Publication: Eurasia Daily Monitor Volume: 4 Issue: 26

Russia looks set to enhance its already strong economic presence in Armenia by capitalizing on Armenian President Robert Kocharian’s apparent desire to secure his political future with the Kremlin’s backing. The two governments have indicated that Russian companies will soon get hold of more chunks of the Armenian economy involving transportation and mining. They are also considering building a big Russian-owned oil refinery on Armenia’s border with Iran.

The developments result from Kocharian’s latest talks with President Vladimir Putin, which took place in the southern Russian city of Sochi on January 24. Putin was visibly satisfied with the outcome during an ensuing joint news conference, praising a major increase in Russian-Armenian trade in 2006 and the absence of “unresolved problems or difficult issues in our relationship.”

Kocharian, for his part, recalled Putin’s earlier public complaint that Russia is only Armenia’s third-largest foreign investor. “I have a sense that Russia will definitely hold the honorable first place by next March,” he said. He noted in particular that he and Putin had discussed Russian involvement in the Armenian mining industry, which is currently dominated by non-Russian foreign investors.

Kocharian’s press secretary, Victor Soghomonian, told reporters in Yerevan on January 29 that Russia would specifically like to help Armenia develop its uranium deposits, which were first discovered in Soviet times. Last year a U.S. mining company began exploratory work in a northeastern Armenian region that geologists say is rich in the radioactive metal. It is not clear if the Russians have set their sights on the same area.

Citing unnamed government sources, the Armenian newspaper 168 Zham said on February 1 that Yerevan has also decided to place Armenia’s largest gold mines under Russian control. The paper claimed that an Indian company that operates those mines along with a gold-recovery plant is being forced out of the country. The Armenian authorities recently accused the company, Vedanta Resources, of large-scale tax evasion, and it is currently under investigation.

Kocharian also referred to Russian-Armenian cooperation in the area of transport, widely understood to be a confirmation of earlier reports that Russia’s state-run railway company will run Armenia’s moribund rail network. The takeover is expected to take the form of a long-term management contract.

In addition, it emerged after the Sochi talks that the oil division of the Gazprom monopoly is in talks with the Armenian government to explore the possibility of building a refinery in southeastern Armenia that would process oil from neighboring Iran. The ambitious project envisages shipping Iranian crude to the Armenian border town of Meghri through a 200-kilometer pipeline and transporting refined oil products back to Iran by rail. According to Kocharian’s spokesman Soghomonian, Armenian, Iranian, and Russian officials will meet soon to discuss the project in greater detail.

Despite its vast oil reserves, Iran lacks refining facilities and has to import gasoline to meet domestic demand. Nonetheless, some Russian experts question the economic wisdom of building such a facility in the most remote and least accessible part of Armenia, saying that it would cost a staggering $1.7 billion. Soghomonian dismissed the estimate as “grossly exaggerated” and insisted that the project “makes economic sense to all three parties.”

The latest Russian-Armenian talks come on the heels of highly controversial deals that gave Moscow near total control over the Armenian energy sector. The most recent of those deals, finalized in April 2006, enabled Armenia to avoid a hike in the price of Russian natural gas until January 2009 in exchange for ceding more energy assets to Gazprom. Those included an incomplete but modern thermal power plant and a considerably higher stake in the South Caucasus state’s gas distribution network. The Russian giant will also likely get a controlling share in a gas pipeline from Iran that is due to come on stream this spring. In addition, Kocharian’s late October visit to Moscow was followed by the $500 million sale of ArmenTel, the Greek-owned national telecommunication company, to Russia’s VimpelCom mobile phone operator.

Many commentators in Yerevan view Kocharian’s willingness to place more Armenian industries under Russian control as being part of his strategy to retain a key role in the country’s government after completing his second and final term in office in March 2008. Throughout his nine-year rule the Armenian leader has sought the Kremlin’s backing to neutralize political opponents challenging his legitimacy. Significantly, Kocharian was received by Putin in Sochi just one week after paying a confidential visit to Moscow. Armenia’s upcoming parliamentary elections were reportedly high on the agenda of that trip. The outcome of the vote, slated for May 12, will be vital for his political future.

Whatever Kocharian’s real motives, there are mounting concerns about the implications of the ruling regime’s economic dealings with Moscow — arguably the least transparent area of governance in Armenia — that are not overseen by parliament or even the cabinet of ministers. “Many economists consider Russia’s presence in the Armenian economy to be dangerous,” commented 168 Zham. Another paper critical of the government, Haykakan Zhamanak, accused Kocharian of “playing with our country’s sovereignty.” “The problem is that Russian companies are acquiring not just Armenian enterprises but whole infrastructures,” it wrote on January 26. “And that is a matter of national sovereignty.”

(168 Zham, February 1; Azg, January 30; Kommersant, January 26; Haykakan Zhamanak, January 26; RFE/RL Armenia Report, January 24, January 17)