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Russian 'Profiteering' At Heart Of Armenian Power Protests

Armenians are mad as hell and aren't going to take it anymore.
Armenians are mad as hell and aren't going to take it anymore.

YEREVAN -- Russia owns Armenia's power-distribution grid, and Armenian consumers are furious about the way they are being treated by the firm when it comes to paying for electricity.

Protests have been growing in Yerevan and other Armenian cities since the country's Public Services Regulatory Commission voted on June 17 to raise electricity prices by 16 percent.

A violent police crackdown on June 23 against demonstrators and journalists in Yerevan has fueled the anger further, bringing even larger crowds of protesters out to Yerevan's Liberty Square.

The plan to raise power prices by 16 percent as of August 1 came after Inter RAO UES -- the Russian state-controlled electrical-energy import and export monopoly that acquired Electric Networks of Armenia (ENA) in 2006 -- asked for a 40 percent increase.

Amid reports of widespread misappropriation and mismanagement by ENA's Russian leadership, many Armenians say they are the victims of Russian corruption and oligarchs.

'Servile' Attitude To Russia

Meanwhile, Armenian President Serzh Sarkisian's government has refused to investigate ENA's financial matters.

Armen Grigorian, an Armenian political scientist and analyst for the Washington-based Jamestown Foundation, says a "habitual servile attitude toward the Russians" among Armenian officials is being paid for by ordinary Armenian citizens.

"Russian ownership of Armenia's gas and electricity supply and distribution networks has not resulted in the discounts or higher quality of services that were expected by Russia's loyalists," Grigorian says. "Rather, it appears to have led to profiteering at the expense of the country's population."

Armenia provides a crucial foothold for Moscow in the strategic South Caucasus, hosting a large Russian military base, and this year joined Russia, Belarus, and Kazakhstan in the Eurasian Economic Union, one of the groupings the Kremlin is using to increase its clout in former Soviet republics.

However, Grigorian says, "Despite the 'strategic partnership' and 'brotherhood' narratives, Armenian households pay the highest electricity fees in the post-Soviet space, and household gas prices exceed even the costs paid by consumers in Ukraine" -- which is fighting Russian-backed separatists in a bloody conflict -- and in some European Union member states.

Losing Money?

ENA's managers, led by the firm's Russian general manager, Yevgeny Bibin, have attempted to justify the price-hike demand by pointing to the company's low profitability and mounting debt, which have resulted in overall losses.

Grigorian says that those explanations "seem suspect" and that "complaints about losses suffered by ENA do not seem justified."

A report published by Inter RAO UES itself showed that the Russian company's revenue from Armenia was $104 million for the first quarter of 2015, compared to $60 million in the first quarter of 2014.

The May 2015 report said that the company's earnings from Armenia before interest, taxes, depreciation and other adjustments also rose during that period, increasing from $2.23 million to about $12.3 million.

Paying High Prices

Meanwhile, RFE/RL's Armenian Service has documented how ENA's Russian managers have been paying, on average, about 20 percent above the market price for equipment, electrical cables, and other materials it has purchased since 2013 -- usually from Russian suppliers or Armenian firms with close ties to the government.

In one example, RFE/RL investigative reporters in Yerevan found that ENA was paying eight times the market price for electrical gloves.

According to ENA's own records, its Russian management paid more than 1,000 times the market price for concrete supplies from the Ararat Cement Factory, which is owned by influential government-connected tycoon Gagik Tsarukian.

Tsarukian is a parliament deputy and head of the Armenian National Olympic Committee. His daughter is married to the son of Prime Minister Hovik Abrahamian.

After RFE/RL published the price that ENA itself had reported paying to Tsarukian's concrete firm, ENA responded by saying those figures were the result of a technical error.

But Robert Nazarian, the chairman of Armenia's Public Services Regulatory Commission, has said that ENA simply made up the figures for those payments.

RFE/RL also found that services supplied to ENA by contractor companies were, on average, about 14 percent above the market price.

The Armenian parliament's oversight committee reported in April that ENA had paid a Russian-owned electricity producer in Yerevan more than twice as much for supplies during 2014 than it had paid Armenian-owned firms for the same amount of electricity.

Transparency International also has said that the way ENA pays for supplies, salaries, travel, and other costs is not transparent.

Poor Service

Despite such reports, the Public Services Regulatory Commission said on June 24 that their decision to raise electricity prices for ordinary Armenians was economically justified.

ENA also faces complaints about poor service and frequent power outages in Armenia.

Critics say that since it was taken over by its Russian owners, the firm has failed to modernize the aging infrastructure that delivers electricity to about 985,000 consumers -- despite a 10-year, $45 million loan issued to ENA in 2009 by the European Bank for Reconstruction and Development to improve Armenia's power-distribution network.

The Russian owner of Armenia's power grid is one of the largest Russian public energy companies on the basis of market capitalization. Inter RAO UES heads a group of more than 20 different companies based in more than a dozen other countries from Europe to Asia.

In Armenia, it also operates the Metsamor nuclear power plant, which produces about 40 percent of the electricity generated in the country. Other assets that Inter RAO UES owns outright in Armenia include the Hrazdan thermal power plant, which it has been expanding with help from Russia's state-controlled natural gas giant, Gazprom.

Armenia does not produce its own natural gas. It depends upon Russian supplies shipped to the Armenian border by Gazprom and purchased by Gazprom Armenia, a firm which is fully owned by Gazprom.

Natural gas accounts for about half of Armenia's total energy consumption, including about a third of its power generation.

Written by Ron Synovitz, with reporting by Sisak Gabrielian

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