Before last year, energy was one of the bright spots in Nagorno-Karabakh’s economy. The de facto authorities had built a network of small hydropower plants to supplement a larger, Soviet-era dam.

As a result, the territory produced all its own electricity – the majority of which was from hydropower – and by 2018 was even exporting some to Armenia. It was one of the few spheres in which Nagorno-Karabakh was not dependent on its patron state.

Following last year’s war, however, Azerbaijan retook much of its territory that it had lost in the first war between the two sides in the 1990s. And that land included most of those hydropower plants.

Of the 36 plants that operated in Armenian-controlled territory before the war, only six remain under Armenian control. The hydropower production capacity in the territory decreased from 191 megawatts before the war to 79 megawatts now.  

“Indeed, they gained an economic advantage and we lost,” Armen Tovmasyan, Karabakh’s de facto minister of economy and agriculture, told Eurasianet.

The largest single hydropower facility in the region, Sarsang, was built in 1976 on the Tartar River in what was then known as the Aghdara region. (Independent Azerbaijan changed the name to Terter in 1993; Armenians know the region as Martakert.) The 50 megawatts of energy it produces remain under control of the Armenian side, now making up more than half the territory’s hydropower capacity. In addition, five smaller plants are in territory that remained under Armenian control following the war.

“All the other plants are under the adversary’s control, meaning the republic of Artsakh is not self-sufficient as it was before the war,” Tovmasyan said, using the alternative Armenian name for the region. “The deficit is being made up by energy imported from Armenia.”

But Armenia itself is also suffering electricity problems. Operations at the Metsamor nuclear plant, which generates about 40 percent of Armenia’s electricity, have been suspended since May 15; it is scheduled to reopen in October. On top of that, the natural gas-powered Hrazdan Thermal Power Plant, operated by Gazprom Armenia, also has been operating at only 30 percent capacity since April.

And Sarsang itself is producing far less than it could be: According to the plant’s operator, in the first quarter of 2021 production was half what it was in the same period the year before.

Meanwhile, electricity transfers between Armenia and Nagorno-Karabakh have been interrupted by the loss of transmission lines that once ran through the Kelbajar region, which was ceded to Azerbaijan as part of the ceasefire deal. The only remaining transmission line runs along the Lachin corridor connecting the two entities, “which decreases the stability of supply,” Tovmasyan said.

As a result, Karabakh has been suffering power outages. “In September, until the last week of the month we had blackouts that sometimes would last for hours,” Anush Ghavalyan, a Stepanakert-based political commentator, told Eurasianet, adding that the situation seems to have improved recently.

"Frequent power shortages are happening mainly because today Artsakh is primarily supplied by the plant built near the Sarsang reservoir, the capacity of which will not be enough to provide electricity to the entire territory of Artsakh. That's why there are regular outages,” Gegham Stepanyan, Nagorno Karabakh’s human rights ombudsman, told reporters on September 9. “If concrete measures are not taken to ensure energy security, we will face severe problems next fall," he added.

The bulk of the territory’s hydropower plants are in the mountainous Kelbajar and Lachin regions, which also was ceded to Azerbaijan. According to reporting by the investigative news website Hetq just before the war, the plants were owned by a wide variety of former government officials in Karabakh and Armenia. 

The largest hydropower company in Karabakh, Artsakh HEK, owns and operates Sarsang. It also held two plants in the Terter region, which ended up under Azerbaijani control. Artsakh HEK’s shareholders are primarily wealthy diaspora Armenians.

The primary shareholder is a Turkish-Armenian businessman, Vartan Sirmakes, who owns controlling shares in two major Armenian banks, runs a company that had been involved in gold mining in Nagorno-Karabakh, and is co-founder of the luxury watch brand Franck Muller. Sirmakes has divided his shares in Artsakh HEK via two companies: 36 percent in M. Energoinvest CJSC through his associate Burak Kirkorian; and 17 percent in another company, Multicontinental Distribution Limited, which is registered in London and in which Sirmakes owns 75 percent of the shares. 

The second major shareholder is French-Armenian businessman Joseph Oughourlian, who controls a wide variety of businesses in Europe and the United States, from an investment advisory firm to a French soccer club. The head of Artsakh HEK’s board of directors is Arayik Harutyunyan, the current de facto president of Nagorno-Karabakh.

The plants also had a political significance, as a means of demonstrating Armenians’ intent to cement their control over these territories. When one plant in the Lachin region was opened in 2012, a senior official from the Armenian Revolutionary Federation-Dashnaktsutyun party said it demonstrated that “the Karabakh authorities guarantee that these territories are ours and will remain so. That the people are here and will stay.”

Following the war, Azerbaijani officials say that the departing Armenian forces “destroyed and looted” those power plants as they pulled out. Tovmasyan said such claims are a “lie” and that some associated infrastructure was damaged in fighting but that the plants themselves were not destroyed.

Now, Azerbaijanis say that they are steadily repairing and putting them back to work.

In February, just three months after fighting stopped, President Ilham Aliyev formally opened a medium-sized, 8-megawatt hydropower plant at Gulabird in the Lachin region.

“This is the first power plant being commissioned on the liberated lands. It has great significance and great symbolic meaning. We are returning to these lands,” Aliyev said on the occasion. “Renewable energy has huge potential in this region.”

By June, another two plants were reopened in the Terter region, Sugovushan-1 and Sugovushan-2, with 7.8 megawatts of total capacity. (When they were under Armenian control and operated by Artsakh HEK, they were known as Mataghis-1 and Mataghis-2.)

The plants now under Azerbaijani control are now owned by the state and are being reconstructed and operated by the country’s state-owned energy firm, Azerenergy.

Overall, the small plants in Lachin and Kelbajar have a capacity of 120 megawatts. Two others, which span the Araz River that divides Azerbaijan and Iran, will produce a further 120 megawatts for Azerbaijan when they are completed.

Preliminary work on these – Khudaferin and Maiden Tower – were begun under the Soviet Union but work was interrupted when Armenian forces captured the territory in 1993. Iran continued building its half of the project, while Azerbaijan was forced to suspend construction on its side.

In 2016, though the territory on the Azerbaijani side of the river was still under Armenian control, Azerbaijan and Iran quietly signed an agreement on continuing construction. Now, Azerbaijani officials say that the plants will be completed by 2024, and Iran and Azerbaijan will share the electricity they produce 50-50.

The renewal of hydropower is part of what the Azerbaijani government is calling a “green energy zone” in its newly retaken territories. “We are conducting work on hydroelectric power stations and many small hydropower plants in Karabakh,” Energy Minister Parviz Shahbazov told journalists in May, saying that work also is underway in building wind and solar energy capacity: “We intend to provide the Karabakh region with electricity through green energy sources in general.”

Meanwhile, officials in Nagorno-Karabakh are working out how to deal with their new energy deficit.

Authorities are building a new 1-megawatt solar plant, in Haterk in the Martakert region, the energy minister, Tovmasyan, told Eurasianet. That would complement another 4-megawatt plant already in operation.

And they are also sticking with hydropower: One 17.6-megawatt plant is under construction in Getavan, in the Martakert region, and a second, 25-megawatt plant is planned in the Sarsang-Mataghis area, Harutyunyan, the de facto leader, said during a government session also attended by Armenian Prime Minister Nikol Pashinyan. 

“If this happens, we can become self-sufficient,” he said.