Even though major natural gas consumers in Armenia will have to contend with a 14 percent rate hike set for July 1, this need not necessarily result in higher fares for public transportation and taxi services. The share of the cost of natural gas in fares will not exceed 18 percent, and that increase in fuel costs could be offset by cuts in other costs.
The Public Services Regulatory Commission estimates that if the government subsidizes 30 percent of the gas price increase for large-scale natural gas consumers (those who use in excess of 10,000 cubic meters) for the set price of $270 per 1000 cubic meters of Russian natural gas, the gas price tariff should rise to no more than $276.98/1000cm compared with the current $243.13 – an increase of $34, or 14 percent.
This will be reflected first in higher prices at natural gas pumping stations, which currently charge on average 165 AMD per cubic meter, of which 60 percent is the cost of the actual gas. The increase in the gas price alone will drive up prices at pumping stations by 14 AMD per cubic meter, or 8.5 percent. If we factor in the AMD/USD exchange rate and increases in the cost of electricity (a 27 percent increase per kWh as of July), then prices at natural gas pumping stations could reach 180-185 AMD for one cubic meter of natural gas.
This 15-20 AMD increase should still not have a serious effect on fares for those taxi services or public transportation vehicles which utilize natural gas. Such vehicles require one cubic meter of gas to travel 10 km. This means that of the 100AMD/1km fare set by taxi services, 16.5AMD is the actual cost of natural gas. As of July 1, this will rise to 18.5AMD, an increase of just 2AMD, or 2 percent of the cost per km travelled. Taking into account the level of competition in the sector, that increase should not justify a request to review taxi fares.
On the other hand, given the current inflationary trends, it cannot be ruled out that taxi services will request a 10 percent increase per 10 km travelled (i.e. per one cubic meter of gas consumed), especially when the taxi drivers themselves are responsible for refueling.
As for public transport, the rise in natural gas costs should have only a minor impact on fares. Of the current fare of 100 AMD, the cost of the fuel amounts to just 5 AMD. After July 1, that may increase by 2AMD maximum. This could be offset by spending cuts, rather than reviewing tariffs
On the other hand, we should keep in mind that public transport fares have remained unchanged for about 10 years, so it is possible that companies that provide such services will apply to the municipal authorities to increase passenger fares by 50 %, to 150 AMD. If that request is approved, the price hike would take effect not as of July 1, but in August, during the peak holiday season.
