The “Pressing” club adjacent to “168 Zham” newspaper held a discussion on the topic of the presence of the Russian capital in Armenia. Namely, the discussion was focused on the issue whether the presence of the Russian capital has political reasons or no. The conductor of the discussion, economic analyst Ara Galoyan said that there had been many facts proving both the political presence and the economic presence and asked the participants whether such big share of presence of the Russian capital in Armenia is not dangerous.
“I have the latest publication concerning the foreign investments in Armenia. The share of direct investments on the part of Russia during the period of January-June, 2007, grew by 3,8 times, and the indirect investments – by 24,4 times. How is such great growth possible in the Armenian economy just from the economic point of view? Is the reason the fact that our economy is small?” he asked.
The president and general director of “ArmRusGazard” (ARG) company, Karen Karapetyan took the initiative to start the discussion. He didn’t want to answer to the question whether the reason of such great presence of the Russian capital in the Armenian market was political or economic or no, concerned both of them or no, as he said, he didn’t think that issue was so important. He believes it is more important whether our country needs it or not. “Namely, I haven’t heard any examples alleging that by investing the Russian capital in Armenia or in the ARG the Armenian citizens or Armenia may lose. Now Armenia is the most gasified country. The number of our subscribers has grown by five times during the recent five years. At the end of the year the level of gas coverage will make 89,6%. The social-economic effect of this development is the fact that we save $250-300 million from the family budgets per year,” said Karapetyan and added, “Gas is used as fuel. In this term Armenia has leading positions too. Armenia is using 320-340 million cm gas as fuel per year, which is approximately equal to 320-340 thousand tones of oil products. I think this year the capacity of such usage will become 400-450 cm. We have privileged prices in the region. Now we buy the fifth bloc of Hrazdan HES at a price of $250 million. I assure that there haven’t been any other offers like this one. In other words, in this term I think that Armenia did not have a choice between the Russian capital and any other capital.” Generally, Mr. Karapetyan thinks it is not so important whether the capital is Russian or, for instance, Mongolian. He believes that it is more important whether the state has been able to insure its interests and the potential force-majeour conditions based on contracts or not. “At least, the construction of Iran-Armenia gas pipeline is done by the ARG. I mean the part, which length is 40 kilometers, and which it is not clear yet to whom belongs. For comparison, the ARG has a pipeline, which length is 12 thousand kilometers. Please imagine theoretically that another entity owes the part, which length is 40 kilometers. Theoretically it is possible, but actually it will bring to extra expenses and additions to prices. In order to be an alternative source, it doesn’t depend on Armenia’s opportunity to bring gas through other sources (not from Russia) since the owner of such pipe will be the owner of a transit line and such owner cannot prevent any other parties import gas at lower prices as they can’t say that they will not allow them use their pipe. As I understand all these relationships are established by the state-investor-state-partner relations,” said Mr. Karapetyan. Concerning Karapetyan’s point that due to gas the population saves $250 million Ara Galoyan asked whether there had been any calculations done to find out how much that rate would be after the price was fully liberated. “Yes. The calculation is the following: now gas is cheaper twice than wood and the effectiveness is higher. At the end of this year we will have 510 thousand subscribers of gas. Our calculations are based on the assumption what other expenses the consumers may have, for instance in winter, if they don’t use gas,” said K. Karapetyan. Mr. Galoyan reminded about the fact that the Russian investors had complained that the plants and companies they had purchased were in bad conditions thus they could not operate, and also that one of the deputies of the State Duma had said during a press conference that the Russian investors could not start businesses in Armenia since the Armenian officials and businessmen wanted to have “shares” in their businesses.
The minister of transport and communication, who was participating in the discussion too, said that the mentioned person would be better to inform concrete names so that people could know who the officials that had prevented their activities were. Namely, concerning the sale of ArmenTel and VivaCell companies the minister said that in the first case there was a competition, which winner was Russian company VimpelCom, which capital exceeds $15 billion. Mr. Galoyan asked the minister why certain plants that had been given to the Russians did not work. The minister assured that the plants would be operated soon and informed that during the prime-minister’s recent visit to Russia the issue of operating “Mars” company was discussed with the newly appointed prime minister of Russia. The minister assured that the prime ministers of the two countries had agreed upon that “Mars” had to be operated. “Even there is an investor, who is ready to invest about $150 million in Mars,” said Andranik Manukyan. The minister said that the Armenian economy was liberal and if a private company wanted to sell its enterprise, it was free to do so. The minister said that the problem was the fact that the Russian party had always offered higher prices and the experience had shown that the Russian investments “had been effective”. “There hasn’t been any transactions when a Russian company purchased Armenian capital and failed to be effective. I don’t know such cases,” assured the minister and added, “I don’t see anything bad in the fact that the Russian capital is flowing in Armenia. Our goal is to operate the companies, which have been purchased, so that people have jobs. Certainly, the state has its regulatory role. For instance, VivaCell is technically more improved. Sistema has purchased VivaCell, and VimpelCom has purchased ArmenTel. VimpelCom has to make so much investment so that it can grow up to the level of VivaCell. The more investments are made, the more the quality of communication will become. Is it bad? Armenians could buy it too. We didn’t have a goal to sell those companies to a Russian company. They were sold to the ones that paid more than the others.”
