Why Armenia is conducting audit of electricity systems

The Armenian government has chosen the company that should hold an audit in the JSC 'Electric Networks of Armenia' (ENA) on a competitive basis. The international company Deloitte Consulting was selected to hold a research of price formation and basic elements of tariff fromation. ENA is a subsidiary of the Russian company 'Inter RAO UES'. The decision to conduct the audit in the ENA company was taken by the authorities at the end of June under the pressure of protests, society was disturbed by another increase in electricity tariffs. Press secretary of 'Inter RAO UES' Nikolai Gorelov stated that the company had no objection to the choice of the Armenian government.

Experts called the government's decision to audit the ENA company a positive, but considerably belated measure. According to experts, a full study of the situation requires a broader framework of the audit, rather than the format proposed by the Commission on Regulation of Public Services (CRPS). According to official information, the decision of the CRPS established that the consultant should carry out research of basic elements of tariffs, as well as assessment of the impact of the preservation of tariffs at the same level.

According to the director-shareholder of the auditing company Grant Thornton, Gagik Gyulbudaghyan, they should conduct not only a financial audit, but also other researches for which they need an accurate and detailed technical assignment. It will be possible to create a clear understanding of the validity of the proposed tariff increase on the basis of the financial reports of the company, establishment of the degree of implementation of the commitments on investments, included in the business plan of the company, as well as on the basis of research and examination of a new plan of ENA in terms of feasibility of its implementation.

Economist Vahagn Khachatryan believes that the CRPS side did not clearly formulate the goals and objectives of this research. In addition, the economist is surprised by the areal of pomposity around the audit: "The importance of the upcoming inspection of the ENA company is greatly exaggerated, because an audit of the company is held every year."

Many people are very skeptical about the upcoming audit. An increase in electricity tariffs of 16% from August 1 was the fourth in the last 5 years. However, even such frequent rises in prices of electricity have not led to an increase in the efficiency of the electricity distribution networks. The economist Ashot Yeghiazaryan believes that the audit company ENA will not prevent an increase in electricity tariffs in Armenia, as the country's energy system is in poor condition and uncompetitive.

Experts speak about the inevitability of a new rise in electricity prices. According to some media reports, a suspension of the Armenian Nuclear Power Plant (ANPP) for 200 days for a major overhaul is expected to happen next year. It is assumed that in this period electricity will be supplied to the population by the Thermal Power Plant (TPP), but the production costs of the TPP are substantially higher than the electricity produced in the ANPP. That is, within 200 days the ENA company will receive and distribute more expensive electricity, which will be reflected in the tariffs. Why in such cases does the government prefer to buy electricity from thermal power plants, and not the cheaper electricity produced by the hydroelectric power station? Obviously, the reason for such a frequent increase of tariffs lies not only in the shortcomings of the ENA company, but in the use of inefficient energy system management approaches. Otherwise, how can you explain the fact that in a country where about 70% of the electricity produced is low-cost electricity (from nuclear and hydroelectric power plants), the electricity prices are the highest in the former Soviet Union? According to the comparative table of existing electricity tariffs in 15 former Soviet republics, which was published by the 'Union of Informed Citizens', electricity tariffs in Armenia are the highest not only in the EAEU, but also throughout the CIS. Among the countries of the former Soviet Union only Latvian and Lithuanian electricity prices are more expensive than Armenian ones.

As part of the process of improvement of the energy system, economists and politicians advise to conduct an audit not only in the ENA, but also in companies that supply the ENA with electricity. Chairman of 'Sil Group' Khachatur Sukiasyan, MP of the parliamentary faction of the 'Prosperous Armenia' party Mikael Melkumyan and others pointed out the need for audits in company-producers.

According to observers, the audit is a kind of order of the authorities and the main purpose of the audit is to confirm the statement made by President Serzh Sargsyan on the correctness of the tariff increases and that otherwise the energy system of the country will face a serious threat.

However, conducting the audit initiated by the Armenian authorities has far more serious political roots. The audit is likely to have been made in order to slow down the protest movement and neutralize the extremely negative attitude of society to the rise in tariffs in general. The audit aims to buy time and transfer the social tensions to the moderate track. In this sense, the period of this research (from 3 to 6 months) serves as fertile ground to distract public attention from the problem of the increase in electricity tariffs.