Home News Corruption as Statecraft
News
2019 Nov
21

Corruption as Statecraft

Transparency International Defence & Security global programme has published “Corruption as Statecraft: Using Corrupt Practices as Foreign Policy Tools” report, which among other issues, addresses Armenia’s dependence on Russian gas.

The case study on Armenia is mentioned below,  the full report by Transparency International – Defence and Security, available here.

Corruption as Statecraft: Using Corrupt Practices as Foreign Policy Tools

The case of Armenia

Armenia’s vulnerabilities similarly stem from a combination of strategic dependence, competing international priorities, and corruption risks. Armenia has long been dependent on Russia for two strategic commodities: energy and arms. Since 1997, Armenia’s gas has been supplied by ArmRusGasprom, a joint venture between Gazprom and Armenia’s state-owned enterprise, Armgasprom. Over time, Armgasprom has transferred its holdings and assets to Gazprom. In return, Gazprom was to develop Armenia’s gas network. The result was a de facto monopoly over Armenian gas supplies and numerous allegations of corruption.[1] This relationship and the dependence on Russian gas have generated controversy and no shortage of corruption allegations.

In 2013, ArmRusGasprom became a formal subsidiary of Gazprom as the latter acquired the last 20% of its shares at zero cost. This was billed as a way to pay off debts accumulated through receiving gas at a ‘preferential’ price over the previous period. Despite numerous demands from the parliamentary opposition and civil society, no detailed calculation regarding the debt accumulation was provided. Gazprom was also guaranteed an effective monopoly not only on the supply of gas to Armenia until 2043, but also on exporting electricity through Armenia to customers in Georgia and Iran.[2]

These changes coincided with a shift in Armenia’s political trajectory away from European integration and toward greater cooperation with the Eurasian Economic Union. Three former government ministers – of Economy, Energy and Finance – claimed that had Armenia acted otherwise, Gazprom would have significantly increased the gas tariff.[3] In other words, it is conceivable that the gas tariff might have been exploited in order to prevent Armenia from taking the European association path.

Just as in the Ukrainian case, Armenia’s strategic dependence on Russia, that was deepened by Gazprom’s acquisition of ArmRusGasprom, was compounded by evidence of links between Russian and Armenian institutions and politicians. In September 2016, Karen Karapetyan – previously First Vice-President of Gazprombank (not a Gazprom subsidiary, although Gazprom does hold a minority stake in it) in Moscow in 2011-2016 – was appointed prime minister of Armenia. Immediately after Karapetyan’s appointment, Gazprom Armenia (currently 100% owned by Gazprom) agreed to reduce the gas tariff for final consumers by about 10%, seemingly without an economic justification or any evidence of a material change in factors affecting the pricing. The agreement also allows Gazprom to return to higher tariffs at a later time, and to request compensation for income not received due to temporary lower tariffs, creating a powerful lever of potential influence.[4]

 

[1] Gazprom, http://armenia.gazprom.ru/about/history/.

[2] Alexei Anischuk, ‘Russia’s Putin faces protests as he woos Armenia’, Reuters, 2 December 2013, https://www.reuters.com/article/us-armenia-russia/russias-putin-faces-protests-as-he-woos-armenia-idUSBRE9B10RD20131202; Nelli Babayan, ‘Our 20% share to Gazprom: for subsidization?’, June 2013, https://www.aravot-en.am/2013/06/21/154993/; Tigran Gevorgian, ‘Russian energy giant captures Armenian market’, 24 January 2014, https://iwpr.net/global-voices/russian-energy-giant-captures-armenian-market; http://uicarmenia.org/ru/1817.

[3] Messenger of the Armenian State University of Economics, no. 3, 2015, http://media.asue.am/upload/Banber_Verjnakan.pdf, accessed January 2018.

[4] New gas tariffs have been set’, Panorama.am, 25 November 2016, https://www.panorama.am/am/news/2016/11/25/%D5%A3%D5%A1%D5%A6-%D5%BD%D5%A1%D5%AF%D5%A1%D5%A3%D5%AB%D5%B6/1683945.