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

Armenian Chemical Deal Ends in Tears

Armenia's largest factory is without an owner for the second time in a year, following the withdrawal of a British investor.
By Tigran Avetisian

Nearly 2,000 workers at Armenia's giant Nairit chemical plant are jobless after the British company Ransat formally ceded control of the factory to its creditors and left the country last month.


The quarrel between the London-based firm and the local authorities marks the end of an ambitious attempt to have a major western investor manage a large Armenian factory. As both sides blame the other for the deal's failure, several Russian companies are expressing an interest in taking over the plant.


Ransat managed the factory - which manufactures synthetic rubber products - for less than a year, and the uncertainty which has followed the British firm's decision to pull out has led Nairit's embittered workforce to stage a series of pickets and rallies, albeit with little or no effect.


Nairit used to be one of Soviet Armenia's main industrial producers, but has suffered one reverse after another since the late Eighties.


When the management contract was signed a year ago it was hailed as the start of a new romance between a foreign investor and Armenian industry. Trade and industry minister Karen Chshmaritian welcomed Ransat's involvment, saying, "I am really glad that we have found a company which took the risk [of taking over Nairit]."


Acquiring Nairit, Ransat promised to invest 25 million US dollars in the factory over a five-year period and progressively settle its debts, estimated variously to be between 30 and 35 million dollars.


Ransat, which is primarily a marketing company, first took an interest in Nairit in 2001 when it commissioned research into its prospects. "We saw that the company had a good product base but the quality was dreadful," Ransat president Anil Kumar told IWPR in an interview in the company's London offices. "But we reached the conclusion that if the supplier and the trader were to become the same company, we could make it work."


High hopes were expressed that the acquisition of the factory by Ransat, which trades in 20 countries round the world, would mark a new chapter in its troubled history. However, others were more sceptical. "The future of Nairit is murky," wrote Haik Gevorkian, an analyst with Haykakan Zhamanak newspaper.


The chemical plant requires constant supplies of gas, electricity and steam to turn out its products. Kumar insists that a key condition of the takeover deal was that Ransat would get concessionary rates on all three energy sources. "The government promised us discounts," he claimed.


However, in September 2002 the authorities were adamant that while they would offer gas and steam at discretionary rates, these would not apply to electricity. "The price of electricity cannot be reviewed for any company, not even for Nairit," said minister Chshmaritian, who by then had become the British company's biggest critic in government.


Relations then soured in spectacular fashion after the little-known offshore company Midland Resources took over the Armenian electricity grid. On November 1 2002, the power firm abruptly turned off electricity supplies to Nairit, claiming that it had not paid its bills. The next day the gas was switched off. Three days after this, Ransat shut the factory and it has not resumed operations since.


Kumar - who says that he "spent ten million dollars before a single tonne of rubber was produced" - blames the Armenian authorities for not supporting his plans to turn round the company. "Everything depended on government support, how they treated us, if they kept their promises," he said, adding that bureaucracy, customs hold-ups, pervasive corruption and official interference had hindered the factory's progress.


For this, he blames the lack of a progressive business culture in the country. "Every banker I knew warned me not to invest money in Armenia," Kumar said, who sounds embittered by his experience with Nairit. "Everyone - from the government, the IMF, the European Bank for Reconstruction and Development told me - it's too risky."


The company's Armenian critics accuse the British firm in turn of not honouring its promises, and of asking for too much for free. "Ransat did not fulfil the obligations it made," said an official in the energy ministry.


Armenian ministers have declined to give an official comment on the events.


Tigran Jrbashian, who heads a consulting firm Sed-Marsed, claims that "After getting Nairit for free, Ransat came up against a series of problems, of which weak marketing was the main one."


But Kumar insists that, if Ransat had been allowed to work to plan, Nairit would have started delivering a profit in its second year of operation. "If the plan runs properly, it is worth 50 million dollars," he said.


The factory has now been handed over to Haykapbank, its main creditor, while deputy economics minister Ashot Shakhnazarian confirmed that, "we are negotiating with several Russian chemical businesses".


If the plant does fall under Russia's control, it will follow the Razdan hydroelectric power station and the Metsamor nuclear power station as the latest Armenian business to do so. "If [this happens], it will put the sovereignty of the country under threat," warns business analyst Tigran Jrbashian.


Kumar is dismissive of the prospective Russian buyers, saying that the Armenian firm will experience enormous problems in getting its products to a world market. "If I can't run Nairit, no one can," he said.


Meanwhile, Nairit's workers are angry with everyone involved. They were already unhappy with Ransat's salary scheme, whereby the British company said it would clear a backlog in wages to most of the 1,900 payroll workers by the radical strategy of withholding pay for the first year and promising to double it the following year.


"That was exploitation plain and simple," alleged Gevork, a 58-year-old who worked many years at the factory. "But we were ready for anything so long as we had jobs. And now we don't even have that solution."


Arsen, who is now in his mid-thirties, has worked at Nairit all his adult life. "I have no one left to borrow money from," he said. "I either have to emigrate or die of hunger."


Tigran Avetisian is a journalist with Orran newspaper in Yerevan. Mark Grigorian, formerly IWPR's Armenia coordinator, is now working as an IWPR editor and trainer in London.