Accessibility links

Breaking News

Armenia: World Bank Urges Fairness In Energy Privatization

Armenian media are reporting that the Armenian government may be bowing to pressure from Russian energy giant Gazprom in an international tender for the state energy distribution network. Correspondent Emil Danielyan reports from Yerevan that the World Bank is urging a fair bidding process.

Yerevan, 14 February 2000 (RFE/RL) -- The World Bank has urged the Armenian authorities to ensure transparency in the ongoing bidding for the country's energy distributing network. The lending institution has also warned the government against colluding with Russian firms on tender results.

The move follows reports in the Armenian press that Yerevan is under strong pressure from Russia to give the tender to Russian energy giant Gazprom, and that Yerevan may have caved in. Armenian officials have denied the claims, assuring that the privatization of four state-run electricity companies will proceed as planned.

The World Bank's regional director, Judy O'Connor, wrote to Armenian Prime Minister Aram Sarkisian on Tuesday calling on him to show a commitment to fair bidding practices. A bank spokesman in Yerevan (Vigen Sargsian) said the message was intended as an expression of support rather than concern.

Luc Dejonckheere, a senior investment officer at the World Bank's International Finance Corporation, said the bank trusts that Armenia will pursue a transparent process. But other sources privy to the process tell RFE/RL the bank is worried that the tender's outcome may be a foregone conclusion.

The World Bank has been Armenia's largest lender since independence. It is closely supervising the energy privatization, which it sees as an important stage in the transition to the free market.

Senior Bank executives have said they want bidding for Armenia's power grid to be an example of fair and transparent privatization in a country that has seen a series of scandals surrounding the sell-off of other major state assets. The latest allegations in the Armenian press put that goal in doubt.

One local newspaper ("Azg") reported last weekend (Feb. 5) that Russia's Gazprom monopoly, with Moscow's backing, is lobbying hard to get preferential treatment for its subsidiary, the ITERA corporation. ITERA is taking part in the tender in conjunction with another Russian firm, Rosatomenergo, and has been shortlisted for the last phase of the contest.

The paper alleged that recent interruptions in Russian gas supplies to Armenia might have been a way of putting pressure on Armenia to win control over its power grid.

But Armenian Energy Minister David Zadoyan dismissed the reports as baseless earlier this week. He spoke at an international seminar in Yerevan, at which the government briefed the five remaining bidders on takeover conditions and requirements. Officials have singled out the amount of capital investments in the sector as the main criterion for the winning bid.

Experts estimate that the Armenian energy sector will need over $1 billion over the next decade. It is not yet known how large Gazprom's investment commitments are. The Russian giant is Europe's leading natural gas supplier, but it does not specialize in power generation.

If Gazprom does win a controlling stake in the Armenian electricity distributing enterprises, the sector's dependence on Russia will deepen. Armenia already relies heavily on Russian gas in power generation, with a Gazprom-controlled joint venture running its entire gas infrastructure. In addition, the Metsamor nuclear plant, which accounts for about 40 percent of Armenia's electricity production, is also heavily dependent on Russian loans and nuclear fuel.

The World Bank's Dejonckheere said Friday that the World Bank will not care about "the nationality of investors" so long as the contest is fair. Sources close to the tender process, however, say the bank has argued strongly against granting ownership rights to the Russians, citing their financial inadequacy. The Bank believes that neither ITERA nor Rosatomenergo are able to meet basic tender requirements, according to the sources.

Russia's leading ORT television channel has repeatedly accused the Gazprom management and its ITERA cousin of fraud and mismanagement in developing Russia's vast gas reserves.

Given that World Bank loans cover a considerable part of Armenia's budget deficit, Yerevan may well consider the bank's advice before it makes a final decision.