Tuesday, January 30, 2007

Plans/rumors about building an oil refinery in Armenia.

During the past few days there have been reports in the Armenian press that there are plans to build an oil refinery in Southern Armenian city of Meghri. It is to be built by the Russian 'GasPromNeft' corporation.

This certainly is a good news. There have been talks about building a refinery since 1992. At that time the prime minister suggested that such a plant be built but there was even no bread to eat for the population so it was kind of a fantasy. But times have changed and the socioeconomic situation is far better now than then.

Economically, this is a very smart move by the Armenian authorities. The raw oil will be imported from across the border with Iran. Some of the refined oil will be exported back to Iran and some of it will be used in Armenia. Right now Iran has a shortage of gasoline and other refined oil products. This shortage is expected to grow in the future as the Iranians grow more affluent and buy more cars (the car production is reportedly booming in that country).

The second benefit is the lowering of the transportation costs to import oil products into Armenia. Gasoline is imported from Bulgaria. It has to cross the Black Sea, get unloaded in Poti port in Georgia, and transported to Armenia on trucks. This is a logistically complicated and costly process. With a refinery in Meghri, we will have our own supply in our backyard.

What concerns me is the environmental aspect of this. The Armenian authorities are not known for a passion for the environment. An economically depressed society values the job creation over the environmental destruction. Look at the copper mill in Alaverdi or the cement factories in Ararat. The Russians definitely are not interested in an environmentally friendly plant either. As business owners, they could care less if they destroyed Meghri. It's not their country, and they will be more interested in the bottom line.

The area is also vulnerable to Azeri attacks from Nakhijevan or Azerbaijan proper. The plant should be built next to the Arax river so that if the Azeris attack it, the oil spill will flow to Azerbaijan. This is to leverage the safety of the refinery with the Azeri water supply. Of course, there have to be precautions taken so that there are no accidental spills into the river. You do not want to harm the Azeri population and environment in peace time.

I don't know if there have been any studies about the economic viability of this project. There will be a need for infrastructure development. Right now there is only a narrow highway linking both these countries. There will be a need to build a railway link and probably an oil pipeline as well. Bot of these are costly but for the economic development of Armenia and Zangezur region these are important.

1 comment:

Haik said...

I red somewhere that there are plans to built an oil pipeline from iran to Armenia. Actually that was probably the reason behind kKocharian's last visit to Russia. I guess Russians try to keep Armenians happy as all the regional projects bypass Armenia.
Maybe those are just talks before the elections to strenghthen Kocharian's position.