national security of the countries, and energy security is one of its components.
There are various factors of energy security but anyway there is no general definition for it, which is accepted all over the world. At the same time discrepancies between different countries concerning that issue are deepening, as there is an approach to the main problem of energy security from different angles. Taking into consideration the topicality of the problem of energy security, it became the main subject of discussion on the “G-8” summit in St.-Petersburg in 2006.
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Table 1
The development indicators of substructures in some countries
Country Electric energy Railway Roads Communi- cation Water supply and drainage All substructures
Albania 3-t 2 2 3+ 1 2
Armenia 3+ 2 2+ 2+ 2 2+
Azarbaidjan 2+ 2+ 2+ 2-tt 2 2
Belarus 1 1 2 2 1 1+
Bosnia and Herzegovina 3 3 2 3+ 1 2+
Bulgaria 4-t 3 2+ 3+t 3 3t
Croatia 3 3-t 3- 3+ 3+ 3t
Czech Republic 3+ 3 2+ 4 4 3+
Estonia 3 4+ 2+ 4 4 3+
Macedonia 2+ 2 2+ 2 2 2
Georgia 3 3 2 2+ 2 2+
Hungary 4 3+ 3+ 4 4 4-
Kazakhstan 3+t 3- 2 2+ 2t 2+
Kyrgyzstan 2+ 1 1 3t 1 2-t
Latvia 3+t 3+ 2+ 3 3+ 3
Lithuania 3+t 2+ 2+ 3+ 3+ 3-
Moldova 3 2 2 2+ 2 2
Poland 3+ 4 3 4 3+ 3+
Romania 3+t 4 3 3 3+t 3+t
Russia 3 3-t 2+ 3 2+ 3-t
Serbia and Monte Negro 2+ 2+ 2+ 2 2 2
Slovakia 4 3- 2+ 3+ 2+ 3-
Slovenia 3 3 3 3 4 3
Tajikistan 2-tt 1 1 2+ 1 1+
Turkmenistan 1 1 1 1 1 1
Ukraine 3+ 2 2 2+ 2- 2
Uzbekistan 2 3- 1 2 2- 2-
Note. Performance measures are given on-scale from 1 to 4+, with 1 meaning complete absence of any recession from state-planned economy, and 4+ meaning adequacy to the standarts of market economy peculiar to the developed industrial countries. The indicator relating to all substructures (7th column) denotes the avarage measure of all five previous sectors.
t or 4 denote the change of the corresponding indicator for the previous year. One arrow denotes the change of the indicator on one point (e.g. from 4 to 4+), two arrows - on 2 points. Arrow up means ascend and arrow down - descend.
Very often energy security identifies with the energy independence of one separate country. Such an approach puts forward the situation when the struggle for the resources all over the world is getting tense and causes different conflicts. Anyway, various risks, which occur in the sphere of energy security, should compel the 5
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countries, which compete for the possession of the resources, initiate the creation of the world energy security concept.
In last years the demand for the energy carriers grew faster than the energy supply. In most of the forecasts the growth of the energy carriers’ demand is mentioned out and this is conditioned, first of all, by the rates of the growth of the developing economics. The demand for the energy carriers will grow in industrial countries too, though it will have a bit lower rates. For example, according to the data of International Energy Agency (IEA) general gross demand for energy carriers in 2030 will grow on 50%. Global demand for oil, in accordance with the same source, in 2025 may grow on 35 million barrels (in this case the increase will be about 42%), and the demand for gas will grow 1, 7 trillion cubic meters per year (increase - about 60%) [3].
At the same time the supply of energy all over the world is slowing down. This is conditioned by production expansion and also by expensiveness and complexity of the technologies used for the exploitation of the energy resources, which year after year become more and more difficult to access.
The prices of the fuel and energy resources grew very quickly during the last years due to the discrepancy of the demand and the supply. The growing and unstable energy carriers’ costs constitute a real danger both for world economy and for economies of separate countries.
Mainly, the oil prices has grown sharply and this constitutes a real danger, firstly, for the rates of developing economies, and secondly, from the point of view of financial crisis, it is real menace for the developing economies, which depend on the import of the oil. And the obscure forecasts for the future oil prices embarrass the situation, because long-term forecasts for oil prices are considered to be the main element in making a decision of investments in the sphere of energy. It is known that the long-term cycle of implementation and slow capital turn-over are peculiar for the programmes implemented in the sphere of energy1 * * * * 6.
