By Atom Markarian
Armenia’s power distribution network, once a huge drain on state finances, has ceased to incur losses and operates at a profit as a result of its privatization two years ago, its Russian chief executive declared on Monday.
Yevgeny Gladunchik said a British-based company that took over the Armenian Electricity Network (AEN) has managed to cut by half the loss of electricity during its transmission to consumers.
The losses, which used to be as high as 40 percent, cost the Armenian government an estimated $50 million each year. At least half of them are believed to have resulted from widespread theft among various-level employees of the state-owned network.
Ending the financial hemorrhage was the main stated rationale for the power grids’ $40 million sale to Midland Resources Holding, a little known company registered in a British offshore zone and reportedly linked to a government-connected Armenian businessman. Midland Resources, which specializes in trade of ferrous metals, was picked as the new AEN owner despite its lack of energy-related experience. The World Bank and other Western donors that had long been pushing for the privatization expressed at the time serious misgivings about its ability to get the loss-making company into shape.
According to Gladunchik, Midland Resources has proved skeptics wrong by moving the AEN into profit. However, he refused to disclose the amount of the earnings and was very reluctant to specify how much his company has invested in the network, arguing that it assumed no concrete investment commitments as part of the takeover deal.
“Tell me please why I must reveal that sum. I don’t quite understand why it bothers you,” he told journalists before producing a figure: $10 million.
The actual amount of the Midland investments is at the heart of an unfolding dispute between AEN and the government’s Commission Regulating Public Services that has the exclusive authority to set utility fees in Armenia. The regulatory body is now considering lowering AEN’s profit margin from 8 drams (1.5 U.S. cents) to 5 drams per kilowatt of power, suspecting the company of inflating its investment figures. Its members also argue that the company has made $6 million in extra profit as a result of an approximately 15 percent strengthening of the national currency, the dram, against the U.S. dollar over the past year.
Gladunchik warned the commission against taking the punitive measure. “We will close shop if that happens,” he said. He also argued that his company has not sought and will not seek an increase in electricity prices “in the near future.”
(Photolur photo: Yevgeny Gladunchik.)