Tweet
HOW KARABAKH DEVASTATES RUSSIA
Vestnik Kavkaza, Russia
Aug 15 2014
15 August 2014 - 10:55am
By Yuri Glushkov exclusively for Vestnik Kavkaza
The trilateral talks of Presidents Vladimir Putin (Russia), Ilham
Aliyev (Azerbaijan) and Serzh Sargsyan (Armenia) in Sochi have not
been a breakthrough and only reduced military confrontation. No
one expected a breakthrough from Russian peacekeeping anyway. The
Russian president focused on pacifying the sides and demonstrating
the domination of Moscow in mediating efforts in the South Caucasus.
France had been trying to organize a meeting of the Azerbaijani and
Armenian presidents as a co-chair of the OSCE Minsk Group since
mid-May. Washington tried to orient the meeting toward September
within the framework of a new session of the UN General Assembly. The
situation on the Karabakh front in mid-July intensified, Moscow
gathered Aliyev and Sargsyan for a meeting with Putin and prevented
a new war.
Russia may guarantee peace in Karabakh
What is the secret of such effective Russian diplomacy? Putin's
rating in Baku and Yerevan is as high as in Russia. Armenians and
Azerbaijanis understand that countries thousands of kilometers away
from the South Caucasus cannot guarantee peace on their lands. Both
capitals say that the key to resolving the conflict is in Moscow. But
in this situation, additional confrontation in the South Caucasus is
absolutely out of place for Russia in the light of the Ukraine crisis.
Since the active peacekeeping of Dmitry Medvedev during his presidency,
the sides got used to top-level mediation of Russia, Putin's move
was natural and logical for them. Russia does need long-term peace
in Karabakh and full-fledged regional economic cooperation.
Some media reported that Russia took advantage of the violence on
the Armenian-Azerbaijani border in July-August. Moscow was allegedly
trying to add fuel to the conflict to demonstrate the fragility of
energy communication to the West. Most of such ideas are spread by
Armenian mass media opposed to Armenia joining the Eurasian Union.
In reality, Russia is the party most interested in peace on its
borders, hence the determination and diplomatic pressure to calm the
sides. Pragmatism and common sense are why Russia wants to keep peace
and settle the conflict.
How much does Russia lose in Armenia?
It is no secret that the Armenian economy is devastated. It is in the
deepest crisis, isolated from the majority of regional trade because
of the unresolved Karabakh conflict. Armenia exported products worth
$1.5 billion and imported $4.5 billion worth in 2013, a red ink of
$3 billion. The same tendency can be seen this year.
Russia is the main sponsor of Armenia. Over $1.6 billion of cash
transfers from Armenians working in Russia were made in 2013. Only
$82.1 million were transferred from the U.S., about $250 million from
other countries. The sum of about $2 billion could cover only part of
the deficit. Other funds were received from Russia as a loan worth
$1 billion. Everyone understands that the Russian pocket is finite
and cannot patch the budget of another state, even an ally, for long.
Moreover, there is no payoff from invested money while the situation
in Russia is not very positive.
Assisting Armenia in joining the Customs Union and the Eurasian
Economic Union, is a complicated mission for Russia because Armenia
has no border with it. Armenia's strives to join the structures
add pressure to Armenian economy and Russian business that controls
about half of Armenian economic potential. So, speaking of failure
of the Armenian economy, it is necessary to mention losses Russian
companies suffer and missing opportunities for profit in the format
of mass projects realized in the South Caucasus Region.
What does Russia have in Armenia
Russia's Gazprom is not the only supplier of gas in Armenia (over 1
billion cubic meters a year). Its subsidiary ArmRosgazprom controls
its distribution in the country, largest power plants producing about
80% of electricity.
Russia's largest state company Rosneft is in fact a monopolist in
supplying Armenia with petroleum products (about 350,000 tons a year),
considering that customs fees for Russian fuel were lifted in December
2013. Rosneft owns the control package of shares in Armenia's largest
chemical facility Nairit. The Armenian industrial giant specializes in
production of synthetic rubber. The alliance of Rosneft and Italy's
Pirelli should revive production. In December 2013, Rosneft, Pirelli
Tyre Armenia and Rosneft-Armenia signed a memorandum to form a joint
venture to produce rubber at Nairit. The ambitious project requires
$400 million of investments.