Besides the energetic disproportions of the region are deepening, the number of the countries and the number of the big regions, at the root of the development of which the imported and not their own energy resources lie, grows. If in 1990 such
1 But the recent economic developments at the end of 2008 introduced changes to the oil market. If on June 11, 2008
one oil barrel (Brent oil) cost $147.7 then on November 2, 2008 it cost $66.72. Such a sharp fall in prices, in the opin-
ion of E. Gaydar and A. Chubays, was conditioned by the depletion of the oil’s financial resource as a product [4, с.
15-17]. It is enough to mention that if in 1990-1998 the annual average value of the oil trade futures at New York
Stock Exchange was approximately 20 million standard conventional units, then in 2005 that value was 60 million, in 2006 — 70 million, and in 2007 — 122 million. That means that artificially a “bubble” was created, which blew up in the summer of 2008.
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countries produced 87% of world GP, in the beginning of the 21st century they produced 90%. With all this, going on the biggest fast developing countries, such as China, India and etc, mostly depend on the import of gas. [5]. These countries cannot still provide for secured supply of the energy carriers they need to satisfy their demand.
At the same time the large-scale production of raw hydrocarbons even more increases social and political instability in some regions.
The other problem is energy poverty. In accordance with OPEC data today there are about 2 billion of “energy-starved” people and the struggle with energy poverty becomes one of the most relevant problems. This all may be added by ecology problems, terrorism, climate change and, which is most important, the finiteness of the resources challenging energy security.
It is obvious that there is a necessity of the energy system, which will allow to minimize all the arousing dangers. In order to provide global energy security it is necessary that the international community start working together. In order to be able to resist those dangers one has to work out and successively implement coordinated energy policy, especially in its strategic directions.
One of the directions of that policy is economical and ecologically proper energy usage. As a result of the measures directed to the growth of the general energy consumption efficiency the import of the oil by OECD countries for the recent 30 years (1973-2002) has reduced to 14% and the amount of the oil per one dollar of GDP reduced twice [3].
The direction to be singled out is the rise of the supply of economically efficient energy resources. There are enough fuel and energy resources all over the world to satisfy the demand of the humanity. The main problem is not the physical insufficiency of energy carriers but the necessity of joint efforts to implement that potential.
It is of vital importance to preserve the investments made for energy saving. By estimate of the IEA, in order to create efficient global energy supply system, which will be able to resist disturbances, about $17 trillion of investment resources will be needed in the period of 2004-2030. The directions of the investments are the following: the enlargement of the resource base, the production of the energy carriers, the creation or the reconstruction of infrastructures necessary for their transportation and storage, the implementation of advanced technologies for wide use of regenerative and alternative energy sources, and the development of safe technologies for the production of atomic energy and etc. 7
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In order to have a stable energy supply system or to reduce the dependency on gas and oil supply and to soften regional differences, it is necessary to diversify the kinds of energy.
We should mention that there are two basic principles lying in the root of energy security. Firstly, it is necessary to use less energy and at the same time to provide demand and reduce energy losses. Secondly, it is necessary to ensure availability of all the sources of energy including coal, oil and gas before the end of the age of produced fuel, which approaches rather quickly.
Energy security also supposes the uninterrupted supply of energy carriers affordable for the whole population. But the energy security should be regarded as transitional strategy, which will allow getting energy independence.
Energy independence is a versatile notion, which relates to the processes both in energy system and in the economy on the whole1.
Economy security is the main factor, which characterizes economy on the whole and is dependant on the condition of all the components of economy, i.e. on the regional processes in the social, ecology, defence, legislative, energy, information and other spheres.
At current moment economy is such a stage of development when energy is regarded as axial sphere from the point of view of the influence it has on other spheres of economy. That is why the inducement of the energy factor into the economy security is crucial, and the ensuring of energy security becomes one of the main issues for providing natural activity of all the spheres of economy.
Economy security is the state of the economy when the security of the interests of a person, society, a state and also the social orientation are guaranteed even under unfavourable internal and external conditions [7].
Energy security can be characterized as a quality of technical security of energy systems. At the same time the final goal of the energy security, in accordance with the definition, is the guaranteed protection of a person, society and a state from the deficiency of fuel and energy resources, i.e. it has wider sense than the ensuring reliability of the energy system and it acts as an economic, political and philosophic category.
