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Armenia: Chemical Industry Reorienting For Survival

By Vahan Hovanissian

Yerevan, 10 March 1997 (RFE/RL) -- In the Soviet era, Armenia was proud of the local chemical industry, with its army of experts and many important plants.

The industry's "star" facility at the time was the Nairit works, which produced 20 percent of total world output of synthetic caoutchouc and held a monopoly position for that commodity inside the USSR.

However in 1990, towards the end of the Soviet era, the Nairit plant was closed down under pressure from the ecological movement on grounds of environmental pollution. An RFE/RL correspondent in Yerevan recalls this was a hard blow for the entire local chemical industry, as production at many of the other Armenian plants was linked in one way or other with that of Nairit.

In 1992, despite the environmental concerns, the plant resumed functioning. But the traditional market for Nairit's products was already in deep crisis by then, and Western competitors were taking control of market segments which had previously been closed to foreign companies.

So, the enterprise lurched from an ecological crisis to an economic one. Today, the plant is languishing in a twilight world of low production and bad debts to the state, to electricity suppliers and to its industry partners.

But Nairit and the other local chemical plants have been actively seeking ways to survive and grow again in the tough new era. Their major tactic in this struggle has been to re-orient towards Armenia's powerful neighbor Iran, with its vast petrochemical production facilities.

In effect, the Armenian chemical industry is trying to become a processing unit of the Iranian petrochemical industry. Bright possibilities opened up in December when the Japanese concern Sumioto put forward a $100 million investment program to modernize the Nairit plant. The Japanese giant has large-scale investments in the Iranian petrochemical industry and its interest in Nairit stems from its desire to develop facilities which can complement its Iranian production.

In addition, the Iranian government is granting Nairit tied loans in the form of raw materials, thus allowing the plant to survive pending complete technological reconstruction.

However for the director of the Nairit plant, Gagik Nersisian, a major uncertainty clouds the future, namely looming privatization. Nersisian, who has spent his working life in the milieu of state ownership, told our correspondent that he will make every effort to prevent the sell-off of Nairit to private enterprise.

He believes that other major world producers of synthetic caoutchouc -- Dupont and Bayer were mentioned as possibilities -- might try to acquire his plant for a low price and then dismantle it, thus liquidating a potential powerful competitor on the world market. Spokesmen for Dupont in Switzerland and Bayer in Germany were not immediately available to comment on Nersisian's assertions.

Our correspondent reports Nersisian's position appears to be isolated in that government sources say Nairit will stay on the privatization list despite his concerns.

It is scheduled to go up for sale by international tender later this year, along with three other Armenian chemical plants.

Our correspondent says the Armenian government really has little choice in the broader sense, in that credits from the International Monetary Fund and the World Bank are tied to a program of restructuring de-facto bankrupt industrial giants. Sale on the open market is normally the only way to bring about the required restructuring.

However, the Nairit case has been rather different, in that the Japanese have made an offer to invest in the plant, while leaving its present ownership status unchanged. Officials have had to decide between the benefits of the Sumioto offer and privatisation to an outside buyer, with the risk that the desired rejuvenation might not take place.

It appears that the privatization option is the one the government has chosen -- however, nobody in the government appears ready to insist on guarantees that international buyers of the chemical objects like Nairit will actually rehabilitate the local industry, as opposed to dismember it.