Mars is the largest Armenia radio-electronic enterprises built in the
Soviet times. Russia took control over it in 2002 as a payment for
the state debt. Mars specializes in development and implementation
of electronic equipment, production of items from non-ferrous metals
and plastic. Its assets are controlled by Sintroniks, a high-tech
concern of Sistema. Sintroniks Armenia, a subsidiary registered
in September 2009, manages other assets Sintroniks took control of
from Rosimushchestvo: the Yerevan Science and Research Institute of
Automatized Control Systems, NPPM, management of the free economic
zone they are located on.
Armenal is the only manufacturer of aluminum foil in the Caucasus and
Central Asia. It has been a property of Rusal since 2003 and became
one of the most eco-friendly aluminum factories of the world. Russia
is represented in the transportation sector: the Russian Railways got
concession of the Armenian Railway in 2008, it is still managed by
the South-Caucasus Railway. Investments of the Russian Railways total
$250 million. The South Caucasus Railway became a self-sufficient
enterprise only a few years ago. Borders of Turkey and Azerbaijan
closed for Armenia reduce freighting. In reality, the South Caucasus
Railway only freights to Georgia, where Ports Poti and Batumi can be
used to transport goods to Armenia. About 80% of Armenian products
pass Georgia, causing rejoice among Georgian freighters.
VTB, VEB and other banks have Armenian subsidiaries used to finance
projects of Russian companies in the country and transfer money of
Armenians from Russia.
How to make Armenian economy work
All the mentioned and unmentioned enterprises of Russia are inefficient
at a certain scale in Armenia. If status quo of the Karabakh crisis
remains, drain of employable population (the population of Armenia
is already below 3 million) will only intensify.
Making Armenian economy work is only possible by settling the conflict
with Azerbaijan.
De-occupation of districts will doubtlessly open borders of Turkey and
start economic cooperation with Azerbaijan. Baku has declared several
times that it wanted economic cooperation with Armenia after withdrawal
of its forces from Azerbaijani districts unrelated to Karabakh.
Russian business, as part of the Armenian economy, his big hopes for
that. Russian establishment understands well that inviting Armenia
to the Eurasian Union at this point does not make problems simpler
because Russia and Armenia have no common border. Speaking of Armenia's
joining an integration structure together or without Karabakh is a
completely different story.
Settlement of the Nagorno-Karabakh conflict would give clear results
to Russia, in terms of economy. Unblocking transportation would have
an enormous synergetic effect on all sectors of the Armenian economy.
The South Caucasus Railway would be able to operate in Turkey and
Azerbaijan. Cargo sent by Russian suppliers to Armenia could be
delivered through Azerbaijan without the need for transshipment at
Russian and Georgian ports.
Evaluating potential gains of the Armenian railway can be made basing
on the following example: the South Caucasus Railway transported
about 3 million tons of cargo in 2013, the Georgian Railway used its
transit potential to transport 18 million tons of cargo of Azerbaijan
and other Caspian states. Connections with the Turkish railway system
would be an important addition for the Baku-Tbilisi-Kars railway
route. Transportation would improve efficiency of Armenal and the
Zangezur copper facility the control package of shares of which
belong to a German company. About half of the 3 million tons of cargo
transported by the South Caucasus Railway was copper and related goods.
Gazprom would gain an alternative opportunity to supply Armenia with
gas through Azerbaijan. Armenian energy companies controlled by the
Russian gas monopoly would gain access to the huge Turkish market that
needs electricity. Rosneft would have diversified oil shipments to
Armenia, deepening confidential strategic relations with the State
Oil Company of the Azerbaijan Republic (SOCAR). Armenia's Nairit
would have been launched using raw materials of Azerbaijan.
Settling the Karabakh conflict would allow realization of mentioned
and implicit projects with hundreds of thousands of workplaces for
the Armenian economy. Russia and Armenia would make billions. Changing
the logistical schemes alone would create new alternatives and markets
for sales, reducing expenses of companies and stimulating investment.