At current moment there are the following three main definitions of energy security, which in our opinion, complement each other [7, 8]. * 8
1 For more information on the problems of energy security and the prospects of the energy security decent level enduring look: Կարապետյան Կ, Հայաստանի Հանրապետության էներգետիկ անվտանգության հեռանկարները, Եր., Էդիթ Պրինտ, 2008թ. [6].
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1. Energy security is the assurance that under such economic conditions the required quantity and quality of energy will be supplied.
2. Energy security is the state of safety of vital “energy interests” of a person, society and a state from internal and external threats.
3. Energy security is the security of the country (region), its citizens, society, state and economy in normal conditions and in the state of emergency from the threat of the shortage of energy resources of acceptable quality and the stable supply of the combustible and energy.
The international community, which strains after common energy security, first of all should work for the development of international energy market infrastructure. The final objective of the development of the energy markets should be the formation of joint energy area with common rules.
Even now the considerable part of energy recourses is supplied through the borders of the countries. In the future this tendency will rise. We can state that the global oil market is one the most mature existing markets. At present moment it is necessary to develop gradually international, regional, continental and intercontinental energy associations, which will work in accordance with the common technological standards and rules of management, in the line of joint energy infrastructure creation.
The role of the authorities of the national states is to render constant assistance to the trade and investments in that field by developing hospitable technical, ecological, political and legislative conditions.
The specialists who are anxious about the problems of energy security should be able to make terms on elaboration of common actions, considered approaches and joint programmes. Undoubtedly, this is not an easy task and it demands a dialogue and mutual openness. But the global character of the threats of energy security does not allow the energy problems to be solved only by the efforts of separate countries.
1. The contemporary condition of energy system in Armenia
The efficient and stable energy system in the Republic of Armenia is a result of the implemented reforms. The problem of efficient management of the energy system has always been in the centre of attention of the government of the RA. As a result the reforms in that sphere were radical and the current energy system is the most competitive among former Soviet republics. Meanwhile, in 1992-1995 there was an unprecedented energy crisis, which was accompanied by the shut down of the Ar- 9
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menian nuclear power plant, the utmost finiteness of the resources (about 90% of the fuel was imported), unfavourable geopolitical position, and the blockade of the main infrastructures. All that caused the reduction of many macroeconomic (national) measures and the distortion of the whole economic system.
Due to the fact that the only pipeline supplying gas to Armenia came through the territory of Georgia, the gas system of the country was on the edge of dissolution. The same situation was observed in the spheres of heat-and-power engineering and electricity. The appropriate resources were limited and scarce and did not supply the demand, and this impacted the energy security of Armenia. Thus, in 1991-1994 the consumption of the energy resources by industrial and trade organizations reduced from 80% to 40%.
That situation once more came to prove that there was no alternative to profoundly elaborated energy security conception. It was very important to get to the best match and complementarities of all the structural units of energy system of Armenia, including natural gas sector, the productive and stable work of which determines the production of about 40% of electricity in the country.
The ways, which were chosen for the recovery from the crisis (i.e. the resumption of the work of Armenian nuclear power plant and the providing of the continuous and reliable gas delivery), started their test of time. The problem of energy crisis recovery was solved in 1996, but that fact was not enough to have a serious and long-term success in the carrying out the radical and ambitious reforms, which aimed the creation of liberal, competitive energy market in Armenia. Since 2005 private and state Armenian companies have started to act under such market conditions, and the profitability was their main goal.
The progress in that strategic direction of energy system, along with the steps taken in the direction of the atomic power engineering safety improving, the recovery and modernization of energy infrastructures, the improvement of tariff policy and the large-scale privatizing of energy actives have allowed to secure the stable growth of the financial, economic and production performances of the energy system in general in recent years. Since 2003 the stable growths of both electric energy production and of its consumption in the country have been observed, which contributes to the growth of Gross Domestic Product of the RA. Diagram 1 reflects the picture of the electric energy production and the consumption in the RA and its export.
Though, at present, most of the companies and objects of the energy system are privatized, nevertheless, the integrity of energy system is secured. The activity of any of the technological links of energy system, i.e. the activity of gas, thermoelec-
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tric, nuclear, hydroelectric power plants, transmission, distribution networks, and dispatching services is systematized and this factor allows us to retain and to strengthen the integrity of the energy system.
The necessity to privatize the companies of energy sector was conditioned, firstly, by the huge investments necessary for the continual work and modernization of the system. The engaging of private funds allowed reducing the expenses of the state in energy system, raising investments for those companies, raising the efficiency of energy charges gatherings. On the other hand, the state expected to ensure budget revenues from the privatizing of those companies.
