World Bank Urges Fair Bidding in Armenian Energy Privatization

YEREVAN (RFE/RL)–The World Bank has urged the Armenian authorities to ensure fairness and transparency of the ongoing bidding for the country’s energy distributing network. The world’s leading finance institution has also warned the government against colluding with Russian firms on the tender results.

The move follows reports in the Armenian press that Yerevan is under strong pressure from Russia to declare one of its energy giants winner of the international tender and may have caved in. Armenian officials have denied the claims–assuring that the privatization of four state-run electricity companies will proceed as planned.

A World Bank spokesman in Yerevan said Thursday the Bank’s regional director–Judy O’Connor–wrote to Armenian Prime Minister Aram Sargsyan on Tuesday "reminding [him] of the principles [of fair business competition] and calling on the government ‘to remain committed to them.’" But the spokesman–Vigen Sargsyan–added that the message was "rather an expression of support than concern."We trust the government has the same interests [as the World Bank] and will pursue a transparent process," said Luc Dejonckheere–a senior investment officer at the International Finance Corporation–a World Bank division.

But other sources privy to the process tell RFE/RL that the Bank is seriously worried that the outcome of the tender may be a foregone conclusion. The World Bank–which has been Armenia’s largest lender since independence–closely supervises the energy privatization–which is seen as an important stage in the transition to the free market.

"We believe that a successful privatization will open the Armenian market for further foreign investment and stimulate the economy," Dejonckheere told a news conference.

Senior Bank executives have stressed that bidding for Armenia’s power grid must become a showcase for a fair and transparent privatization in a country that has seen a series of scandals surrounding the sell-off of other major state assets.

The latest allegations may put the goal in doubt–and O’Connor’s appeal to the Armenian premier appears to be a stark warning. The local newspaper "Azg" reported last Saturday that Russia’s Gazprom monopoly backed by Moscow is lobbying hard to get preferential treatment for its subsidiary–the ITERA corporation. ITERA is taking part in the tender in conjunction with another Russian firm–Rosatomenergo–and has been short-listed for the last phase of the contest.

The paper alleged that recent interruptions in Russian gas supplies might have been part of a strong pressure on Armenia to win control over its power grid.

But Armenian Energy Minister David Zadoyan dismissed the reports as baseless earlier this week. He spoke at an international seminar in Yerevan on prospects of the Armenian energy sector. The government briefed five remaining bidders on takeover conditions and requiremen’s. Officials have singled out the amount of capital investmen’s in the sector as the main criterion for winning selection.

Experts estimate that the Armenian energy sector will need over $1 billion over the next decade.

It is not yet known how large Gazprom’s investment commitmen’s are. The Russian giant is Europe’s leading natural gas supplier but does not specialize in power generation. If it does get hold of a controlling stake in the Armenian electricity distributing enterprises–the sector’s dependence on Russia will deepen.

The country already relies heavily on Russian gas in power generation–with a Gazprom-controlled joint venture running its entire gas infrastructure. Besides–the Medzamor Nuclear plant–which accounts for about 40 per cent for Armenia’s electricity production–is also heavily dependent on Russian loans and nuclear fuel. The IFC’s Dejonckheere said on Thursday that the World Bank will not care about "the nationality of the investors" so long as the contest is fair.

RFE/RL has learned from reliable sources that the Bank has argued strongly against granting ownership rights to the Russia’s–citing their financial inadequacy. The Bank believes that neither ITERA nor Rosatomenergo are able to meet basic tender requiremen’s–according to the sources.

Russia’s leading ORT television channel has repeatedly accused the Gazprom management and its ITERA cousins of fraud and mismanagement in developing the country’s vast gas reserves.

If the Armenian government is really leaning towards a deal with the Russia’s–it may well be the result of an agreement at the highest echelons of power. This would call into question Yerevan’s pledge to ensure that the process is transparent.

Given that World Bank loans cover a considerable part of Armenia’s budget deficit–Yerevan will now think twice before making a final decision. Among other bidders is the US firm AES that currently owns the Georgian capital Tbilisi’s electricity network. Armenia exports some of its electricity surplus to Georgia–which is gripped by serious power shortages.

Armenia also had to ration electricity in the early 1990s but managed to end cuts due to a radical shake-up in the sector. A fairly effective mechanism of bill enforcement that has been in place since 1996 makes its energy companies attractive to foreign investors. Some 88 per cent of electricity fees were collected last year–a quite respectable indicator for former Soviet republics. In Georgia–for example–is stands at just more than 20 per cent.


Discussion Policy

Comments are welcomed and encouraged. Though you are fully responsible for the content you post, comments that include profanity, personal attacks or other inappropriate material will not be permitted. Asbarez reserves the right to block users who violate any of our posting standards and policies.