Russian Gazprom to invest 200m dollars in Iran-Armenia gas pipeline - 2007

Russian Gazprom to invest 200m dollars in Iran-Armenia gas pipeline
Armenia’s Minister of Energy and Natural Resources Armen Movsisyan has said that by the end of 2009, the Russian gas giant Gazprom will invest more than 200m US dollars in the construction of the Iran-Armenia gas pipeline, the Armenian news agency Arminfo reported. After the completion of construction work, Armenia will have access to another alternative gas pipeline along with the current one from Russia and based on the prices that are offered, will decide which of them it should use. Currently, Armenia pays Russian Gazprom 110 US dollars per 1,000 cu.m. of gas, however, the price will change from 1 January 2009, the agency quoted Movsisyan as saying. During his press conference, Armen Movsisyan also touched on the construction of an oil refinery outside Yerevan which will cost two or three billion US dollars. The plant, which will be able to process 7.5m tons of Iranian crude oil per year, will produce petrol and diesel, the agency said. Speaking about energy projects with Iran, the minister mentioned that a joint hydroelectric power station will be constructed on the border river Araz.

The construction of the station with a capacity of about 140 MW will be financed by Iran and will cost 240-250m US dollars. The construction work may commence in 2008, the minister said. The minister went on to say that the USA and the EU have allocated 10-12m US dollars to update the security of the Armenian nuclear power plant, Arminfo said. Up to now, technical assistance worth 90m US dollars has been allocated to update the security of the plant, the agency quoted the minister as saying. Armen Movsisyan added that it is planned to build a new nuclear block in Armenia in 2016 when the existing energy block of the nuclear plant expires. Even though Armenian legislation allows foreign investors to own 100 per cent of stocks, the government intends to control half of the project stocks, the minister said. “If the government does not take part in the project, then this project has no real significance for us,” Arminfo quoted Movsisyan as saying. However, the operation of the current nuclear block will not be suspended until the new one is built, the minister said. He noted that the technical feasibility of the new plant will be completed by September, the agency said.


Russian Aluminum Giant Reopens Modernized Yerevan Plant

Russia’s number one aluminum manufacturer inaugurated on Thursday its newly modernized Armenian subsidiary, presenting it as the most advanced facility of its kind in Europe. Top executives from the Russky Allyuminii (Rusal) group announced the completion of a two-year renovation of the Yerevan-based aluminum foil plant Armenal, saying that it has cost $80 million in capital investments and promising a sharp increase in its production levels. “The plant will be manufacturing foil of the highest quality,” Aleksandr Livshits, Rusal’s vice-chairman, said at a special ceremony attended by Prime Minister Andranik Markarian and other senior Armenian officials. “Almost all of the production will be exported, and Armenal will provide Armenia with more taxes, jobs and hard currency.” Armenal was founded as a Russian-Armenian joint venture in 2000 on the ashes of the Kanaker Aluminum Plant, an industrial giant which employed thousands of people in Soviet times. Rusal gained full ownership of the plant in December 2002 and seems to have breathed new life in it since then. It borrowed $50 million from a German bank and claims to have invested $30 million of its own resources to turn Armenal into what Livshits described as “the best aluminum foil plant in Europe.” Livshits said new state-of-the-art equipment supplied and installed there by a German engineering firm will enable Armenal to produce up to 25,000 tons of aluminum rolls and foil a year. The company’s aggregate output stood at just 5,500 tons and 9,000 tons in 2002 and 2003 respectively. Livshits said the Russian group is now considering increasing its production capacity to 40,000 tons. He also promised lavish pay rises for more than a thousand people working at Armenal. “I have instructed the Armenal management to pay, pay and pay. The more, the better,” he told them. Markarian praised Rusal’s track record in Armenia, saying that it underscores the importance of foreign investment for the country’s economic development. Rusal controls nearly 80 percent of aluminum production in Russia and ranks second worldwide in the sector. Its largest shareholder, billionaire Oleg Deripaska, is one Russia’s best-known “oligarchs” who hugely benefited from controversial privatization policies pursued by the administration of former President Boris Yeltsin during the 1990s. Livshits, for his part, used to be Yeltsin’s top economic adviser and at one point served as Russia’s finance minister.


Vimpelcom buys Armenia telco for 382 mln euros

MOSCOW, Nov 3 (Reuters) - Russia's number two mobile phone company Vimpelcom said on Friday it had signed a deal to buy 90 percent of Armenian Armentel from Greece's largest telecoms operator OTE for a total of 382 million euros. Vimpelcom said in a statement it would pay 341.9 million euros for the stake and assume around 40 million euros in net debt and obligations. Armentel is a fixed-line operator in Armenia with mobile licences on the GSM-900 and CDMA standards. It has 600,000 fixed-line subscribers and 400,000 GSM clients. "With approximately 40 percent mobile market share, Armentel occupies a strong position in the Armenian market and we will work to enhance the position," the statement quoted Vimpelcom Chief Executive Alexander Izosimov as saying. OTE bought Armentel in 1998 but said earlier this year it would sell it because the unit was not in line with its strategic focus. In June, OTE short-listed four bidders, including Abu Dhabi-based Etisalat and Russian conglomerate Sistema . The bidding was over on Sept. 18 and since then the market has been rife with rumours as to who won the tender. The world mobile phone market is now short of acquisition targets with cash-rich international majors hunting for purchases to expand beyond their satiated markets. Russian cellphone companies are also joining the rush as the penetration on the local market is over 100 percent.


