ARMENIAN prime minister, Nikol Pashinyan, has proposed that Russia should sell the concession rights for operation of his country’s rail network to a third party. Pashinyan suggests that such a move could enhance the competitiveness of the rail sector in Armenia.
Since 2008 rail operations in Armenia have been managed by South Caucasus Railway (SCR), a wholly-owned subsidiary of Russian Railways (RZD), under a 30-year concession. Local media report that during this period freight turnover has halved, several routes have stopped operating, and some investment commitments have not been met.
According to Pashinyan, this situation has begun to undermine the attractiveness of Armenia’s rail sector to investors. “Armenia has nothing against Russia, but the Russian concession creates certain competitive losses,” he says, adding that international partners are increasingly reluctant to engage with Armenia in order to avoid dealing with the Russian operator.
“In my view, the solution is for a country with friendly relations with both Armenia and Russia to purchase the concession rights from the Russian Federation,” Pashinyan says. Potential candidates to take over the remaining 12 years of the concession include Kazakhstan, the United Arab Emirates (UAE), and Qatar.
However, Russian officials have called the idea “strange and unlikely.” Former Russian defence minister, Sergey Shoigu, describes the proposed concession transfer as “poorly thought-out.” He estimates that over the past two decades Russia has invested around Roubles 30bn ($US 400m) and contributed Roubles 15bn to Armenia’s state budget, warning that without Russian management, Armenia’s railway system is at risk of collapse.
Alternative scenarios
According to local media outlet JAMNews the concession includes a direct management provision so that if SCR fails to fulfil its obligations, the Armenian government can take the railway under direct control until the situation is resolved. Parties settle disputes in two stages and, if negotiations fail, the case goes to the International Court of Arbitration operated by the International Chamber of Commerce (ICC) in Paris, whose decisions are binding on both sides.
Alternatively, Armenia could exercise a buyout option, under which it compensates SCR for part of the operator’s investment and part of the profit it expects to make until 2038 when the current concession ends. Experts estimate this would currently cost around $US 200m, which could be financed by international lenders.
