**ECONOMICHAI-LITES IN ARMENIA**

** **

DATE:  21 DEC 99

SOURCE:U.S. EMBASSY YEREVAN

 

SUMMARY:THIS CABLE SUMMARIZES IMPORTANT ECONOMIC DEVELOPMENTS IN ARMENIA DURING THEMONTH OF NOVEMBER. TOPICS INCLUDE:

 

1)  NEW CABINET ANNOUNCED

 

2)ELECTRICITY DISTRIBUTION COMPANY PRIVATIZATION PLAN CONTINUES

 

3)IMF CONCERNED ABOUT PACE OF ARMENIAN REFORMS

 

4)HOTEL ARMENIA LAYS OFF 100 EMPLOYEES

 

5)EBRD TO PROVIDE A USD 100 MILLION LOAN TO DEVELOP ARMENIA'S BANKING SECTOR

 

6)UNIFIED PLASTIC CARD SYSTEM CREATED

 

7)GAZPROM EXPRESSES INTEREST IN IRAN‑ARMENIA GAS PIPELINE

 

8)TENDER ANNOUNCED FOR THE PREPARATION OF A HRAZDAN HYDRO POWER STATIONINFORMATION PACKAGE

 

9)NATURAL RESOURCES IN SOUTHERN ARMENIA TO BE EXPLOITED

 

10)TENSIONS RISE BETWEEN GOVERNMENT AND ARMENIA'S TELECOM MONOPOLY

 

11)PARLIAMENT DRAFTS ANTI‑CORRUPTION LAW

 

12)GOVERNMENT TO INCREASE REVENUE COLLECTION

 

ENDSUMMARY.

 

 

1)NEW CABINET ANNOUNCED

 

ONNOVEMBER 13, PRESIDENT ROBERT KOCHARIAN SIGNED A DECREE APPROVING THE NEWGOVERNMENT OF ARMENIA.  THE FOLLOWINGIS A LIST OF GOAM CABINET MEMBERS:

 

ARAMSARGSIAN, PRIME MINISTER (NOTE: ARAM SARGSIAN IS THE BROTHER OF LATE PM VAZGENSARGSIAN)

SHAHENKARAMANUKIAN, MINISTER CHIEF OF STAFF OF THE CABINET

GAGIKSHAHBAZIAN, MINISTER OF AGRICULTURE

VAHANSHIRKHANIAN, MINISTER OF COORDINATION OF PRODUCTION INFRASTRUCTURE

ROLANDSHAROYAN, MINISTER OF CULTURE, YOUTH, AND SPORTS

VAGHARSHAKHARUTIUNIAN, MINISTER OF DEFENSE

ARMENDARBINIAN, MINISTER OF ECONOMY

EDUARDGHAZARIAN, MINISTER OF EDUCATION AND SCIENCE

DAVIDZADOYAN, MINISTER OF ENERGY

GEVORGVARDANIAN, MINISTER OF ENVIRONMENTAL PROTECTION

LEVONBARKHUDARIAN, MINISTER OF FINANCE

VARDANOSKANIAN, MINISTER OF FOREIGN AFFAIRS

HAIKNIKOGHOSIAN, MINISTER OF HEALTH

KARENJSHMARITIAN, MINISTER OF INDUSTRY AND TRADE

HAIKHARUTIUNIAN, MINISTER OF INTERIOR

DAVIDHARUTIUNIAN, MINISTER OF JUSTICE

KARLOSPETROSIAN, MINISTER OF NATIONAL SECURITY

RUBENTONOYAN, MINISTER OF POST AND TELECOMMUNICATIONS

KHOSROVHARUTIUNIAN, MINISTER OF REGIONAL GOVERNMENT

RAZMIKMARTIROSIAN, MINISTER OF SOCIAL WELFARE

STEPANMNATSAKANIAN, MINISTER OF STATISTICS, STATE REGISTER, AND ANALYSIS

YERVANDZAKHARIAN, MINISTER OF TRANSPORTATION

HRAIRHOVHANNISIAN, MINISTER OF URBAN DEVELOPMENT

 

2)ELECTRICITY DISTRIBUTION COMPANY PRIVATIZATION PLAN CONTINUES

 

