US embassy cable - 05YEREVAN483

UNCLAS SECTION 01 OF 04 YEREVAN 000483 
 
SIPDIS 
 
COMMERCE FOR 3150/PBRADLEY/BSMITH 
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EMBASSIES - PLEASE PASS FCS 
DEPT FOR EUR/CACEN, EB/CBA 
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PASS TDA-STEIN, OPIC, EXIM-TUMMINIA/PANARO 
DOE FOR CHARLES WASHINGTON 
 
E.O. 12958: N/A 
TAGS: KTDB, BBSR, BEXP, BTIO, AM 
SUBJECT: (IMI) BRIEF OVERVIEW OF ARMENIA'S ENERGY 
SECTOR 
 
 
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SUMMARY 
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1.  This cable gives an overview of Armenia's energy 
sector.  It describes recent industry developments as 
well as provides key contacts.  End Summary. 
 
2.  Armenia has no natural fossil fuel energy 
resources, although some small foreign firms have 
exploration licenses.  Nevertheless, Armenia has 
inherited surplus electricity generation capacity and 
regularly exports electricity to Georgia and Iran. 
Since 2002, the government of Armenia has privatized 
the electricity distribution network and a large share 
of Armenia's generation capacity.  As part of the 
privatization process, the Armenian government recently 
dissolved ArmEnergo, once the state-owned single buyer 
and seller of midstream electricity and de facto 
regulator of the industry.  Now generating companies 
contract directly with the distributor, subject to the 
regulatory oversight of the Public Services Regulatory 
Commission. 
 
3.  Armenia's electricity generation infrastructure 
comprises thermal, hydro, and nuclear power plants. 
The country's installed generation capacity is 3,196 
megawatts (MW).  In 2004 Armenia produced 6 billion 
kWhs of electricity. 
 
4.  The Armenian Nuclear Power Plant's (ANPP) capacity 
is 408 MW:  in 2004 it generated nearly 40 percent of 
Armenia's total electricity production.  The current 
average annual tariff of electricity produced by ANPP 
is USD 0.015 per kWh.  The plant was shut down in 1989 
due to seismic and safety fears following the 
devastating 1988 earthquake.  After some improvements 
Unit 2 was reopened in 1995 and provides at least one- 
third of Armenia's annual electric power.  The U.S. 
Government, the EU, the UK, France, and Russia are 
financing different programs to increase ANPP's safety 
level.  Total foreign assistance to the plant is 
approximately USD 200 million.  In 2003, Russian energy 
firm RAO-UES and Russian nuclear power holding company 
RosEnergoAtom took over the ANPP's financial management 
(through a subsidiary company Inter RAO-UES) in part to 
guarantee repayment of the plant's arrears for past 
deliveries of nuclear fuel.  Pursuant to Armenia's 
Nuclear Law, the Government of Armenia still owns the 
plant and manages the plant's physical operation. 
 
5.  Armenia's thermal power plants have an installed 
capacity of 1,756 MW.  In 2004 the country's thermal 
power plants generated 26 percent of Armenia's total 
electricity production.  There are three major thermal 
plants: 
 
-- Hrazdan Thermal Power Plant (HTPP), located in 
Kotayk province, has an installed capacity of 1,100 MW. 
The average tariff for the electricity produced by the 
HTPP is USD 0.038 per KWH.  The Armenian government 
privatized Hrazdan TPP in a 2003 debt for equity swap 
with Russian Federation.  Russia's Federal Agency of 
Federal Property Management established a locally 
registered company, Hrazdan Energy Organization, to 
manage the plant.  The plant's incomplete Unit 5 
remains the property of the Armenian Government.  In 
1993 EBRD lent the Armenian government USD 57.4 million 
to partially fund its construction, but the unit 
remains incomplete due to lack of financing. 
Currently, the Government of Armenia is considering 
proposals from foreign power companies to complete Unit 
5, which needs investment of about USD 140 million. 
 
-- Vanadzor TPP in Lori province has 96 MW installed 
capacity.  In 1999 the Government of Armenia sold the 
Vanadzor TPP along with the adjacent Vanadzor Chemical 
Plant to Russian company Zakneftegazstroy-Prometey, 
which is owned by Moscow-based Diaspora Armenian Senik 
Gevorgyan.  Currently the TPP is in operable condition, 
but rests idle because its operation is not cost 
effective. 
 
