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Owner Clarifies Opaque Sale Of Armenian Utility

By Emil Danielyan and Ruzanna Stepanian

The British-registered company Midland Resources Holding insisted on Wednesday that it remains the nominal owner of Armenia’s low-voltage power grids and signed a mere management contract with Russia’s state-run power monopoly.

The assurances came amid growing questions about the legality of the deal raised by Armenia’s Western donors. They argue that the reported sale of the Electricity Networks of Armenia (ENA) to an obscure subsidiary of Russia’s RAO Unified Energy Systems (UES) group called Internergo occurred without the Armenian government’s prior consent, which is required under the terms of ENA’s privatization three years ago.

In a first public reaction to the controversy, Midland Resources said it only granted Interenergo the right to manage ENA and “receive revenues from ENA’s activities” for $73 million. “The leadership of ENA welcomes the agreement on the transfer of its shares to the management of a company affiliated with the RAO UES of Russia group and believes that the group’s professional experience and financial resources will enable ENA to more effectively achieve the objectives of renewing the country’s energy infrastructure, reducing energy losses … and raising the quality of energy supplies to Armenia’s population and enterprises,” it said in a statement.

Midland Resources argued that power distribution and sales is not its core activity and that it has no other business interests in the region. But it was not clear why the company decided to retain what appears to be a largely symbolic ownership of the Armenian power utility.

Midland further stated that its chairman and main owner, Canadian businessman Alex Shnaider, formally notified Armenia’s government and the Public Service Regulatory Commission of the deal with Interenergo on July 18. It said a top UES executive was in Yerevan on July 18-19 and also provided “necessary clarifications on the essence of the deal” to the commission’s chairman Robert Nazarian, Energy Minister Armen Movsisian and the head of the World Bank’s Yerevan office, Roger Robinson.

However, Movsisian’s deputy Areg Galstian claimed on Tuesday that the Armenian government has still not received any official notification from ENA’s parent company or the Russians. Robinson, for his part, told reporters on Wednesday that the authorities receives written explanations the previous day.

The World Bank official said he has seen those explanations but will not comment on them for the time being. “I think it is very premature for me to make any comments at this point because the response is directed to the government and the government has yet to examine and digest it,” he said.

The government’s surprisingly passive stance on the matter has drawn sharp criticism from the World Bank and the U.S. government’s Agency for International Development (USAID) which believe the ENA deal threatens the success of the decade-long reform of Armenia’s energy sector. The USAID warned on Tuesday that it could reconsider its assistance to the sector. Robison has similarly hinted that the government’s handling of the affair could affect the release of further World Bank loans to Armenia.

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