Armenia Russia Finalized Equities for Debt Deal

(RFE/RL)–Armenian Defense Minister Serzh Sarkissian and Russian Minister of Industry–Science and Technology Ilya Klebanov signed an agreement according to which Moscow will write off Armenia’s $98 million debt to Russia in return for obtaining controlling stakes in at least four Armenian enterprises. Both men are co-chairing the Russian-Armenian intergovernmental commission–which coordinates investmen’s–debt-related issues–taxation and other economic issues between two countries.

In a separate development on Tuesday–Russian Prime Minister Michael Kasianov signed a document in Moscow–obliging Armenia to hand over its state owned enterprises to Russia in order to pay off debts on Russian state credits–ITAR-TASS agency reported on Tuesday. The Russian news agency quotes government information department as saying that Armenia has to hand over enterprises a month after the agreement on equities-for-debt enters into force.

After signing the agreement the co-chairs of Russian-Armenian intergovernmental economic commission Ilya Klebanov and Serzh Sarkissian told reporters that the deal would further integrate the Armenian and Russian economies and will boost Russian investmen’s in the Armenian economy. But the finalization of the deal by both governmen’s is far from being certain. Moreover–experts believe that the parliamentarians of both countries–especially in the Russian State Duma–will have a harder look at the details and costs of the agreement before ratifying it.

The Russian government has already indicated that it will scrutinize all accounts and other financial documen’s before taking over the enterprises–which the Armenian side agreed to hand over to Russia. Moscow also wants to have an independent evaluation of the equities-for-debt deal by foreign auditors to see whether the market value of Armenia’s four enterprises amounts to the $98 million that Armenia owes to Russia. Only after evaluation of the independent experts Russia will write off Armenia’s debt.

According to the deal–signed between Russia and Armenia in Yerevan–Russia is expected to take over the Hrazdan electric power station–the Mars joint-stock company–the Yerevan research institute of mathematicalmachines as well as the Yerevan research institute of materials.

The Russian powerful energy utility giant–RAO Unified Energy Systems–which was eyeing Armenia’s energy distribution companies long ago–could seize a major share in the country’s energy market after it takes over four blocks of the Hrazdan power station. In an attempt to insure its pricing power in Armenia’s energy market–the Russian energy giant is trying to negotiate a deal which could effectively prevent the fifth block of Hrazdan power plant from producing energy for the time being. The fifth block of the Hrazdan power plant is currently under construction and the Russian company’s efforts could delay its completion. The agreement lacks specifics and it is not clear whether the Russian side has taken any obligation to invest in the Armenian companies. According to local observers given the fact that RAO UES has suffered heavy financial losses in its current fiscal year and is seeking $100 million loan from EBRD to cover its losses it would refrain from investmen’s in Armenia and would avoid making any investment commitmen’s to the Armenian side.

The Russian-Armenian deal has also a political dimension. By taking over another Armenian power generating company Russia could further strengthen its foothold in Armenia and become a major player in the energy market in the South Caucasus.

Armenia currently exports its electric power to the neighboring countries of Georgia and Iran and after the deal is completed Russia would effectively control also energy exports from Armenia. Russia controls 25 percent of shares in the Metzamor Armenian atomic power plant and the controlling stake in the Armenian gas distribution system.

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