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ARMENIA


  
  



In-depth Business Intelligence

Key Economic Data 
 
  2003 2002 2001 Ranking(2003)
GDP
Millions of US $ 2,797 2,367 2,100 139
         
GNI per capita
 US $ 950 790 570 143
Ranking is given out of 208 nations - (data from the World Bank)

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REPUBLICAN REFERENCE

Area (sq.km)
29,800

Population
2,991,360

Principal ethnic groups
Armenian 93.3%
Azeri 2.6%
Russian 2%

Capital
Yerevan

Currency
Dram

President
Robert Kocharian


 


Update No: 302 - (27/02/06)

How valuable is the alliance with Russia 
There is a big debate going on in the Caucasus about current events. Demands from energy giant Gazprom for a gas price hike have prompted an unprecedented debate in Armenia about the value of the country's strategic partnership with Russia. 
On January 22nd, the day that explosions severed gas pipelines linking Russia with Armenia via Georgia, Armenian President, Robert Kocharian, and Russian President, Vladimir Putin, met in the Kremlin to reaffirm their commitment to a military and political alliance. 
Plans by the Russian state-owned Gazprom company to increase gas prices from US$56 per 1000 cubic meters to US$110 per 1000 cubic meters had foreshadowed the meeting. 
Armenian officials had taken umbrage at the fact that Gazprom's December 2005 decision was announced after Armenia's 2006 state budget had already been approved; this was tactless in the extreme.
The two countries' long-term alliance prompted many to expect that the price change would not apply to Armenia - or that at least the country would be forewarned well in advance. Armenia receives all of its gas from Russia, which also controls an estimated 70 per cent of the country's energy network. 
But though the gas price dispute was reportedly discussed during the meeting, it was not featured in either leader's official statements. 
For now, gas prices have been frozen at their current levels until April 2006, and negotiations between Armenia and Gazprom are ongoing. But officials say that the best they expect is a price lower than that paid by neighbouring Georgia. A final agreement is expected by mid-March. 
Meanwhile, the squabble has put Armenia and Russia's long-term alliance up for debate. Speaking to Kentron TV on January 13th, Prime Minister, Andrani Margarian, said that Gazprom's plans to nearly double prices meant that Yerevan needs "to clarify with Russia what is meant under 'strategic partnership.' Which spheres does it concern? Is Armenia treated the same way as Georgia, from which Russian bases are being withdrawn?" 
A presidential spokesperson later rejected a Russian Kommersant Daily report that Armenia's desire for lower gas prices had prompted Kocharian during the meeting to offer Putin a 45 per cent stake in a planned gas pipeline with Iran. 
Scrutiny has also been brought to bear on Russia's military base at Gyumri, 75 miles from Yerevan, and the destination for armaments from Russia's two recently closed bases in neighbouring Georgia. A December 2005 agreement signed between Armenia and Russia provides for expansion of the base, which Russia uses rent-free. 
At a January 20th public discussion Tigran Karapetian, leader of the Popular Party and the owner of a popular television channel, ALM, charged that the Russian troops in Armenia "do not protect our border [with Turkey]. Just they need to have a military base here, and they do have it.' 
Several politicians, including Parliament Speaker, Artur Bagdasarian, have argued that Armenia should charge Russia rent for the base in exchange for higher gas prices. Defence Minister, Serzh Sarkisyan, however, rejected such proposals. "Under the conditions of our current agreement, we get more [from Russia] than we give to it," he said at a January 26th press conference in Yerevan with visiting Russian Defence Minister, Sergei Ivanov. The Armenian knows what he is talking about. Armenia is doing pretty well out of Russia right now.
The January 22nd destruction of pipelines feeding Georgia and Armenia with gas gave a new impetus to the debate. The position taken by Georgian President Mikhail Saakashvili that the explosions were intended to engineer stronger support for Russia's interests in the South Caucasus has gained currency among some media. The Haykakan Zhamanak newspaper wrote that the coincidence between the date of the blasts and Kocharian's flight to Moscow to attend the opening of the Year of Armenia in Russia might not be coincidental. 
Armenia was forced to rely on reserve stores of gas during the crisis. On January 30th, gas began to flow again through the pipeline that connects Russia with Armenia via Georgia. 
A January 16th statement by Gazprom spokesperson, Denis Ignatiev, to Radio Free Europe/Radio Liberty that Armenia would have been offered a lower price if it had agreed to one of the preconditions set forth by Russia has only reinforced the belief that Moscow intended to reap advantages from the damaged pipeline. The conditions, as described by Ignatiev, included either granting Russia a stake in the Iran-Armenia gas pipeline, or providing for Russian ownership of the unfinished fifth unit of the Hrazdan Thermal Power Plant (TPP) or taking a loan from Russia under commercial interest rates. 
One senior Armenian government official responded with outrage to the statement. "I think Gazprom's decision damages the strategic partnership between Armenia and Russia," presidential national security adviser, Garnik Isagulian, told the daily newspaper Hayost Ashkharh on January 18th. The daily reported Isagulain as saying that Russia's position on gas prices could reorient Armenia toward the West, and away from Moscow. 
Politicians, many of them known as pro-Russian, have responded in kind. Former Prime Minister, Vazgen Manukian, leader of the National Democratic Party, described the price stance as hitting "below the belt," the Russian news agency Regnum reported, while Rafik Petrosian, a member of the Popular Deputy parliamentary faction predicted that "Armenia will be forced to find other friends," according to the January 19th edition of the daily Hayots Ashkharh. 
Khosrov Harouitunian leader of the Christian-Democratic Party, has pushed for the government to exclude strategic energy assets from ownership by a foreign government. The appeal, made on January 26th, would affect such properties as the four units of the Hrazdan TPP, which was given to Russia under a 2002-debt-for-equity deal. 
Government ministers, however, do not appear to share the views that Armenia must abandon its political and military cooperation with Russia if gas prices increase. "Our relations with Russia are of a strategic nature," Foreign Minister Vartan Oskanian told reporters on January 16. "There is no need to change our relations due to gas prices, especially what concerns the sphere of security." 
But contrary to Russian assertions, few Armenians seem to believe that a price hike can be explained by economic necessity. More than 75 per cent of 1,000 respondents in five different Armenian cities reported that they would think negatively of Russia if Gazprom raised gas prices for Armenia, according to a poll performed in mid-January by the Yelk Social Reforms Centre and quoted widely in the Armenian media. The vast majority of those surveyed - nearly 80 per cent - said that they did not believe Russia would ultimately decide to double gas prices for Armenia, however. 