The picture of the electricity production and consumption in the RA
Diagram 1
Source: The Ministry of Energy and Natural Resources of the RA
The following steps preceded the privatization of the companies:
• according to the resolution of the government of the RA N20 from 08.05.1998 the process of the recovery of the main assets of the energy system companies (till December 1, 1998) was carried out and after that the process of gradual
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privatizing of the companies of the energy system, which had strategic role, was initiated;
• according to the resolution of the government of the RA N450 from 20.05.1998 the regional distribution networks were rearranged through merging into “Southern”, Northern” and “Central” distribution networks SJSC, which privatizing process began in 1999. International consulting companies were invited by means of the SATAC-2 credit, which was received from the World Bank, to carry out the process of the privatization of the distribution networks in accordance with the internationally accepted practice, to arrange it properly and balanced, to avoid shortcomings and mistakes.
• Within the assistance provided by the USAID, the experts who provided consulting services concerning the strategy of privatization of thermoelectric power plants, “Sevan-Hrazdan Cascade” and “Vorotan Hydroelectric power plant” CJSCs were invited, and for the strategy of the privatization of the “Hrazdan Thermoelectic Power Plant” CJSC’s 5th block the specialists of the European Bank were involved.
• “Haygasard” SO, “Haytransgas” and “Haygas” SCJSCs were included into “ArmRusGasProm” CJSC.
According to the first privatizing programmes (1994 and 1995) all the “small” thermoelectric power plants were privatized but they did not supply the energy production on a national scale. In the next stage the electricity distribution companies as well as the electricity producing large companies were privatized (Hrazdan Thermoelectric Power Plant, the Cascade of Horotan Hydroelectric Power Plants) in accordance with the principles elaborated for the companies of strategic importance. A number of designing institutes of that area was also privatized.
In the aforementioned context the role of “ArmRusGasProm” CJSC in the economy of Armenia and its energy system is worth of special studying. “ArmRus-GasProm ” closed joint-stock company was founded on September 9, 1997, according to the resolution N373 as a joint Armenian-Russian organization. The company was founded in order to increase the gas consumption, to construct and use gas pipelines, to transport Russian natural gas through the territory of the republic, to produce electricity and to export it to the third parties. This was preceded by the signing of the contract (August 30, 1997, Moscow) about the foundation of “ArmRusGasProm” closed joint-stock company by the Ministry of Energy of Armenia, Russian Federation “Gazprom” joint-stock company and “ITERA” International Energy, LLC.
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According to another resolution of the government of the RA (N568 from September 18, 1998) the form and the degree of the participation of the Armenian party were set. Under the articles 20 and 24 of “Joint-Stock Companies Law” of the RA “Haygazard” state closed joint-stock company was re-organized through the pooling of “Haygaz”, “Haytransgaz”, “Erevangaz”, “Gazavtotransport”, “Underground metal protection”, “Transgazshin”, “Haytransshin”, “Armavirgazmachi-ne” («Արմավիրգազմեքենա»), Material and Hardware Supply and Kitting”, “Building materials and construction works” and “Gazcapshin” state closed joint-stock companies. The credentials of the disposal of the founded company shares were granted to the Ministry of Energy of the RA. It was also concluded:
a) To put the credentials of the management of the part of the authorized fund of “ArmRusGasProm” CJSC (45%), which belongs to them, at the disposal of “Haygazard” SCJSC;
b) To ensure the investment of the gas-transport system of the Republic of Armenia, which cost was $270 million, into the “ArmRusGasProm” CJSC, in order to increase its authorized funds.
Diagram 2
The diagram of the growth of the amount of the natural gas supply and gas consumption in Armenia
2500 2000 1500 1000 500 0
2055
1685 1716
18J59
1333
1201 _1222 .1034
xh
2002 2003 2004 2005 2006 2007
I Import, million cubic meters ■ Consumption, million cubic meters
The source: “ArmRusGasProm” CJSC
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Recently the company has had essential success in all the major directions of its activity: the supply and the sell of the natural gas in Armenia, the running and the repair of the gas supply infrastructure, the implementation of large-scale investment plans. The amount of the gas supply and the consumption in Armenia at the recent period has doubled (Diagram 2).
We can point out the following positive results of the company’s activity in 1997-2007:
• the actual number of gas consumer multiplied by 5,1
• the gas supply network expanded 2,1 times
• the amount of gas in gas storage doubled
• the payments to the state budget multiplied by 11
• the payments to the social insurance fund increased 7.5 times
• “ArmRusGasProm” has turned from a company, which operated at a loss into a
profitable company, which revenue for 2007 constituted $35 million.
