By Haroutiun Khachatrian (02/22/2012 issue of the CACI Analyst)

Recent visits of Russian high-ranking officials to Armenia aimed to demonstrate that Russia will in the near future retain its role as Armenia’s leading partner in all sectors including trade and energy. A group of Russian top officials visited Armenia in February, including Deputy Prime Minister Viktor Zubkov and Vladimir Yakunin, Chairman of the state-owned Russian Railways company. All meetings focused on the tightening bilateral economic links between the two countries. In particular, a new head of the South Caucasus Railways company, a subsidiary of the Russian Railways which runs Armenia’s railroads, was presented in Yerevan on February 15.

The meetings of Armenian officials with Sergey Kirienko, head of Russia’s state-run Rosatom nuclear energy corporation, on February 7 deserve special attention. Armenia has repeatedly stated that a working nuclear power plant (NPP) is among its strategic goals as it would secure its energy supply. Currently it owns the only NPP in the region, the Metsamor station (28 kilometers west from Yerevan) whose single working block will be shut down in 2016 or 2017.

During Russian President Dmitri Medvedev’s state visit to Armenia in August 2010, Armenia and Russia signed an agreement to cooperate on the construction of a new nuclear unit in Armenia. The new block is to be built near the old one and will utilize existing communications. The Armenian state would by committing this infrastructure have provided 20-25 percent of the required funds, while Russia planned to contribute another 20-25 percent by producing and installing the so-called “nuclear island”, i.e. the nuclear reactor and accompanying devices of the block. Other investors were expected to provide the remaining 50-60 percent of the required funds, however, the project failed to attract additional investment. The disaster at the Fukushima NPP in Japan obviously played a role in this failure. Another factor making the project unsustainable for potential investors is the fact that the Armenian-Turkish border is closed, limiting the prospects of selling the electricity produced and hence the project’s profitability, although the Armenian government pledged to buy the electricity produced.

During his February visit to Armenia, Sergei Kirienko said that the new nuclear block will be completed by 2020, instead of 2016 or 2017 as reported earlier. Secondly, he said that Russia “is considering” to increase its stake in the new block above the level of 25 percent. The Armenian Ministry of Energy and Natural Resources had reported earlier that Russia is ready to provide 50 percent of the funds necessary for the construction of the new block. Thirdly, the new block must belong to the government of Armenia, i.e. the Armenian government must own more than 50 percent of the block’s shares (note that a significant share of Armenia’s electricity-producing capacities belongs to different Russian companies controlled by the Russian government). Given that the new block is worth US$ 4.5 to 5 billion, the Armenian government has to pay 1.1 to 1.5 billion dollars in a period of six years (the average duration of construction).

There is no report yet on the reaction of Armenia’s government to this statement. According to other reports, Armenia continues to look for other investors. In particular, Armenian President Serzh Sargsyan is reported to have discussed this problem with his French and Italian counterparts.

The new unit will have the installed capacity of 1060 megawatt (in comparison to 480-410 megawatts of the old blocks). Russia belongs to the few states in the world that possess technologies for constructing nuclear units of “post-Fukushima” type; it will provide a so-called 3+ reactor. The technologies are used in Russia and many other countries and are certified by the European Utility Requirements. In addition, the Metsamor NPP is located in a seismically safe area and its two blocks were not damaged during the Spitak earthquake of December 7, 1988, although they were shut down two months later, for purely political reasons. In 1996, one of these blocks was re-opened and since provided over 30 percent of the electricity produced in Armenia. An international consortium led by Australian company Worley Parsons currently conducts a technical-economic assessment for the construction of the new nuclear block.

Another conclusion from Kirienko’s statement is that promising uranium deposits do exist in Armenia but that Russia is also eying the prospects of importing rare metals from that country, which have allegedly been discovered in the same deposits. Uranium was discovered in Armenia during the Soviet period, and the documents on those reserves now belong to Russia. In recent years, the Armenian government has performed a thorough examination of these deposits despite a growing movement of environment protection.