Karabak talks: for Armenia, more questions than answers 
Despite international community optimism, many Armenian politicians and pundits are sceptical that a breakthrough in the Nagorno-Karabak peace process is imminent. 
Hopes for a Karabak settlement have been rising in recent months. Even so, no definite framework on how to end the 18-year conflict yet exists. A January 18th-19th meeting between Armenian Foreign Minister, Vartan Oskanian, and Azerbaijani Foreign Minister, Elmar Mammadyarov in London, resulted only in a short preliminary document that outlines the principles for future actions. The meeting was intended to prepare for a summit between Armenian President, Robert Kocharian, and Azerbaijani President, Ilham Aliyev, to be held in February in Paris. The summit's date has not yet been specified. 
Much of the currently available information on the peace talks has come from foreign and unofficial sources. In December, for example, the Economist Intelligence Unit reported that the settlement process would include the withdrawal of Armenian troops from five out of the seven occupied territories outside of Karabak; the return of Azerbaijani refugees and/or displaced persons to those territories and to Karabak; the opening of communication routes blocked by Azerbaijan; and the holding of a referendum in Karabak on the region's status. 
Observers note that both Armenia and Azerbaijan have made recent efforts to break a long-standing stalemate in negotiations. In particular, Yerevan has abandoned an earlier demand for a "package" solution, under which the withdrawal of the occupied territories would be made only after Karabak's status was determined. Meanwhile, Armenian media have cited initial reports published by Jane's Information Group stating that Azerbaijan has supposedly agreed to a referendum on Karabak's future status. At the same time, Aliyev administration representatives say the issue is not the subject of present talks. 
Given the lack of specifics, Armenian observers remain wary. Both political analysts and politicians state that it is too early to share the optimism expressed by many foreign observers, as too much will depend on the details of potential future agreements. On January 21st commentary in the daily newspaper Hayots Ashkharh, for instance, suggested that Azerbaijan would try to find a way to avoid fulfilling its referendum commitment once it regained control over the occupied territories. In a report distributed by the Regnum new agency, Democratic Party leader, Aram Sargsian, said the expected deployment of international peacekeeping forces could create geopolitical tension, noting that Iran would likely view the possible appearance of NATO troops near its border as a threat to Tehran's security. 
Prime Minister, Andranik Margarian, has stated that Armenia's preconditions for a deal have not changed. In a report published January 14th in the Hayastani Hanrapetutiun newspaper, Margarian said that Yerevan continues to exclude the possibility of a top-down relationship between Baku and Stepanakert. Armenia also will not budge on its demand for a land link between Armenia and Karabak, as well as security guarantees for the territory. 
Margarian, who is also the leader of the Republican Party, went on to state that the Republicans wanted an interim status established for Karabak, governing the time between Armenia's withdrawal from the occupied territories and the referendum, a period that could last as long as 10-15 years. "Nagorno-Karabak should be given a status different from what it has now. Otherwise, all the talks are useless," Margarian said. He explained that this interim status must enable Karabak to establish direct ties with international organizations and foreign governments in order to facilitate the territory's development efforts. "This is one of our preconditions. At least, this is the position of the prime minister and the Republican Party," Margarian said. 
The role of Karabak authorities themselves in the settlement process represents another potential sticking point. Although the territory's leaders have maintained that they are interested in establishing peace with Azerbaijan, there are indications that Stepanakert and Yerevan differ in their approaches on the settlement process. 
In apparent contradiction to the Armenian government's position, Seyran Ohanian, the unrecognised republic's defence minister, told journalists on January 18th, that "there should be no word about the return of refugees unless the issue of the status of Karabak is solved," the 168 Zham weekly reported. In his turn, Samvel Babayan, Ohanian's predecessor, now the leader of Armenia's Dashink Party, told the Chorrord Ishkhanutiun newspaper that he has information that indicates serious disagreements exist between Yerevan and Stepanakert over which occupied territories should be freed, the positions to be held by any international peacekeeping forces and on the timing of the referendum on the territory's status. 
Domestic political factors could potentially hamper the Armenian government's negotiating flexibility. Political parties are already preparing for parliamentary elections to be held in May 2007. A presidential vote will follow in 2008. The looming elections could leave Armenian politicians less likely to take political risks. 
Public opinion in Armenia tends to be wary about peace prospects, as surveys show that a majority of Armenians do not believe that Azerbaijan is sincerely interested in peace. Recent reports about Azerbaijani soldiers' alleged destruction of Armenian khachkars, or cross-stones, near the town of Julfa in the Azerbaijani exclave of Nakhchivan, have exacerbated such feelings of scepticism. According to a survey by the Caucasus Institute for Democracy development fund, made public on December 21, only 19.2 percent of the population in Armenia would agree to cede the occupied territories if Azerbaijan agrees to recognize Karabak as an independent state. 

