Pressed to settle its accumulating debt, Armenia is intent on transferring state-owned strategic assets to Russia. A series of equity-for-debt deals, agreed to in principle over the past few months, may place virtually the entire Armenian energy sector under Russian control. The swaps would provide Moscow with additional political leverage over its chief ally in the South Caucasus.
Opposition politicians in Yerevan are raising the alarm, accusing President Robert Kocharian's administration of compromising the country's sovereignty. Their concerns are shared by some local analysts who believe that Russia's tightening grip on the struggling Armenian economy will postpone prosperity indefinitely. Many also complain that Russian officials have been more lenient toward other, less pro-Russian ex-Soviet debtors.
Kocharian and his allies, meanwhile, insist that the swap agreements not only ease Armenia's debt burden, but will also revitalize the mainly loss-making industries which the Russians are about to take over. They also argue that the Russian-Armenian military alliance needs to be reinforced by closer economic ties.
The largest swap deal was signed during Russian Prime Minister Mikhail Kasyanov's visit to Yerevan last November. Under that deal, Russia wrote off Armenia's $100 million debt in return for obtaining control of five state-run Armenian enterprises. Among them was Armenia's largest thermal power plant located in the town of Hrazdan.
Armenia is already heavily dependent on Russia for its two main energy resources: natural gas and nuclear fuel. That dependence was to deepen when Moscow and Yerevan tentatively agreed last March to transfer the financial management of Armenia's Metsamor nuclear power station and the ownership of six hydro-electric plants to Russia's state-run Unified Energy Systems (UES) power utility. For its part, UES agreed to repay $32 million in Metsamor's outstanding debts to Russian nuclear fuel suppliers. UES would also come up with an additional $8 million for fresh deliveries this summer.
With Metsamor alone accounting for about 40 percent of Armenian electricity production, the deal, if it goes through, will allow the Russians to control 90 percent of Armenia's power generating capacities.
Energy is not the only area covered by Russian-Armenian swap arrangements. Last September, for example, Kocharian's government handed over Armenia's largest cement factory to the Russian ITERA gas exporter in payment for its $10 million debt for past gas deliveries. And recently, Russia's Sibir airline was granted the bulk of the flight rights of Armenian Airlines, the crumbling national carrier, after agreeing to assume $25 million in debts.
All of this has raised eyebrows in some Armenian quarters. "We breach all the rules of economic security by giving the lion's share of our energy facilities to the Russians," said Eduard Aghajanov, an economist who served in the government of former President Levon Ter-Petrosian in the 1990s.
The equity-for-debt strategy has become an issue during the campaign leading up to May 25 parliamentary elections. Even some traditionally pro-Russian leaders of Armenia's main opposition alliance, Artarutyun (Justice), have criticized the deals.
Some Kocharian opponents say the administration never considered alternative ways of settling the Russian debts. According to Aghajanov, Yerevan could have repaid them with low-interest loans from other, presumably Western sources, or with some of its hard currency reserves which currently total about $450 million.
Aghajanov also points to authorities' failure to stamp out widespread corruption and mismanagement in the energy sector abuses that cost Armenia at least $50 million in losses each year, according to one estimate. That is the reason why the Metsamor plant itself is owed some $120 million by domestic power distributors.
Economic cooperation with Russia has been one of the least transparent areas of the Armenian government's work, political observers say. The debt arrangements have been personally negotiated by powerful Defense Minister Serge Sarkisian, Kocharian's closest political associate, with other top government officials, including Prime Minister Andranik Markarian, having little say on the issue. All of the controversial agreements have been announced after Sarkisian's frequent trips to Moscow, without prior public discussion.
Armenia is not the only ex-Soviet state that has incurred multimillion-dollar debts to Russia over the past decade. But Armenia is the only state to have so far given up such a large share of its economic infrastructure to Russia. Pro-Western Ukraine and Georgia, which both owe the Russians more than Armenia, have managed to reschedule repayment of their debts.
Opposition-oriented newspapers have for months speculated that Russia is taking advantage of its strong relationship with the Kocharian administration. Some observers point out that Russia supported Kocharian's re-election amid the country's controversial presidential vote. Indeed, Russian President Vladimir Putin was the first foreign leader to congratulate Kocharian on his hotly disputed reelection, in a move that sharply contrasted with Western criticism of widespread irregularities that marred it. [For background see the Eurasia Insight archive].
Significantly, Moscow now appears in no hurry to finalize the November equity-for-debt deal. The Russian parliament was due to ratify the deal in April, but delayed the move for unknown reasons. And the tentative agreement on Metsamor seems to have run into unexpected snags.
A Russian delegation recently arrived in Yerevan for talks to finalize the deal. The Armenian Energy Ministry said on May 2 that the two sides are working out "technical details" and will likely seal later in May. That would pave the way for the delivery of a fresh consignment of Russian nuclear fuel to Metsamor, whose sole operating reactor was halted in early April pending refueling.
Emil Danielyan is a Yerevan-based journalist and political analyst.