Strategic Analysis: Russian Business Activity in Armenia (Abstract)
Over the past 15 years, Russian SOEs have gained control over a substantial portion of the Armenian economy, including its most strategic sectors, such as the countrys energy, metals and mining, transportation, telecommunications and banking industries. In short, the country is thoroughly penetrated by Russia in the E&F threat domain to an extent that would be difficult, if not impossible, to reverse at this juncture. Indeed, Armenia is a case study in successful Russian economic and financial infiltration efforts and what victory looks like in this domain from the Kremlins perspective.
Armenias options for establishing some diversity in its trade relationships have been heavily influenced by its disputes with neighboring states. The countrys borders with Azerbaijan and Turkey have been closed since 1991 and 1993, respectively, as a result of the Nagorno-Karabakh conflict, leaving functioning borders only with Georgia and Iran and, to a debilitating extent, has cast its lot with Russia from a trade, investment and military perspective.
This state of affairs is not merely due to Armenias limited geographic options, as much as it is simply attributable to a series of consistently ill-advised decisions. Three primary tactics over the past 25 years bas brought about much of the dependency currently in place today, notably:
- the establishment of business deals between Armenian and Russian entities on terms and conditions that were highly unlikely to be met, leading to the accrual of heavy debts by Armenia and subsequent offers by Moscow to trade those debt repayments for strategic assets;
- the periodic offer of politically-coveted pricing discounts on natural gas deliveries as a means to gain strategic concessions and ownership over Armenias critical infrastructure that were regularly acceded to; and
- the leveraging of discounted (and even zero cost) arms supplies and military support to a generally impoverished Armenian government that were deemed necessary by Yerevan to maintain the countrys military position in Nagorno-Karabakh.
Recently, Armenia solidified its alignment with Russia in the economic and financial domain by officially joining the Eurasian Economic Union (EEU) in January 2015. Armenia and the EU had gone so far as to negotiate a far-reaching draft agreement, but, in September 2013, Yerevan declined to sign the EEU agreement at the last moment, not unlike the decision made by Ukraine in the lead-up to the protests in Maidan Square.
Moscow reportedly made an aggressive push, however, via a number of economic and financial offers and enticements, to ensure that the country chose ultimately to align itself with the EEU.
Excerpted Deals and Transactions:
- Armenias leadership since independence from the Soviet Union has been responsible for a series of privatizations that, among other dependencies, led to at least 80% of the countrys power generation capacity being turned over to Russias state-owned power company, Inter RAO-UES.
- A variety of strategic concessions were made in December 2013, including: Russian Railways taking on upgrade responsibilities for the countrys railway system; the transfer of the final 20% of Armenias ownership in the countrys primary energy company, ArmRosGazprom, subsequently renamed Gazprom Armenia; and the granting of 30-year exclusive rights to the countrys energy market. Following these agreements, Armenias leading opposition groups were furious and demanded a parliamentary inquiry, which, in turn, led to accusations of fraud (but no substantial remedial action).
- In September 2007, Russian Railways was awarded a contract to take over control of Armenian Railways (Armenias state-owned railway company) and all of its employees. Although ownership of the rail network remained with the Armenian government, Russian Railways assumed management of Armenian Railways for a period of 30 years, with an option for another 20 years. The use of 400 railway workers in Abkhazia (Georgia) to make upgrades that were soon thereafter taken advantage of militarily (before the workers were even out of the country) is of note in instances such as this when control is obtained over another countrys railway infrastructure. In that case, Russia used the railway to move troops into Georgia.
- Armenia plays a role in Russias strategic $3.2 billion North-South Transit Corridor project designed to link via the shortest transport route the ports of the Persian Gulf with those of the Black Sea.
- Armenias desperation for military supplies and support, due to its continuing conflict with Azerbaijan over Nagorno-Karabakh, brought important conditions imposed by Moscow on its delivery of these supplies. Armenias inability to pay for such weapons and services with cash has prompted other forms of in kind payments to Russia. In 2001, for example, the Armenian government agreed that it would not only continue to host Russias Gyumri military facility, but would forego making Russia pay any rent for the base. In 2010, the two countries signed a deal to extend Russias lease of the Gyumri facility until 2044, again, in exchange for Russia providing Armenia with modern weapons and military equipment.
- Armenia was one of the first former-Soviet countries to privatize its telecommunications companies. Armentel, known as Beeline, is Armenias national communications company responsible for telephone and internet and has been a wholly-owned subsidiary of Russias Vimpelcom since April 2007.
- In terms of asset size, Ameriabank is the largest bank in the financial sector of Armenia. The banks sole shareholder is reportedly Ameria Group Limited (TDA Holdings), which is controlled by a privately-owned Russian investment-banking group, called Troika Dialogue. Russian owned VTB Armenia holds the second largest amount of assets (to Ameriabank) in Armenia, with roughly 11% of the countrys total.
- Mining and metallurgy are vital to the Armenian economy and, as the countrys main export-generating sector, account for almost half of total exports. In Armenias mining sector, lines of control are obscure, with transactions kept private and details limited. Frequently, however, they are traceable back to Russian individuals or entities.