RUSSIANS CLOSE TO BUYING ANOTHER MAJOR ARMENIAN ENTERPRISE
By Emil Danielyan
Eurasia Daily Monitor, DC
Sept 5 2007
A Russian financial-industrial group looks set to acquire an
Indian-owned company that develops the bulk of Armenia’s gold
reserves. The deal, if it goes through, will give a further boost to
Russia’s already strong economic presence in the South Caucasus states
resulting from not only its traditional geopolitical orientation
but also the vested interests of Armenian leaders. The Armenian
government has clearly been the driving force behind the takeover,
having effectively forced Vedanta Resources, a mining conglomerate
owned by Indian billionaire Aneel Agarwal, to sell the Ararat Gold
Recovery Company (AGCR) earlier this year.
AGCR, which extracts and smelts ore from the country’s two largest gold
deposits, was set up in 1998 as an Armenian-Canadian joint venture. The
Indians purchased it in 2002, pledging to make large-scale capital
investments and increase its production. They apparently have not
fulfilled those pledges, with AGRC output steadily (and inexplicably)
declining in recent years despite record-high world prices of gold. In
2005, the Yerevan government accused AGRC management of underreporting
production and evading millions of dollars in taxes. The company
managed to avoid hefty fines at the time, reaching a murky out-of-court
settlement with the authorities.
But its fate was essentially sealed last January when Armenian
prosecutors raided the AGRC offices in the southern town of Ararat,
home to the company’s gold smelter. (Both the smelter and the AGRC
mines at Meghradzor and Zod have stood idle since then.) Shortly
afterwards Vedanta was accused of large-scale tax fraud and licensing
and environmental violations. The prosecutors pressed the charges in
early August, formally asking Armenia’s Economic Court to fine the
company $22 million.
Top AGRC executives rejected the case as baseless, accusing the
government of squeezing Vedanta out of the country. Still, the Indian
tycoon apparently had no choice but to put up his Armenian subsidiary
for sale. The Russian group Promyshlennye Investments promptly emerged
as its most likely buyer, opening takeover talks with Vedanta early
this summer. Reports in Armenian and Russian media have said that the
two sides are close to reaching an agreement whereby AGRC will be
sold to a Georgian subsidiary of Promyshlennye Investments for $86
million. A spokesman for the Russian company declined to confirm or
refute those reports last week, saying only that the talks should be
over by mid-September.
In the meantime, representatives of the Prosecutor-General’s Office
failed to turn up for the first court hearing on the lawsuit against
AGRC, which was due to take place on August 20. This was another
indication that the main purpose of the fraud case was a change of
the AGRC ownership and that the Armenian authorities will drop it
should the would-be takeover materialize.
Incidentally, the authorities moved against Vedanta immediately after
President Robert Kocharian’s January meeting in Sochi with his Russian
counterpart, Vladimir Putin. Economic ties were reportedly high on
the agenda of the talks. The two leaders met again in the Russian
Black Sea city on August 23. In televised remarks, Putin noted
"the truly allied character" of the Russian-Armenian relationship
and welcomed the 70% surge in bilateral trade registered during the
first half of this year. His spokesman, Sergei Prikhodko, was quoted
by the Itar-Tass news agency as saying that Kocharian "highly rated
Russian business interest in investing in his country."
That interest has visibly grown in the past several years. Russian
energy giants like Gazprom and Unified Energy Systems have won control
over much of Armenia’s energy sector as a result of controversial swap
agreements that allowed Yerevan to repay its debt to Moscow and avoid,
until 2009, a rise in the price of Russian natural gas. In addition,
a leading Russian mobile operator, Vimpelcom, bought the Armenian
national telephone company, ArmenTel, from the Greek telecom giant
OTE late last year. Another Russian telecom giant, MTS, is showing
strong interest in Armenia’s largest mobile phone network, currently
owned by Lebanese investors.
The Russians are now keen to extend their presence to other sectors
of the Armenian economy, notably mining. The purchase of AGRC would
be a major addition to their Armenian holdings. Its largest Zod
deposit, located in eastern Armenia, contains an estimated 80 tons of
gold. According to Armenian press reports, Russian companies may also
soon get hold of the country’s two cement plants, owned by wealthy
businessmen close to Kocharian and his most influential lieutenant,
Prime Minister Serge Sarkisian.
Kocharian and Sarkisian continue to ignore the serious concerns
about Armenia’s growing economic dependence on Russia expressed
by opposition politicians and independent observers. The two men
have heavily relied on the Kremlin in dealing with their political
opponents throughout their nearly decade-long joint rule. They have
clearly been willing to pay any price for continued Russian support,
be it economic assets or a particular foreign policy orientation.
That support will be essential for the success of Sarkisian’s plans
to succeed Kocharian in a presidential election due early next year.
Kocharian is also seeking Moscow’s backing for securing his own
political future. What he wants to do after completing a second
and final term in office is less certain, though. The Yerevan daily
Haykakan Zhamanak claimed on August 14 that he is lobbying the Kremlin
to merge all Russian-controlled Armenian enterprises into a single
consortium and appoint him as its chief executive.
(Hayk, August 30; Zhamanak Yerevan; August 29; RFE/RL Armenia Report,
August 28, August 2; Itar-Tass, August 23; Haykakan Zhamanak,
August 14)