Our first publication of articles on “The difficult way of making
the national bourgeoisie” is about the armenian oil market. What
kind of characteristics does the oil market have? When was it formed?
What kind of capacities does the market have? Who are the main
participants of the market? Is there monopoly in the oil market or no?
As a strategic field, the gasoline and diesel oil market can be
discussed starting from 1992-1993. Though Armenia was in war during
those times, but it was strange, there were 20-25 participants in this
market. For comparing, the number of gasoline market particiants was
10-11 in 2003-2004. In 90s also the state bodies imported oil: the
army, the nationl security service, etc. But in parralel with this
there were a lot of private companies entering this field and then left
outside. Among the biggest oil importers in those years the most fomaus
companies were: “Hajnavtamterq” (Armoilproducts) (ruled by Vahagn
Grigoryan) and “Kakhmat”state board operating in political council. At
those times there were names of politicians too, which were connected
with this business: Vazgen Sargsyan, Vano Siradeghyan, Babken Arakcyan,
etc. This fact was actually connected with the war factor: the
government wanted to control this strategic field in this way.
But as a period of making some participants roles sustainable in this
market is considered the period of 1995-1997, when some participants of
the market became bigger and their number cut down day by day. This
process was over in 1997-1998, after which the “rules” and the
prticipants of the market were the same till now. At the same time in
comparison with 90s not only the importers number was cut down, but
also the real capacity of the market. So, according to the operative
board of the governmet, in 1994-1997 about 1.000 tonnes of gasoline was
imported in Armenia, i.e. approximately 350.000 tonnes each year. While
according to the information Competition Supporting Committee (CSC), in
2003 and in 2004 accordingly 191,7 and 202,2 tonnes of gasoline was
imported. Of course this has its objective reasons too: oil world
prices increase, alternative oil, particularly the use of natural gas,
migration, etc. At the same time, not paying attention to some
valuations about 30-40 % shadowed economy in this field, the experts
assure, that these markets, at least the natural capacity of the
market, comply with the reality. So, taking into account the real oil
capacity and the oil world prices increase, we can say, that every year
the turnover in the oil marke of Armenia covers about 100 mln USD.
Concerning the diesel oil, from mits natural capacity point of view, it
didn’t change much, even more, it is more now in connection with 90s.
So, the import od diesel oil in 2003 and in 2004 covered 112,7 and
107,5 thousands tones instead of the 104.000 tones in 1994. Here the
number of the participants is more than in the market of gasoline. On
the other hand, like in case of gasoline, about 70 % of the market is
provided by three companies, but there are 18 companies in this market
with small quantities.
In order to have emaginations about the present situation in the oil
market, it is enough to check the participants’ quantities and who the
owners are. So, according to the official information, in 2003 and 2004
the main participants in the importing market were three of ten
companies of those times: “City Petrol Service” (CPS) – 25 %, “Flash” –
25 % and “Mika Armenia” (MA) – 16 %. The situation was the following
last year: CPS – 30.5 %, Flash – 30 % and MA – 19 %. The other
companies’ quantities both in the gasoline and diesel oil markets are
small: 3-7 %. Among these ones there are also fomaus companies and
well-known state officers: “Ran Oil” (the owner is known with his nick
as “Benzine Rubo”), “Max Fuel” (member of the National Assembly
Harutyun Pambukyan), RA president adviser Garnik Isagulyan (imorts
diesel oil only for the army), Vahagn Mkrtchyan (the brother of Levon
Mkrtchayn, the head of a group at the National Assembly), who imports
diesel oil for the army too, but with small quantities. Importing oil
with smaller quantities is not profiitable due to the transportation
fees.
In a word, the official information declines the valuations about the
existance of monopoly in this market. According to the “Law about
ecomonical competition”, a couple of these companies have privileged
position, covering 1/3 of the whole market. As for the other
assessments, that there is oligopoly in this market, it is impossible
to find out if it is true, because the anticompetition arrangements are
made face to face and orally. Even more, after our conversation with
different representatives of the market our impressions were like
they’re enimies and there is strong competition in this field.
Expert assesstments
What kind of assessments do the local and foreign experts make?
“We can say, that the competiotion in the oil market was more before,
the private actions played bigger role, though some other state bodies
imported oil too: the army, the national security service, etc., which
had negative influence on the market”, -says the World Bank Yerevan
office public relations department head Vigen Sargsyan, comparing the
present situation with the 90s. According to him, though private
interests placed a big role then too, but there were more participants
then, which encouraged the competition. According to Mr Sargsyan, at
those times there was no “systemized backing”, which we have now. At
the same time, Mr Sargsyan advises to pay attention to the big
importers not so much (who and whose supporters are well-know), as to
those having small quantities. According to him, now there is a
concept, according to which a good office position provides some
quantity in this market. Generally Mr Sargsyan thinks, that there isn’t
clear monopoly in the market, but there is strong control of the
market.
