Mikhail Oseevskiy: Armenia has a good investment-attractive model of power generation market

Armenia has a good diversified model of a market of power generation capacities, Deputy President and Deputy Chairman of VTB Bank Management Board Mikhail Oseevskiy told reporters in Yerevan, when asked by ArmInfo about possible intensification of the market in the segment of lending to the power generation projects and boosting the renewable power engineering.

 

"We have thoroughly discussed the structure of the power generation market of Armenia. It is not bad as compared to many other republics of the former Soviet Union. The energy arsenal of Armenia comprises a nuclear power plant, hydropower plants, thermal power plants, but there are also old and inefficient capacities. Power engineering is a capital-intensive section with long payback periods. A question always arises: who must pay for emergence of the new capacities? It should be done either by consumers or by a "mixture" of state assistance tools and tariff regulation," said Oseevskiy. In the 

former Soviet republics this is mostly done through tariff regulation tools and this causes discrepancies between the interests of the investors expecting the payback in 7-10 years and the specificity of 

economic development. Nevertheless, Oseevskiy thinks that Armenia has chosen the model supporting the investment activity in this segment and the payback period of energy projects is about 7 years. 

 

"I worked as a public servant for a long time (in Nov 2003- 2011 Oseevskiy was the Vice Governor of St.  Petersburg, and in Dec 2011-July 2012 he was the deputy minister of economic development of Russia - editor's note), and I can say that Armenia's regulator works professionally," he said. "There should always be a competition among the power generators and this problem will probably be solved during 

the next state of institutional reforms in Armenia," he stressed. This model of development creates favorable conditions for investors and allows the Bank to consider projects of financing various power 

generation capacities. In the meantime, Oseevskiy said that most of the corporate loans are provided in foreign exchange, and the power generating companies' revenues are in the national currency. "Therefore, any changes in the exchange rate spark changes in the business model. This iscomplicated and serious issue that should be discussed with the regulator and should be taken into account in the financing process.  Certainly, it would be correct to evade forex dependency and to lend the customers in the national currency.  But this needs further reduction in the basic rates on the market. This is an important strategic path and it needs formation of a relevant national policy," he stressed. 

 

To note, despite the diversified structure of power generation sources, the power tariffs in Armenia are constantly growing. The Public Services Regulatory Commission's mid-June decision to raise the electricity tariffs by 6.9 AMD sparked mass public protests. Afterwards a decision was taken to freeze the tariffs until the audit at the Electric Networks of Armenia is over. 

 

According to the Financial Rating of Armenian Banks by the Agency of Rating Marketing Information (ArmInfo), as of 1 July 2015 the corporate loan portfolio of VTB Bank (Armenia) totaled 131.3 bln AMD, 

total loan book - 214.8 bln AMD. In the corporate loan portfolio of the Bank, the share of trade was over 17%, industry - 16%, construction - about 9%, agriculture - over 7%. SME lending made up 46% of the loan book. As of 1 July 2015, the total assets of the Bank amounted to 316.6 bln AMD.