By Nane Atshemian
A top executive of the RAO Unified Energy Systems (UES) indicated on Friday that Russia’s state-run power monopoly would like to eventually become the formal owner of the Electricity Networks of Armenia (ENA) after controversially taking over its management.
An obscure UES subsidiary called Interenergo BV paid last month $73 to buy the right to manage ENA and use its earnings, in a legally questionable deal that has provoked strong criticism from the United States and the World Bank. The British-registered Midland Resources Holding ownership of the Armenian power grid now appears largely symbolic.
“Ownership of the ENA shares has not changed and Midland remains their owner,” Mikhail Mantrov, who oversees UES operations in the South Caucasus, told a news conference in Yerevan. “We are not the owners of the share package. I say unfortunately and I say not yet.”
“For us, this is a strategic asset and we would like to reserve a right to its acquisition,” he said.
Mantrov admitted that the Russian conglomerate’s control of the increasingly profitable Armenian utility falls just short of de jure ownership. He said that is the why a UES financial report released on June 30 spoke of its acquisition. “In terms of accounting terminology, an agreement on share management means control over an enterprise and a sort of acquisition,” he said.
The deal sparked a controversy because Midland Resources is legally bound to inform the Armenian authorities and obtain their approval for a decision to transfer control over ENA to another investor. The authorities say they have received no such requests. But they have clearly been reluctant to demand relevant explanations and investigate the legality of the Russian takeover.
The World Bank and the U.S. Agency for International Development, which have invested heavily in Armenia’s energy sector reform, have expressed concerned about the lack of transparency in the process. They both have warned that the authorities’ handling of the matter could aversely affect their future assistance projects.
According to Mantrov, the government in Yerevan was not formally informed about the deal on time because it did not ask for any information. He said he met with the head of the World Bank’s Yerevan office, Roger Robinson, on Monday and they agreed on “a number of important issues” such as the need for long-term investments in Armenia’s power distribution network.
ENA was notoriously loss-making and inefficient when Midland privatized it almost three years ago. The new owner has since transformed it into a profitable business. Individuals familiar with the Armenian energy sector say ENA’s profits totaled $20 million last year.
ENA’s Russian chief executive, Yevgeny Gladunchik, said Midland’s owners decided to transfer the utility to UES because “they have simply realized that they are now interested in other businesses.”