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Tatul Hakobyan

Energy colonization or a mutually profitable deal?

The fifth energy unit of Hrazdan TPS has been sold to Russia as well

While the United States continue to attach importance to Armenia's energy security encouraging the diversification of its energy sources, official Yerevan has deepened Armenia's dependence on Russia by signing an agreement with the Russian state-run giant Gazprom. On April 5, 2006 the Armenian government sold the 5 th energy unit of the Hrazdan thermoelectric power station (TPS) to Russia for $248.8 million.

In the past three years, Russia has purchased more than 70 percent of our country's energy infrastructure, including the Hrazdan TPS (less the 5 th energy unit), the Sevan cascade, and the electricity distribution network. Also, the Russian utility Unified Energy Systems manages the assets of the Metsamor Nuclear Power Plant (the state holds a monopoly in the nuclear energy sphere). Apart from the Vorotan cascade, the Yerevan TPS, and several small hydroelectric power stations, everything else is in possession of Russian companies.

A press-release posted on Gazprom's official website on April 6 th stated that in addition to the 5 th energy unit of Hrazdan TPS the company would also buy from the Armenian government the first 40-kilometer section of the Iran-Armenia gas pipeline currently under construction, and that ArmRosGazprom, cjsc (in which Gazprom owns a 45-percent share) would be the construction contractor for the 197-kilometer-long second section of the pipeline. Armenian Energy Minister Armen Movsisyan has denied this information, stating that the construction of the Iran-Armenia gas-pipeline is not yet finished and that it might not be sold. The next day, the press release on the Gazprom website was altered to contain no references to the pipeline.

Hayk Gevorgyan, an Armenian journalist who covers economic matters, maintains that with this deal, Yerevan has proved once again that it is unable to conduct an independent foreign policy and that it merely executes Moscow's orders. "This deal shows that the Armenian government does not adhere to liberal values but, on the contrary, it can be seen as a socialist or Bolshevik deal. The 5 th energy unit was not sold through a tender as required by the law, but was just handed over to Russia; in other words, the government of Armenia subsidized customers at its expense, which is an indicator of socialist ideology," Gevorgyan said.

"In one year's time, Armenia is to receive Iranian gas, which is a real alternative to Russian gas. In the near future, Armenia was supposed to sign a very important agreement on exploitation of the 5 th energy unit of the Hrazdan TPS, according to which the Iranian side would have supplied a $150 million credit for operating and reequipping the TPS and the Armenian side would have paid off the credit with electricity produced at the 5 th energy unit. In other words, Iranian gas would reach the Hrazdan TPS through the pipeline under construction, be processed into electricity, and return to Iran through high-voltage transmission lines. In this case the 5 th energy unit would have remained Armenia's property and the Iranian credit for reconstructing it would have been paid off within two years after which the 5 th energy unit would have made a profit of about $100 million a year," Gevorgyan explained, insisting that Yerevan signed the present deal under direct pressure from Moscow.

Economist Edward Aghadjanov, too, insists that Russia exerted pressure on Armenia and that the country that is considered a strategic partner is now attempting the "energy colonization" of Armenia. Aghadjanov is convinced that the 5 th energy unit should have been sold to another country, to Iran for example, which expressed interest in buying it, and, incidentally, on better terms for Armenia. "The 5 th energy unit shouldn't have been given to the Russians since we have already handed other important enterprises over to them. It is not justified from the economic standpoint to give everything including the nuclear power station and the electricity distribution network to one country, irrespective of what country it is. You shouldn't put all your eggs in one basket," Aghadjanov said.

Naturally, the Armenian leaders don't accept the criticism. As in the past when other energy deals with Russia were signed, this time, too, Energy Minister Armen Movsisyan remains incurably optimistic. He claims that the deal is very advantageous for Armenia, as the Russian side has undertaken obligations to complete the construction of the 5 th unit within two years, to invest about $150 million, and to install a 140-megawatt-powered gas turbine.