Gazprom: Oil Refinery in Armenia To Process Crude Oil from Iran

A subsidiary of Russia's state-run Gazprom gas giant confirmed on Friday reports that it is considering building a big oil refinery in Armenia that would process crude from neighboring Iran. A spokesman for the Gazprom-Neft company, Natalya Vyalkina, told RFE/RL that both the Armenian and Russian governments are looking into the project estimated at a staggering $1.7 billion. She would not say when they could make concrete decisions. Reports in the Russian press have said President Robert Kocharian discussed the matter with Russian Industry and Energy Minister Viktor Khristenko and other top officials during his confidential visit to Moscow last week. Khristenko’s ministry refused to comment on the information. Russian-Armenian cooperation on energy was on the agenda of Kocharian’s follow-up talks with Russia’s President Vladimir Putin on Wednesday. The projected refinery would reportedly be built in Meghri, an Armenian town close to the Iranian border, and have the capacity to process up to 7 million tons of Iranian oil each year. Petrol produced by it would be exported to Iran. Despite its vast oil reserves, the Islamic Republic has to import gasoline to meet domestic demand. Some Russian experts have expressed serious misgivings about the feasibility of the extremely ambitious project, arguing that oil refineries are usually located near sea ports or major oil pipelines. They see political motives behind the idea of creating such a facility in landlocked Armenia. But one Moscow-based analyst, Oleg Maksimov of the Troika-Dialog consultancy, disagreed. “Today there is a shortage of oil refineries all over the world,” he said. “The existing ones are all very profitable, and it is too early to say that the project to build such a plant in Armenia is politically motivated.”



By Haroutiun Khachatrian

The recent takeover of the Armenian telecom operator, ArmenTel, by the Russian company Vympelcom, the possible passage of the Iran-Armenian gas pipeline to a company controlled by Russia, and the possible accession of Armenian railroads by Russian railroads renewed the discussion about the role of Russia in the Armenian economy. Pro-western politicians claim the excessive penetration of Russian capital into Armenian economy will lead to the country’s dependence on Russia, which, in turn, may have political consequences. However, there is no indication that Russian investments in the Armenian economy pursue goals other than making profit.

BACKGROUND: Russia is the largest source country of investments in the economy of Armenia, (US$405 million between 1996 and 2005) which is significant for this small country. As a result, a significant part of the country’s economic assets are controlled by Russians, both by the government and state-owned companies, and by private Russian companies. The bulk of the former group of assets came from the 2002 debt-for-equity swap, whereby Armenia repaid its US$97 million dollar debt to Russia accumulated during the crisis of 1990s. The state-controlled Russian companies are especially strong in the energy and power industry. In particular, more than half of the electricity-producing capacities of Armenia are controlled by Interengo, a subsidiary of RAO UES. Among this company’s assets in Armenia are four blocks of the Hrazdan Thermal Power Plant (TPP), the largest power plant in the country, and Armenia’s energy distribution network. Another Russian state-controlled giant, Gazprom, owns 45% of Armrosgazprom, Armenian gas network operator (with another 45% belonging to the Armenian government and 10%, to another Russian- and Gazprom-associated company, Itera).

Recently Gazprom declared its decision to increase its stake in Armrosgazprom to 58 percent, by buying a new issue of shares. This stake will be increased even more when the declared sale of the fifth block of the Hrazdan TPP to Gazprom is completed. Among non-governmental Russian companies, Vympelcom is by far the largest single investor in Armenia, as it took 90 percent of the ArmenTel shares of its previous owner, Greece OTE for some Euros 482 million or US$616 million dollars, equivalent to more than 10 percent of Armenia’s projected GDP this year. Another large private investor is the Russian aluminum giant Rusal, which owns Armenal, a large foil-producing factory. Rusal in recent years invested 80 million dollars to modernize it.

The Russian leadership looks interested in activating this process, as seen, in particular, from the statement by president Vladimir Putin, who told his Armenian counterpart Robert Kocharyan on October 30 that he regretted that in recent years Russia “occupied a shameful third place” among foreign investors in Armenia. Not surprisingly, in recent years an increasing number of concerns have been expressed in Armenia about “selling the country to Russians,” or about Armenia “becoming an appendix to Russia,” etc. Concerns are expressed that the penetration of Russian capital may keep Armenia far from approaching the West, and that Armenia may fall out of the prevailing trend for the South Caucasus region which is westward. The government, of course, says this process is beneficial to Armenia. As for the Armenian population, it is neutral if not positive, given the absence of significant anti-Russian sentiments among Armenians.

