Armenia Cedes Power to Russia

Friday, 24 October, 2003

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Ara Tadevosian

Russia has tightened its grip over energy supplies in the Caucasus with the takeover by the United Energy Systems, UES, of a hydroelectric plant generating up to a fifth of Armenia's electricity.

Ownership of the Razdan Hydroelectric Power Plant passed to UES as part of a programme in which Armenia is using state property to pay off its 93 million US dollar debt to Russia - most of it incurred through late payment of previous energy bills.

Five percent of the country's defence and power enterprises have already been handed over.

According to UES chief Anatoly Chubais, this is part of a grand strategy that will spread Russian influence and eventually create economic ties between Russia and much of the former Soviet Union.

"Russia's main goal over the next 30-50 years is to build a liberal empire," Chubais said at a news conference in St. Petersburg on Thursday.

During a visit to Yerevan earlier in the week, Chubais said the southern Caucasus needed a "unified energy system," something that only Russia is in a position to provide.

Unlike in neighbouring Georgia, there has been little opposition in Armenia to Russia's steadily strengthening hold over energy supplies.

Armenia's gas distribution system is already controlled by the Armenian-Russian company ArmRosGazprom, while Russian giants Gazprom and Itera are monopoly suppliers of the gas itself.

In early October, Armenia's sole nuclear power plant came under trust management of a UES subsidiary for five years. The Russian electricity giant has also recently acquired the seven hydroelectric power plants which make up the Sevan-Razdan Cascade.

Armenian president Robert Kocharian said he had not been pressured into using state assets to pay debts. "In this format, we are speaking of a deal between allies and equal partners. In pursuing our own agendas, we simultaneously advance Russia's interests," Kocharian told the Yerevan-based Voice of Armenia newspaper.

Russia's president Vladimir Putin also said the deal was wholly in Armenia's interests, "The rationale of Kocharian's initiative is to bring Russian businesses and capital to Armenia. We realise this, and we concur."

But some in Armenia are worried by what they see as the surrender of strategic facilities to their former ruler.

"While Robert Kocharian has been in power, Russian-Armenian relations have lost the quality of a real partnership they had in the early through mid-90s," said David Shakhnazarian, former national security minister of Armenia and aide to ex-president Levon Ter-Petrosian.

Kocharian's policies have "encouraged Russia to treat Armenia as its colony. Russia's takeover of Armenian companies as part of debt recovery was unparalleled in its humiliation", he said.

However, international financial institutions which as recently as two years ago frowned on Armenia becoming too energy-dependent on Russia are welcoming the latest developments.

Donna Dowsett-Coirolo, regional World Bank Director in the Caucasus, said that Russian management of the Armenian nuclear plant would "promote investment in Armenia's energy industry, improve the management level of the Armenian nuclear plant and consolidate its financial position."

Many local and international analysts attribute the change of heart to the fact that Armenia has nurtured close ties with the West as well as Russia.

Armenian political analyst Samvel Martirosian said that Russia's expansion in the Caucasus energy sector made sense.

He pointed to the recent decision by a US company, AES, to give up its stake in various key energy assets in Georgia, selling them instead to Russia's UES. "AES proved unable to operate in Georgia," he said. "I think Russian companies are better positioned to revitalise Georgia's energy sector. We all have the same mentality, inherited from the Soviet era."

He said that UES's recent acquisition of stakes in a number of Armenian companies with interests in Georgia may be part of a plan to unify the two countries' energy systems.

Not everyone expects such a smooth outcome.

For example, UES has not explained how it intends to recover Georgia's own payment backlog, while at the same time delivering on its promise to export Armenian electricity to Georgia in the near future. Georgia is already 20 million dollars in debt to Armenia for electricity.

And although Andrei Rappoport, deputy chairman of the UES's executive committee, has suggested exporting Armenian electricity to neighbouring Turkey, the Turkish government has repeatedly ruled out dealing with Armenia, regardless of whether the electricity is technically Russian.

"As an economist, I wonder whether UES will be able to make its promises a reality," said Armen Saakian, an analyst with a Yerevan-based private consulting firm.

Russian companies, for their part, are likely to follow their country's national interest in conducting business in the Caucasus. For example, the Russian gas monopoly Gazprom has stated its interest in building a gas pipeline between Iran and Armenia, something that Tehran and Yerevan have long wanted.

But the plan has yet to get off the drawing board, and analysts believe Gazprom is unwilling to give up its monopoly in Armenia or to help Iran mount a challenge in Europe's gas markets.

Ara Tadevosian is director of Mediamax, an independent news agency in Yerevan.