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By Emil Danielyan and Anna Saghabalian
The United States on Tuesday added its voice to Western concerns about the reported sale of Armenia’s electricity distribution network to a state-run Russian company, warning that it could reconsider its long-running assistance to the Armenian energy sector.

The Armenian government, meanwhile, signaled its reluctance to seek and publicize explanations from a British-registered firm that appears to have granted control over the Electricity Networks of Armenia (ENA) to Russia’s RAO Unified Energy Systems (UES) in breach of its contractual obligations.

UES caused a stir on June 30 when it announced that one of its Dutch-registered subsidiaries, Interenergo BV, bought ENA from Midland Resources Holding for $73 million. Midland Resources denied the information, saying that it only signed a management contract with the Russians. Under the terms of its 2002 purchase of ENA, the company needs Yerevan’s consent to engage in either transaction.

“If these reports are correct, this transfer occurred without following important Armenian government regulations which exist to protect Armenian consumers,” the U.S. government’s Agency for International Development (USAID) said in a statement. “As we wait for this situation to be clarified, USAID is reviewing its assistance portfolio to determine whether the success of some of its ongoing or planned projects would be undermined by any revised ENA ownership arrangement, or by a lack of due process in changing that ownership arrangement.”

Deputy Energy Minister Areg Galstian told journalists earlier in the day that the government has not asked Midland Resources Holding or UES to clarify the situation despite mounting pressure from its Western donors. “Our contract with Midland Resources Holding states clearly that if that company wishes to sell more than 25 percent of its shares or wants to hand over the network’s management to another company, then it must officially notify relevant bodies,” he said, adding that the government has still not received such notification.

Galstian indicated that the government expects but has not demanded explanations from AEN’s parent company. “We are waiting for their clarifications,” he said. “If such a thing happened, they will present clarifications. So far we have received no clarifications or any official requests.”

It remained unclear why the Armenian Energy Ministry is reluctant to act more forcefully. Asked whether it has tried to obtain relevant information from the Russian side, Galstian replied, “What for? What is UES to do with us?”

The Armenian authorities’ ambiguous stance has been criticized by the head of the World Bank office in Yerevan in unusually strong terms. Roger Robinson said last week that the lack of transparency and apparent legal violations in the process raise further questions about the state of rule of law in the country. He said that could have “complete implications” for continued World Bank lending to Armenia.

A UES spokeswoman, Tatyana Milyaeva, told RFE/RL last Wednesday that the state-owned Russian utility erroneously claimed to have bought the Armenian power grids and that in fact it will only manage them as is insisted by Midland Resources.

But the UES website still contains an appendix to the company’s annual financial report which explicitly states that Interenergo “acquired 100 percent of shares” in AEN last month. “The deal was worth a total of 2,029 million rubles ($73 million) which was paid in cash,” it reads.

Galstian, however, claimed that there is no credible information showing that the distribution network belongs to RAO UES.” “What is written in newspapers has not been officially confirmed,” he said.

The power grids were privatized in 2002 as part of a decade-long reform of Armenia’s energy sector that has been supported by the U.S. government, the World Bank and other donors. A key component of that reform, which has transformed the resource-poor country into the region’s leading energy exporter, was the separation of facilities generating, transmitting and distributing electricity.

Energy Minister Armen Movsisian himself argued last March that UES, which already controls over 80 of Armenia’s power generating capacities, should not be allowed to get hold of ENA for that reason. The USAID likewise cited “potential negative effects that vertical integration in the energy sector might have on energy consumers in Armenia.”
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