US embassy cable - 05YEREVAN1986

C O N F I D E N T I A L SECTION 01 OF 02 YEREVAN 001986 
 
SIPDIS 
 
E.O. 12958: DECL: 11/08/2015 
TAGS: EAIR, ECON, ETRD, AM 
SUBJECT: MONOPOLY CONTROL OF JET FUEL IMPORTS UNDERMINING 
ARMENIA'S AVIATION INDUSTRY 
 
REF: A) 03 YEREVAN 2975 B) 04 YEREVAN 2449 
 
Classified By: DCM A.F. Godfrey for 1.4 (b,d). 
 
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SUMMARY 
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1. (SBU) Armenia is currently suffering from a severe jet 
fuel shortage which is undermining the profitability of the 
aviation sector and may have a long-term negative impact on 
Armenia's competitiveness.  According to Executive Director 
of Armenia International Airports (AIA) Juan Pablo Gechijyan, 
the shortage is a result of Mika Ltd.'s de facto monopoly on 
jet fuel imports to Armenia.  The manager of Mika Ltd., the 
only licensed jet fuel provider in Armenia, is an influential 
businessman with strong ties to the GOAM (ref A).  End 
Summary. 
 
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SEVERE AIRCRAFT FUEL SHORTAGES 
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2. (SBU) We recently met with Executive Director of Armenia 
International Airports (AIA) Juan Pablo Gechijyan to discuss 
local press reports about shortages of aviation fuel in 
Armenia.  AIA is a private company that has managed Zvartnots 
Airport under a 30-year concession agreement since 2002. 
According to Gechijyan, the fuel shortage is severe and stems 
from local supplier Mika Ltd's failure to meet the terms of 
its contract with AIA.  AIA only received 2500 tons of the 
17,000 tons of fuel Mika Ltd. was contracted to deliver 
between August and October.  As a result, AIA has officially 
limited fuel sales to one ton per flight.  Gechijyan told us, 
however, that certain international carriers are permitted to 
purchase more than the one ton limit.  Country Manager for 
Austrian Airlines Werner J. Kruger confirmed that Austrian 
Airlines flights can normally purchase between two and three 
tons, but, he said, this is not sufficient for the flight 
between Yerevan and Vienna.  Kruger told us that Austrian 
Airlines is currently using larger planes than normal to 
carry supplemental fuel in from Vienna to Yerevan.  If this 
situation continues, Kruger said, Austrian Airlines may have 
to limit flights on this route.  British Airways (BA) Sales 
Manager Simon Avekian confirmed that BA is also concerned 
about the monopoly control of jet fuel imports in Armenia, 
but explained that the situation is less serious for BA than 
for other airlines because BA flights stop over in Yerevan on 
the way to Central Asia where they refuel. 
 
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AIA TRYING TO DIVERSIFY SUPPLY IN THE FACE OF A MONOPOLY 
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3. (C) AIA plans to import fuel from airports managed by its 
parent holding company to supplement its current reserves. 
It is also negotiating with two other suppliers with 
experience in the Caucasus.  Gechijyan said he would prefer 
to work with a major U.S. or European supplier if possible. 
He told us he had approached representatives from British 
Petroleum (BP), which is active in Georgia, to inquire about 
their ability to provide fuel and was told that, due to an 
informal agreement between BP and the Government of 
Azerbaijan, BP could not sell any fuel products to Armenia. 
Even if he is able to locate an alternate supplier, Gechijyan 
is worried that the GOAM will not allow the supplier to enter 
the market because of the close relationship between the GOAM 
and the de facto monopoly supplier, Mika Ltd. 
 
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MIKA LTD. THE LOCAL MONOPOLY 
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4. (C) According to Gechijyan, while there is no official 
monopoly on jet fuel imports, the only licensed supplier in 
Armenia is Mika Ltd.  Mika Ltd. is managed by Mikhael 
Bagdasarov, who also owns the local airline Armavia, Mika 
Cement, a wheat importing business and the Mika gas station 
chain.  He is reportedly a very close friend of the Minister 
of Defense (ref A).  Both Gechijyan and Kruger speculated 
that Mika Ltd. is in financial trouble and, therefore, cannot 
secure fuel from its suppliers outside of Armenia to honor 
its contract with AIA. 
 
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COMMENT: 
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5. (SBU) While AIA will likely find a way to resolve this 
current shortage, the on-going problem of a lack of diversity 
of supply remains.  Mika Ltd.'s de facto monopoly control 
over the jet fuel industry is damaging the competitiveness of 
the aviation sector in Armenia.  This situation demonstrates 
how the monopoly control by well-connected oligarchs of a key 
support industry, such as jet fuel, undermines Armenia's 
potential for economic growth. 
EVANS