IMPLICATIONS: The facts show that, at least for the time being, Russian investments in Armenia have had a mostly positive impact with the goals pursued appearing to be purely economic. Whereas in the 1990s, there were cases of politically motivated competition among Russian and western investors for Armenian assets, no such cases are known to have taken place in the past six years. Moreover, Russian funds have often been the only available investments in Armenian assets, with no competitors. This was the case, in particular, with the fifth block of the Hrazdan TPP, which was founded back in Soviet times but has remained unfinished as the Armenian government failed to find interested investors. Under the deal agreed in April 2006, Gazprom not only pledged to invest US$150 million to finalize this block, but also promised to keep gas prices stable at US$110 per 1000 cubic meters for three years to come (meanwhile, most other CIS buyers will pay twice as much in 2007). The political context of these investments, if any, is not obvious.

On the one hand, the Russian government does not conceal its interest in acquiring assets in Armenia, just as Is the case in other countries. However, the real influence of the political factor in these deals is mostly overestimated. The ArmenTel deal is good evidence, as in this case, two out of the four companies participating in the tender were Russian ones, and reportedly, the Armenian government would prefer to see MTS, a company close to the Russian government, as the winner. However, the tender was won by Vympelcom, whose largest shareholder is Telenor of Norway. In addition, the Armenian government used the sale as an opportunity to get rid of the ArmenTel monopoly on many communication services, which strongly hindered development of the IT and telecom sectors in Armenia.

Finally, it is not obvious that these deals will make Armenia even more dependent of Russia than it already is. In fact, the opposite may be true. For example, Armenia has long been dependent on supplies of Russian gas, and this is, of course, a leverage of political pressure. However, as Russia has spent money to acquire large energy consuming assets in Armenia, it would be less inclined to stop gas supplies to Armenia as that would harm its own economic interests as well. As for the problem of ownership of the Iran-Armenia gas pipeline, its value seems highly overestimated. This is a 40 km long pipeline connecting the Iranian-Armenian border with Armenia’s existing gas distribution network, owned by ArmRosgazprom. It cannot serve as a transit route due to its small diameter, as Russia reportedly purposefully prevented the construction of a larger pipeline. Even if this fragment is given to Russia (in fact, to ArmRosgazprom, a subsidiary of Gazprom, which works according to Armenian laws), the valve of this pipeline is controlled by Iran rather than by Russia. Aside from satisfaction that no Armenia does not transit Iranian gas, it will not be great enhancement of Russia’s influence in this sector.

CONCLUSIONS: For the time being and for an foreseeable future, the large Russian investments look beneficial for the Armenian economy and have no visible political impact in terms of Armenia’s attitude to the West. They do not prevent Armenia from continuing advanced market reforms and establishing closer ties with the USA and the EU, in particular, through the recently signed Action Plan of Armenia in the European Neighborhood Policy.

AUTHOR’S BIO: Haroutiun Khachatrian is an analyst on political and economic issues based in Yerevan, Armenia.


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Arevordi will be taking a sabbatical to tend to personal matters. New blog commentaries will henceforth be posted on an irregular basis. The comments board however will continue to be moderated on a regular basis.

The last 20 years or so has also helped me see Russia as the last front against scourges of Westernization, Globalism, American expansionism, Zionism, Islamic extremism and pan-Turkism. I have also come to see Russia as the last hope humanity has for the preservation of classical western civilization, Apostolic Christianity and the traditional nation-state. This realization compelled me to create this blog in 2010. Immediately, this blog became one of the very few voices in the vastness of cyberia that dared to preach about the dangers of Globalism and the Anglo-American-Jewish alliance, and the only voice preaching the strategic importance of Armenia remaining within Russia's orbit. From about 2010 to 2015 I did monthly, at times weekly, commentaries about Russian-Armenian relations and Eurasian geopolitics in general. It was very difficult as I had no assistance in this endeavor. The time I put into this blog therefore came at the expense of work and family. But a powerful feeling inside me urged me to keep going; and I did.

When Armenia finally joined the EEU and integrated its armed forces into Russia's military structures a couple of years ago, I finally felt a deep sense of satisfaction and relaxation, as if a very heavy burden was lifted off my shoulders. I finally felt that my personal mission was accomplished. I therefore felt I could take a step back, as I really needed the rest. Simply put: I have lived to see the institutionalization of Russian-Armenian alliance. Also, I feel more confident now that Armenians are collectively recognizing the strategic importance of Armenia's ties with Russia. Moreover, I feel satisfied knowing that, at least on a subatomic level, I had a hand in the outcome. As a result, I feel a strong sense of mission accomplished. I therefore no longer have the urge to continue as in the past. In other words, the motivational force that had propelled me in previous years has been gradually dissipating because I feel that this blog has lived to see the realization of its stated goal. Going forward, I do not want to write merely for the sake of writing. Also, I do not want to say something if I have nothing important to say. I feel like I have said everything I needed to say. Henceforth, I will post seasonal commentaries about topics I find important. I will however continue moderating the blog's comments section on a regular basis; ultimately because I'm interested in what my readers have to say and also because it's through readers here that I am at times made aware of interesting developments.

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