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Armenian paper questions terms of gas pipeline loan agreement with Iran
Aykakan Zhamanak, Yerevan
11 Sep 04
Two out of three contracts signed during Iranian President Mohammad
Khatami's two-day official visit to Armenia are related to the
Iran-Armenia gas pipeline. A contract signed by Armenian Energy
Minister Armen Movsisyan and the director of the Export Development
Bank of Iran, Noruz Kohzadi, deals with the financing of construction
of the Megri-Kadzharan section of the Iran-Armenia gas pipeline. The
second contract was signed by the director of the Yerevan high-voltage
network, Saak Abraamyan, and director of the Iranian company Sanir
Alireza Kadhoda'i to appoint a contractor for the above construction
project under the agreed financing. That is, the bank will give a
credit and Sanir will lay the Megri-Kadzharan section of the gas
pipeline. The credit will be paid off by Armenia.
At first sight, everything seems all right. But one look at the terms
of the loan results in quite a different impression. The bank gives a
30m-dollar loan for a period of seven and half years at an interest
rate of 5 per cent. That is, the sum which should be paid off by
Armenia, is 41m dollars. Is this an expensive loan or not?
During the Armenian prime minister's visit to Moscow [in mid-July],
where an option of Russian financing for the gas pipeline construction
was also discussed, the proposed terms were much more favourable: an
interest rate of 1 per cent and a payback period of 15 years. These
terms would have been the best. But we did not manage to enter into
a contract with the Russian side.
Quite possibly, the signed contract is a "reward" to the Iranian
side for finally reaching an agreement which had been delayed for 10
years. But in this case, if new financing organizations come forward,
they will undoubtedly take into account the terms which are at the
basis of the contract made with the Iranian bank. However, this is
not the most interesting part.
The point is that after building the Megri-Kadzharan section of
the pipeline, Iranian gas can flow through Armenia's existing and
functioning network. But in this case only 300m cu.m. of gas will
be able to enter Armenia annually. In order to reach the gas volume
envisaged in the contract - 2.2bn cu.m. annually - it is necessary
to get an additional 90m dollars and to build one more pipeline in
Armenia. A new pipeline is necessary for the efficient use of the
existing one.
In this case our task is becoming more difficult in the sense of
finding cheaper credits. A potential investor would have an extra
trump card on their hands: knowing that for paying off 30m dollars
that are already spent Armenia needs 90m US dollars, naturally the
investor will come up with tougher terms.
Certainly, it is not ruled out that the loan received from the
Iranian bank may be paid off with electricity. This would make the
loan noticeably cheaper. But not as cheaper as an international
tender would have done. Incidentally, some of our officials were
earlier speaking about the need for such a tender. But as we know,
this most fruitful method was not applied in Armenia.
Aykakan Zhamanak, Yerevan
11 Sep 04
Two out of three contracts signed during Iranian President Mohammad
Khatami's two-day official visit to Armenia are related to the
Iran-Armenia gas pipeline. A contract signed by Armenian Energy
Minister Armen Movsisyan and the director of the Export Development
Bank of Iran, Noruz Kohzadi, deals with the financing of construction
of the Megri-Kadzharan section of the Iran-Armenia gas pipeline. The
second contract was signed by the director of the Yerevan high-voltage
network, Saak Abraamyan, and director of the Iranian company Sanir
Alireza Kadhoda'i to appoint a contractor for the above construction
project under the agreed financing. That is, the bank will give a
credit and Sanir will lay the Megri-Kadzharan section of the gas
pipeline. The credit will be paid off by Armenia.
At first sight, everything seems all right. But one look at the terms
of the loan results in quite a different impression. The bank gives a
30m-dollar loan for a period of seven and half years at an interest
rate of 5 per cent. That is, the sum which should be paid off by
Armenia, is 41m dollars. Is this an expensive loan or not?
During the Armenian prime minister's visit to Moscow [in mid-July],
where an option of Russian financing for the gas pipeline construction
was also discussed, the proposed terms were much more favourable: an
interest rate of 1 per cent and a payback period of 15 years. These
terms would have been the best. But we did not manage to enter into
a contract with the Russian side.
Quite possibly, the signed contract is a "reward" to the Iranian
side for finally reaching an agreement which had been delayed for 10
years. But in this case, if new financing organizations come forward,
they will undoubtedly take into account the terms which are at the
basis of the contract made with the Iranian bank. However, this is
not the most interesting part.
The point is that after building the Megri-Kadzharan section of
the pipeline, Iranian gas can flow through Armenia's existing and
functioning network. But in this case only 300m cu.m. of gas will
be able to enter Armenia annually. In order to reach the gas volume
envisaged in the contract - 2.2bn cu.m. annually - it is necessary
to get an additional 90m dollars and to build one more pipeline in
Armenia. A new pipeline is necessary for the efficient use of the
existing one.
In this case our task is becoming more difficult in the sense of
finding cheaper credits. A potential investor would have an extra
trump card on their hands: knowing that for paying off 30m dollars
that are already spent Armenia needs 90m US dollars, naturally the
investor will come up with tougher terms.
Certainly, it is not ruled out that the loan received from the
Iranian bank may be paid off with electricity. This would make the
loan noticeably cheaper. But not as cheaper as an international
tender would have done. Incidentally, some of our officials were
earlier speaking about the need for such a tender. But as we know,
this most fruitful method was not applied in Armenia.