KOCHARIAN-PUTIN TALKS FOLLOWED BY RUSSIAN ACQUISITION OF ARMENIAN TELECOM LEADER
By Emil Danielyan

Eurasia Daily Monitor, DC
Nov 15 2006

A leading Russian mobile phone operator is poised to buy Armenia’s
national telecommunications company, ArmenTel, further boosting
Moscow’s economic presence in the loyal South Caucasus state. The
Armenian government will almost certainly give its mandatory consent
to the nearly $490 million takeover, having just ceded more energy
assets to Russia’s Gazprom natural gas monopoly (see EDM, November
3). Its domestic critics have denounced these developments as another
blow to the country’s national security.

Vimpel-Communications (VimpelCom) announced on November 3 that
it had won an international tender for a commanding 90% share in
ArmenTel that was called by the latter’s parent company, the Hellenic
Telecommunications Organization (OTE), last April. In a press release,
the Russian firm said it will pay the Greek telecom giant almost
$437 million and assume its Armenian subsidiary’s debts totaling $51
million. Although OTE has yet to officially confirm this, nobody has
questioned the credibility of the information.

The deal is the latest in a recent series of VimpelCom acquisitions
of cellular operators across the former Soviet Union, including
neighboring Georgia. Its official endorsement by the Armenian
government, which owns the remaining 10% of ArmenTel, now seems a
mere formality. In fact, Yerevan has reportedly played a decisive
role in the outcome of the bidding. Russian and Armenian press
reports said that VimpelCom did not submit the highest bid, with
the Moscow daily Kommersant claiming last week that another bidder,
the Dubai-based consortium Etisalat, offered to pay $600 million for
ArmenTel. According to Yerevan’s Haykakan Zhamanak daily, Armenian
Transport and Communications Minister Andranik Manukian warned the
Greeks that the government would block the sale unless they give the
tender to VimpelCom or Sistema, another Russian telecom firm that
has shown interest in ArmenTel.

Assuming that this was the case, OTE had no option but to accept the
price tag put forward by the Russians. The company bought the Armenian
phone network for about $200 million in early 1998 and seems to have
more than recouped the price since then. ArmenTel has apparently
been OTE’s most profitable division, largely owing to its extremely
controversial legal monopoly on all forms of telecommunication, which
was partly abolished two years ago. It reported $58 million in earnings
last year, compared to a net loss of $275 million posted by the entire
Greek group. Explaining the surprise decision to put ArmenTel up for
sale in April, its top executives said they have decided to focus
on the company’s core holdings in Greece as well as subsidiaries in
nearby Bulgaria, Serbia, and Romania. Michalis Tsamas, OTE’s managing
director, also cited a "rather large interest from Russian companies
and funds."

The VimpelCom statement came just days after Armenian President
Robert Kocharian’s visit to Moscow, which was dominated by economic
issues. Receiving Kocharian in the Kremlin on October 30, Russian
President Vladimir Putin described as "shameful" and "odd" the fact
that Russia is only Armenia’s third-largest foreign investor. Some
analysts construed the televised remark as a demand for a greater
Russian presence in the Armenian economy. Kocharian responded
by confirming that Gazprom will raise from 45% to 58% its share
in the Russian-Armenian ARG joint venture that runs Armenia’s gas
distribution network. ARG is also widely expected to gain ownership of
an under-construction gas pipeline from Iran. All this appears to be
part of a controversial April agreement that enables Armenia to receive
Russian gas at a knockdown price until January 2009 in return for
handing over more of its energy assets to Gazprom (see EDM, April 6).

Both the April deal and the imminent sale of ArmenTel have prompted
serious concern from opposition politicians and media commentators.

They believe that Armenia’s economic dependence on its former-Soviet
master is turning into a dangerous stranglehold. But the influential
Defense Minister Serge Sarkisian, who is closely involved in
Russian-Armenian economic dealings, brushed aside such concerns as
he spoke with journalists on November 6. "Give me a single example of
Russian capital present in Armenia exerting political pressure on us,"
Sarkisian said. "He knows very well that economic levers are the best
means of political blackmail," Vahagn Khachatrian, a former Yerevan
mayor opposed to the Armenian government, countered in an interview
with the Aravot daily. The Kremlin, he said, will now be better placed
to hold Yerevan in check.

Proponents of the ArmenTel deal will insist, however, that VimpelCom,
the first Russian firm to list its shares on the New York Stock
Exchange in November 1996, is privately owned and unlikely to be
used by the Kremlin as a political tool. They might also argue that,
with almost 52 million mobile phone subscribers in Russia and other
parts of the former USSR, VimpelCom has the resources to make more
capital investments in the Armenian land-line phone network.

For many local observers, the key question is not so much who will
own ArmenTel as whether the operator will be forced to abandon
its exclusive right to provide Armenia’s Internet connection with
the outside world. The legal monopoly is widely blamed for the poor
quality and relatively high cost of that service. It is also seen as
a serious obstacle to the development of information technology in the
country. The Armenian government has reportedly asked VimpelCom to take
its minority stake in ArmenTel in return for giving up the monopoly.

(Haykakan Zhamanak, November 11, November 7; Aravot, November 8;
Kommersant, November 7; Statement by VimpelCom, November 3; Russian
First Channel, October 30)