On March 7, the Yerkir am news site in Armenia wrote that it had received information regarding the possible sale of Electric Networks of Armenia (ENA), the utility company that serves 935,000 customers in Armenia.

Earlier, Yerkir.am had written that ENA would soon be declaring bankruptcy. The news outlet pointed to GazProm, the Russian energy giant, as the potential buyer.

So let’s take a look at how ENA was founded and how it arrived at the financial situation it’s in today.

Electric Networks of Armenia was founded in May of 2002, resulting from a merger of four state regional companies - Yerevan Electric Networks, North Electric Networks, South Electric Networks and Central Electric Networks.

In the same year, ENA was sold for US$12 million in an international tender to Midland Resources Holding, a British offshore company specializing in buying and selling assets in    post-Soviet nations.

In 2006, ENA was purchased by Inter RAO UES, a diversified energy holding company headquartered in Moscow. (Inter RAO was established in 1997 as a subsidiary of the Russian unified power company RAO UES)

Today, ENA is wholly owned by Inter Rao Credit B.V., a subsidiary of Inter RAO UES registered in Amsterdam.

The price of the sale of ENA by Midland Holdings to the Russian company has never been made public but some sources place it at US$40 million.

ENA had been operating at a profit until 2012, when it registered a loss of 10 billion AMD. (In the prior year it had declared a profit of 2.8 billion AMD).

The company’s annual report explains the loss by stating that it was forced to purchase higher cost electricity from the fifth power unit at the Hrazdan Thermal Power Plant. (The unit went on line in December 2013)

Here, some background information is necessary.

Since Armenia does not produce natural gas its power generation sector is totally reliant on gas imports from Russia. Gazprom Export delivers gas to the border with Armenia where it is purchased by ArmRosgazprom – now totally owned by GazProm.

 In March 2006 Gazprom and the Government of the Republic of Armenia signed a 25-year Agreement identifying the strategic principles of Gazprom's participation in gas and power projects in the Republic of Armenia. The document provides for an increase of Gazprom's ownership stake in ArmRosgazprom via an additional share issue. As a result, Gazprom acquired an 80 per cent stake in ArmRosgazprom. The funds received from the share issue were allocated for purchasing and constructing the fifth power unit at the Hrazdan Thermal Power Plant as well as gas infrastructure facilities in Armenia.

No wonder then that GazProm is being named as a potential buyer of ENA. It would appear that electricity prices have been raised simply to bankrupt ENA for a takeover by the Russian energy giant.

But the problem isn’t only due to higher electricity prices paid by ENA

Bloomberg Businessweek reports that INTER RAO Credit B.V. has concluded a RUB 20.1 million loan deal with the ERBD (European Bank for Reconstruction and Development) and a RUB 51 million loan deal with VTB BANK (DEUTSCHLAND) AG (or a total of US $2.3 million).

Thus, despite its financial difficulties, ENA remains one of the largest taxpayers in Armenia.

Last year, it paid 10 billion AMD (US$24.2 million) in taxes, making it the country’s 7th largest taxpayer overall.

In a statement to Armenia’s Public Services Regulatory Commission, ENA stated that it planned to increase investments in the energy sector to 4.5 billion AMD (US$11 million); up from the 2 billion in 2014.

Given ENA’s financial woes, such an optimistic scenario remains uncertain.