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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: 295 - (26/07/05)

Armenia is facing a sticky situation. It has a deeply resentful enemy in the Azeris, 20% of whose territory it has occupied in defence of its ethnic-Armenian separatist enclave, Nagorno-Karabakh. In May it accepted a Russian offer of military supplies from two bases in Georgia which Russia is evacuating. 
This may prove a very costly mistake. The Azeris have reacted immediately.

Petro-dollars funding big military build up in Azerbaijan: Aliyev 
Aliyev is resorting to the standard ploy of a beleaguered dictatorship, military adventure. It does not even have to go abroad to do so, given that the enclave is part of its territory under international law.
Azerbaijan is using revenue from record-high oil prices to fund a massive increase in military spending, President Aliyev said on June 25th, warning that the army would be prepared to recapture the region of Nagorno Karabakh, reports Agence France-Presse from Baku.
Azerbaijan will spend US$300m (248m euros) on its armed forces in 2005, a 70 per cent increase over last year, the Azeri leader said at a ceremony in a military academy. "The adversary must know that the Azerbaijani army can mobilize at any moment and liberate the occupied territories," Aliyev said. "Spending on the country's defence force will grow continuously." 
This is of course a very dangerous game. The Russians will always play the Armenian card against Azerbaijan, just as they will the Abkhaz one against the Georgians. Meddling in the Caucasus is second nature to them. This will provoke Turkey, a NATO member.
The Armenians are very good fighters, as they showed in the preceding conflict, which they after all won. But Yerevan, as well as Baku, would be advised to make jaw-jaw, not war-war, at this juncture.

Azerbaijan demands Armenia's exclusion from Council of Europe 
Azerbaijan has sent a letter to the Council of Europe demanding that Armenia be expelled from this organization. "The document that contains the demand to exclude Armenia from the Council of Europe has already received the status of an official PACE document. It will be distributed among PACE countries' representatives on Tuesday and will be discussed at a session of the Council of Europe ministers' cabinet in the near future," a representatives of Azerbaijan's delegation at the Strasbourg PACE session, Rafael Guseinov, told Interfax. 
"This demand is motivated by the fact that Armenia has repeatedly violated the basic principles of the Council of Europe. Namely, Armenia continues the occupation of 20% of Azerbaijan's territory, Azerbaijan being another Council of Europe country," Guseinov said. 
The UN Security Council has repeatedly condemned the occupation of Azerbaijani territory and demanded that Armenian military units be withdrawn from it. The OSCE Minsk Group, which includes representatives of Russia, France, and the United States, is mediating the conflict. 

Gazprom's involvement in Iran-Armenia pipeline to be discussed 
The Armenians are in effect in the pocket of the Russians so long as the dispute continues, their only real supporters on the issue. Cut off from Turkish and, a fortiori, Azeri ecenomic relations by the blockade maintained by both countrries with them, Russia is the vital partner, the source of arms and energy.
The Russian-Armenian interparliamentary commission on economic cooperation for example was planning to discuss the involvement of Russia's Gazprom in the construction of the gas pipeline connecting Iran and Armenia in mid-October, a source in the Armenian government told Interfax. Gazprom intends to offer its cooperation on the construction of the 41 km long Armenian section of the pipeline connecting the town of Megri (located on the Iranian border) to the town of Kadzharan (320 km southeast of Yerevan) and also on the reconstruction of the pipeline connecting Kadzharan and Yerevan (which has a pipe diameter of 500 to 700 mm). 
The cost of building the Armenian section of the pipeline exceeds the $30 million loan provided for this purpose by the Export Development Bank of Iran, which increases Gazprom's chances of participating in the project. 
In May 2004, Armenia and Iran signed an agreement on the construction of a gas consortium to supply Iranian gas to Armenia. Under that agreement, Iran took on the obligation to supply 36 billion cubic meters of natural gas to Armenia over a period of 20 years, with the possibility of extending the contract by five years and the total gas supplies to 47 billion cubic meters. 
The construction of the Iranian section of the pipeline, which is 100 km long, began in mid-July, 2004 and the construction of the Armenian section was due to begin before the end of October last year. It will not be completed until the end of next year. 
The total cost of building the Iran-Armenia pipeline and renovating the pipeline currently connecting Kadzharan and Yerevan is estimated at $210-220 million. The supply of Iranian gas will likely begin no later than January 2007.

