ARMENIA SELLING MORE INFRASTRUCTURE, INDUSTRY TO RUSSIA
By Vladimir Socor

Eurasia Daily Monitor, DC
Nov 7 2006

In his November 6 news conference, Armenia’s de facto strongman and
presidential aspirant Serge Sarkisian welcomed the just-consummated
purchase of the Armentel telecommunications company by the Russian
giant Vympelcom. Sarkisian is defense minister as well as secretary
of the national security council (supervising the security agencies),
and concurrently the head of the Armenian side in the Armenia-Russia
Economic Cooperation Commission, thus also in charge of Armenia’s
economic relations with Russia. "I don’t see any risk at all in the
growth of Russian capital in our country," Sarkisian averred (Interfax,
November 6).

Indeed he has, along with his long-time political ally President
Robert Kocharian, overseen the process of transferring Armenia’s
infrastructure and industrial assets to Russian interests. On October
31-November 1 in Moscow, Kocharian finalized the handover of the
Iran-Armenia gas pipeline and the Hrazdan electricity generating
plant’s fifth power bloc, the leading unit in the country, to
Gazprom in return for temporary price relief on Russian gas (see EDM,
November 3). Low-priced gas is only a recent rationale for selling
infrastructure assets to Russia. In 2002-2005, the rationale was debt
relief. Kocharian and Sarkisian oversaw the transfer of state-owned
industries to Russia in debt-for-assets swaps.

Vympelcom announced on November 3 in Moscow the purchase of a 90%
stake in Armentel from the Greek owner, Hellenic Telecommunications
(OTE). Vympelcom is paying $ 434 million in cash and assumes an
additional $ 52 million in OTE debt. OTE had bought Armentel from the
Armenian government in 1997 for $142.5 million and invested a reported
$300 million in it since then. Armentel currently has a 40% to 50%
share of Armenia’s mobile telephone market and operates the country’s
fixed-line telephony network. The Armenian government retains a 10%
stake in Armentel. According to government data (Arminfo, November 3),
Armentel has until now been Armenia’s second-largest taxpayer.

During Kocharian’s Moscow visit last week, Russia’s Comstar
Telesystems announced the acquisition of Armenia’s telecommunications
company CallNet and its subsidiary, the Internet service provider
Cornet. The fast-growing Callnet and Cornet comprise the second-largest
telecommunications group in Armenia. The Russian Comstar is acquiring
a 75% stake in that group for an as yet undisclosed price, with an
option to purchase the remaining 25%.

Also during Kocharian’s visit, Russia’s state-owned Foreign Trade Bank
(Vneshtorgbank) announced its intention to acquire the remaining 30%
of shares in what used to be Armenia’s Savings Bank. The Vneshtorgbank
had in 2004 acquired 70% of the shares in that bank, which became
Vneshtorgbank Armenia. The tycoon Mikhail Bagdasarov owns the
remaining 30% and is negotiating the sale to the Russian Vneshtorgbank
(Kommersant, SKRIN Market and Corporate News, October 30-31).

On the eve of Kocharian’s Moscow visit, Sarkisian presided over the
ceremony marking the completion of the ArmenAl plant’s overhaul by
Russian Aluminum (RusAl). The Yerevan-based ArmenAl, a major producer
of aluminum foil, idled in the 1990s, was acquired in 2002 by RusAl,
which two years later subcontracted the overhaul to Germany’s Achenbach
firm for $80 million (RFE/RL Armenia Report, Armenpress, October 26).

In September of this year, the Russian state-owned Inter-RAO UES
(a subsidiary of Russia’s Unified Energy Systems state monopoly)
completed the acquisition of the Electricity Networks of Armenia in
full ownership from the British-based Midland Holdings. Apart from
the transmission networks, Russia’s UES owns and operates some 80%
percent of Armenia’s electricity generation capacities and is the
financial manager of Armenia’s Nuclear Power Plant.

During his meeting with Kocharian in the Kremlin on October 31,
Russian President Vladimir Putin professed to feel that the level of
Russian investment in Armenia is too low, "strangely and shamefully"
so. Widely cited in Armenia, this remark seems disingenuous on
several counts. Russia is by far the largest investor overall in
post-Soviet Armenia. Putin’s estimation apparently did not include the
transactions-in-progress that are being finalized now. Unlike Western
investors, Russian ones are focusing on Armenia’s strategic assets
and infrastructure as the economic basis for political influence and
control. Putin’s remark seems designed to goad official Yerevan into
selling more assets to Russian interests, in which case Yerevan would
have to start scraping the bottom of the assets barrel.

(Noyan Tapan, Mediamax, PanArmenianNet, Armenpress, November 1-6)