Government Agrees To Russian Purchase Of Armenian Power Grid

25/09/2005 19:01

Radio Free Europe

The Armenian government has consented to the formal sale of the national power grid to a subsidiary of Russia’s Unified Energy Systems (UES) power monopoly, Energy Minister Armen Movsisian announced on Friday.

Movsisian said the government gave the green light after the UES management accepted its terms for the change of ownership of the Electricity Networks of Armenia (ENA). He dismissed concerns about the resulting tightening of Russia’s grip on the Armenian energy sector, saying that it will be offset by a multimillion-dollar energy contract that has just been granted to an Iranian company.

“The government has given its consent to a [takeover] agreement that will impose these obligations on UES,” Movsisian told a news conference.

The decision came in response to a request filed earlier this month by Midland Resources Holding, a Canadian-owned offshore firm that privatized ENA three years ago. Under the terms of the deal, Midland Resources could not resell the power distribution network to another foreign investor without the Armenian authorities’ consent.

The government made approval of the request contingent on UES agreeing to assume Midland’s investment commitments. According to Movsisian, the state-owned Russian giant has accepted the demand.

UES caused a stir last June when it announced the signing of a $73 million “management contract” with Midland, making it the de facto owner of the Armenian utility. The legality of the deal was seriously questioned by the World Bank and the U.S. Agency for International Development (USAID). They warned that the lack of transparency could call into question their further assistance to Armenia.

But the donors reacted positively when Midland and UES decided to formalize the sale of ENA by approaching the Armenian government and the Public Service Regulatory Commission. The Western donors, that have been closely involved in the decade-long reform of the Armenian energy sector, now appear resigned to the Russian takeover of ENA.

UES already controls major power plants that provide 80 percent of Armenia’s electricity. In addition, Russia is the sole supplier of natural gas and nuclear fuel used by those plants. Russian energy corporations have for years tried to get their hand on the country’s electricity grid.

Movsisian on Friday denied that he himself publicly spoke out against ENA’s possible sale to UES and strongly defended the Russian giant’s track record in Armenia, deploring its “somewhat bad image” created by critics of Russian-Armenian energy dealings. He said the fact that a single company will now be generating and distributing electricity in Armenia will have no negative implications.

“Whether it is UES or some other company that owns the distribution network can not have any impact on the sector’s work,” he said.

UES became the owner of Armenia’s largest thermal power station located in the central town of Hrazdan and took over the financial management of the Metsamor nuclear station as a result of intergovernmental swap agreements that cleared Yerevan’s debts to Moscow. The deals did not cover the biggest and incomplete Fifth Unit of the Hrazdan plant. The Russians have been keen to buy the Fifth Unit as well but have faced serious competition from a state-run Iranian company that has offered to invest $150 million in the facility.

Movsisian confirmed that the Armenian government has accepted the Iranian proposal which will allow it remain the owner of the Hrazdan facility. The promised Iranian investment will take the form of a loan which Armenia will have to repay with increased supplies of electricity to Iran. That electricity is expected to be generated at the Fifth Unit with Iranian natural gas that will be pumped to Armenia through a pipeline currently under construction.