Deloitte & Touche: Electricity Rate Hikes Justified

#Electric Yerevan protest against electricity rate hikes shut down Baghramyan Avenue in the center of Yerevan for almost two weeks in June.

Deloitte and Touche international audit firm has said the energy rate hike in Armenia was justified. The company presented the report on the first stage of consulting services to Armenia's Public Services Regulatory Commission.

“We analyzed the situation in Armenia, where the sole energy supplier stands at the verge of default, which is mainly connected with the inconsistency between the predictions of the system’s operator and the load capacity,” Deloitte and Touche said in the report.

The leading U.S. financial services firm was hired by the Armenian government to determine whether the recent rise in electricity prices in Armenia, which sparked  street protests, was economically justified.

Deloitte & Touche experts say the mistakes made over the last three years led to overestimated forecasts for cheap energy production by hydroelectric power against the background of declining levels of water in reservoirs after rainless and hot summers in 2009-2012. The statement says this forced the Electricity Networks of Armenia (ENA) to buy the shortfall amounts of electricity from the Hrazdan thermal power plant at a price 3-5 times higher than the price of electricity generated by large hydroelectric power stations.

At the same time, the statement says in order to stabilize the situation in the long term, the regulator must determine the internal reserves of cost savings for operating facilities, while the relevant government bodies must clearly prioritize the development of the industry, especially the construction of new facilities.

The Republic of Armenia’s Public Services Regulatory Commission (PSRC) in June unanimously approved the electricity rate hike. The cost increased to 7 drams ($0.01 USD) per kilowatt hour, and came into effect on August 1, 2015.

These sparked nationwide protests. Clashes erupted with police, and several activists were arrested and released hours later.

In August the Armenian government selected Deloitte & Touche to determine whether the decision by the PSRC to allow Armenia’s power distribution company to raise electricity prices was economically justified or resulted from purported corruption and mismanagement. According to Prime Minister Hovik Abrahamian, the results of the audit provides answers to many questions, which is of interest both to the government and the public at large.