However, economist Tigran Jrbashyan highlighted two problems. The first problem is the fact that the internal economic policy of our country significantly differs from the economic policy in Russia. Thus, he thinks there will be problems in Armenia since the Russian capital plays in accordance with certain rules in their market and in order to host that capital well we should understand how we may treat that capital in our country. “Here there may be, if not pressure, some changes in the economic policy. The reason is the fact that if the main capital is coming and playing according to certain rules, in such country it dictates rules since it is the main taxpayer. Thus, there will be a need to correct our economic policy to treat in a due manner,” he said. According to Mr. Jrbashyan, the second problem is the following: “It is clear that the main attractive factor of development of the given country is the effective use of the existing resources. Here we have a problem. I can bring an example concerning the ARG. I think that the presence of the ARG has had and will have a very positive role in Armenia. Thus the problem is the rules of the game, according to which we can treat the ARG and such a giant as Gazprom. I mean the monopoly on import and supply of gas. I think that there will be a problem here as Gazprom has adopted the rules, which are adopted in Russia,” said Mr. Jrbashyan. He thinks that there will be such problem with the concession agreement of the Armenian railways too. “It is clear that the railways are composed of two components – the railway and the moving system. However, in this case we are doing the same (as in the case of importing and supplying gas) as the managing company will owe both the stationary and the moving part. I mean that we should create rules of game in our country, which is only our problem, but not the problem of the Russian investors. The Russian business has two choices upon coming here: they have to either accept our rules or create their own rules of game. It is pity, but they have created their own rules so far. For instance, the electric power distribution networks don’t have monopoly since April of this year. However, no one thinks that the commission on regulating the public services had to be prepared to make a decision to separate the tariff of energy upon making a decision to raise the monopoly. Two tariffs should be defined – a tariff for using the substructures and a tariff for organizing the distribution. I don’t think there is anything bad in the fact that the capital is coming to our market if such capital is acting based on certain rules, but is not establishing its own rules,” said T. Jrbashyan. Andranik Manukyan noted that our concession procedure was “definitely the most transparent one in the world” since it was done jointly with the World Bank and together with their advisers. The minister also informed that On September 6-7 they organized a presentation for the Armenian railways in London, which was supported by the WB. “We had invited everyone. I have signed over 60 invitations. We have invited representatives of all the railways of the other countries, as well as businessmen that are involved in such business. Only 21 organizations were represented there. We presented the Armenian railways fully. Only two companies have submitted applications (the mentioned company and an Indian company). The deadline was September 21. I mean that the process was very transparent,” said the minister. The latter assured that “no one was going to give the railways to the Russians.” The minister said that there was no need to discuss everything in a political context and the buyer was the one who paid more and added that the Russians had just paid more than the others. According to A. Manukyan, Armenia is more interested in attracting the biggest countries to invest in the domestic economy.
However, former prime minister of Armenia, Hrant Bagratyan thinks that the presence of the Russian capital in the Armenian market has political reasons. The former prime minister agreed with the fact that the Russians had suggested to pay more than the others, but called on the others to understand why they did so. “We should understand that there is a political issue here,” he said. According to him, concerning the energetic cooperation we didn’t have an alternative besides Russia, however there were serious mistakes in that process. “I don’t understand what means to manage the financial flows of the atomic station. Atomic station is something that we already have, which our neighbors don’t have. Now Iran cannot do what we did 12-13 years ago, i.e. it cannot open an atomic station. Now we are spending approximately $1 energetic resource and producing $6 GDP. In Russia in order to produce $2,5 GDP they are spending $1 energetic resource. Let’s compare,” said the former prime minister. The latter also said that the unilateral energetic dependence of our country is growing. Mr. Bagratyan is worried about the lack of diversification of energetic substructures. He is also worried about the fact that the works on constructing a new atomic station have been stopped. The prime minister believes we should stop our intention to strengthen the atomic energy production. Concerning this point A. Karapetyan said, “There isn’t any aggressive intention to take the fifth bloc of Hrazdan HES. We are ready to pay $250 million. There is no other such suggestion. The fifth bloc has been out of service since 1986. What to do? Shouldn’t we give it to the ARG if there is no alternative?” H. Bagratyan said he would try to construct the fifth bloc on our own expenses, however Mr. Karapetyan interrupted and said, “We are paying $250 million for it, we are investing $180 million in order to have 400 mgwt power. Now in order to build 440 mgwt power from zero we need $650-700 per kwt. In consideration of these expenses it turns out that Armenia can build it from zero by spending $300 million. We have given $250 million to the Armenian government, an essential part of which it is paying against subsidy. Armenia had such opportunity and it could spend this $250 million and build a plant with 400 mgwt power. Why didn’t it do that?”
