More Details Of Russian-Armenian Gas Deal Released

MORE DETAILS OF RUSSIAN-ARMENIAN GAS DEAL RELEASED
By Anna Saghabalian

Radio Liberty, Czech Rep.
Oct 31 2006

New details emerged on Tuesday of the latest Russian-Armenia energy
deal that will give Russia’s state-run Gazprom monopoly a commanding
share in Armenia’s natural gas distribution network and, most probably,
the incoming gas pipeline from Iran.

Karen Karapetian, director general of the ArmRosGazprom (ARG) network
operator, said Gazprom will pay $118.8 million to raise its share in
ARG from the current 45 percent to 58 percent.

The takeover was officially announced by the Russian energy giant
on Friday and confirmed by President Robert Kocharian on Monday. It
appears to be part of a broader Russian-Armenian agreement reached last
April. That deal allowed Armenia to temporarily avoid a doubling of
the price of imported Russian gas in exchange for ceding more energy
assets to Moscow. Those include the incomplete Fifth Unit of the big
thermal power plant in Hrazdan.

Karapetian revealed that Fifth Unit formally belongs ARG, another 45
percent of which has until now been owned by the Armenian government.

That stake will be diluted to approximately 30 percent as a result
of the latest deal.

"This is the sum needed for buying the Fifth Unit," Karapetian said
of the $118.8 million to be paid by Gazprom. "Who is buying it?

ArmRosGazprom. By what means? By means of the issuance of additional
shares [in ARG]. Who is buying the new shares? Gazprom."

"Why not the government of Armenia? Ask the government," he added.

The government announced in April that the Russians will pay $248.8
million for the modern facility and spend an additional $180 million on
completing it in the next few years. The lump sum may well be including
the cost of the first Armenian section of the under-construction
pipeline from Iran which is widely expected to be incorporated into
the ARG network.

Armenian officials for months denied reports that Russian control of
the Iran-Armenia pipeline is another, unpublicized provision of the
April deal. Still, Prime Minister indicated last week that this is the
case, arguing that "it would be illogical to have two gas distribution
networks in Armenia." A leading Moscow daily, "Kommersant," described
on Tuesday the anticipated Russian takeover of the pipeline as the
Kremlin’s "main, if not the sole, geopolitical victory in the region
registered in the last several years."

Karapetian claimed, however, that the government in Yerevan has
not yet decided who will own the pipeline. "Gazprom is right to be
willing to buy the pipeline," he said. "But I don’t know whether or
not Armenia will agree to sell it."

The overall deal will reinforce Russia’s already pervasive presence
in the Armenian energy sector which government critics in Yerevan
say is turning into an economic stranglehold. But Karapetian strongly
defended it, downplaying the fact that the bulk of the Armenian gas
infrastructure is now owned by Gazprom and another Russian energy
firm, ITERA.

"We remain an Armenian company not only because we pay taxes and are
registered in Armenia but because you will find few companies that
have invested $83 million here in the last four years," he told a
news conference.

Armenia’s severe energy crisis of the early 1990s disrupted
centralized gas supplies to virtually all individual consumers. ARG,
which currently employs some 6,000 people, began slowly but steadily
restoring them shortly after its establishment as a Russian-Armenian
joint venture in 1997. The process gained momentum in 2002 and seems
to be nearing completion.

According to the ARG chief executive, 84 percent of the country’s
households now have access to gas, saving at least $160 million in
combined expenditures on winter heating each year.