The assessments of James Maque, the head of International Monetary Fund
representation in Armenia, are more generalized. “I also find some
assessments about the economy monopolization, but very often it is
difficult to find out whether it is really so or not. In connection
with this, probably the World Bank is more careful than we are”, -says
Mr Maque, stating,-“If the market is monopolized, of course it is
negative”. It is also difficult for him to say, if there are any
oligarchy tendences in the market, but he says, that this shouldn’t be
connected with the participants number in the market. “There may be two
companies in the market, but competite strong, but there may be more
companies, but make agreement not to competite”,- he says. As for the
presence of oligarchs, Mr Maque doesn’t connect this fact with
monopolies: “I am sure, that some oligarchs don’t pay the due taxes,
though there are citizens escaping from paying taxes too. But we don’t
discuss particular fields, because if we concentrate on one field, this
will be considered as a political intervention”,- says James Maque. A
little bit different assessments were made by economist Tigran
Jrbashyan.
According to him, the economy monopolization and olygarchy are factors
for countries in transitional period, which Mr Jrbashyan devides into
three groups: 1. Countries, making successful reforms (Baltic and
eastern Europe countries), which could form effective institutional
systems, 2. Conservative countries, which changed their totalitarian
regimes to authoritarian ones (China, Turkmenistan, Belarus), 3.
Countries, which couldn’t make effective institutional reforms
(Armenia, Georgia, Moldova, Ukraine, and partly also Russia). Taking
into account these facts, he thinks, that the reason for the presence
of monopoly and olygarchy is a result of the fact, that the countries
of the last group lost their institutional potential when changing the
totalitarian system to market economy system, and a vacuum of formal
institutions and instiutional system was coused. And as the country
could not fulfil or fulfilled not in the due way its obligations as a
formal institution, this vaccum was filled with non-formal
institutions. According to Mr Jrbashyan, this is the system, which was
created with the purpose of changing the state system with this one.
And this system has two goals: to prevent the property and to provide
the contracts fulfilment. According to him, currently these systems
operate more effective than the state oneс. And according to him the
participants of these systems were called as oligarchs, families and so
on. By the way, Mr Jrbashyan agrees with our opinion publicated in one
of our previous papers, that the olygarchs place not only negative
role, but also positive. “I am sure, that the problems of Armenia
development in 2003 and 2004 were carried out by these institutions,
and the fact, that Armenia had good marks of development, was mostly
resulted by the presence of those groups”,- says the economist. And the
fact of deviding the period to periods before and after 2003, is
stipulated by the fact, that after 2003 in the result of the private
transfers and economy development there was a demand in forming a
formal institution of providing the contracts fulfilment. But Mr
Jrbashyan is sure, that the formal institutions can not do that in the
due way yet, and that the non-formal institutions, which operate more
effective, get more sustainable in the market. According to him this is
the explanation of forming the olygarchy.
As for the oil market, according to Mr Jrbashyan, this is a serious
system and needs in serious power to provide the contracts fulfilment
and prevent the business property. “And as the government hasn’t stated
the needed “rules” of the game in this field yet, the business states
its own rules, which can get in contradiction with the public
interests, which is a normal appearance. And thus the most important
thing is not that the market mechanisms don’t work, but the fact of the
state power collapse as a formal institution”, -says Mr Jrbashyan. And
in connection with this we should blame not the business, but the
government. Mr Jrbashyan doesn’t exclude, that there are private
interest factors in this field too, but the problem is deeper than it
seems to be. “If the business is given with a chance to use the state
system of renting, it will do so, and it will work in the same way and
with the same rules not depending on the personalities”,- Says Tigran
Jrbashyan.
What about the Economical competition committee legislation and this
institution, according to him, the legislation is still in the making
stage: “The economical competition committee is not given the due
power”,- says Mr Jrbashyan. He is also sure, that now Armenia is
handled to make a choce: “In the result of the non-formal institutions
increase Armenia can be faced with latinoamerican phenomenon, when this
chain conitnues to develop, the people change, but the system becomes
sustainable, and we will be thrown into an institutional “blind alley”.
The only way out of this, according to Mr Jrbashyan, is to make
wholeover institutional reforms in case of political will, where the
formal institutions will form in complience with the general strategies.
Oligarchic
Of course the participants don’t agree with the opinion, that there is
no competition in the market. Particularly those, who agreed to answer
our questions. For example, the head of “CPS”, which was the leading in
2004 in gasoline import market, Ashot Salazanyan, says, that there are
a lot of companies in this market and there is no monopoly. “Of course
there are big companies, one of which is CPS. But in comparison with
the other goods markets in Armenia we can say, that the competition is
stronger in the market of gasoline”,- says Mr Salazaryan. As for the
anticompetition agreements, the head of CPS excludes its possibility.