FIFTEENPRE‑QUALIFIED INVESTORS, INCLUDING FOUR AMERICAN COMPANIES, WILL BE INVITED TOARMENIA IN JANUARY 2000 TO EXAMINE THE FOUR ELECTRICITY DISTRIBUTION COMPANIESUP FOR SALE.  THE MINISTER OF

ENERGYANNOUNCED THAT THE FOUR COMPANIES WILL BE SOLD IN TWO LOTS: THE YEREVAN ANDNORTHERN DISTRIBUTION COMPANIES, WHICH ARE IN GOOD TECHNICAL CONDITION, AND THECENTRAL AND SOUTHERN NETWORKS, WHICH WERE BADLY DAMAGED BY THE 1988 SPITAKEARTHQUAKE.  INVESTORS WILL BE ALLOWEDTO PURCHASE 51 PERCENT OF EACH LOT, WITH 20 PERCENT TO BE GIVEN TO THE EUROPEANBANK FOR RECONSTRUCTION AND DEVELOPMENT, FIVE PERCENT TO THE COMPANIES'EMPLOYEES, AND 24 PERCENT TO REMAIN IN THE HANDS OF THE GOVERNMENT.  WINNERS OF THE INTERNATIONAL TENDER AREEXPECTED TO BE ANNOUNCED BY THE END OF FEBRUARY.  SOURCES CLOSE TO THE PRIVATIZATION SAY THAT THE GOVERNMENTIS CONSIDERING CLEARING THE COMPANIES' DEBTS IN AN EFFORT TO PREVENT TARIFFHIKES IN THE NEAR FUTURE.  EXPERTSFROM THE WORLD BANK HAVE ESTIMATED THAT AT LEAST USD 1.5 BILLION MUST BE INVESTEDIN THE NEXT TEN YEARS IN ORDER TO UPGRADE THE COUNTRY'S ENERGY SECTOR.

3)IMF CONCERNED ABOUT PACE OF ARMENIAN REFORMS

 

THEIMF ANNOUNCED ON NOVEMBER 5 ITS CONCERN THAT POLICY SETBACKS IN ARMENIA OVERTHE PAST YEAR HAVE CAUSED THE COUNTRY TO LOSE GROUND ON IMPLEMENTING STRUCTURALREFORMS.  IN ITS ANNUAL ASSESSMENTOF THE COUNTRY'S ECONOMY, THE FUND STATED THAT ALTHOUGH IT WAS ENCOURAGED BYARMENIA'S REAFFIRMATION OF ECONOMIC REFORMS, ITS STRATEGY DEPENDS ON THEDEVELOPMENT OF A STABLE ECONOMIC ENVIRONMENT AND THE CONTINUATION OFSTRUCTURAL, LEGAL AND INSTITUTIONAL REFORMS.  THE IMF STRESSED THAT ARMENIA MUST FOCUS ON ITS TAX SYSTEM,STATING THAT THE GOVERNMENT SHOULD RESIST RELYING ON ADVANCE OR NEGOTIATED TAXPAYMENTS AND BE FORCEFUL ON THE ISSUE OF TAX ARREARS.  THE FUND ALSO SAID THAT ARMENIA SHOULD TRY TO CLEAR ITSPUBLIC SPENDING ARREARS (PARTICULARLY PENSIONS) AS SOON AS POSSIBLE ANDIMPLEMENT SPENDING CONTROLS TO AVOID FUTURE ARREARS.

 

4)HOTEL ARMENIA LAYS OFF 100 EMPLOYEES

 

THEHOTEL ARMENIA, ONE OF ARMENIA'S LARGEST PRIVATE ENTERPRISES, LAID OFF 100RETIREMENT‑AGE EMPLOYEES ON NOVEMBER 15. ALL EMPLOYEES WILL RECEIVE SEVERANCE PAY UP TO 50 PERCENT OF THEIRSALARY FOR 24 MONTHS IN ADDITION TO A MONTHLY FOOD GRANT OF 7,800 DRAM (USD14.86) FOR 12 MONTHS.  THE HOTELEMPLOYED 650 PEOPLE AT THE TIME OF ITS PRIVATIZATION LAST YEAR.  THE RECENT LAY‑OFFS WILL LEAVEAPPROXIMATELY 450 EMPLOYEES. FURTHER LAY‑OFFS ARE ANTICIPATED AS THE HOTEL IMPLEMENTS ITSRECONSTRUCTION PLAN.  THE HOTELARMENIA IS OWNED BY A GROUP OF AMERICAN INVESTORS AND IS OPERATED BY MARRIOTT.