Yerevan's politicians need to show political will and confirm their
determination to do good for their own people. Until then, Russian
business will continue counting expenses and losses from property
in Armenia.
http://vestnikkavkaza.net/analysis/politics/58829.html
Vestnik Kavkaza, Russia
Aug 15 2014
15 August 2014 - 10:55am
By Yuri Glushkov exclusively for Vestnik Kavkaza
The trilateral talks of Presidents Vladimir Putin (Russia), Ilham
Aliyev (Azerbaijan) and Serzh Sargsyan (Armenia) in Sochi have not
been a breakthrough and only reduced military confrontation. No
one expected a breakthrough from Russian peacekeeping anyway. The
Russian president focused on pacifying the sides and demonstrating
the domination of Moscow in mediating efforts in the South Caucasus.
France had been trying to organize a meeting of the Azerbaijani and
Armenian presidents as a co-chair of the OSCE Minsk Group since
mid-May. Washington tried to orient the meeting toward September
within the framework of a new session of the UN General Assembly. The
situation on the Karabakh front in mid-July intensified, Moscow
gathered Aliyev and Sargsyan for a meeting with Putin and prevented
a new war.
Russia may guarantee peace in Karabakh
What is the secret of such effective Russian diplomacy? Putin's
rating in Baku and Yerevan is as high as in Russia. Armenians and
Azerbaijanis understand that countries thousands of kilometers away
from the South Caucasus cannot guarantee peace on their lands. Both
capitals say that the key to resolving the conflict is in Moscow. But
in this situation, additional confrontation in the South Caucasus is
absolutely out of place for Russia in the light of the Ukraine crisis.
Since the active peacekeeping of Dmitry Medvedev during his presidency,
the sides got used to top-level mediation of Russia, Putin's move
was natural and logical for them. Russia does need long-term peace
in Karabakh and full-fledged regional economic cooperation.
Some media reported that Russia took advantage of the violence on
the Armenian-Azerbaijani border in July-August. Moscow was allegedly
trying to add fuel to the conflict to demonstrate the fragility of
energy communication to the West. Most of such ideas are spread by
Armenian mass media opposed to Armenia joining the Eurasian Union.
In reality, Russia is the party most interested in peace on its
borders, hence the determination and diplomatic pressure to calm the
sides. Pragmatism and common sense are why Russia wants to keep peace
and settle the conflict.
How much does Russia lose in Armenia?
It is no secret that the Armenian economy is devastated. It is in the
deepest crisis, isolated from the majority of regional trade because
of the unresolved Karabakh conflict. Armenia exported products worth
$1.5 billion and imported $4.5 billion worth in 2013, a red ink of
$3 billion. The same tendency can be seen this year.
Russia is the main sponsor of Armenia. Over $1.6 billion of cash
transfers from Armenians working in Russia were made in 2013. Only
$82.1 million were transferred from the U.S., about $250 million from
other countries. The sum of about $2 billion could cover only part of
the deficit. Other funds were received from Russia as a loan worth
$1 billion. Everyone understands that the Russian pocket is finite
and cannot patch the budget of another state, even an ally, for long.
Moreover, there is no payoff from invested money while the situation
in Russia is not very positive.
Assisting Armenia in joining the Customs Union and the Eurasian
Economic Union, is a complicated mission for Russia because Armenia
has no border with it. Armenia's strives to join the structures
add pressure to Armenian economy and Russian business that controls
about half of Armenian economic potential. So, speaking of failure
of the Armenian economy, it is necessary to mention losses Russian
companies suffer and missing opportunities for profit in the format
of mass projects realized in the South Caucasus Region.
What does Russia have in Armenia
Russia's Gazprom is not the only supplier of gas in Armenia (over 1
billion cubic meters a year). Its subsidiary ArmRosgazprom controls
its distribution in the country, largest power plants producing about
80% of electricity.
Russia's largest state company Rosneft is in fact a monopolist in
supplying Armenia with petroleum products (about 350,000 tons a year),
considering that customs fees for Russian fuel were lifted in December
2013. Rosneft owns the control package of shares in Armenia's largest
chemical facility Nairit. The Armenian industrial giant specializes in
production of synthetic rubber. The alliance of Rosneft and Italy's
Pirelli should revive production. In December 2013, Rosneft, Pirelli
Tyre Armenia and Rosneft-Armenia signed a memorandum to form a joint
venture to produce rubber at Nairit. The ambitious project requires
$400 million of investments.