In a recent interview, Prime Minister Andranik Margaryan noted that Armenia has no excess in goods to compensate Russia for the rise in the gas price. Today, however, the Prime Minister is saying something different. "We have to distinguish two things - we haven't given property or assets to prevent or to compensate for the rise in price. We have sold the 5 th energy unit on terms profitable for our country, and it should not be directly linked to the mitigation of the consequences of gas becoming more expensive," Armenpress reported him saying. This comment by the Prime Minister is not persuasive since the 5 th energy unit was handed over to Russia in exchange for providing citizens of Armenia with less expensive gas for another three years, and this is indirectly mentioned in the agreement.

Two other senior officials have also commented on the deal. In a meeting with journalists last Saturday, Artur Baghdasaryan, the speaker of the National Assembly, generally assessed the deal as positive, since "it is extremely positive that the Russian side will make a direct investment of $600 million into the Armenian energy sector." Baghdasaryan sees the deal as positive from the social point of view as well, since up to the year 2009, there will be only an insignificant rise in the price of gas, and none at all in the price of electricity. At the same time, though, the speaker of the National Assembly considers the concentration of the energy sources of Armenia in the hands of one country, Russia, to be worrisome.

President Kocharyan, in contrast, considers selling the 5 th energy unit to Russia natural, since it is Russia that supplies gas to Armenia and has the greatest interest in energy matters. "I don't remember any proposal from America or any other country with regard to the energy sphere that has been turned down," said the president last Saturday on a visit to the Kotayk Marz.

"Is it better to have an enterprise which is half-built, exposed to the elements, giving nothing to society, and which has already wasted one credit project, but have it be Armenia's property, or to have a Russian enterprise operating on our territory - an enterprise that is modern, efficient, uses less gas, and is very important to our economy enterprise?" Kocharyan asked.

We remind you that at the end of 2005, Gazprom sharply increased the price of gas supplied to its immediate neighbors. While Azerbaijan and Georgia agreed, without wasting words, to pay $110 per 1,000 cubic meters of "blue fuel" instead of $56, Armenia expressed its concerns to the strategic partner at the highest level. What was the logic? Russia was selling gas to both Georgia and Armenia for the same price, although Moscow perceives the former as a non-friendly country, and the latter a loyal and obedient ally. After months of negotiations Gazprom and the Armenian government reached an government according to which up until January 1, 2009, the price for gas was set at the level of $110 per 1,000 cubic meters, in other words, the price set for Azerbaijan and Georgia.

In addition, the 5 th energy unit of the Hrazdan TPS, which Iran had serious intentions of running, was sold to Gazprom for $248.8 million. $60 million of this amount will be allocated to the state budget and the remaining approximately $189 million will be paid to ArmRosGazprom as a subsidy. To make it clearer, the citizens of Armenia will get relatively cheaper gas for three years, but yet another of our country's most important energy enterprises will become the property of Russia. It is not clear what will happen in three years. And a question arises - was it worth it to hand over to Russia an enterprise that is extremely important from the point of view of security in exchange for somewhat cheaper gas for another three years. According to the agreement, in 2009 Gazprom may again raise prices.

Over the last five years, the price of petroleum in Armenia has increased more than 50 percent as a result of the rise in prices in the world market. Then why didn't the government didn't take the same kind of measures to keep prices down as it did with gas? In the case of petroleum, official Yerevan didn't resort to populist measures. In recent years, prices for a number of goods-sugar, salt, etc-have increased. If Armenia keeps moving in accordance with the logic of subsidizing, it will be left with nothing more to sell.

In 2007 parliamentary elections will be held in Armenia, followed by presidential elections in 2008. This means that both the executive and the legislative powers will do everything they can to persuade voters that they are unbending patriots and that for the sake of the people they are ready to resort to unprecedented sacrifices.

The international media, which usually report on Armenia in relation to the Genocide, and sometimes the Karabakh conflict, have in recent days dedicated a number of articles to the agreement signed between our country's government and Gazprom. The BBC, the New York Times, the Associated Press, and other authoritative media organizations have noted that with this deal, Armenia has exhausted all the opportunities to diversify its energy sources in the future for the sake of getting Russian gas cheaper for a few years. And the Russian press in its turn not only finds this deal to be, let's say, pro-Armenian, but also drops hints that in the future Russia will also buy Armenia's telecommunications infrastructure. The Greek company OTE has already announced its intention to sell 90 percent of its Armentel stock.

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