Publication: Monitor Volume: 7 Issue: 80

The Armenian government’s tender to privatize all four of the country’s electricity distribution networks failed on April 21. On that day–the tender’s last deadline–the assembled cabinet of ministers waited in vain in its meeting room until late in the evening for interested investors to show up. By that stage, only the American AES Silk Road company and Spain’s Union Fenosa were still in the running. After the failing Telecom privatization and the travails of the Armenian Brandy Company’s privatization, the tender for electricity distribution networks was being watched as a test of the country’s ability and willingness to privatize its badly run state property.

A total of fifteen foreign companies had initially applied for the tender. Some decided that they could or would not compete; others, however, including such world leaders as Electricite de France and the Swedish-Swiss Asea Brown Boveri, withdrew late in the game. By that time, this privatization project had become overly politicized in Armenia, and the government tinkered with the tender’s terms in the endgame phase.

AES and Union Fenosa have impressive track records as international investors, most recently in Georgia for the AES subsidiary Silk Road and in Moldova for Union Fenosa. On April 17, moreover, AES won the Ukrainian government’s privatization tender for the electricity generating companies (Oblenerhos) of the Kyiv and Rivne Regions, and Union Fenosa is a strong competitor in the current tenders which are about to be adjudicated for other Ukrainian Oblenerhos (UNIAN, April 17, 23).

Since April 21, Armenian officials have for the most part been equivocating about the reasons behind the tender’s failure. Some even blame it on the Ukrainian tender held at the same time, though there is no indication that this interfered with the Armenian tender in any way. But a few Armenian officials, such as Justice Minister David Harutiunian, obliquely acknowledged in recent days that the government had changed some of the terms in the final stage of the tender process. The changes would have curtailed the new owners’ managerial authority and would have limited their leeway for legal recourse in the event of disputes. As such, the changes could have enabled corrupt and shadowy local groups to meddle with the privatized networks.

Beyond that, the networks’ privatization project was challenged in the streets and in parliament by nationalist, leftist and pro-Russian groups, which collectively often form an anti-Western critical mass in Armenian politics. In this case, some of them opposed the privatization project on ideological grounds, while others favor Russia for privatizing Armenia’s electricity system. The populist slogan in this case claimed that “the foreigners will raise the electricity tariffs.”