Energy Vote Precludes Russian Ownership of Grid

YEREVAN (RFE/RL)–The Armenian parliament on Wednesday put the final brakes on Russian companies’ efforts to expand their already strong presence in Armenia’s energy sector when it gave its go-ahead to the last phase of the ongoing international bidding for the domestic electricity distributing networks. The National Assembly upheld the Armenian government’s earlier decision to shortlist four Western firms from scores of bidders.

For much of this year–the authorities in Yerevan were under pressure to give the tender to Russia’s Gazprom monopoly and other energy giants. The World Bank and other international lending agencies–on the other hand–firmly opposed such a development–linking the release of fresh loans to a fair handling of the bidding.

The parliament’s decision essentially goes along the lines of those recommendations. Local observers note that by agreeing to a move that might upset the Russia’s–Armenia highlighted its growing dependence on the West for vital loans and trade. Despite its close military ties with Moscow and the reputation of Russia’s sole ally in the south Caucasus–they say–Yerevan is keen to gravitate toward Europe and the United States.

Some politicians claim that the decision to bar the Russian companies from what will likely become the largest yet sell-off of Armenian state assets to foreign investors is a bitter pill for Moscow to swallow. But government officials stressed this week that Gazprom–RAO UES and the Rosenergoatom nuclear consortium have accepted their defeat and have instead been promised a stake in the future privatization of Armenia’s power generating facilities.

Addressing the parliament session on Monday–Energy Minister Karen Galustian said: "There have been quite serious negotiations with those Russian companies that were interested in taking part in this process. And I must say that we don’t see any problems [stemming from their exclusion]."We are working with RAO UES–Rosenergoatom and [Gazprom subsidiary] ITERA to see if there are possibilities of setting up joint ventures of finding other ways of jointly producing energy," Galustian told RFE/RL on Wednesday.

None of the three Russian companies passed the official "pre-qualification" last April of bidders vying for a 51 percent stake in Armenia’s four state-owned electricity companies. Only the four following firms were selected: Electricite de France–the Swiss-Swedish group ABB–Spain’s Union Fenosa and US operator AES Silk Road.

Gazprom and Rosatomenergo accused the Armenian authorities of bias–while some Russian officials warned that economic ties between the two countries could suffer as a result. But local energy officials and World Bank experts have argued that the Russian companies lack the appropriate track record and financial strength to develop the sector–which urgently needs large-scale investmen’s. Vahan Hovannisian–a Yerevan-based economic analyst–agrees with this view–saying that "the Russia’s would hardly spend large sums of money on upgrading the distributing networks and have no experience to run them."

A behind-the-scene lobbying campaign–reportedly conducted by the Russian companies–has failed to change the Armenian government’s position. The fair and transparent privatization of the national power grid is the main condition for the release of some $50 million in fresh World Bank loans that are supposed to cover about half of the government’s budget deficit for this year. The International Monetary Fund has also made its further loan programs for Armenia conditional on the sell-off.

But pro-Russian opposition groups take the view that the issue is a "geopolitical" one–with the West seeking to undermine Russia’s positions in the region through controlling a key sector of the Armenian economy. Artashes Geghamian–leader of the nationalist Right and Accord bloc–said the process is part of attempts to "cut us off from our military ally."This is a clearly political issue. At issue is Armenia’s future orientation and not just privatization or economic liberalization," Geghamian said.

Energy Minister Galustian at least partially confirmed political implications of the privatization when he told lawmakers that a "diversification" of Armenia’s partners is important for "our energy security." He was apparently alluding to the fact that Gazprom is currently the sole supplier of natural gas to Armenia and owns a 55 percent interest in its entire has infrastructure. Besides–the Metsamor nuclear plant–which accounts for 40 percent of power generated in Armenia–is partly owned by the Russian government.

According to political scientist Aghasi Yenokian–this means that the Russia’s still have strong levers of influence in the Armenian energy sector. He says the fact that Yerevan has made some promises to them suggests that the privatization fiasco did not come as a "shock" for them. Yenokian also thinks that political considerations did play a role in the Armenian government’s decision to stick to the World Bank prescriptions. He says: "This was really a choice between Russia and the West. This time it was in the West’s favor. This has also been a sort of test–which has demonstrated that Russian influence is not unlimited here."

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