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World Bank Concerned About Sale Of Armenian Power Grids

By Atom Markarian and Emil Danielyan

The World Bank expressed on Friday serious concern about the reported purchase of Armenia’s electricity distribution network by a state-run Russian company, demanding official and clear explanations from the authorities in Yerevan.

Roger Robinson, head of the bank’s Yerevan office, said the Armenian government’s conspicuous failure to confirm or refute those reports is “a sign of something that is not right.” “I hope over the next week the World Bank and the public at large in Armenia will have some understanding officially and clearly: What is going on?” he told a news conference.

The RAO Unified Energy Systems (UES), Russia’s main power utility, announced on June 30 that one of its subsidiaries called Interenergo BV has paid $73 million to gain control of the Armenian Electricity Network (AEN or ENA). The Russian giant said the deal took the form of Interenergo buying Midland Resources, a British-registered firm that purchased AEN in 2002.

The Armenian Energy Ministry still refuses to comment on the UES claims, while AEN has denied them, saying that it only signed a management contract with the Russians.

Under the terms of AEN’s $40 million privatization, Midland Resources, which is in turn owned by a Canadian businessman, needs the Armenian government’s permission to resell the power grids to any other foreign investor. According to Robinson, the fact that it is the parent company rather than AEN that formally changed ownership does not spare Midland Resources the need to get the government’s consent.

The normally reserved World Bank official was visibly angry as he commented on the uncertainty surrounding the fate of one of Armenia’s largest and most profitable companies. “Has the formal process of requesting permission and receiving approval from the government of Armenia and the Public Service Regulatory Commission gone on?” he asked. “To my knowledge, no.”

“Any change in the beneficial ownership of ENA has to be approved by the government of Armenia and the Public Service Regulatory Commission,” Robinson stressed. “If you have a law, follow the law. If you have a license agreement, follow the license agreement. And let’s do this in an open and transparent way.”

That the Regulatory Commission has not received any sell-off requests from Midland Resources was confirmed by its chairman, Robert Nazarian. “I have no official information,” Nazarian told reporters later in the day. “I personally invited [AEN’s chief executive] Mr. Gladunchik and asked how credible these reports regarding the distribution networks are. He told me that there is no such thing and that negotiations are still underway.”

Gladunchik’s spokeswoman insisted last week that AEN will be managed, not owned, by the Russian giant. But Robinson shrugged off the claim, arguing that no company in the world would pay a large sum for running another business.

‘[Imagine if] I ask you to come and run my electricity distribution system in Armenia and you pay me $73 million for the privilege of doing that,” he said. “Guys, this is stupid childish speculation and a joke.”

The World Bank has been a driving force behind a decade-long reform of Armenia’s energy sector that has turned the country into a leading regional exporter of electricity. UES, which already controls 80 percent of Armenia’s power generating capacities, has long shown interest in its increasingly lucrative power grids. Energy Minister Armen Movsisian spoke out against the idea on March 3, saying that the Russians should not monopolize the sector.

The issue is thought to have been high on the agenda of Russian President Vladimir Putin’s visit to Yerevan that took place three weeks later. It is not clear if Putin and his Armenian counterpart Robert Kocharian reached any agreements during the talks.

Robinson was asked how the World Bank, which is Armenia’s largest creditor, will react if AEN is sold to UES in a transparent and legal fashion. “If that process goes on, I have no problem with it,” he said. “I have no views about the future owner, except that in the license agreement the owner has to demonstrate financial health and the capacity to run a strategic electricity distribution system.”

It is not clear if Interenergo, in which UES holds a minority stake, has the resources to make much-needed capital investments in the Armenian power utility. The obscure firm was set up in a Dutch tax haven last year with a reported authorized capital of just 150,000 euros ($180,000). Its other shareholders are not known.

AEN was sold to Midland Resources without a competitive and transparent bidding in September 2002. The deal drew strong criticism from Western donors, with the World Bank putting on hold further loans to Yerevan at the time. It remains to be seen if the government will face similar consequences if it fails to address the bank’s concerns this time around.

In the meantime, the bank’s governing board approved on Thursday the release of a new $20 million to Armenia. Robinson said the money will be lent to private Armenian firms involved in agribusiness.

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