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Business & Economics Pipeline Perks For Russia In Armenia-Iran Energ

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  • Business & Economics Pipeline Perks For Russia In Armenia-Iran Energ

    BUSINESS & ECONOMICS PIPELINE PERKS FOR RUSSIA IN ARMENIA-IRAN ENERGY DEAL

    Eurasianet
    Samvel Martirosyan 12/21/04

    Iran has moved closer to gaining a strategic foothold in Caucasian
    energy markets with the start of work on a gas pipeline to Armenia
    that has been heralded by Yerevan as bringing "definite changes in the
    region." The project has the potential to undercut Russia's control
    of Armenia's energy supply, yet two new gas projects could act as
    potential deal sweeteners for this longtime Armenian ally. Plans were
    recently announced for an increase in Armenian orders for Russian
    gas and a possible role in the Iranian pipeline project for Russian
    energy giant Gazprom.

    Construction on Armenia's section of the 142-kilometer gas pipeline
    began on November 30, with $30 million in costs for the 42-kilometer
    strip from the Armenian border town of Agarak to Kajaran, south of
    Yerevan, picked up by the Iranian Export and Development Bank. Upon
    completion in late 2006, the pipeline will supply the tiny South
    Caucasus state with 36 billion cubic meters of Iranian gas over the
    next 20 years. Gas from Turkmenistan is also scheduled to be delivered
    to Armenia via the pipeline.

    At an official ceremony to mark the project's debut, Armenian Deputy
    Prime Minister Andranik Margarian stated that the pipeline, in the
    works since 1992, would bring economic benefits to Armenia as well
    as foster regional stability. "This project has been implemented
    throughout Armenia's political and economic sufferings," Armenian
    media reported Margarian as saying. "In Armenia's years of hardship,
    Iran has stretched out its hand to help us."

    Expanding Armenia's energy sources is a critical goal for the
    administration of President Robert Kocharian - for both economic and
    political reasons. Chronic energy shortages contributed to much of
    the country's economic decline after the collapse of the Soviet Union,
    and Armenia's economic woes continue to attract the criticism of the
    country's opposition. Speaking to reporters about Armenia's energy
    deal with Iran, Kocharian commented during a December 2 visit by
    Iranian Energy Minister Habibollah Bitaraf that "[w]e are ready to
    do everything possible to support the current level of cooperation,"
    according to the Russian news agency Interfax.

    In exchange for the gas, Armenia will eventually deliver up to
    1,000 megawatts of electricity to Iran with the construction of two
    high-voltage power lines between the countries. Additional electricity
    projects are also in the works. In 2005 or 2006 Armenia hopes to
    start construction on two hydropower plants on the banks of the Arax
    River between Armenia and Iran, according to Margarian.

    Oil could reinforce Tehran's ties with Yerevan still further. At a
    December 4 meeting between Armenian Defense Minister Serzh Sarkisian
    and Iran's Armenian Ambassador Alirza Hagigian, plans were discussed
    for construction of a 60-kilometer oil pipeline from the Iranian town
    of Julfa to the Armenian border town of Meghri.

    Geopolitics, though, rather than the attractions of the Armenian energy
    market, appears to drive much of Iran's push for partnership. With
    American troops stationed in neighboring Afghanistan and Iraq and
    Iran's nuclear energy program under intense international scrutiny,
    the country's ruling clerics have taken steps to assure the outside
    world that the Islamic Republic is a force for stability in the
    region. Iranian President Mohammad Khatami's September 2004 visit
    to Armenia, a close US ally, reinforced that campaign with a "good
    neighbor" message that "Iran is interested in peace and stability in
    the South Caucasus."

    But in drawing closer to Iran, Yerevan has risked alienating another
    longtime ally - Russia. Though Russian Deputy Prime Minister Boris
    Alyoshin assured reporters in Yerevan earlier this year that the
    pipeline deal with Iran would only provide additional business for
    Russian-operated electricity stations in Armenia, the deal has been
    scrutinized with some trepidation. The Russian company United Energy
    Systems controls 40 percent of Armenia's electricity generation
    facilities, while heavy hitters Gazprom and Itera control 55 percent
    of ArmRogazprom, currently Armenia's sole natural gas supplier.

    When the Iranian pipeline is complete, however, Armenia will no longer
    need to depend solely on Russia for its natural gas needs. In Yerevan,
    Kremlin concerns about the prospect of Armenia providing a conduit
    for Iranian gas to Europe, a key Russian market, are widely believed
    to have resulted in a reduction of the pipeline's size to a width
    too narrow for exports.

    Yet Russian energy companies have not been idle in defending their
    interests. The Russian news agency Interfax reported an unidentified
    Armenian government source as saying on December 8 that Gazprom may
    be invited to build and repair one part of the Armenian-Iranian gas
    pipeline, between Kadjaran and Ararat, at a cost of $90 million. As
    payment for its work, Gazprom would receive the No. 5 generating unit
    at the Razdan power plant, Armeniaâ~@~Ys largest heating and power
    plant, which supplies 20 percent of the countryâ~@~Ys electricity
    needs. Armenian President Robert Kocharian had earlier dismissed
    reports of such a deal.

    Still other sweeteners are in the works. On December 11, ArmRogazprom
    CEO and General Director Karen Karapetyan announced plans to increase
    gas supplies to Armenia by roughly 31 percent during 2005 to some
    1.6-1.7 billion cubic meters. A $27 million expansion of Armenia's
    gas pipeline from Russia is planned to handle the increased flow. "I
    am convinced that the problem of Armenia's energy security will be
    solved soon," the Russian news agency Novosti reported Karapetyan as
    saying, "given the forthcoming opening of the alternative Iran-Armenia
    gas pipeline."

    For now, the government line out of Yerevan is that what benefits Iran
    benefits Russia. At a May 13-15 summit in Moscow with Russian President
    Vladimir Putin, Kocharian took pains to stress that the pipeline deal
    with Iran would not damage Russia's own energy interests in Armenia
    or result in a fall-off in Armenian orders for Russian gas. Gazprom,
    Itera and United Energy Systems will all collect "major dividends from
    the deal," Kocharian said, Novosti reported. "They will benefit, too."

    Editor's Note: Samvel Martirosyan is a Yerevan-based journalist and
    political analyst.

    --Boundary_(ID_RDC0vqePYfecS/w/Vx5AQA)--
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