Geopolitical factor of Electric Networks of Armenia sale
Among the most urgent problems of Armenia are the increase in electricity tariffs from August 1 and issues related to the activities of the owner of the electrical distribution network – a subsidiary of INTER RAO UES, JSC Electric Networks of Armenia (ENA). On September 17 the Armenian government has discussed the proposal of the ENA on the alienation of 100% of the shares in favor of a Cyprus-registered company Liormand Holdings Limited. The government instructed the Ministry of Energy of the Commission for Regulation of Public Services (CRPS) to examine the application and prepare a report. According to the law "On privatization of the Electric Networks of Armenia company", the owner cannot sell the strategically important company without the consent of the Armenian government. The conclusion of the government will be issued in about a week, and the contract for the sale of the ENA can come into force in October. It is expected that the transfer of power grids from the old to the new owner will be completed by the end of the year.
The ENA, which currently suffers from financial problems, filed an application to the CRPS in May to increase tariffs by 40%. The CRPS decided to increase tariffs by 16%. But this figure also has caused mass protests of citizens.
According to representatives of the Armenian government, the increased tariffs and financial crisis are caused by poor management and theft. Meanwhile, according to the CEO of Inter RAO, Boris Kovalchuk, the difficult financial situation in Armenia is a result of the existing system of tariff regulation and the rules of the electricity market in the republic. In particular, the existing management system provides for financing of generating companies at the expense of the ENA and also forces the company to buy more expensive electricity than is foreseen by Armenia's energy balance.
According to the media, one of the co-founders of the Liormand Holdings Limited offshore company, Sinan Bodmer, is on the board of directors of Fora Bank, owned by Russian-Armenian billionaire Samvel Karapetyan’s Tashir Group. His older brother, Karen Karapetyan, who is a deputy of the National Assembly from the ruling Republican Party of Armenia, neither confirmed nor denied the information about the planned purchase of the ENA from a part of the company controlled by Karapetyan: "I am not a spokesman for the Tashir Group, please contact their press service, they will give you all the information you need. I’m a parliamentary deputy and mind my own business," he said.
Samvel Karapetyan has been called the most likely buyer of the ENA already at the beginning of summer. According to Forbes, Karapetyan is one of the 26 richest people in Russia. Today, many observers believe that difficult situation which arose between the Armenian government and the Russian company can be resolved through the sale of the ENA to Karapetyan. Firstly, this deal will carefully withdraw the current owner of the ENA, the INTER RAO UES company, which has problems in Armenia, from the game. Secondly, Karapetyan's authority in influential circles of both Armenia and Russia can play an important role in levelling the difficult situation around the ENA.
The deal’s cost has not been announced. It is also not clear how the ENA's debt of $250 million will be paid. With regard to electricity tariffs, according to the Minister of Energy and Natural Resources, Yervand Zakharyan, they will not be revised for the new owner after the sale of the ENA. According to the analysts, Samvel Karapetyan, being an experienced entrepreneur, will try to make the implementation of the deal coincide with the completion of the audit currently being conducted in the ENA company. An audit will show problems in the company, which will serve as a valid reason for reducing the cost of the ENA and the implementation of the scheme, excluding the next increase in electricity tariffs. Obviously, the buyer is not interested in the fact that the ENA deal could be associated with an increase in tariffs.
In addition to the factors associated with the causes of the sale of the ENA, there is also a geopolitical aspect, an important component of which is the size of the transaction, which includes the transfer of the ENA from the Russian INTER RAO UES to a company owned by major Russian businessman. Through the mechanism of the transaction, the ENA will again be under the patronage of Russia. It is possible that this approach by Russia could be predetermined by the decision of the Armenian government to sell the Vorotan hydroelectric power cascade to the US company Contour Global Hydro Cascade (CGHC).
Russia owns 80% of the energy companies in Armenia, but the Vorotan hydroelectric power cascade is a regulator of the country's energy and therefore it is considered a key target, having strategic importance. The US acquisition of Vorotan and the forthcoming transaction for the sale and purchase of the ENA on the part of Russia are indicative of fierce competition between the world political centers, represented by Washington and Moscow, for influence in the South Caucasus region. Today the situation in Armenia is very different from the 1990s. There is a struggle between the major outside players in all areas, and Armenia is forced to maneuver between their interests. But the authorities should not forget about the interests of Armenia and to think about how appropriate it was to sell almost all the strategic enterprises to foreign companies, which consistently defend their own interests in Armenia.