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By Atom Markarian and Emil Danielyan

Armenia’s top energy officials faced Friday harsh criticism from President Robert Kocharian for mounting losses and widespread corruption in the energy sector. Kocharian said “positive tendencies” in the Armenian economy are threatened by continuing inefficiency in one of its principal sectors.

“I will in no case allow the existing positive tendencies in the economy to be jeopardized by anybody’s bad work,” Kocharian told senior officials from the energy minister, including Energy Minister Karen Galustian, according to the presidential press office. “This sphere will be placed under special [presidential] control,” he said.

The comments were a rare example of the Armenian leader openly lambasting the work of a major government agency. The criticism, made in unusually strong terms, followed reports about a drastic fall in government revenues collected from the state-run energy sector, which is seen as a major source of corruption in Armenia.

Despite boasting one of the highest rates of bill collection in the former Soviet Union, Armenia’s electricity generation and distribution enterprises continue to incur substantial losses. Analysts estimate that fraud and mismanagement that have plagued the sector may cost the country $50 million, one tenth of its budget, each year. The overall liabilities of Armenian power plants and utilities have reached a staggering $250 million.

The nuclear power station at Metsamor alone is owed $120 million by the Hayenergo national grid and is unable to pay for fresh supplies of nuclear fuel from Russia. The Armenian government last week had to divert $4 million from its special privatization fund to make an advance payment for the deliveries.

Kocharian slammed the energy ministry for its failure to end the “disproportionately high losses” and the poor oversight of “financial flows.” In another allusion to the existing enormous embezzlement opportunities, he complained that “every presumably influential person” seeks to have their appointees in the energy ministry and electricity companies. Kocharian vowed to do away with the rampant nepotism, saying: “My intervention will mean that the [energy] system will be immune to any kind of outside interference.” He added that he may soon appoint a special adviser for energy issues.

The sector’s chronic problems are one of the reasons why the government’s plans to privatize the four power utilities ran into trouble this year. Its first attempt to sell the networks to foreign investors failed earlier this year when all shortlisted Western firms dropped out of the international tender. Only one of them, the US operator AES Silk Road, has expressed interest in taking part in another tender which is currently underway.

AES will face only one competitor, Russia’s RAO UES utility, if it decides to submit a bid later this month. But sources told RFE/RL on Friday that the Americans are now having second thoughts about their participation in the bidding.

Minister Galustian on Thursday admitted that international business interest in Armenia’s energy sector has declined considerably over the past year, arguing that Western energy giants have been scared away by the issue’s politicization in Armenia. “We did our best to make conditions of the privatization attractive,” he told RFE/RL. “This lack of interest shows that political factors have had their effects.”

AES’s pullout would clear the way for RAO UES. Prime Minister Andranik Markarian Wednesday sought to dispel Western donors’ fears that the Russian company’s victory is a forgone conclusion in the light of the recent economic agreements signed by the presidents of Armenia and Russia. The two countries plan to strike a deal giving the Russians substantial stakes in state-run Armenian industries in payment for Yerevan’s $90 million debt to Moscow.

It is expected that the deal will encompass the energy sector as well. Some observers have speculated that it will necessarily involve Russian control of the Armenian power distribution networks. Markarian, however, assured the donors that the networks’ owners will be selected on a competitive basis. The government has already twice postponed a decision on whether or not to allow RAO UES to take part in the bidding. Officials say some important data such as results of an internationally certified audit are missing from a package of proposals submitted by the company for “pre-qualification.”

However, Defense Minister Serzh Sarkisian, who is also a co-chairman of the Russian-Armenian commission on economic cooperation, described on Thursday the RAO UES bid as “serious,” signaling that the Russians are well placed to succeed.

The World Bank and other donors closely monitoring the troubled privatization are worried about the prospect of RAO UES gaining a 51 percent controlling stake in the Armenian electricity companies, arguing that the Russians lack expertise and resources to run them. RAO UES, which is 75 percent owned by the Russian government, is itself in a very difficult financial situation. Sources said if the company is eventually declared winner of the tender the European Bank for Reconstruction and Development (EBRD) will likely rescind its earlier decision to buy 20 percent of the Armenian utilities’ stock.
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