EurasiaNet Organization
July 14 2005
ARMENIA: ANSWERS DEMANDED ON UES ENERGY DEAL
Samvel Martirosyan 7/14/05
Uncertainty surrounds a reported deal with Russia’s Unified Energy
Systems that would grant the company ownership of Armenia’s main
electricity company. After stating several months ago that it had
purchased the utility, the Russian energy giant on July 13 reversed
itself, claiming that it had only secured a management contract. The
transaction, shrouded in secrecy, has already sparked strong
criticism from one international financial organization, which faults
the Armenian government for refusing to answer questions on the
topic.
On June 30, the Russian energy giant Unified Energy Systems (UES)
announced that Interenergo, an offshore subsidiary of UES, had
purchased 100 percent of the shares of Armenian Electricity Network
(AEN) for $73 million. One of Armenia’s most successful companies,
AEN had been (and may still be) owned by the British-registered firm
Midland Resources Holding, Ltd. In 2004, AEN ranked as Armenia’s
fourth-largest corporate taxpayer, according to the Armenian-European
Policy and Legal Advice Center, and earned revenues of some 70.67
million drams (about $106.6 million).
If the AEN purchase by UES is confirmed, Russian companies would be
poised to take full control of Armenia’s energy industry following
more than two years of steady expansion. In 2003, within the
framework of Armenia’s assets-for-debt program with Moscow, the
Hrazdan thermal power plant, the largest such plant in Armenia, was
transferred to Russia for $31 million. [For additional information
see the Eurasia Insight archive]. UES also was named “financial
manager” of the Armenian nuclear power plant Metsamor. To pay for the
delivery of nuclear fuel to Metsamor, the Sevan-Hrazdan hydroelectric
power station cascade was transferred to Russia in 2003. The same
year, GazProm, the Russian energy conglomerate, became the chief
supplier of natural gas to Armenia. The company also holds 45 per
cent of shares of “ArmRusGasProm,” which holds a monopoly on
distribution of natural gas in Armenia.
Under existing legislation, the sale of one-quarter or more of AEN
shares requires the approval of the government and the Commission on
Regulation of Public Services. The Armenian government has declined
all comment on the issue.
Controversy over the possible sale continues to build. Radio Free
Europe/Radio Liberty quoted a UES spokesperson as saying that
Interenergo was only “the beneficiary of a management contract” that
would give the Russian energy company day-to-day control of AEN,
rather than owning the Armenian firm outright. Information in the
company’s annual report that UES had purchased AEN was not correct
and has been removed from the UES website, the company spokesperson
said.
In a July 11 statement, an AEN spokesperson, who requested not to be
named, told EurasiaNet that the company’s shares had not been
transferred to Interenergo management. The spokesperson denied that a
sale had occurred, and stated that he was not authorized to release
information about the size of the deal.
With no ready explanations from the government, the patience of one
international financial organization appears to be running thin. In a
July 8 press conference, Roger Robinson, chief of the World Bank’s
Armenia mission, said that the organization, Armenia’s largest
creditor, is dissatisfied with the government’s failure to provide
information about the deal. “The electricity distribution networks
are one of the largest and [most] profitable spheres that is of a
great strategic value for each Armenian, and I consider the regular
provision of transparent and official information on events
concerning this sphere as very important,” Robinson said. On July 13,
PanArmenian.Net reported Robinson as saying that he would meet with
members of the government if the situation was not rectified “within
several days.”
Reports about AEN’s sale first appeared in February 2005, when the
Yerevan-based newspaper Haykakan Zhamanak reported that a deal had
been brokered whereby UES would purchase the company for $80 million.
Midland Resources Holding has held AEN since 2002 when it won a
privatization tender for the then state-owned utility for $40
million.
Reaction to the report was swift. On February 22, UES Chief Executive
Officer Anatoly Chubais confirmed that an offer had been made, but
stressed that “[a]ny decision is possible only . . . when it is
coordinated with the Armenian leadership,” the Russian news agency
RIA Novosti reported. It is not known, however, whether those
consultations ever occurred and, if so, with whom.
“It is clear that the situation is not [the] best,” Robinson said.
“The Armenian government and the Commission on Regulation of Public
Services must explain to the nation and to me what is going on.”
One political analyst believes that the reason for the government’s
silence is political. “In April and May of the current year, the
leadership of Armenia was seriously concerned about the possibility
of revolution in the country and saw the only way out in the support
from the outside. That’s why Yerevan was encouraging Vladimir Putin’s
[March 24-25] visit to Armenia,” said Stepan Safarian, research
coordinator at The Armenian Center for National and International
Studies in Yerevan. The fact that news of RAO UES’ interest in
purchasing AEN immediately followed Putin’s visit led Safarian to
conclude that “[t]he transfer of shares was the price that Armenia
paid for Putin’s visit.”
Chubais, the UES chief, enjoys close ties with the Kremlin and has
made no secret of his desire for expansion in the South Caucasus and
Turkish energy markets. [For background see the Eurasia Insight
archive]. The company also controls Georgia’s electrical power grid.
[For background see the Eurasia Insight archive].
A representative of the ruling party coalition says that any deal
with UES would have more to do with economics than politics. “After
the privatization of the Armenian Electricity Network, some
conversations about the possible resale of the company have
periodically [taken place]. Naturally, the state is interested in
making the possible deal the most profitable for Armenia,” said
Galust Sahakian, leader of the Republican Party parliamentary
faction, a member of Armenia’s ruling coalition. “I’d sound rather
strict, but we would not like the Electricity Network to be sold to,
for example, a Turkish company.”
Sahakian also claimed that the AEN deal remains in the negotiations
stage, with nothing finalized to date. “I am a politician and I would
have information if the sale of the company took place,” he said.
Editor’s Note: Samvel Martirosyan is a Yerevan-based journalist and
political analyst.