Armenia and EU talk better business relations 
The Armenians are at least improving their relations with the EU. The sixth sitting of the EU-Armenia cooperation committee started in Yerevan on June 20th. The sitting was co-chaired by RA Minister of Trade and Economic Development Karen Chshmaritian and Hugues Mingarelli, European Commission director for Eastern Europe, the Caucasus and Central Asia, Interfax reported.
A number of economic issues were on the agenda. Armenian Deputy Minister of Trade and Economic Development Tigran Davtyan said discussions focused on Armenia's participation in wider Europe: New Neighbours EU programme. He noted, "Armenia was included in the programme two months ago. Presently we should hold negotiations in bilateral format, work out a political line till end of the year, and start its implementation next year."
Besides the Neighbourhood Policy the agenda contained issues referring to trade-economic cooperation, creation of a good business atmosphere, energy problems, investment cooperation as well as the political situation in Armenia, struggle against corruption and cooperation with international organisations.

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ENERGY

Russians purchase Armenian power grid 

Russia's state power utility RAO Unified Energy Systems (UES) announced that its offshore registered subsidiary Interenergo BV had acquired Armenia's energy distribution network Armenian Electricity Network (AEN). In a financial report, UES announced that Interenergo BV paid 73m Euro to purchase AEN from a Canadian investor who privatised it three years ago. AEN has undergone substantial reform and renovation over the past decade, Interfax News Agency reported.
The takeover of AEN would lead to Russia's complete control of AEN. However, western donors and the World Bank have condemned this takeover. The Russians had expressed an interest in the Armenian power grid for quite some time. Meanwhile, the Armenian media had speculated for months that UES was about to own the network. The issue was also reportedly high on the agenda of Russian President Vladimir Putin's visit to Yerevan last spring.
Margarit Grigorian, a spokeswoman of AEN, has strongly denied claims that AEN has given the Russians the right to own the increasingly profitable network adding that Russia has only management rights over AEN. She said, "We have already demanded that RAO UES refute that information because Midland Resources Holding has not sold its shares to anyone."
The AEN was sold to the British-registered company Midland Resources Holding for 37 million Euro in September 2002. Under the terms of the deal, the new owner could not resell it to another investor without the Armenian government's approval. The Russian giant may have found a loophole to get around this hurdle.
Meanwhile the Armenian Energy Ministry refused to confirm or deny the UES claims. "We have received no government statements confirming the reports as yet," the spokesman for the World Bank office in Yerevan, Vigen Sargsian, said. Energy Minister Armen Movsisian in early March publicly opposed AEN's takeover by UES arguing that the latter already controls 80 per cent of Armenia's power generating capacities and should not be allowed to monopolise the energy sector.
Government sources told Interfax that Midland Resources, which is mainly owned by a Russian-born Canadian businessman, was recently split into two companies. One of them is engaged in the steel trade, Midland's core activity, while the other operates only as AEN's parent company that was actually bought by UES. 
Meanwhile, Russian media reported that Interenergo's ownership is also quite complex. This company was established and registered in Netherlands in April 2004 by a group of Russian investors. 
The largest of them was identified as Inter RAO UES, a joint venture of UES and another state-run energy corporation, Rosenergoatom. The UES statement said Inter RAO UES owns only 42.3 percent of Interenergo. However there is no information as to who else owns a stake in AEN's reported new owner and whether it comprise of any Armenians. 
It was reported that UES' Deputy CEO Andrey Rapoport was in Yerevan recently to participate in the annual meeting of the governing board of the Metsamor nuclear power station. 
Last year UES got financial control of Metsamor in return for repaying 40 million Euro debts to Russian suppliers of nuclear fuel. It also owns Armenia's largest thermal power plant and several hydro-electric stations.