 

5)EBRD TO PROVIDE A USD 10 MILLION LOAN TO DEVELOP ARMENIA'S BANKING SECTOR

ACCORDINGTO THE CENTRAL BANK AND THE EUROPEAN BANK OF RECONSTRUCTION AND DEVELOPMENT(EBRD), THE EBRD WILL PROVIDE USD 10 MILLION IN CREDIT GUARANTEES TO ELIGIBLEBANKS IN ORDER TO DEVELOP ARMENIA'S BANKING SECTOR.  ARMAGROBANK, ARMIMPEXBANK, AND THE AGRICULTURAL COOPERATIVEBANK OF ARMENIA HAVE ALREADY BEEN SELECTED TO PARTICIPATE IN THE EBRD PROGRAM,WHOSE GOAL IS TO INCREASE THE AMOUNT OF CAPITAL IN ARMENIAN BANKS TO ENCOURAGELOANS TO THE PRIVATE SECTOR.

 

6)UNIFIED PLASTIC CARD SYSTEM CREATED

 

TENLOCAL COMMERCIAL BANKS AND THE ARMENIAN CENTRAL BANK SIGNED AN AGREEMENT ONNOVEMBER 18 CREATING "ARMENIAN CARD" AND ESTABLISHING A NATIONALDEBIT CARD SYSTEM.  THE NEW SYSTEMWILL ACCEPT BOTH LOCAL AND FOREIGN CREDIT/DEBIT CARDS. PARTICIPATING BANKS MUSTINVEST USD 50,000 IN THE SYSTEM IN ORDER TO PARTICIPATE, TO BE SUPPLEMENTED BYA GRANT FROM USAID TO THE CENTRAL BANK. THERE ARE CURRENTLY 3,197 PLASTIC CARDS IN ARMENIA, MOST OF WHICH AREISSUED BY HSBC.

 

7)GAZPROM EXPRESSES INTEREST IN IRAN‑ARMENIA GAS PIPELINE

 

GAZPROMIS PREPARED TO PROVIDE MATERIALS FOR THE CONSTRUCTION OF AN IRAN‑ARMENIA GASPIPELINE, WHICH IT ESTIMATES WOULD COVER 60 PERCENT OF THE PIPELINE'SCOST.  GAZPROM WOULD SUPPLY THEMATERIALS ONCE A CONSORTIUM IS ESTABLISHED.  THE ARMENIAN GOVERNMENT IS COURTING GAZ DE FRANCE AND THEIRAN NATIONAL GAS COMPANY AS POSSIBLE PARTNERS IN THE PIPELINE PROJECT, BUT THEPARTIES HAVE YET TO REACH AN AGREEMENT.

 

8)TENDER ANNOUNCED FOR THE PREPARATION OF A HRAZDAN HYDRO POWER STATIONINFORMATION PACKAGE

 

THEEUROPEAN BANK FOR RECONSTRUCTION AND DEVELOPMENT (EBRD) AND THE MINISTRY OFENERGY ANNOUNCED A TENDER FOR THE PREPARATION OF A PACKAGE OF INFORMATION ONTHE HRAZDAN HYDRO POWER STATION. THE

GOVERNMENT,WHICH IS PREPARING THE POWER STATION FOR PRIVATIZATION, HOPES THAT THEINFORMATION PACKAGE WILL MAKE HRAZDAN MORE ATTRACTIVE TO FOREIGNINVESTORS.  IT ESTIMATES THE POWERPLANT TO BE WORTH USD 100 MILLION. KPMG ARMENIA, PARSONS ENERGY (U.S.), DEUTSCHE BANK (GERMANY), AND CMSCAMERON MCKENNA (UK) HAVE ALREADY SUBMITTED A JOINT PROPOSAL FOR THEINFORMATION PACKAGE TENDER.