Armenia/Azerbaijan: will presidents' meeting yield progress toward Karabak peace deal?
Recent talks between Armenia's and Azerbaijan's foreign ministers failed to shed much light on the likelihood of a major breakthrough in the Karabak peace process. 
The discussions, held in London on January 18-19 under the aegis of the OSCE Minsk Group, were being watched closely for any indication that a February meeting between Armenian President Robert Kocharian and Azerbaijani President Ilham Aliyev might result in a compromise. 

Uncertainty Of Principles 
Armenian Foreign Minister Vartan Oskanian did confirm the day after the London talks that the two sides are seeking to reach agreement on a half-page document that enumerates general principles that could then form the basis for a more detailed peace plan. But Oskanian said that while the two sides' positions vis-a-vis some of those principles have drawn closer, on others their positions are still far apart, RFE/RL's Armenian Service reported. 
Day.az on January 26 similarly quoted Mammadyarov as telling journalists in Baku that the two sides are still trying to reach agreement on the "general principles." It therefore remains unclear whether the two countries' presidents will indeed succeed in reaching a compromise on the contested points, let alone publicly endorse those basic principles, during their upcoming summit near Paris.
The basic principles have formed the focus of what has become known as the Prague process talks between Oskanian and Mammadyarov (so-called because the first few meetings took place in Prague in the summer of 2004 and January 2005). On June 7 2005, Mammadyarov told journalists in Baku that the two sides were discussing between seven and nine issues related to a peace settlement, and that those issues had to be addressed in a specific order, with each made secure before the following is added, "like pearls knotted on a silk thread." 