-- Yerevan Thermal Power Plant has capacity of 550 MW. 
The average tariff for the electricity produced by the 
Yerevan plant is USD 0.04 per KWH.  The Ministry of 
Energy manages the Yerevan TPP and there are no plans 
to privatize the plant in the near future.  The 
Government of Japan, through the Japan Bank for 
International Cooperation (JBIC), will lend the 
Armenian government USD 165 million to build a new 208 
MW unit at the Yerevan TPP.  We expect that the 
Armenian Government will announce a tender to select a 
contractor to implement this project in early 2006. 
 
5.  Armenia's hydroelectric plants have an installed 
capacity of 1,032 MW, and supplied 34 percent of 
Armenia's electricity in 2004.  Hydro Power capacities 
include: 
 
-- The Sevan-Hrazdan Cascade (556 MW) comprises six 
hydro power plants along the Hrazdan River flowing from 
Lake Sevan to Yerevan.  The average tariff for the 
electricity produced by the Sevan-Hrazdan Cascade is 
USD 0.024 per kWh.  The Armenian government sold the 
plants to Russia's RAO-UES in 2003 in exchange the 
latter's assumption of USD 43 million in energy 
arrears.  Germany's KfW (Kreditanstalt fuer 
Wiederaufbau) has financed the refurbishment of one of 
the six plants, the Kanaker HPP, and is planning to 
participate in the upgrade generating facilities of the 
final plant in the cascade, the Yerevan HPP. 
 
-- The Vorotan Cascade (400 MW) includes three large 
HPPs on the Vorotan River in Syunik province.  The 
Vorotan Cascade was one of the last facilities to be 
built under the Soviet regime and has relatively modern 
equipment.  Armenia's Ministry of Energy manages 
Vorotan Cascade's operations and has plans to privatize 
the plants in the near future.  The Government of 
Armenia will determine the timeframe of the cascade's 
privatization in 2006.  The cascade's proximity to 
large mining enterprises in the region makes it 
attractive to potential investors.  The average tariff 
for the electricity produced by the Vorotan Cascade is 
USD 0.024 per KWH. 
 
-- Armenia's small HPPs with a total installed capacity 
of 76 MW include Dzoraget HPP (26 MW) and more than 20 
small HPPs.  All of Armenia's small HPPs are 
privatized.  To encourage a rapid development of this 
segment the Government of Armenia creates favorable 
conditions by setting higher tariffs for electricity 
obtained from small HPPs than from larger HPPs.  The 
maximum rate per one kWh the Regulatory Commission sets 
is USD 0.054, including VAT. 
 
6.  Armenia privatized the Electricity Network of 
Armenia (ElNetArm), its electricity distribution 
network in 2002, selling it to U.K.-registered Midland 
Resources.  The company now manages the country's 
entire electricity distribution network.  In late 2004, 
a Japanese development bank JBIC lent the distributor 
USD 38 million to finance the rehabilitation of thirty- 
three 110 kilovolt (kV) substations as well as the 
procurement and installation of 150,000 electronic 
power meters to measure household consumption. 
ElNetArm recently developed a three-year business 
development envisaging investments of USD 50 million. 
The plan is subject to the approval of the Public 
Services Regulatory Commission.  According to local 
press reports, Midland Resources is considering 
proposals from several foreign companies to buy 
Midland's share in ElNetArm.  Any sale of ElNetArm 
requires the approval of the Ministry of Energy and the 
Public Services Regulatory Commission. 
 
7.  Armenia's high-voltage power transmission system 
consists of 1,323 km of 220 kilovolt (kV) lines, 164 km 
of 330 kV lines, and 3,146 km of 110 kV lines. 
Armenia's high-voltage power lines are not subject to 
privatization and are controlled by the Ministry of 
Energy through the High-Voltage Electric Network Closed 
Joint-Stock Company.  As part of the Trans-Caucasian 
Power Pool, Armenia is connected via operational 
transmission lines with neighboring countries, 
including with Georgia (two 110 kV lines) and Iran (one 
220 kV line, the second high-voltage power line was 
constructed in 2004, the third line's construction to 
be started in 2005).  Transmission lines with 
Azerbaijan (one 330 kV line), Azerbaijan's exclave 
territory Nakhichevan (a 220 kV line and two 110 kV 
lines) and Turkey are out of use because of political 
conflicts in the region.  The transmission line with 
Turkey is in operable condition while the lines with 
Azerbaijan would need to be reconstructed.  The German 
KfW Development Bank and the World Bank provided loans 
for the reconstruction of the network's substations 
throughout the country. 
 
