By Karine Kalantarian and Atom Markarian
A Russian-owned company has stopped sales of Armenian electricity to Georgia, citing substantial losses incurred as a result of the dramatic appreciation of the dram, which is putting a growing strain on Armenia’s exporters. A sales manager at the International Energy Corporation (IEC), Garegin Baghdasarian, said on Monday the power supplies ceased Sunday morning and will resume only if Georgia’s Telasi power utility agrees to pay a higher price for them.
“We have incurred substantial losses in the past two months,” Baghdasarian told RFE/RL. “The dollar was worth 500 drams when we signed the sales agreement [with the Georgian side]. It is now worth 440 drams. We buy electricity [from Armenian power plants] in drams and sell it to Georgia in U.S. dollars.”
The dram has strengthened against the dollar by as much as 10 percent since January and about 30 percent since the beginning of last year. Its appreciation against the euro has also been substantial.
The owners of export-oriented Armenian companies are beginning to express concern about negative consequences of the unprecedented phenomenon, saying that it is making their products less competitive abroad. A Yerevan-based factory producing electrical lamps reportedly suspended its work last month for that reason. A large part of its production was sold in Georgia.
Baghdasarian said IEC stopped making profits late last year and began operating at a loss when the dram’s strengthening again accelerated a month ago. He said the company has offered Telasi, which runs the power distribution network in Tbilisi, to negotiate a new price and is still awaiting a response.
IEC supplied Telasi with 2.45 million kilowatt/hours of electricity a day at 2.75 U.S. cents per one kilowatt/hour. Incidentally, both firms are owned by Russia’s state-run power utility, the Unified Energy Systems (UES).
The Armenian authorities maintain that the dram’s surge against the world’s two most important currencies results from a drastic increase in multimillion-dollar cash remittances sent home by Armenians working abroad. A large part of Armenia’s population lives off that money and has therefore been hit hard by the exchange rate change.
Government critics allege a high-level conspiracy designed to benefit a small number of government-linked importers of basic commodities to Armenia. The Armenian Central Bank, which sets the exchange rate, denies the charges.
The official explanation for the dram’s appreciation was on Monday again endorsed by a senior official from the International Monetary Fund. “We fully support the Central Bank in its monetary policy,” James McHugh, the IMF’s resident representative in Yerevan, said at a joint news conference with a member of the bank’s governing board, Vache Gabrielian.
“We don’t share the claims that the country stands on the brink of collapse,” Gabrielian told reporters. “We believe that the existing regime has served the Armenian economy quite well.”
Gabrielian also said the Central Bank will intervene only if the exchange rate fluctuations become “very drastic.” “A smooth currency appreciation is a normal phenomenon,” he said.
McHugh, for his part, refuted a report in a government-run newspaper which quoted him as saying that the IMF itself told the Central Bank last year to boost the dram in order to curb inflation. He said he was misquoted by the reporter.