Yerevan to Name Privatisation Partner

Armenia's tender to privatise the energy sector rumbles on, with only three horses left in the race

The American company AES Silk Road remains the odds-on favourite in the ongoing bid to privatise Armenia's energy distribution networks.

With three foreign corporations still in the running, the Yerevan government is expected to announce the results of the tender before the end of March.

But the initiative has encountered fierce resistance from opposition parties who claim the privatisation process will seriously damage Armenia's geopolitical independence in the region as a whole.

The tender process has been nothing if not eventful. When the contest was first announced in early 2000, five companies expressed an interest -- AES Silk Road, Spain's Union Fenosa, Swiss-Swedish concern ABB, Electricite de France and Itera, from Russia.

In April that year, the tender commission decided to turn down Itera's application on the grounds that the company had failed to produce the results of an international audit. The Russian ambassador in Armenia, Anatoly Dryukov, dryly remarked that the move "was not in keeping with Armenia and Russia's goals".

And Dmitri Zhurban, a spokesman for RosEnergoAtom, Itera's partner, complained that the audit demand had only been made after preliminary conditions for the tender had been published.

Zhurban went on to say that the AES Silk Road bid enjoyed considerable support from the EBRD and the American government while the World Bank had objected to the sale of shares to Itera.

The Russian's comments are given some credence by a visit to Yerevan in March 2000 by Jan Kalitski, American trade advisor on the newly independent states, who expressed Washington's interest in an AES victory. "I believe that the American company is the best," said Kalitski unambiguously.

Meanwhile, the Armenian authorities have stressed that the decision to sideline Itera was prompted by economic rather than political considerations, explaining that the Russian company did not have the appropriate experience.

However, according to some sources in the Armenian government, Itera has been promised priority treatment over the forthcoming sale of Armenia's energy generating sector.

Electricite de France pulled out of the tender in December 2000, giving no real reason for its decision. Some months before, the French embassy in Yerevan had stated that the company's interest in the process was superficial and its application had been a formality.

Of the three remaining candidates, AES Silk Road seems the most likely victor. The company already boasts similar projects in Kazakstan and Georgia - its daughter company AES Telasi owns 100 per cent of the shares in Tbilisi's distribution networks.

Certainly, AES Silk Road is quietly confident. In an October interview with Mediamax, John Huffaker, AES representative in the CIS, said, "AES always prefers to acquire 100 per cent of the shares. If this level of ownership is not possible, then we'll work on getting as close as possible to this goal."

The Armenian government, on the other hand, has proposed a very different ownership scheme. Yerevan is currently offering 51 per cent of shares to the strategic investor and 20 per cent to the EBRD whilst keeping 20 per cent for itself. A further five per cent would be sold on the stock market and four per cent distributed amongst the networks.

However, several days after the Mediamax interview was published, energy minister Karen Galustian said, "The initial formula for privatisation could undergo some changes in the course of negotiations with potential buyers."

Out of all the candidates, ABB has the longest experience of the Armenian energy sector and has already taken part in several local projects.

However, recent disagreements with the Armenian authorities could put a question mark over its continued interest in the energy distribution tender. Some observers have speculated that ABB is set to pull out of the race.

Meanwhile, Union Fenosa bosses are holding their cards very close to their chests. In September last year, David Gomez, the company's spokesman on foreign investments, said that the Union Fenosa bid depended largely on the conditions proposed by the tender commission.

This caution can in some part be explained by the company's negative experiences in Moldavia where it bought 100 per cent of shares in the local energy distribution networks.

Union Fenosa's recent cooperation deal with Itera has also prompted speculation that the Russian company may be poised to throw its cap back into the ring. The possibility was mooted by Armenia's energy minister, David Zadoyan, last spring but, in September 2000, David Gomez said that Union Fenosa, "had never considered forming a consortium to take part in the tender process".

But Nikolai Semenenko, press secretary of Itera, said the partnership agreement, signed just a month ago, focused on "mutual participation in investment projects in energy, gas and fuel sectors across the CIS".

According to the official timetable, the results of the tender should be announced before the end of March. But some observers say the process will be disrupted if ABB and Union Fenosa decide to pull out.

In addition, the privatisation issue faces growing opposition from political forces in Yerevan. On March 15, the Democratic Party and the Union of Constitutional Law launched a joint initiative entitled the National Movement Against the Privatisation of the Energy Networks.

Organisers said Armenia should learn from the lessons of other CIS members who sacrificed their political independence over privatisation deals. They say that Armenia is capable of reorganising its resources and managing the networks itself.

The opposition parties refuse to accept government arguments that proposed loans from the World Bank hinge on the privatisation of the energy networks. They say that previous loans have done little to improve the economy and living standards in the former Soviet republic.

Ara Tadevosian is director of the Mediamax news agency in Yerevan


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Armenia's tender to privatise the energy sector rumbles on, with only three horses left in the race