Institute for War and Peace Reporting | Giving Voice, Driving Change

Armenia: Russia Tightens Economic Grip

Opposition angered by sale of yet another Armenian asset to a Russian company.
By Naira Melkumyan

The acquisition by the Russian company Vympelkom of a majority stake in the Armenian telecoms firm ArmenTel has further strengthened Russia’s economic hold on Armenia.



Vympelkom last week bought Greek firm OTE’s 90 per cent stake in ArmenTel, which has a monopoly over the fixed-line and internet market in Armenia and partly owns the mobile network. The remaining ten per cent of shares are currently owned by the government.



Vympelkom, which trades under the name BeeLine in Russia, won the tender on November 3 against two competitors, Russia’s MTS and an Arab consortium called ETISALAT.



The Russian company may now be on the brink of taking full control of ArmenTel, as the government has indicated that it might be prepared to sell its shares on condition that Vympelkom agrees not to hold a monopoly position in the telecoms industry.



The decision on the sale was made immediately after an official visit by Armenian president Robert Kocharian to Moscow where his Russian counterpart Vladimir Putin said that Russia’s position as only the third largest investor in Armenia after Germany and Greece was "shameful."



The sale is the latest in a series of Russian takeovers in key areas of the Armenian economy, just as public attitudes towards Moscow are cooling because of the effect of its blockade of Georgia on Armenia and a rise of xenophobic attacks in Russia towards Caucasians, including Armenians.



At present, Russian companies own the Sevan-Razdan group of hydroelectric plants, the Razdan thermoelectric plant and manage the Armenian nuclear power station at Metsamor, which produces 75 per cent of the country's energy. Russian Railways is planning to take a long-term lease of the railway system, while ArmRosgazprom, the joint Armenian-Russian company, owns a large share of the Armenian gas network.



The opposition claims that the sale of key assets to Russian companies is undermining Armenia.



"Just take a look," said Aram Manukian, a leading member of Armenia’s former governing party, the Armenian National Movement. “The energy sector, communications, and the railway system have all been given to Russia. All this essentially weakens Armenia's independence.”



Defence Minister Serzh Sarkisian, the second most powerful figure in the country, has rejected opposition claims, telling journalists, "You won’t find to this day any examples of how Russian capital in Armenia has been used as a tool for political pressure."



Armenian prime minister Andranik Markarian said briefly, "Russia is not our enemy."



OTE had owned ArmenTel since 1997 when it bought it for 142.5 million US dollars, later investing up to 300 million dollars more in the company.



If the Armenian government approves the Vympelkom acquisition, the Russian company will pay 342 million euro for ArmenTel and take on its debts of over 40 million euro.



Vympelkom's general director Alexander Izosimov said, “Owning 40 per cent of the cellular market in Armenia, ArmenTel is in a strong position, which we intend to strengthen even further."



According to the Armenian trade ministry, 2005 was the first year that Russia was not the leading investor in Armenia, having had that role every year since 1991.



"Russia's desire to become established in Armenia as the most stable country in the South Caucasus is understandable, as the attitude toward Russian business is better here than in Georgia," said political analyst Anna Harutyunian.



However, Aram Sarkisian, head of the opposition Democratic Party, said the government should not have ceded control so easily. "All power generating operations are effectively in Russia's hands,” he told IWPR. “There are no problems with Russia. That country is our ally and I am in favour of deepening cooperation with it. But the government should control our strategic facilities.”



There is also criticism of the way the government has entrusted management of its ten per cent stake in ArmenTel to the

transport and communications minister Andranik Manukian.



Grigor Konjeian, a parliamentary deputy from the pro-government United Labour Party, told IWPR that this was a purely technical move.



"There is nothing strange in this, as collective management will lead to excessive circumlocution,” he said. “ It was for the sake of simplicity and transparency that it was decided to delegate the government's powers to an official."



But the leader of the opposition National Democrat bloc Arshak Sadoyan remains sceptical, "The fact that the shares were transferred to the transport and communications minister can have only one meaning. He has been given the right to sell the ten per cent of the shares that belong to the state. If this takes place, that will be an act of high treason."



Many ordinary Armenians, who have often been very critical of ArmenTel over the last few years, are only interested in how the sale will affect their telephone service.



"It doesn’t matter to me who the operator will be,” said Yerevan resident Suren Minasian. “Ordinary consumers just need easy high-quality communications.”



Naira Melkumian is a freelance journalist in Yerevan.