“I can speak only about our company. Concerning the anticompetition
agreements, I assure, that there was no this kind of agreement by our
side”,- he assures, adding, that if there are this kind of suspects,
the participants of the market should make their activities more clear
and more open. By the way, CPS is not only the biggest importer, but
also one of the companies having more gasoline stations than the other
ones: it has 52 gasoline stations. It is interesting, that the name of
Ashot Salazaryan as an oligarch or a big importer is not mentioned in
the press. His company was founded in 1992, and Mr Salazaryan started
his activities in this field in the same year, having the position of
the vice-director of Yerevan “Kakh. Mat” state board. Later, after the
liquidation of this body, he founded his own company and now is a
leader in this market. We couldn’t find out if there is anyone from the
state office supporting him. Of course, CPS considers this question as
impolite, because they are ruled only by the rules of economics. Maybe.
“Mika Armenia” company, which entered the market of oil in 1993 and we
can say, that some time had monopolitic positions, now is in the third
place. The president of this company, Mika Baghdasaorv, has his
explanations about losing his quantities, which, first of all, is
connected with the world oil price increase. “Nowadays the price for
gasoline 1 tone is about 600 USD, and also plus the transportation and
loses factor, the price for each tone reaches 1000 USD”. The business
of oil, which is considered to have super-profit, according to Mr
Baghdasarov, lost its profitability several years ago. “This is the
reason we are in the third place now. The oil business is connected
with huge circulating sums. The prices are expensive, that is why it
needs so much money. And the main source of money is the credit, which
interest rate is too high for this business. Besides that it is
important to import gasoline without losing some quantities (when
taking them from one place to another and so on). All these factors
brought to this field profitability decrease”,- Mr Baghdasarov
explains. According to his predictions, during the forthcoming three or
four years the number of the participants will cut down, which may
bring to the situation, when some transnational companies may enter
this market, like “Luk Oil”, “British Petrolium” and others, like it
happened in Georgia, Azerbaijan and Ukraine. Maybe these companies
don’t enter the armenian market because this field is controlled by the
authorities? Mr baghdasarov doesn’t agree with this. According to him
these big companies don’t come to Armenia first of all because of the
fact, that our market is too small. Besides that the use of other types
of oil develops in Armenia very fast. “The authorities can not prevent
anyone from buying gasoline stations from the private sector. The
authorities may make influence on the fields of gas or energy, where
there is monopoly. But there is nothing state-owned in the field of
gasoline”,-says the president of MA. According to him, the same
concerns also the local businessmen. He also adds, not agreeing with
the opinion, that noone having state office support can be involved in
this business: “Whoever wants can import. But the price for one tone of
gasoline is 600 USD, which becomes 1000 USD after reaching Armenia. Who
will import gasoline for 1000 USD? There are no tankers with this
quanity, each tanker costs 3-4 mln USD”,- answers to our question Mr
Baghdasarov, trying to proove, that here the main factor is the factor
of profitability.
Concerning the current situation in the market of gasoline,
Mikhail Baghdasarov predicts, that in the future gasoline business will
be considered as non-profitable business and will be included in the
row of “elitar businesses”. “The price was increased so much, that in
the future only thi rich people will be able to drive their cars with
gasoline. If it goes on in this way, people will ride on bicicles”,-
this kind of smooth future is predicted by Mikhail Baghdasarov, who
started his business with gasoline import and now is considered as one
of the most successful businessmen.
As for “Flesh”, which has the ex- positions of MA now, according to Mr
Baghdasarov, this company operates only in the field of gasoline import
and has the aim to take the whole market. Mr Baghdasarov doesn’t
exclude, that F;ash may reach monopolistic positions, “but not in the
forthcoming five years”. M. Baghdasarov declines the information about
connecting his business with the names of Serj Sarkisyan and Robert
Kocharyan and with their support: “What kind of relationship may Serj
Sarkisyan have with the business of gasoline?”,- says Mr Baghdasarov
and assures, that he will continue his business also after the
authorities change. “I don’t think about who is going to be the next
president”. Does Baghdasarov consider himself as an oligarch? Actually
yes. Though Mr Baghdasarov says, that his status doesn’t comply with
the classic meaning of an oligarch, because he is not occupated in
mediabusiness, but still considers himself as an oligarch according to
the standards that we have in Armenia.
Concenring the biggest participant of gasoline market, “Flash”, its
management, in difference with the other companies managements, still
works with the soviet principles. Anyway, all our efforts to get their
interpretions were not welcome, and the president of this company,
Barsegh Beglarya, got angry, and the vice director, Mushegh Elchyan,
said, that they didn’t like “168 Hours” weekly, that is why he would
not answer to our questions. We want to present here the information,
which reality we wanted to find out from them. So, Barsegh Beglaryan
appeared in the gasoline market in 1997. At first he imported gasoline
for National Security Service. And after the authorities changed in
1998, they got bigger quatations and actually got the positions of MA
in the market. Currently, except importing gasoline, “Flesh” is
considered as the provider of diesel oil for the army. And this trust
is gained in the result of fictive tenders. In this case there are
millions of dollars here (at the same time also shadowed), but we will
not discuss the real numbers because of some well-known reasons.
Anyway. Of course the relations in the oil market are not limited with
all these things, but the paper capacity doesn’t let us present more.
In the next edition we will discuss the situation in the gas market, which is also much profitable.