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

Armenian Privatisation Controversy

Armenia's power industry sell-off has raised concerns both at home and abroad.
By Ara Tadevosian

The Armenian government's privatisation of the country's electricity generating industries has provoked opposition criticism and international concern.

The opposition fears the sell-off will leave yet another Armenian asset in foreign hands. The World Bank, meanwhile, is concerned that Russian companies may unfairly acquire a controlling stake in the industry.

International financial institutions have set privatisation of the power sector as a condition for granting Armenia much needed financial credits. According to the Chairman of the Parliamentary Energy Commission, Vardan Movsesian, the country requires $700 million in the coming 10 years to keep the energy system working.

The opposition, however, is critical of privatisation because many of the beneficiaries appear to be foreign concerns. The telephone network has already been sold to a Greek company, whilst the Yerevan Brandy Factory now has French owners. And Americans of Armenian descent have snapped up the best hotel in Yerevan.

"I think it is the right time for our government to stop [privatisation]. By selling all strategically important assets to foreigners, we will find ourselves directly dependant on them," said Aghasi Arshakian, a member of the Right and Accord faction of the Armenian parliament.

Opponents of privatisation are also concerned that the new owners of the energy system will make electricity prohibitively expensive for the majority of the population, despite government assurances that prices won't increase sharply. Many members of parliament are now calling for special parliamentary inquiry into the privatisation.

The sell-off programme, however, is going ahead despite opposition protests. Movsesian said that six of the 14 companies that applied to take part in the tendering process have been approved.

Armenia's Energy Minister, David Zadoyan, informed IWPR that the winning tender would receive 51% of stocks in the industry. He said the European Bank of Reconstruction and Development had expressed a wish to purchase 20%. A further 5% will go on sale on the Yerevan Stock Exchange; 4% will be offered to the electricity industry unions; and the remaining 20% will remain the property of the state.

International financial institutions have raised concerns over the tendering process. The Regional Director of the World Bank, Judy O'Connor, has already told Prime Minister Aram Sarkisian of her fears that the process breaches "principles of fair competition and just business".

The World Bank is reported to be nervous about Russian companies buying up electricity industry stocks. It has already expressed concern that a bid by the International Energy Corporation, Itera, which supplies Russian gas to the Ukraine, Byelorussia, Georgia, Armenia and the Baltic States, may fall short of tender requirements. But its uneasiness may be less to do with the eligibility of the bid than with a fear of the Armenian power system coming under complete control of a Russian company.

The spectre of Russian empire building in former Soviet republics continues to haunt the international community together with concerns that new Russian management may be more interested in asset-stripping than in capital development.

According to independent experts, Itera's purchase of the electricity industry would be detrimental to the Armenian economy, if only because the financial resources of Russia are much smaller than those of the United States and West-European countries. And since much of Armenia's budget deficit is covered by the World Bank, the Yerevan authorities have good reason to take the institution's concerns seriously.

So the government is facing a difficult choice: either it turns its back on its strategic partner Russia or yields to the demands of international financial organisations. The final results of the privatisation tender will be concluded in April, when it will be revealed whose influence over Armenia is greater.

Ara Tatevosian is director of Mediamax, an independent Armenian news agency.