The result of the company’s ten years activity can be estimated as positive. At present “ArmRusGasProm” is one of the biggest companies in the republic and it takes the first place from the point of view of authorized capital, assets and fixed assets. The company plans to increase its authorized capital up to $1 billion and the market capitalization up to $1.5-2 billion.
“ArmRusGasProm” company takes the second place among 100 biggest taxpayers of the republic according to the results for the first half of 2008. In the first half of 2008 the general sum of the taxes paid constituted 9413.7 million drams, which is 21% less than it was at the same period of 2007 (in the first half of 2007 the general sum constituted 11953.8 million drams [9, p. 88].
The investment plans of the company are also the biggest in the RA. The total amount of the investments over a decade was more than $110 million, and in 20082010 it is planned to invest about $600 million in the energy system of the RA.
While speaking about the strategic goals, let us mention that the company tends to become the gas supply and energy organization of regional significance and to secure its presence in both domestic and external markets. “ArmRusGasProm” company, which possesses the considerable electricity production actives, targets to become an active actor on the electricity market.
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2. Macroeconomic situation
The positive results of the energy companies’ activity are mostly conditioned by the purposeful and elaborated strategy of that activity, which allows those companies to use the economic growth of Armenia in their own interests.
The macroeconomic situation in Armenia has been estimated as mostly stable and predictable. Since 2002 two-digit indicators of economic growth has been recorded in Armenia. According to the data for 2007 the 14% growth of GDP was provided, in the industry it constituted 2.7%, the export volume grew on 21%, the investments in the real sector of economy grew on 58%. Moreover, the economic growth was secured under the low inflation. In Diagram 3 the dynamics of the development of the economy of the RA in the recent period is presented.
On the assumption of the developments on oil and gas international markets, price variation and the tense situation caused by it, it is hard to predict the further level of oil, oil products and gas prices. We can predict that due to the developments connected with the economic recession in developed countries, the volume of the international trade will reduce and this will obviously influence the rates of further economic development and economic growth.
Diagram 3
The dynamics of the growth of the GDP of the Republic of Armenia
2000 2001 2002 2003 2004 2005 2006 2007
GDP growth (billion $) ^^“GDP growth (%)
Source: International Monetary Fund
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3. Liberal Held for the arrangement of the energy resources trade
During the reformation of the energy system the government of the RA carried out a number of very important measures, which were directed to the creation of the attractive and impartial environment in the country. Today companies with foreign capital can make investments in any field of the economy of the RA without any limitation1. The government of the RA boosts foreign investments and the companies with foreign and domestic capital enjoy equal rights.
Generally, we can mention the following “strong” institutional points of the Armenian energy market: liberal legislation, the legal field, which is efficient for the investments, liberal trade policy, the competitive prices set for the electricity, the state programme on the construction (exploitation) of new electricity production capacities, the stimulus for the development of the alternative and recovery energy (wind, hydro-, hydrothermal, solar).
A number of advantages, which are peculiar to Armenia’s developed energy infrastructure, should be added to the aforementioned. Those advantages are:
• the diversification of the energy carriers and power stations
• the diversification of the routes of natural gas import
• the availability of gas underground storages
• the availability of additional production capacities
• the availability of the network, which forms developed internal system
• the availability of developed network of the interconnection lines
• the high level of qualification and specialization of the personnel.
The Republic of Armenia, due to its regional location, is a kind of interconnection link between the Russian Federation, the Islamic Republic of Iran and the Caspian countries, which are all abundant in hydrocarbon resources. And the accomplished and fast developing collaboration with such global giants as “Gazprom”, “Inter RAO” Company, Russian Nuclear Power Agency (Rosenergatom) creates qualitatively new conditions and unprecedented possibilities to turn the country into one of the main actors on the regional energy market.
At present we can state that the Republic of Armenia, which has no hydrocarbon resources and access to the sea, demonstrates good example of the appropriate level of the country’s energy security protection and the fast development of the en-
1 By the way, there are many countries, which impose such a limitation, especially in the spheres of the natural resources utilization.
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ergy system, against the background of the complicated and ambiguous political and economic processes in the countries of the region. The transformation of Armenia from the country, which had energy shortage not so long ago, to the country with the overstock of energy resources, first of all took place due to the drastic and timely reforms, large-scale assistance delivered to the energy sector by the international organizations (World Bank, EBRD, KfWand etc), as well as the choice of the appropriate strategic partners for the energy system.