Mars is the largest Armenia radio-electronic enterprises built in the
Soviet times. Russia took control over it in 2002 as a payment for
the state debt. Mars specializes in development and implementation
of electronic equipment, production of items from non-ferrous metals
and plastic. Its assets are controlled by Sintroniks, a high-tech
concern of Sistema. Sintroniks Armenia, a subsidiary registered
in September 2009, manages other assets Sintroniks took control of
from Rosimushchestvo: the Yerevan Science and Research Institute of
Automatized Control Systems, NPPM, management of the free economic
zone they are located on.
Armenal is the only manufacturer of aluminum foil in the Caucasus and
Central Asia. It has been a property of Rusal since 2003 and became
one of the most eco-friendly aluminum factories of the world. Russia
is represented in the transportation sector: the Russian Railways got
concession of the Armenian Railway in 2008, it is still managed by
the South-Caucasus Railway. Investments of the Russian Railways total
$250 million. The South Caucasus Railway became a self-sufficient
enterprise only a few years ago. Borders of Turkey and Azerbaijan
closed for Armenia reduce freighting. In reality, the South Caucasus
Railway only freights to Georgia, where Ports Poti and Batumi can be
used to transport goods to Armenia. About 80% of Armenian products
pass Georgia, causing rejoice among Georgian freighters.
VTB, VEB and other banks have Armenian subsidiaries used to finance
projects of Russian companies in the country and transfer money of
Armenians from Russia.
How to make Armenian economy work
All the mentioned and unmentioned enterprises of Russia are inefficient
at a certain scale in Armenia. If status quo of the Karabakh crisis
remains, drain of employable population (the population of Armenia
is already below 3 million) will only intensify.
Making Armenian economy work is only possible by settling the conflict
with Azerbaijan.
De-occupation of districts will doubtlessly open borders of Turkey and
start economic cooperation with Azerbaijan. Baku has declared several
times that it wanted economic cooperation with Armenia after withdrawal
of its forces from Azerbaijani districts unrelated to Karabakh.
Russian business, as part of the Armenian economy, his big hopes for
that. Russian establishment understands well that inviting Armenia
to the Eurasian Union at this point does not make problems simpler
because Russia and Armenia have no common border. Speaking of Armenia's
joining an integration structure together or without Karabakh is a
completely different story.
Settlement of the Nagorno-Karabakh conflict would give clear results
to Russia, in terms of economy. Unblocking transportation would have
an enormous synergetic effect on all sectors of the Armenian economy.
The South Caucasus Railway would be able to operate in Turkey and
Azerbaijan. Cargo sent by Russian suppliers to Armenia could be
delivered through Azerbaijan without the need for transshipment at
Russian and Georgian ports.
Evaluating potential gains of the Armenian railway can be made basing
on the following example: the South Caucasus Railway transported
about 3 million tons of cargo in 2013, the Georgian Railway used its
transit potential to transport 18 million tons of cargo of Azerbaijan
and other Caspian states. Connections with the Turkish railway system
would be an important addition for the Baku-Tbilisi-Kars railway
route. Transportation would improve efficiency of Armenal and the
Zangezur copper facility the control package of shares of which
belong to a German company. About half of the 3 million tons of cargo
transported by the South Caucasus Railway was copper and related goods.
Gazprom would gain an alternative opportunity to supply Armenia with
gas through Azerbaijan. Armenian energy companies controlled by the
Russian gas monopoly would gain access to the huge Turkish market that
needs electricity. Rosneft would have diversified oil shipments to
Armenia, deepening confidential strategic relations with the State
Oil Company of the Azerbaijan Republic (SOCAR). Armenia's Nairit
would have been launched using raw materials of Azerbaijan.
Settling the Karabakh conflict would allow realization of mentioned
and implicit projects with hundreds of thousands of workplaces for
the Armenian economy. Russia and Armenia would make billions. Changing
the logistical schemes alone would create new alternatives and markets
for sales, reducing expenses of companies and stimulating investment.
Yerevan's politicians need to show political will and confirm their
determination to do good for their own people. Until then, Russian
business will continue counting expenses and losses from property
in Armenia.
http://vestnikkavkaza.net/analysis/politics/58829.html