 

9)NATURAL RESOURCES IN SOUTHERN ARMENIA TO BE EXPLOITED

 

THEGOVERNMENT OF ARMENIA PLANS TO REHABILITATE AND DEVELOP THE MINING ANDMETALLURGY INDUSTRY THROUGH A SERIES OF TENDERS.  THE PROGRAM WILL FOCUS ON INDUSTRIAL SITES LOCATED IN THESOUTHERN PART OF THE COUNTRY AND INCLUDES ORE EXTRACTION IN THE KAJARAN COPPER‑MOLYBDENUMMINE, THE SHAHUMIAN GOLD‑POLYMETALLIC MINE, AND THE AGARAK COPPER‑MOLYBDENUMMINE.  THE NEXT STAGE OF THEPROGRAM WILL BE THE EXPLOITATION OF THREE NEW PRECIOUS AND NON‑FERROUS METALMINES IN ZANGEZUR.

 

ACHINESE COMPANY, MCC, HAS SUBMITTED A PROPOSAL TO THE GOVERNMENT WHEREBY THECOMPANY WOULD INVEST USD 300 MILLION TO DEVELOP THREE NEW OIL FIELDS INZANGEZUR.  THE PROPOSAL ALSOINCLUDES THE CONSTRUCTION OF TWO METALLURGIC PLANTS TO PRODUCE REFINED COPPERAND MOLYBDENUM CONCENTRATE.

 

10)TENSIONS RISE BETWEEN GOVERNMENT AND ARMENIA'S TELECOM

MONOPOLY

 

TENSIONSCONTINUE TO RISE BETWEEN THE GOVERNMENT AND ARMENTEL AS THE COMPANY ANNOUNCEDTHAT IT PLANS TO CHARGE CUSTOMERS PER‑MINUTE FEES.  MINISTER OF POSTAL SERVICES AND TELECOMMUNICATIONS, RUBENTONOYAN, RESPONDED THAT ARMENTEL SHOULD NOT INCREASE RATES BEFORE UPGRADING THECOUNTRY'S TELEPHONE NETWORK. ARMENTEL SAYS THAT IT IS FREE TO SET PHONE TARIFFS UNDER THE TERMS OFITS 1998 PRIVATIZATION CONTRACT. IN REPLY, THE GOVERNMENT ARGUES THAT IT HAS THE RIGHT TO VETO ANY TARIFFHIKES.  THE GOVERNMENT ALSO BLASTEDARMENTEL FOR NOT INVESTING USD 100 MILLION AS IS SPECIFIED UNDER THE COMPANY'SPRIVATIZATION COMMITMENTS. ARMENTEL ASSERTED THAT IT HAS SO FAR INVESTED USD 25 MILLION THIS YEARAND WILL MEET THE USD 100 MILLION COMMITMENT BY THE DEADLINE.

 

11)PARLIAMENT DRAFTS ANTI‑CORRUPTION LAW

 

ANATIONAL ASSEMBLY COMMITTEE HAS DRAFTED AN ANTI‑CORRUPTION LAW THAT IT WILLSOON SUBMIT FOR CONSIDERATION BY THE FULL PARLIAMENT.  THE DRAFT PROPOSES ESTABLISHING AN ANTI‑CORRUPTIONCOMMISSION WITHIN THE NATIONAL ASSEMBLY. THE LAW ALSO INCLUDES AN ANTI‑NEPOTISM CLAUSE, WHICH WOULD MAKE ITILLEGAL FOR "PARENTS, SPOUSES, ETC." OF GOVERNMENT EMPLOYEES TO WORKDIRECTLY FOR THEIR RELATIVES.

 

12)GOVERNMENT TO INCREASE REVENUE COLLECTION

 

THEARMENIAN GOVERNMENT ANNOUNCED THE ADOPTION OF URGENT MEASURES TO ENSURE ITMEETS ITS REVENUE TARGETS FOR THE YEAR, ALTHOUGH IT HAS NOT MADE PUBLICSPECIFICALLY WHAT THESE MEASURES WILL BE. THE GOVERNMENT MUST RAISE AN ADDITIONAL USD 67 MILLION TO MEET ITS 1999TARGET OF 191 BILLION DRAMS (USD 364 MILLION).  MEETING THE TARGET IS ONE OF THE MAIN CONDITIONS NECESSARYTO RELEASE THE FINAL INSTALLMENT OF A USD 23.5 MILLION WORLD BANK LOAN.  THE MINISTRY OF STATE REVENUE ADMITTEDTHAT THE RECENT INCREASE IN EXCISE DUTIES ON CIGARETTES AND GASOLINE HASBROUGHT LESS REVENUE THAN HAD BEEN ANTICIPATED.