The Blueprints 
Mammadyarov said Azerbaijan insists on the liberation of the seven Azerbaijani districts bordering on Karabak that are currently occupied by Armenian forces. He also claimed the two sides were discussing which countries or organizations could provide peacekeeping forces to be deployed on those territories after their liberation, according to day.az. Echo-az.com quoted Mammadyarov as saying that the two sides were discussing both "phased" and "package" approaches to resolving the conflict. But a senior Armenian Foreign Ministry official told RFE/RL on June 8 on condition of anonymity that the final agreement will be a package one, although its various provisions may be implemented one after the other, rather than simultaneously. 
Then, in early July 2005, a senior Armenian official told RFE/RL's Armenian Service that under the anticipated peace deal, Armenia would return to Azerbaijani control five of the seven Azerbaijani districts adjacent to Karabak currently occupied by Karabak Armenian forces, not including the strategic Lacin corridor. An international peacekeeping force would be deployed in the conflict zone under the aegis of the OSCE. Then, at some unspecified future date the population of the unrecognised Nagorno-Karabak Republic would be required to vote in a referendum on the region's future status. 
That blueprint is very similar to those proposed in December 2004 by former Spanish Foreign Minister Ana Palacio and NATO Parliamentary Assembly President Pierre Lellouche; and by the International Crisis Group in a document released on October 11th 2005, although the ICG plan envisages the withdrawal of Armenian forces from all seven occupied Azerbaijani districts including Lacin. 
Haik Kotandjian, an adviser to Armenian Defence Minister Serzh Sarkisian, outlined an alternative "road map" for resolving the conflict in a November 22nd interview with regnum.ru. That three-stage plan comprised the same elements, but in reverse order: it envisaged a referendum on the status of the NKR, followed by the deployment of international peacekeepers and the simultaneous withdrawal of Armenian forces from five of the occupied districts (not including Lacin and Kalbacar); the third stage comprised the rehabilitation of the conflict zone. 

Near Successes 
In early July 2005, Armenian officials told RFE/RL's Armenian Service that Armenia and Azerbaijan had reached agreement on the key points of a formal peace accord ending the Karabak conflict, and that agreement could be signed by the end of this year. The two ministers, and the two presidents, subsequently met in late August in Kazan on the sidelines of a CIS summit, but failed to announce any major progress toward a settlement. Then, on December 4th, Oskanian told RFE/RL that he and Mammadyarov failed during talks in Ljubljana on the sidelines of the OSCE foreign ministers' annual meeting to agree on a date for the next meeting between the two presidents -- a meeting that Oskanian hinted could prove a pivotal moment in the search for a settlement. 
But despite that failure to schedule a meeting between the two presidents, preparations were launched for one aspect of a peace settlement: provision was made for a high-level OSCE planning group to visit the Karabak conflict zone to assess the requirements for deploying an international peacekeeping force in the event of the withdrawal of the Armenian forces from the Azerbaijani territory contiguous to the unrecognized Nagorno-Karabak Republic that they currently occupy. Noyan Tapan reported on January 22nd the arrival of that delegation in Stepanakert. 
In a January 19th interview with APA news agency that was posted the following day on day.az, Azerbaijani presidential administration official Mammadov said that Azerbaijan's overriding priorities are for Armenia to agree to a settlement of the conflict that would preserve Azerbaijan's territorial integrity, and the withdrawal of Armenian forces from occupied Azerbaijani territory. Mammadov dismissed as "unimportant" the issue of including representatives of the NKR in the peace process, which the ICG plan advocates. He said that peacekeeping forces should be deployed along the entire length of the Armenian-Azerbaijani border and "between Armenian- and Azerbaijani-populated villages." He said it was premature to discuss the possibility of a referendum, which would, he estimated, be held only in 15-20 years' time. 
Deputy Foreign Minister Araz Azimov, President Aliyev's special representative for the Karabak talks, was more categorical, telling journalists in Baku on January 23rd that talk of a referendum is no more than "rumours," day.az reported. 

Reality Check 
Neither Mammadov nor Azimov appears to have made the crucial point, noted on January 19 by the online daily zerkalo.az, that Article 3 of the Azerbaijani Constitution explicitly bars the possibility of changes to the country's borders being submitted to a nationwide referendum. For such a referendum to take place, a preliminary referendum would first have to be held to amend those articles of the constitution, and few Azerbaijani voters are likely to endorse any amendments that would facilitate the loss of Azerbaijani jurisdiction over Karabak. 
Even if the two presidents succeed during the coming year in finalizing a set of "general principles" intended to serve as the blueprint for a more detailed peace plan, there is still no guarantee that one side or the other will not find it expedient to renege on them at some future date. The so-called "Paris Principles" agreed on in the spring of 2001 were elaborated on in further talks in Florida in April 2001 and during subsequent meetings between Kocharian and Ilham Aliyev's father and predecessor, Heydar Aliyev. US diplomat Rudolf Perina, who served as the US Minsk Group co-chairman during those talks, later revealed that in 2002 the two sides came "incredibly close" to hammering out a peace agreement. But Armenian officials say Baku reneged on that deal shortly before a planned summit between Kocharian and Heydar Aliyev in June 2002 that was cancelled at the last minute. 

