By Shakeh Avoyan and Emil Danielyan
Energy Minister Armen Movsisian indicated on Thursday his opposition to a possible sale of Armenia’s electricity distribution network to Russia’s state-run power utility, RAO Unified Energy Systems (UES).
Movsisian argued that UES already controls most of the country’s power generating facilities and will effectively monopolize the Armenian energy market if it gets hold of the low-voltage power grids. That would run counter to a key goal of the ongoing reform of the sector, he said.
UES reportedly approached Midland Resources Holding, a British-registered company that owns the Armenian Electricity Network (AEN), with a takeover bid late last year. Sources in the Western donor community in Yerevan confirm those reports and say that the Armenian government is cool toward the idea.
UES owns Armenia’s biggest thermal power plant and several hydro-electric plants near Yerevan. In addition, it was granted last year the financial control of the nuclear power station at Metsamor in return for assuming its $40 million debts to Russian suppliers of nuclear fuel.
Also showing interest in the distribution network is Gerard Cafesjian, a U.S. businessman and philanthropist of Armenian descent. Cafesjian has a 50 percent share in one of Armenia’s leading private television stations loyal to the government and plans to build a $25 million museum of modern art in Yerevan. He is thought to have already communicated a purchase offer to Kocharian.
Any sale of AEN shares requires the government’s approval, giving it a crucial veto power. Movsisian, however, claimed that Midland Resources, whose main shareholder is a U.S. national, has so far expressed no desire to sell its Armenian subsidiary.
The Armenian government sold AEN to Midland Resources for $40 million in 2002 in the hope of ending its huge losses that cost the state budget $50 million each year. Its chief executive, Yevgeny Gladunchik, declared late last year that the power grids have finally begun to operate at a profit due to a sweeping restructuring and a crackdown on widespread fraud among its employees. Sources familiar with the sector estimate AEN’s 2004 earnings at $20 million.
However, despite the strong performance, the network operator has failed to meet its capital investment commitments. Last year, for example, it pledged to invest a relatively modest $5.5 million but actually spent only a third of that.
Movsisian warned that Midland Resources will risk losing its operating license if it fails to honor its commitments this year.