4. Prediction of the demand for the electricity
According to recent surveys on the energy demand and consumption in the Republic of Armenia, in our opinion, the following should be pointed out:
1. The perspectives of the energy sphere till 2020 (SOFRECO French company), carried out in May 2003 in the frames of TAGIS INOGATE “Armenia’s gas supply security on the condition of the Metsamor nuclear power station shutdown” project.
2. Independent expert evaluation of long and short-term energy demand and supply in order to evaluate the alternative options of the Armenian nuclear power station shutdown. (CarlBro & MWcompanies, TACIS, 2003).
3. Planning of the energy sector and nuclear energy of Armenia (Energy and Nuclear Power Planning), 2004, carried out within the framework of the project of technical cooperation IAEA.
4. “The strategy of the development of the energy sector in the context of the economical development of Armenia” (Project carried out by the Government of the Republic of Armenia, June, 2005).
5. The 2006 Least Cost Generation Plan (LCGP) up to 2025.
The analysis of the aforementioned works enables us to do the following predictions concerning the demand for electricity in the Republic of Armenia:
1. The Metsamor nuclear power plant must go on operating till the lifetime of the 2nd energy block in 2016. The issue of the new nuclear energy blocks operating before the end of the aforementioned term is still topical and the scenario of the development of the energy system of Armenia in the line of the nuclear energy is now announced by the government of the RA as one of the preferred directions. The principal of the diversification of the sources of energy production, as well as the provision of 40% of energy at consumption peaks in the energy system of the RA by the nuclear power plant produced
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energy, allow us to predict that the generating capacity of the nuclear power plant will be about 1000-1200MW, as the maximum load expected in 2025 may be about 2200MW, in the case of moderate scenario, and 2600MW, in case of optimistic scenario.
2. From the point of view of modernization of the production capacities (the replacement of the old and non-efficient capacities and the running of the new ones) the running of the new thermoelectric power plants through using the new gas-turbine technologies at Yerevan hydroelectric power plant (208MW) and at the 5th block of Hrazdan hydroelectric power (440MW) are one of the priority directions.
3. Hydro-energy capacities due to the technical reasons cannot be regarded as a stable source of production capacity renewal. That is why the recovering of the existing hydro-energy resources and the construction of the new ones (Meghri hydroelectric power plant – 140 MW capacity, Loriberd hydroelectric power plant – 68MW capacity, Shnogh hydroelectric power plant – 70MW capacity) should be considered in the context of the development of our own ecologically harmless sources of energy, along with solar power, wind power and regenerating energy.
4. Till 2025 the average growth of electricity consumption in Armenia will be 3.4% (according to The 2006 Least Cost Generation Plan), starting from 5572 billion KW per hour generated power (without taking into consideration the power consumed for their own purpose) and 1230 MW peak cost, which is the index for 2007, up to 7% (in accordance with the IAEA Energy and Nuclear Power Planning document). In this case, in addition to Yerevan hydroelectric power plant, the 5th block of Hrazdan hydroelectric power plant and the new nuclear power plant with 1000MW capacity, 400MW efficient thermocapacities should be put in commission before 2022.
5. The necessary investments for the development of the energy production capacities in Armenia (including the expenses for the construction of the new nuclear power plant) in the period up to 2025 will constitute $2800 million.
In case of optimistic variant, when the predicted growth of electricity consumption constitutes 4.4% annually, the gross output of electricity in Armenia in 2010 may grow more than 1.25 times (up to 7465 million KW per hour) as compared to the same period in 2007, and in the same period in 2020 it may grow almost two times (up to 10906 million KW per hour). In case of more restrained rate of economy growth (3.4% average growth of electricity consumption) the level of electricity pro-
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duction in the RA will be about 7227 million KW per hour and 9289 million KW per hour correspondingly.
In Diagram 4 the predicted growth of electricity home consumption in the Republic of Armenia is presented.