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FOREIGN INVESTMENT

IFC invested 9.1m Euro in Armenia 

International Finance Corporation (IFC) in collaboration with strategic investors explores the investment opportunities in Armenia's financial and real sectors. It was reported that on January 1st, IFC invested 9.1 million Euro in three projects which are Hotel Armenia, ACBA Leasing, and Armeconombank and it plans to invest more this year, Interfax News Agency reported.
Armenia is a shareholder and member of IFC. In addition to the investment programme, IFC has been providing technical assistance on corporate governance and advisory services for improvement of the investment climate and small and medium enterprise development. IFC is the biggest international financing source for developing countries. Besides, the Corporation fulfils the function of laboratory for innovative market solutions on poverty reduction and environmental and social problems solution. 

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FOREIGN LOANS

World Bank approves 20m Euro loan to Armenia 

The World Bank approved a second Poverty Reduction Support Credit (PRSC) for Armenia worth 20 million Euro citing the country's "exemplary macroeconomic performance" and its government's efforts to reduce widespread poverty, Vigen Sarkisian, PR director at the World Bank's Yerevan office, said at a meeting on January 20th, Interfax News Agency reported.
The bank said that by financing part of the 2006 budget deficit it will assist in the implementation of the Armenian government's poverty reduction drive. The money, which will be channelled into the Armenian state budget, is the second instalment of a three-year lending programme that was launched by the World Bank in November 2004. Sarkisian said the International Development Association, part of the World Bank Group, would provide the re-sources on discount terms for 40 years at 0.75 per cent with a ten-year grace period.

AEB sign 3m Euro co-finance deal with EBRD 

The European Bank for Reconstruction and Development is providing a three million Euro co-financing facility to Armenian Economy Development Bank, Armeconombank (AEB), Armenia's fifth largest bank by assets in a sector encompassing 21 privately owned banks, New Europe reported.
The facility consists of 1.5 million Euro loan to Armeconombank, which will be used for on-lending to the bank's clients and another 1.5 million Euro participation facility under which the EBRD will take on the client's direct risk. This will facilitate the financing of Armenian medium sized enterprises with good credit history and proven track records. Besides sub-loans worth one million Euro will be provided to finance companies' capital expenditure and working capital needs. The funds come via the EBRD's Medium Sized Co-Financing Facility, which is designed to share with local banks the risk of lending to potential borrowers. The EBRD owned a 25 per cent stake plus one share in Armeconombank in December 2004, its first equity participation in a locally owned Armenian bank. The Bank and the Sukiasyans jointly hold more than 75 per cent of shares in Armeconombank. The EBRD has a seat on the bank's supervisory board. 

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MINERALS & METALS

Global gold to process, export Armenian uranium 

The US Global Gold Corporation (GGC) intends to expand its sphere of business in Armenia and process and export uranium, GGC said, New Europe reported.
The company said it recently acquired a large tenement in the Gegharkunik region in northern Armenia which geologists believe to be rich in gold and uranium. The company is understood to be primarily interested in local deposits of the radioactive metal used as nuclear fuel. GGC has bought 80 per cent of the shares in the Armenian-registered Athelea Investments, set up by a group of US and Australian citizens and which holds the exclusive right to explore a 27-square kilometre area close to the River Ghetik. Geologists who studied the area in 1970 said it could contain radioactive elements, including uranium. "These studies concluded that the region is prospective for radioactive elements, including uranium," GGC said in a statement. "A suite of radioactive minerals were reported in the samples, including uraninite (uranium oxide)," it added. GGC sources in Yerevan said that the US company will spend three years to ascertain the local uranium and gold reserves before starting to mine. They said the uranium ore will likely be processed in Armenia and smelted in Europe or the United States. Global Gold in July 2005 signed a deal to buy 100 per cent of Armenian metallurgical company Mega-Gold and with it the right to study and develop the Tukhmanuk polymetallic ore field. 

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TRANSPORT

Armenia to participate in 2 TRACECA led projects 

In the 2005 report published on January 11th, the Armenian ministry of foreign affairs said that Armenia would participate in two Transport Corridor Europe Caucasus Asia (TRACECA) led projects worth 7.5 million Euro in 2006-2007, Interfax News Agency reported.
The projects are focused on creation of cargo shipment network worth 5.5 million Euro and in TRACECA participant countries territories and civil aviation administrative and technical personnel training worth two million Euro. The report said Armenia attached great importance to TRACECA intergovernmental commission's work. The Armenian delegation also participated in the 2006 TRACECA activity programme preparation and adoption. Under this programme, European Commission allocates 13.5 million Euro for TRACECA projects funding. 

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