ENERGY MINISTER HAS NO OFFICIAL INFORMATION ABOUT SALE OF AEN

ArmenPress
July 19 2005

YEREVAN, JULY 19, ARMENPRESS: After weeks of reluctance to either deny
of confirm the purported sale of the Armenian Electricity Networks
(AEN) to a subsidiary of the Russian RAO Unified Energy Systems
(UES), Armenian deputy energy minister told a press briefing today
the ministry had received no information from the Midland Resources
Holding, an off-shore registered company, that owns the AEN, about
the deal.

The news about the sale was posted by RAO UES on its website on June
30, saying one of its subsidiaries, called Interenergo BV, paid $73
million to gain control of the Armenian Electricity Network.

Speaking to journalists today, Armenian deputy energy minister Areg
Galstian, said under the terms of AEN sale to Midland Resources
Holding the latter can sell only 25 percent of its shares without
seeking the government’s permission. Galstian said the ministry
expects official explanations from the Midland Resources Holding to
either deny of confirm the news. He said if the company fails to do
so the law stipulates a range of measures that could be applied to
punish the off-shore company.

A spokeswoman for the Midland Resources Holding said earlier this
month it only signed a management contract with the Russians, but
her statement only angered the World Bank Resident Representative
in Armenia, Rodger Robinson, who retaliated on July 8 saying he had
seen a financial report of RAO UES posted on its website saying
its subsidiary, Interenergo BV, has paid $73 million to Midland
Resources. Robinson shrugged off the claim saying no company in the
world would pay a large sum for running another business. The process
of Armenian electricity distributing networks’ privatization was
kicked off, at the demand of the World Bank, back in 1999. The World
Bank’s demand that the government should privatize the networks was
attributed to the networks’ ineffective operation causing annually
some $50 million worth losses. Since the electricity distributing
networks were owned by the government, the losses were covered by
the state budget.

The World Bank not only initiated and pressed for privatization of the
electricity distributing networks but also moved to take the entire
process under its strict supervision. The government had to reconcile
and adjust all privatization-related normative documents and draft
laws with the World Bank, which in turn made the disbursement of a $45
million tranche of a stabilization credit contingent on the networks
privatization. Eventually in 2000 the government of Armenia announced
an international tender for privatization of the networks. The tender
was likewise conducted under the strict control of the World Bank. The
first tender attracted a US-based AES, French EDF, a Sweden-Swiss ABB,
the Spanish Union Fenosa companies. Russian Rosatomenergo also made
a privatization bid, but it was disqualified at the demand of the
World Bank for failure to present a full financial report about its
performance. A little later other bidding companies also refused to
participate in the tender.

In 2001 the government of Armenia decided to hold another tender, and
only two Russian companies- RAO UES and Itera made privatization bids,
but soon they refused and the Midland Resources Holding, emerged in
2002 to win the tender and become the owner of the Armenian Electricity
Networks paying $37 million. Under the Armenian law, the Midland
Resources Holding is entitled to sell, without the government’s
permission, only 25 percent of shares and no more. To sell more it
has to have the Armenian government’s accord. This provision in the
law was incorporated at the demand of the World Bank.