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    Armenia, Russia agree on terms for relaunching fifth unit of Hrazdan power plant for 10 years

    December 7, 2022 - Interfax Russia & CIS Energy Newswire


      YEREVAN. Dec 7 (Interfax) - Agreements between Armenia and Russia on relaunching Gazprom's (MOEX: GAZP) fifth generating unit of the Hrazdan Thermal Power Plant are intended to be in effect for ten years until July 31, 2032, a protocol on amendments to an agreement between the two countries' governments on the terms of the sale of shares in and subsequent operation of CJSC Armrosgazprom, currently known as CJSC Gazprom Armenia, states.

      The protocol to amend the 2013 agreement, which has been published on the official Russian website for legal information, regulates the terms of the generating unit's operation and went into effect on November 29, 2022, the Armenian government told Interfax.

      Under the terms of the document, the amounts, schedules, price and other terms of natural gas supplies to Armenia are determined independently by the parties to long-term contracts between Russian gas giant Gazprom and its wholly owned subsidiary Gazprom Armenia, the operator of the country's gas transport system. The procedure for setting prices for gas supplies to Armenia, beginning of January 1, 2019, is determined by a protocol between the Armenian government and Gazprom that was signed on July 18, 2022.

      The agreement has been supplemented with a provision stipulating that the operator of Armenia's energy system will annually, for ten years starting February 1, 2022, order the capacity of the Hrazdan-5 plant on terms that ensure reimbursement of Gazprom Armenia's current expenses on operating and maintaining the plant in the amount of $3 million, as well as provision of additional financial resources to Gazprom Armenia in the amount of $31.79 million annually.

      It is also stipulated that a two-rate tariff for electricity (capacity) will be set annually in the period from February 1, 2022 to July 3, 2032, inclusive, based on the payment for capacity over the ten-year period totaling the equivalent of $34.79 million annually. In the period from August 1 to July 31, 2032, annual reimbursement of Gazprom Armenia's expenses on operating and maintaining Hrazdan-5 will total $3 million.

      This payment for capacity can be reviewed if the price of gas supplied to Armenia that was in effect on October 29, 2021 changes in the period from February 1, 2022 to January 31, 2032, or when the 400-kV Iran-Armenia power line that is under construction goes into operation, on the condition that Gazprom Armenia generates additional operating income from additional sales of Hrazdan-5 electricity by exporting via this power line.

      Hrazdan-5, which was built in 2013, has been shut down since 2019 due to insufficient demand for its electricity.

      An Armenian government decision said that the payment includes $31.79 million to recoup Gazprom's investment and $3 million in reimbursement of expenses on maintaining Hrazdan-5.

      Hrazdan-5's insufficient generation is due to the absence of commercial contracts, as well as delays in the construction of the Iran-Armenia power plant, the decision said. As a result, Gazprom's investment was not reimbursed and credit obligations grew to $100 million, it said.

      The government expects that such annual compensation will facilitate the relaunch of Hrazdan-5 and make it possible to keep the price of natural gas supplied to Armenia stable for ten years.

      The Armenian and Russian government's agreed in December 2021 to maintain the current price of gas for 2022. Armenian Prime Minister Mher Grigoryan said at the time that the gas price of $165 per 1,000 cubic meters at the country's border would remain in place, but that there were two issues on which agreement needed to be reached. "The first was the operation of the fifth generating unit of Hrazdan TPP. The second is the gas calorific value in the rate. These issues are being discussed, but the gas price has been set and extended," Grigoryan said.

      He also said that the main problematic issue with Gazprom was the relaunch of Hrazdan-5. "The generating unit was built in 2013. The plant is not operating now, unfortunately. All of Gazprom's investments in Armenia, based on the 2013 contract, are supposed to have a 9% return. Construction of the plant is a substantial investment, but it is not generating such income and this issue remained on the agenda. If we manage to find a solution for the issue, we will have a very stable situation for the price of gas both at the border and in Armenia. We want the fifth generating unit to become part of Armenia's energy system," Grigoryan said.

      Gazprom is the sole supplier of natural gas to Armenia that is sold to consumers.

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