…PLAGUED BY POLITICAL OVERTONES.

Armenia’s electricity distribution privatization was from the outset fraught with international political implications. After the October 1999 assassination of Prime Minister Vazgen Sarkisian, Vazgen’s brother and successor Aram Sarkisian with his pro-Moscow ministers favored the Russian companies Itera and Rosenergoatom for this privatization project. As a tactic to reserve that option, the government removed the networks from the privatization list. President Robert Kocharian, struggling against the Sarkisian clan for political supremacy, supported the Western privatization of the four networks. He prevailed in the power struggle and ensured passage of the network privatization law by the parliament last July. In recent weeks in Yerevan, a newly founded pro-Moscow party under Aram Sarkisian joined the ranks of protesters against the tender.

If the tender is to be relaunched, it will require drafting and passing a new law in a politically charged atmosphere. The law for the failed tender valued the four networks at US$250 million and required investments to the tune of US$160 million in their rehabilitation and modernization. The law envisaged selling 75-percent stakes in each of the four networks to the winning investor; and 20-percent stakes to the European Bank for Reconstruction and Development. The Armenian state would have retained 5-percent stakes.

The World Bank and Western embassies in Yerevan weighed in on the Western bidding companies’ side for three main reasons, all consonant with Armenia’s national interests. First, to ensure an influx of Western capital and technology for the networks’ rehabilitation and modernization. Second, to improve Armenia’s poor investment climate and attract further investors. And, third, to decrease the country’s excessive dependence on Russia for energy.

The Itera and Rosenergoatom companies, for their part, lack the experience and technology required for operating the electricity distribution sector, and would–or, after this, may yet–involve Armenia in antimarket barter schemes.

Earlier this month in Moscow, Armenia’s Energy Minister Karen Galustian was at the receiving end of Russian displeasure over Armenian debts to Itera and Rosenergoatom and over the Western privatization–which still seemed on track–of the electricity distribution networks. The two Russian companies linked debts with privatization. Officially inspired press articles in Moscow suggested that the two Russian companies now seek to swap Armenian debts for shares in Armenia’s power generating sector, and that they are also eyeing the high-voltage lines for stakes or for concession-type arrangements.

The Western tender’s failure marks a defeat of larger objectives which the incumbent Armenian government had itself pursued in terms of economic modernization and of attracting Western investors. It also probably will deprive Armenia of a critically needed US$50 million credit from the World Bank. This structural adjustment credit would have covered Armenia’s budget deficit, and was to have been disbursed upon the government’s announcement of the tender’s winner. The failure will also overshadow the May 10-11 international conference in New York on investment in Armenia (Snark, Noyan-Tapan, Azg, April 12-13, 18-24).

The Monitor is a publication of the Jamestown Foundation. It is researched and written under the direction of senior analysts Jonas Bernstein, Vladimir Socor, Stephen Foye, and analysts Ilya Malyakin, Oleg Varfolomeyev and Ilias Bogatyrev. If you have any questions regarding the content of the Monitor, please contact the foundation. If you would like information on subscribing to the Monitor, or have any comments, suggestions or questions, please contact us by e-mail at pubs@jamestown.org, by fax at 301-562-8021, or by postal mail at The Jamestown Foundation, 4516 43rd Street NW, Washington DC 20016. Unauthorized reproduction or redistribution of the Monitor is strictly prohibited by law. Copyright (c) 1983-2002 The Jamestown Foundation Site Maintenance by Johnny Flash Productions