Armenia's energy sector hasachieved a level of electricity reliability, service qualityand efficiency of sector operations that stands out amongcountries participating in Commonwealth of IndependentStates (CIS). Much of this can be attributed to a decade ofregulatory reform including a long-standing commitment tocost-recovery tariffs. The study is structured as follows:section one provides definitions of the key terms used and abackground on the current tariff setting process in Armenia.Section two indicates how far tariffs have departed fromcost-recovery levels and what costs have not been covered asa result. Section three describes how new investments willaffect the average cost of service and the averageresidential tariff. Section four proposes a marginalcost-based tariff structure and explains why this differsfrom the current tariff structure. Section five discussesthe poverty and social impact of tariff increases needed tocover new investments in 2021. Section six identifiesoptions for subsidization and mitigating rate shock thatwill help transition to higher, marginal cost-based tariffs.Finally, section seven summarizes conclusions andrecommendations of the analysis.
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