YEREVAN (A.W.)—The New York-based group ContourGlobal signed a takeover deal on June 8 to acquire Vorotan Hydro Cascade, Armenia’s largest hydroelectric complex, becoming the first Western firm to purchase a major stake in Armenia’s Russian-controlled energy sector.
The $250 million purchase was quickly hailed by Armenia’s Prime Minister Hovik Abrahamyan, who called the deal an “important step towards strengthening bilateral economic relations” between the U.S. and Armenia.
The agreement, which was signed in Yerevan by ContourGlobal CEO Joseph Brandt, was initially due to be completed by last April, but was put on hold when Abrahamyan announced that some of its provisions ran counter to Armenian law and needed to be renegotiated.
According to Azatutyun.am, RFE/RL’s Armenian service, ContourGlobal will pay $180 million for Vorotan Hydro Cascade’s equity and will invest another $70 million in the facility’s modernization over the next five years.
Speaking to the Armenian Weekly, Armenian National Committee of America (ANCA) Executive Director Aram Hamparian said, “We welcome the growth of U.S.-Armenia trade and the increased diversification of the foreign investment environment in Armenia. Expanding bilateral commerce creates jobs in both countries, strengthens the longstanding friendship between the American and Armenian peoples, and–very meaningfully–provides Armenia with a broader set of strategic options in dealing with regional powers.”
The Vorotan Hydro Cascade consists of three power plants, which are situated on the Vorotan River in Syunik.
Selling Armenia for profit one piece at a time. The other day they agreed to “sell” to Russia the Iran natural gas pipeline. And supposedly the energy minister said that “Russia will not dictate the volume going through”?????? Please. What lies and what ruin fro Armenia’s future..
The Sevan-Hrazdan Cascade Hydropower System with a total installed capacity of 565 MW is the largest hydroelectric complex in Armenia and not Vorotan Hydro Cascade which has total installed capacity of 404 MW.
The article leaves many questions unanswered.
1- Who was the owner who had the equity in Vorotan Hydro Cascade? Who is the seller? Is it the Government of Armenia or a Russian entity?
2- Largest in Armenia means nothing. What is the electricity generating capacity by the three power plants and is the $ 180 million an equitable and fair price.
3- What are the economic and strategic benefits of this sale for Armenia?
4- Assuming electricity rates are controlled in Armenia, what concessions or grants were made to Contour Global?
5- Who were the advisors on the sale ?
Contour Global is a $ 7.3 billion New York based Investment Fund. They are a developer and operator of electric power and district heating businesses. They currently own and operate 41 power plants in 17 countries. Financially they seem to be strong.
However, they are an Investment Fund and they are in business to generate high returns for their investors in the fund. Normally, Investment Funds will invest in companies/assets that are not performing well, have financial or operational problems, go in , fix the problems and as they say in the financial world ” flip it for a profit”. To achieve their objectives, they are quite aggressive.
May be, it is beneficial to have a US firm make an investment in Armenia. But other than the ownership by a US firm, what are the expected economic and social benefits to Armenia.
I hope an pray that my doubts/misgivings are proven wrong.
Vart Adjemian
How much of the profits will go to the people and how much of it will line the pockets of our dear politicians? What rules and regulations? Judging from past sales of our national industries, I am sure the conditions are very favorable for the Americans at the expense of Armenia.
Overseas investment is good for a country. However I would like to make a simple calculation. It costs $ 5 billions to build a new NPP to produce 1000 megawats of electricity. The present NPP which produces 400 megawats is therefore valued $ 2 billions. The Vorotan Hydro Cascade which also produces 400 megawats is therefore worth
$ 2 billions. Based on these calculations to pay $ 250 is like buying this stratigic Armenian entity at 12.5% of its real value. I therefore ask why could’nt the Diaspora raise some funds and purchase this profitable business which is sold so cheap for Armenians future.
I agree with Garo that Contour Global got a real “sweet’ bargain.
However, the figures used by Garo are not totally correct, though factually ends up close . Contour made a steal. Something is “fishy”.
The Vorotan Hydro Cascade’s capacity is 405 megawatts.
According to the US Dept of Energy, to build a “Hydro” plant, which is what Vorotan is, the cost is $ 2.936 billion per megawatt.
Thus, replacement cost is $ 1.189 billion.
Contour paid $ 180 million ( $ 70 million was not paid, but planned to be invested over the next five years).
Conclusion is: Contour paid 15% only of replacement value.
Why? who benefited? How bad was the condition of the plants to justify such a low price?
This does not exude confidence in the financial/economic acumen of the officials in Armenia. They are selling the country cheap and giving away their assets/resources.
This sadly is similar to granting the gold mining rights to Lydian International, a small, untested, and a thinly capitalized company , whose capital is a meager $ 75 million.
Vart Adjemian
Correction to my posting.
I stated: “the cost is $ 2.936 billion per megawatt”
It should read: ” the cost is $ 2.936 million per megawatt”.
I apologize for the inadvertent mistake.
Vart Adjemian
If Contour makes 3c/Kw the profit will be over 100 million/yr. Payout is 2.5 years. It looks like giveaway.
How can any armenian in the diaspora have any respect on the business acumen of the armenian government and its officials oversees. At this rate armenians will become tenants in their own homeland. The profits from this investment will find its way to the pockets of american shareholders, while the average armenian will live a meager life. Bravo to ANCA and others for their trade mediation along with the shortsighted armenian officials.
It’s old and its also not a Npp, so please don’t compare. It will also be managed by a company and will have to pay taxes to Arm Government. It’s a good deal, and paves the way for the new NPP. 6 billion dollars is the international rate, Russia will build it with a lot less.
Agree with [Aramazd].
Can’t compare a new price tag for equivalent capacity power plant with that of a pretty old complex.
The first plant in the complex was commissioned in 1970, 2nd in 1978, 3rd in 1989.
Considering the conditions in USSR before the collapse and conditions RoA was in for many years after Independence, it is doubtful any of the equipment was upgraded, or even properly maintained.
And the capital investment is fully amortized by now, so the equipment and plant is really not worth much on the books.
The value is in the Vorotan river. (the drop, velocity, volume, etc)
And no matter what price you think your property is worth, if there are no buyers at that price, then it is not worth that.
Is there any indication that there were others who were willing to pay say $1 Billion for Vorotan and RoA Gov decided to sell it for less to ContourGlobal ?
If it was such a bargain, why wouldn’t several foreign companies outbid each other ?
If something is worth $1 Billion on a fair market, and the seller is willing to sell it for $250 million, why wouldn’t dozens of foreign companies line up to buy it: it’s like giving away $750 million.
This will be good for RoA in the long run:
Aside from capital improvements to equipment, citizens of RoA working in the plant will be exposed to American management and American practices operating a power plant.
The exposure will have a multiplier effect as workers, engineers, managers, etc move to other companies or careers and impart what they learned to others in RoA.
Avery
Why would any other foreign company, other then Russian, American or maybe Iranian, invest in Armenia anyway? Recent articles deemed the reason for stagnant foreign investments was due the corrupt political nature.
This deal isn’t good for Armenia as is evident by the 16% electrical rate hike about to take place August 1st. This is because the other electrical plant, already sold to a Russian company, is demanding a 40% rate increase? This again according to the Armenian leadership. Either way its a loss for Armenia and its people.