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TELECOMMUNICATIONS

Lebanon's VivaCell gains foothold on Armenian market 

Lebanese mobile communication operator VivaCell (K-Telecom Company trademark) was due to enter the Armenian market on July 1 to reduce prohibitive tariffs and increase the number of mobile phone users in the country, Interfax News Agency quoted Hussein Rifai, member of K-Telecom board, as saying recently. 
K-Telecom was selected by the Armenian government last November as the second wireless operator without a transparent and competitive bidding. The Lebanese firm paid seven million Euro to obtain it. The K-Telecom owners also control the Karabakh-Telecom company that has run Nagorno-Karabakh's telephone network since 2002. VivaCell is the trademark of "K-Telecom" company. According to top executives of K-Telecom, VivaCell's wireless unit will be an attractive alternative to ArmenTel which is the unpopular telecommunications monopoly that failed to meet local demand in mobile telephony. 
However, ArmenTel had more than 200,000 subscribers at the beginning of this year and expected to attract at least 100,000 more before the launch of the K-Telecom network. Earlier in June, the company, which is owned by Greek telecom giant OTE, announced a major reduction in its mobile phone tariffs as part of the effort. The ArmenTel monopoly is blamed for the fact that Azerbaijan and Georgia have left Armenia behind in the development of mobile telephony. The high cost and poor quality of the service led the Armenian government last year to renegotiate one of the key terms of ArmenTel's 1998 sale to OTE which resulted in the partial liberalisation of the market.
Meanwhile, Rifai stressed that activities of VivaCell will signify the start of a new period in the field of telecommunications in Armenia. 
Competition in the market will not only mean mobile communication tariff decrease, but also better quality services. "Quality in the network, quality in the customer care, quality in every single aspect of our relation with the customer," Rifai said, adding that the technology should not only be introduced but also adapted by using the local potential and foreign experience. "VivaCell will symbolise for the Armenian citizens a new era in telecommunications," said VivaCell general manager Ralph Yirikian. He believes that VivaCell will provide the Armenian population with choices which were lacking previously in the field of mobile communication. Yirikian added that the new network will initially cover Yerevan and surrounding regions in southern and central Armenia. 
It has been reported that VivaCell will expand its network coverage to reach the whole territory of the Republic of Armenia, catering to more than 300,000 subscribers in less than three months. He stated that VivaCell will have different packages that would give the potential subscribers a choice.

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TRANSPORT

Armenia extends help for Abkhazian railway restoration

The head of Russian Railways, Gennadi Fadeev, who participated in the meeting of the Commonwealth of Independent States Council on rail transport, told Interfax recently that the route of the rail communication between Russia and Georgia through the Abkhazian segment is promising.
Fadeev said the expenditure on restoration of the Abkhazian part of the railroad would cost about 100m.
He added that ifthe Abkhazian part is restored, "all interested parties, including Armenia and event Azerbaijan to some extent" should take part in revamping works.
Fadeev expressed readiness to "make every effort toward restructuring of the Abkhazian part of the railway" especially by sending the best carriages via the Moscow-Tbilisi route and to arrange daily communication.
For his part, the head of the department of railways of Armenia, Ararat Khrimyan, stated: "Armenia wants to be involved in the project of restoration of the Sochi-Tbilisi Railroad communication, if Russia and Georgia take a final decision on state level of restoration of that part of the railroad."
He added that Armenia is ready to allocate part of the financial sources required for the restoration of railroad communication through the territory of Abkhazia.
Georgian Prime Minister Zurab Noghaideli said Tbilisi has a more positive position in the issue of restoring the Abkhazian part of the railroad. At the same time, Noghaideli added that one should not hurry, as there are unsolved issues, particularly the issue of securing the safety of Gali region's residents.
Nogaideli noted that "the issue is not a simple one and relates to the solution of many organisational questions - the topic has been discussed by the Russian and Georgian parties many times, including in the course of the Russian Prime Minister Mikhail Fradkov's visit to Georgia on June 3rd." Nogaideli said the question of restoration of rail communication via Abkhazia was not considered at the meeting of the CIS Council but was discussed with Fadeev.

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