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Armenia: Gazprom Mends Ties

The Armenian government and the Gazprom monopoly appear to have settled a dispute that had threatened deliveries of Russian natural gas to Armenia. The Caucasian nation depends on Gazprom deliveries for much of its power generation. RFE/RL correspondent Emil Danielyan reports from Yerevan.

Yerevan, 19 May 2000 (RFE/RL) -- Senior executives from the Russian energy giant Gazprom stressed their commitment to long-term commercial ties with Armenia during a visit to Yerevan at the weekend. A Gazprom delegation led by the company's vice chairman, Aleksandr Pushkin, held talks with President Robert Kocharian and other officials following the restoration of the usual volume of gas supplies.

Late last month, the Russian gas monopoly Gazprom had cut gas delivery to Armenia by half, and threatened to cut it off altogether unless Armenia settled its unpaid gas bills. Russia is the sole supplier of gas to Armenia, which depends on gas-powered plants for some 40 percent of its energy needs.

The Russians attributed the drastic move to Armenia's failure to pay the $20 million owed to Gazprom. But many analysts believe it was a result of the government's decision in April to leave a Gazprom subsidiary, the U.S.-registered ITERA firm, off the short list of foreign companies bidding for Armenia's state-owned electricity distribution network.

Armenian Energy Minister David Zadoyan won a reprieve for his country during emergency talks in Moscow on April 26, when the two sides agreed on a new timetable for debt repayment. The deal coincided with the Armenian parliament's decision to suspend the ongoing international tender for four electricity companies. The move, spurred by domestic political considerations, gave ITERA a chance to launch another bid.

Zadoyan said on 17 May that the Russians are now trying to team up with one of the four short-listed Western bidders and that he "would be pleased" if they succeed. He said the privatization process will go ahead despite the parliament's objections.

The sell-off to foreign investors of the Armenian power grid is a necessary condition for the release of a crucial World Bank loan that is supposed to cover about half of the government's budget deficit. Earlier this year, the World Bank and other international lenders urged Armenian authorities to reject the Russian bid, saying that ITERA is unfit for energy distribution.

ITERA was set up in the 1990s as an intermediary firm handling Gazprom exports. ITERA's defeat in the privatization process raised strains in the otherwise cordial Russian-Armenian relationship. However, the restoration of the gas supplies suggests that the relationship is unlikely to deteriorate seriously.

Zadoyan says the dispute has been exaggerated. "These operational disputes are inevitable. The problem is that the media have blown them out of proportion."

President Kocharian said last week that cooperation with Gazprom has not only economic, but also strategic significance. For his part, Gazprom's Pushkin told Kocharian that his company has "long-term, serious programs" to implement in Armenia, official sources said.

The Pushkin-led delegation was in town to attend the annual meeting of the board of Armrosgazprom, a Gazprom-controlled joint venture which runs Armenia's entire gas infrastructure.

As part of the new repayment timetable, Armenia has already transferred $1 million to Gazprom accounts. It currently owes Gazprom and ITERA about $10 million in cash and another $10 million in goods. The total is to be paid in the next several months.

Another area where officials from both countries envisage cooperation is the construction of a gas pipeline carrying Iranian gas to Armenia.

Negotiations have long been under way to secure funding for the $120 million project. And even though the pipeline would significantly reduce Armenia's dependence on Russia for energy, Gazprom wants to participate in the construction. The project was described as a top priority during the meeting between Kocharian and Gazprom managers.

Minister Zadoyan said energy officials from Armenia, Iran and Greece will meet next week (on May 26) to discuss the issue.

"This is a key priority for our country because, as you know, the only pipeline crossing into Armenia passes through Georgia. In case it is blown up, we'll be in trouble, as we were in the past. This is why the Iran-Armenia pipeline is so important."

The United States has objected to the pipeline's construction. A senior U.S. energy official said in Yerevan earlier this year that Armenia should instead try to tap the vast hydrocarbon resources of the Caspian Sea as an alternative source of energy.