Diagram 4
The predicted growth of the electricity consumption in the RA Programmes of the integration of production capacities in the Republic of Armenia
10000
9000
8000
7000
6000
5000
4000
3000
2000
1000
0
2008 2010 2015 2020
■ Domestic consumption (million KW/h) under 2.3% annual growth
■ Domestic consumption (million KW/h) under 3.4% annual growth
■ Domestic consumption (million KW/h) under 4.4% annual growth
Source: PA Consulting
5. Programmes of implementation of production capacities in the Republic of Armenia
The real demands of the energy security of Armenia are expressed in the current programme of the Ministry of energy and natural resources of the RA and the programme is based on the provisions of the national security strategy of the RA [10]. It is planed to carry out the following programmes before 2020:
1. In the sphere of the integration of new production capacities-
• The construction of new energy block (more than 1000MW) at the Armenian nuclear power plant;
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• The completion of construction of the 5th energy block of Hrazdan thermoelectric power plant, which is more than 440 MW;
• 208 MW energy equipment constructions at the Yerevan thermoelectric power plant;
• The construction of wind farms with 208 MW common capacities;
• The construction of the hydroelectric power plants with 1100 MW common capacity, and “small” hydroelectric power plants with more than 260 MW capacities.
2. In the sphere of energy:
• The construction of new interconnection lines: Iran-Armenia 440 KW two-line route and Armenian-Georgia 400 KW high voltage line;
• The reconstruction of Gyumri-2 220 KW high voltage electrical sustention.
• For the purpose to raise the level of service, to reduce the trade and technical losses.
In case of successful implementation of the planed programmes the Republic of Armenia, in spite of the growth of the energy resources demand in the country (including electricity demand), in the medium term will remain a country with a considerable overstock of energy production capacities, including a considerable amount of thermal capacities. The thermal energy resources are regarded as mostly competitive in the South Caucasus region, and it is planned to pass from steam thermoelectric power plants (which work on gas) to combined-cycle power plants, which efficiency factor is higher (at present up to 50%, and in perspective 60% and more).
On different estimates, taking into consideration the long-term obligations on the export of electricity for gas supplied from Iran to Armenia, the overstock of competitive capacities in 2016 will be more than 1500 KW, which corresponds to 10 billion KW per hour electricity annually.
6. Perspective demand for electricity in the countries of the South Caucasus region
South Caucasus and neighbouring countries region is at the crossroads of serious international, mainly oil and gas energy, projects. An opportunity of new energy communication is created in South Caucasus. In all the countries of the region the demand for power resources has constant tendency to increase, particularly in the next two decades, an increase in the demand for electricity and gas is predicted.
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In order to secure energy self-sufficiency, besides being provided with our own energy resources, the efficient energy production is also extremely necessary. From this point of view in the Armenia’s neighbouring countries today the ongoing problem of produced energy capacities and in the near future even more serious problems can be observed.
For instance, Georgia has imported about 15% of consumed power for recent years, mainly from the Russian Federation and Armenia. The main reason of such a situation was the unsatisfactory technical condition of hydroelectric and thermoelectric power plants. At present the average annual level of the consumption in Georgia is 8.5 billion KW per hour, but in that country the growth of energy resources (including electricity) consumption is predicted. Taking into consideration the forecasts on the new capacities implementation, in the coming 3-5 years the shortage of 500 MW capacities will remain in Georgia.
Turkey’s electricity market is one of the rapidly growing markets. In the period between 1995 and 2007 the demand for electricity increased by 6.6% annually, and it’s predicted that in 2008-2015 it will be at the level of 8.5 %. It is also expected that the consumption of power in Turkey, which reached its maximum level in 2006 - 170 milliard KW per hour, by 2020 will have been multiplied by 4 reaching the level of 499 KW per hour. In order to provide the abovementioned level of consumption it is necessary to increase three times the generating capacities of the power plants in Turkey, i.e. from 38500 MW in 2005 to 96000 MW in 2020. These figures exceed average indices of the EU countries, and taking into consideration the low level of consumption for one person, they witness about the profitability of the energy sphere.
On the assumption of the Eurocommission experts the investments made in the electric energy sphere of Turkey are enough to supply the demand only till 2009. After 2009 Turkey will have to import electricity, if there are no investments made in independent energy projects. From 2009 it will be necessary to add at least 4000 MW capacities in Turkey’s national electricity net annually, or $4 billion in-the-money. The Ministry of Energy and Natural resources of Turkey stated that it is necessary to invest $20 billion in the sphere of the energy in coming five years. Till 2020 51000 MW new production capacities have to be put into commission and the expected demand for the electricity for the same period will claim for $130 billion investments.
As for the Islamic Republic of Iran the shortage in energy resources will be 2500 MW, and it grows every year, though there is a large-scale energy building carried out.