8.  The Ministry of Energy controls the Power System 
Operator Joint-Stock Company that serves as the single 
operator and dispatch center for Armenia's energy 
system.  The company is modernizing its communication 
system with financial assistance from the Japanese 
Government. 
 
9.  Armenia's energy-related legislation includes the 
Energy Law, the Law on Foreign Investment, the Law on 
Licensing, and the Law on the Public Services 
Regulatory Body.  The Law on Energy regulates 
relationships between the government bodies, legal 
entities operating in the sector under the Law and 
consumers of electricity, thermal energy and natural 
gas.  The Law does not deal with the oil sector. 
 
10.  The energy sector's main regulatory body is the 
Public Services Regulatory Commission.  Among its 
responsibilities are setting of the regulated tariffs 
for electrical and thermal energy and natural gas, 
transmission, distribution in the energy sector, system 
operator, services provided in the energy market.  To 
start operations in the energy sector a legal entity 
should get a license.  Under the Energy law the Public 
Services Regulatory Commission issues licenses for 
generation, import, export, transmission and 
distribution of electricity, heat, and the natural gas. 
 
11.  The Energy law is available at www.rcnm.am. 
Armenia's energy-related legislation materials can also 
be obtained from Irtek CJSC, a Yerevan-based legal 
information center at: 
 
36 Abovyan Street, 
Yerevan 375009 
Armenia 
Tel: (374-1) 527-950 
Fax: (374-1) 569-085 
E-mail: info@irtek.am 
Website: www.irtek.am 
 
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KEY CONTACTS 
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Ministry of Energy 
2nd Government Building 
Republic Square 
Yerevan 375010 
Tel: (374-1) 521-964 
Fax: (374-1) 526-365 
E-mail: minenergy@minenergy.am 
Website: www.minenergy.am 
 
Public Services Regulatory Commission 
22 Saryan Street 
Yerevan 375002 
Tel: (374-1) 522-522 
Fax: (374-1) 525-583 
E-mail: rcnm@rcnm.am 
Website: www.rcnm.am 
Nuclear and Radiation Safety Center (Armenian Nuclear 
Regulatory Authority) under the Ministry of Nature 
Protection 
4 Tigran Mets Street 
Yerevan 375010 
Tel: (374-1) 543-991 
Fax: (374-1) 581-962 
E-mail: info@anra.am 
Website: www.anra.am 
 
Electric Network of Armenia CJSC 
Nork 
127 Armenakyan Street 
Yerevan 375047 
Tel: (374-1) 542-163 
Fax: (374-1) 543-683 
E-mail: elnet@arminco.com 
 
High-Voltage Electric Network CJSC 
1 Zoravar Andraniki Street 
Yerevan 375114 
Tel: (374-1) 720-010 
Fax: (374-1) 720-121 
E-mail: hvn@arminco.com 
 
Armenian Nuclear Power Plant CJSC 
Metsamor 
Armavir province 377766 
Tel: (374-1) 288-250 
Fax: (374-1) 281-825 
E-mail: anpp@anpp.am 
Website: www.anpp.am 
 
Power System Operator CJSC 
27 Abovyan Street 
Yerevan 375009 
Tel: (374-1) 592-960 
Fax: (374-1) 524-725 
E-mail: arm_eso@freenet.am 
 
International Energy Corporation CJSC 
10B Adontsi Street 
Yerevan 375014 
Tel: (374-1) 245-099 
Fax: (374-1) 245-199 
E-mail: mailmek@mek.am 
 
Vorotan Cascade of Hydroelectric 
Power Plants CJSC 
2 Grigor Tatevatsi Street 
Goris 
Syunik province 377830 
Tel: (374-84) 22-758 
Fax: (374-84) 26-796 
 
EVANS