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Andrey Zavrazhnov, a senior executive from Midland Resources Holding.


By Emil Danielyan

A British-registered company that has acquired Armenia's loss-making power grids sought to dispel widespread misgivings about the wisdom of the $37 million sale, saying on Friday that it has sufficient "crisis management" skills to save them from financial ruin.

Top executives from Midland Resources Holding reaffirmed their intention to hire a team of experienced foreign specialists to run the electricity distribution network. But they stopped short of making specific investment commitments.

"We have a lot of experience with financial risks and crisis management," said Andrey Zavrazhnov, the head of the company's Moscow office who signed the takeover agreement with the Armenian government on August 26.

Midland Resources, which is registered in Britain's tax-free Channel Islands and specializes in ferrous metals, will pay $12.15 million for a 80.1 percent share in the Armenian Electricity Network (AET) and assume a $25 million part of its huge debts.

"We are going to sign a management contract with a famous foreign energy company with huge experience. It is not yet clear which company as we are now conducting negotiations," Zavrazhnov, the first Midland Resources official to publicly comment on the deal, told a news conference in Yerevan. He added that the network's future operator's name will likely be known in two weeks.

The new owner's lack of energy-related experience and offshore status were the main reason for strong objections voiced by Armenia's leading Western donors. One of them, the World Bank, is expected to again delay the release of a $20 million budgetary loan pegged to the successful privatization of the power grids. Another major lending institution, the European Bank for Reconstruction and Development (EBRD), appears to be having second thoughts about buying the remaining 19.9 percent of AET in line with its earlier agreement with the Armenian government.

A spokeswoman for the London-based bank, Julia Zilberman, told RFE/RL on Friday that the EBRD is still weighing up the situation and has not made a final decision yet. "There is just a lot of internal decisions that still have to be made, which is why I can not say anything definite now," Zilberman said.

Zavrazhnov, meanwhile, argued that Midland Resources has succeeded in restructuring several troubled companies in the former Soviet Union, which it has purchased over the past several years and will able to eliminate AET's losses. He agreed with the widely held belief that the losses, which hit $64 million last year, result from poor management and "enormous theft" of electricity among the AET personnel.

Zavrazhnov also argued that an offshore status should not be associated with financial improprieties. "We are a transparent company that is obliged to undergo audit every year," he said. "Big international corporations often use various legal tax-exemption schemes and they are in no way condemned by the international community."

Another Midland Resources executive who also spoke at the news conference, Yevgeny Gladunchik, denied rumors that the British-registered firm is linked to Russia's biggest power utility, RAO Unified Energy Systems, which has shown interest in the Armenian power grids in the past. Gladunchik, who has been appointed AET's executive director, said: "We have absolutely nothing to do with RAO UES. If they were still interested, they would not have acted through us."

Midland Resources was the only bidder in an international tender for AET, unexpectedly called by the government in late July. The company's principal activity is trading in ferrous metals and other raw materials used in their manufacturing. Midland Resources owns, among other things, two steel factories in England and Ukraine and posted almost $11 million in net profits last year.

According to Zavrazhnov, it is owned by two businessmen based in London and Toronto, Canada. He said they decided to invest in the Armenian energy sector after a successful partnership with a local agricultural firm, Max Fruit. Last year Midland Resources bought 50 percent of Max Fruit shares and claims to have already spent $7 million on growing fruits and cereals in Armenia.

"As a result of our involvement in agrobusiness, we came to the conclusion that the investment climate in Armenia is quite good," Zavrazhnov explained. "We then tried to assess the situation with the help of energy specialists who told us that the power distribution network offers a lot of opportunities."

He further noted that Midland Resources needs some time to decide how much it should invest in the cash-strapped AET. But he said the new owner will immediately channel funds into emergency repairs and purchase of new equipment for the network's most vulnerable facilities.

Armenian energy experts estimate that at least $150 million will be needed to save the aging Soviet-era network from disintegration in the next several years.

The decision to privatize it came under renewed attack on Friday from Armenia’s leading opposition parties who again warned that they will rescind the deal if they manage to defeat President Robert Kocharian in next February’s elections.
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