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All the aforementioned once more comes to prove the fact that though there are rather large hydrocarbon resources in a number of countries in South Caucasus, the exploitation of new electricity capacities in mid-term in Georgia, Turkey and the Islamic Republic of Iran cannot supply the planned demand for the electricity in that countries. In other words, for the Republic of Armenia, the countries of the region are the prospective market, with stable demand and predictable consumption.
7. Armenia’s electricity export potential
The existence of production capacities, which can meet the current and prospective demand, is one of the main peculiarities of the Republic of Armenia, and the geographic proximity of probable consumers is an objective fact. Taking into consideration the fact that the lowest price on gas among the countries of the region is in Armenia, the structure of the electricity production is efficiently balanced as well as some other factors, one can state that there is no other cheaper and technically available electricity source in the region at present.
Taking into consideration the possible volumes of electricity production per year, the predictions of the electricity necessary for home consumption, the current transfer capacity of the interconnection lines, the overall value of electricity supply from the energy system of Armenia to the energy systems of Georgia, Turkey and the Islamic Republic of Iran (and this can be possible only in case of combined, parallel work of the energy systems of the countries) may constitute 6 billion KW per hour1 (Diagram 5).
The export volume of “ArmRusGasProm” CJSC worth special mentioning, because today that company is diversely involved in electricity system. Such an involvement is determined by the company’s strategic objectives and by realizing the fact that electricity is good area of specialization for the company, which allows proving the considerable overall result. It should also be added that “ArmRus-GasProm” Company owns rather big gas and energy objects and can manoeuvre within such financial and technical resources, which let us suppose that “Arm-RusGasProm” can turn into one of the key actors on the electricity supply market of the region in short-term period.
1 Here the implementation of long-term responsibilities on the supply of electricity from Armenia to Iran for the gas, which is supplied from Iran to Armenia, is also taken into consideration.
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Diagram 5
The possible volume of export of electricity from the Republic of Armenia with the account of the transfer capacity of the interconnection lines, billion KWper hour
8. New quality of the export policy
At present the export policy of Armenia should be directed to the creation of special and extremely efficient opportunities of activation of external economic exchange with the neighbouring countries. And this can significantly promote to the growth of level of the energy security in the country.
Armenia, which has two gas pipelines, underground storage capacities and the excess of competitive productive capacities, has all the prospects to become liberal energy platform in the region. In order to meet such a pretentious objective, a number of large-scale programmes should be carried out in Armenian economy and, especially, in the sphere of energy. The goals and the objectives, which underlie that programmes, can be generalized in the following points:
• Rise of energy security level of Armenia through the creation of the foreign competitive market;
• It is necessary to carry out the state policy directed to the promotion of the energy projects, which have external orientation and are based on flexible price policy;
• Elaborate the mutually coordinated positions of the strategic partners (“Gazprom”, “Inter RAO” Companies and etc) on the prospects of the extending of the cooperation in the sphere of energy, where not only proximate neighbours of Armenia should be included but also such countries as Iraq, Turkmenistan and etc.
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The main conditions of the implementation of the aforementioned goals of turning Armenia into the regional energy “platform” are:
• Liberalization of the external economic exchange;
• Widening of the availability of the innovatory achievements, progressive technical standards, methods of the state management of the economy and methods of corporative management.
• Concrete steps in the line of export policy new quality securing.
To carry out the aforementioned measures it is necessary that all the countries of the South Caucasus region clearly realize the prospects of energy cooperation and be ready to maintain legal regime (“the rules of the game”), which meet international norms and cannot be changed without permission and unilaterally. Armenia regards the current situation on the regional energy market as a positive factor and in the near future the real chance to be involved in big energy projects, in which our republic has serious chances to become a key actor.
November, 2008.
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7. Бушуев В.В., Воропай Н.И, Мастепанов А.М, Шафраник Ю.К. и др., Энергетическая безопасность России. Новосибирск, Наука, сибирская издательская фирма РАН, 1998.
8. Благодатских В.Г, Богатырев ЛЛ, Бушуев В.В, Воропай НИ и др. Влияние энергетического фактора на экономическую безопасность регионов России, Екатеринбург, 1998.
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10. Հայաստանի Հանրապետության ազգային անվտանգության ռազմավարություն, հավանության է արժանացել ՀՀ Նախագահին առընթեր ազգային անվտանգության խորհրդի 2007թ. հունվարի 26-ի նիստում: ՀՀ Նախագահի 2007թ. փետրվարի 7-ի ՆՀ-37-Ն հրամանագրի հավելված:
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