Former minister of economy and finances, economist Edward Sandoyan said that certainly the level of the quality and style of the Russian management was low, but the level of the quality of the Armenian management was lower. “Are we afraid of losing in case the Russian management brings another quality to our market? Have we grown enough up to the European or American level in order to be afraid of importing a lower quality?” he said. He said he believed together with the Russian capital as well as the Russian culture of management would come to Armenia. E. Sandoyan said that we had an excellent example, which is the Russian-Armenia Slavonic University, which program is fully Russian. He said it was the best example in the field of the Armenian education. There are bad examples too. Concerning such examples he said that there were certain banks in Armenia operating in support of the Russian capital, which were not effective.
David Hovhannisyan said that the Russian capital was flowing into the Armenian market massively and highlighted that he thought it was normal that such massive inflow had political reasons. Mr. Manukyan asked which one was better for us? The capital of this big country or the capital of a small country? H. Bagratyan took the initiative to answer to Mr. Manukyan’s question. “You think that any of the Russian capital is good. However, there is a limit, which I think is the collapse of diversification risks, which had to be like a red line for the state. It seems that we are crossing that red line,” he said. According to D. Hovhannisyan, the economic balance is to support the political balance. The more a country keeps it management potential, the higher the level of its sovereignty is. The main problem in case of inflow of the Russian capital is that whether the diversification opportunities will still exist or no. Answering to this note K. Karapetyan said, “We depended from the Russian factor in term of energy too not depending on the fact whether the atomic station was managed by Russia or no, whether the Russians had capital in the ARG or no.” “Do you think one should dive in a bog once the legs are in it?” asked D. Hovhannisyan.
MP Areg Ghukasyan tried to answer to that question. “I don’t think the situation is like that in Armenia now. However, if the situation is like that and you are not going to be taken out of that bog, it doesn’t matter whether you are fully or partially in it. This issue has two sides: political and economic. It is impossible to ignore the political side, but I would like to speak about the economic side,” said the deputy and added that we should figure it out whether the Russian capital is circulating effectively in Armenia or not. The MP thinks that the Russian capital works well. He thinks that there are objective reasons too why the Russians want to buy companies in Armenia. “At least, we have been in the Soviet Union for over 70 years, being isolated from the external world by the metallic curtains. The world is not able to understand what has happened during these 15-16 years, whether we have changed or whether we are going to change or no. Russia understands Armenia better,” he said. A. Ghukasyan also thinks that Armenia has not stepped on the red line yet as Hrant Bagratyan said. He thinks that we are making much noise concerning the Russian capital. “There was time when over 7000 people worked at Mergelyan institute. When Russia bought it, it had only 300 employees, i.e. the Russians have bought the building only. They can change the profile and build restaurants there. The mental potential that existed during the Soviet times does not exist any more. This is why I think it is not correct to say that the Russians don’t operate such institutions after buying them,” said the MP.
The head of United Labor Party (ULP), Gurgen Arsenyan assured that the RA economic policy was adopted and managed by the RA authority. “Such transactions are a result of negotiations between the Armenian and Russian governments and one of the examples is the “property against debt” transaction between these governments, as a result of which the Russian party lost more since they could not operate their companies, one of which is Mars,” he said. According to Arsenyan, there are two fields in the world, which are the most attractive ones for investment, which are energy production and communication fields. He also thinks that Armenia has not crossed the red line “since due to its geopolitical position and the level of political relations with its neighbors Armenia has an opportunity to develop actively and prevent stagnation in that field.” The ULP leader thinks that in order to make Armenia competitive and flexible our country should increase the coefficient of efficiency through using all the possible opportunities, included the resources of the Russian capital.”
The president of the union of entities for information technologies, Karen Vardanyan said that he was concerned of the fact that there were problems with qualified specialists. He brought an example that a young man, who had a potential to become a good businessman might change his profession after graduating from university in order to get high salary, as a result of which we would lose a serious component. As for the Russians, they don’t teach specialists in Armenia, but hire them. “It is clear why the Russians are coming to Armenia; they have political support and it is easy for them here. It is a natural process. The problem is not to allow that process influence on the political decisions taken by Armenia,” he concluded.