Publication: Monitor Volume: 6 Issue: 148

On July 28, following stormy debates among the political parties, Armenia’s parliament approved the sale of electricity distribution networks to Western private firms, as opposed to Russian state-controlled companies. President Robert Kocharian and the government headed by Andranik Margarian had been pushing this privatization program for several months against resistance from some of their own parliamentary supporters, who joined forces with leftist and ultranationalist groups against the bill. Because it touches on the country’s external orientation, the issue triggered a political battle more intense than those which had accompanied earlier privatization decisions. In this case, leftist ideological objections to privatization were reinforced by arguments dressed up as geopolitics from the pro-Moscow groups which pass for right-wing in Armenia. Those groups sought to turn the parliamentary debate into a test of Armenian loyalty to the “strategic partner” Russia. Ultimately, the government twisted enough arms in its own camp to ensure passage of the legislation by a comfortable margin.

Privatization of the electricity distribution networks had become enmeshed in the power struggle which pitted Kocharian against the Moscow-oriented government of Aram Sarkisian from October 1999 to May 2000. The president and his supporters had eliminated the Russian companies United Energy Systems, Rosatomenergo, Gazprom and the latter’s affiliate Itera from the contest during the preliminary stages, leaving only Western companies in the competition. In April, however, the parliament–at that time still in the Sarkisian camp for the most part–retaliated by removing the networks from the privatization program altogether. Ultimately, Kocharian’s victory in the power struggle made it possible to reopen the issue and win the parliamentary battle.

Western missions in Yerevan strengthened the arguments of the presidential camp in the political battle. They pointed out that the Russian companies lacked the investment capital, the technology and the operating experience required for modernizing those obsolete networks. The World Bank and the IMF, moreover, indicated that some of their lending programs to Armenia–including a critical, US$50 million loan to cover an estimated half of the state budget deficit this year–are contingent on a transparent and economically sound privatization of the distribution networks (see the Monitor, April 27, May 1, 3, 19, June 1; Fortnight in Review, May 12.

Under the legislation as adopted, Armenia will sell 51 percent stakes in each of the four state-owned electricity distribution networks. Four bidders are shortlisted for the final stage of the contest: AES Silk Road of the United States, Electricite de France (EF), Union Fenosa of Spain, and the Swiss-Swedish company Asea Brown Boveri (ABB). AES Silk Road is already involved in energy privatization projects in Georgia and Kazakhstan; Union Fenosa has recently taken over a part of Moldova’s crisis-plagued distribution network and is set to take over the rest; EF and ABB are among Europe’s leaders in this sector.

The Western takeover, when consummated, would mark a first step toward reducing Armenia’s dependence on Russia for energy supplies. That dependence is heavy at present. Gazprom and its affiliate Itera are Armenia’s sole suppliers of natural gas, and hold a combined 55 percent stake in Armenia’s internal gas distribution network. The Metsamor nuclear power plant, which accounts for up to 40 percent of Armenia’s power generation, is partly Russian-owned and totally dependent on Russian financing, technical assistance and nuclear fuel. As long as this situation prevails, Yerevan’s elbowroom in foreign and security policies remains constricted, even assuming political will on its part to steer a course of “complementarity” between Russia and the West. The Western privatization of electricity networks, the prospective closure of the obsolete and dangerous Metsamor plant, and a green light to laying a gas pipeline from Iran should gradually alleviate Armenia’s heavy dependence on Russia for energy (Noyan-Tapan, Snark, Mediamax, July 26-30).

The Monitor is a publication of the Jamestown Foundation. It is researched and written under the direction of senior analysts Jonas Bernstein, Vladimir Socor, Stephen Foye, and analysts Ilya Malyakin, Oleg Varfolomeyev and Ilias Bogatyrev. If you have any questions regarding the content of the Monitor, please contact the foundation. If you would like information on subscribing to the Monitor, or have any comments, suggestions or questions, please contact us by e-mail at pubs@jamestown.org, by fax at 301-562-8021, or by postal mail at The Jamestown Foundation, 4516 43rd Street NW, Washington DC 20016. Unauthorized reproduction or redistribution of the Monitor is strictly prohibited by law. Copyright (c) 1983-2002 The Jamestown Foundation Site Maintenance by Johnny Flash Productions