Palriament Approves Energy Privatization

YEREVAN (RFE/RL)–The Armenian government breathed a sigh of relief on Wednesday after clinching the parliament’s approval of its controversial efforts to privatize the country’s electricity distributing networks–which is the main condition for obtaining fresh funds from international lending agencies.

At the end of three-day stormy debates that exposed serious cracks in the ruling coalition–National Assembly gave its tentative go-ahead to an international tender that will see four Western firms vying for a 51 percent share in the four state-run networks. A government bill setting out the main principles of the bidding was passed in the first reading by a vote of 64 to 38. The bill will be discussed in the final second reading on Friday and may undergo minor changes as a result.

With a strong opposition to the proposed way of the sell-off voiced by most opposition factions and many lawmakers with government links–the outcome of Wednesday’s vote was uncertain until the last minute. The government got the unanimous backing of deputies representing the Republican Party–Stability and the Armenian Revolutionary Federation.

The Republicans and Stability are represented in the current cabinet–while the ARF is thought to be largely sympathetic to President Robert Kocharian–who has strongly advocated the privatization.

The Republicans’ partner in the Unity bloc–the People’s Party–voted overwhelmingly against the bill–joining opposition argumen’s that the networks’ sell-off to foreign investors would jeopardize Armenia’s national security and deepen socioeconomic woes of its impoverished population. The discord over the energy sector privatization is another major test of Miasnutyun’s unity since the appointment of Republican leader Andranik Markarian as prime minister last May.

The issue also caused a split in the parliamentary faction of the center-right National Democratic. A leading NDU figure–Minister of State Property David Vartanian–spoke out in favor of the sell-off–while the party’s chairman–Vazgen Manukian–abstained in the voting. Three other NDU deputies voted for and one against the bill.

The Communist Party and the nationalist Right and Accord bloc emerged as the most fierce opponents of what will likely become the largest yet sell-off of Armenian state assets to foreigners. They were particularly enraged at the fact that the bill upholds the defeat of Russian energy giants in the earlier "pre-qualification" of foreign companies taking an interest in the Armenian energy sector. Only four companies – Electricite de France–the Swiss-Swedish group ABB–Spain’s Union Fenosa and US operator AES Silk Road – were selected for the final phase of the bidding.

"This is the shortest way of selling out our independence and wasting the national wealth," said Aghasi Arshakian of Right and Accord. The bloc’s outspoken leader–

Artashes Geghamian branded the privatization process as a Western conspiracy to damage Armenia’s close ties with Russia–a claim flatly denied by government officials. Energy Minister Karen Galustian said that despite their earlier criticism of official Yerevan Russia’s Gazprom monopoly and other energy firms have accepted their defeat in the race for the energy distributing companies and will take part in the future privatization of Armenian power generating facilities.

Speaking at the parliament session–Galustian said the energy sector privatization is a "purely economic" issue–which is aimed at attracting substantial capital investmen’s from abroad.

Vartan Khachatrian–chairman of the parliament committee on finance and economics–agreed–saying: "I don’t think that these [Western] companies want to come to Armenia to solve political issues rather than make profits."Do we have any other options except attracting foreign capital? No," said Seyran Avakian–an NDU deputy. "Nobody can show an alternative way of problems facing this country."

The bill states that the distributing networks’ takeover by foreigners should ensure "reliable" power supplies to consumers–minimize losses during the transmission of electricity–attract investmen’s for upgrading and developing the sector and improving its difficult financial situation. Bidders meeting these conditions and offering the highest price for 51 percent of their stock will be declared winners of the contest–according to the bill.

The government hopes that private ownership will put an end to the sector’s continuing financial losses–which weigh heavily on the state budget. Last year the cabinet of the late Prime Minister Vazgen Sargsyan diverted some $34 million in budgetary funds to a partial repayment of public sector debts to the electricity distributing enterprises.

The networks–in turn–owe a total of $160 million to companies generating and transmitting electricity. Their future owner will take over only part of the debt–a provision challenged by many deputies. Officials argue that they can in return expect a reasonably high price from the bidders. The government intends to sell the four electricity companies in two separate "packages." No single bidder will get hold of more than two companies put up for sale in one package.

The official valuation of the four networks is $202 million–and the future owners are expected to invest $160 million in the sector in the next three years. However–bidding specifications contain no minimum price requiremen’s or investment commitmen’s. They will be ascertained during final negotiations between the Armenian government and winners of the contest later this year.

The World Bank said last month that it will release its next "structural adjustment credit" worth roughly $50 million after Yerevan "finalizes" those negotiations. The money is due to cover about half of the government’s budget deficit this year.

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