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In-Depth Review of the Investment Climate and Market Structure in the Energy Sector of the REPUBLIC of ARMENIA

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In-Depth Review of the Investment Climate and Market Structure in the Energy Sector of the REPUBLIC of ARMENIA In-depth review of the investment climate and market structure in the energy sector of THE REPUBLIC OF ARMENIA ENERGY CHARTER SECRETATIAT 22 January 2015 In-depth review of the investment climate and market structure in the energy sector of THE REPUBLIC OF ARMENIA ENERGY CHARTER SECRETATIAT 22 January 2015 About the Energy Charter The Energy Charter Secretariat is the permanent office based in Brussels supporting the Energy Charter Conference in the implementation of the Energy Charter Treaty. The Energy Charter Treaty and the Energy Charter Protocol on Energy Efficiency and Related Environmental Aspects were signed in December 1994 and entered into legal force in April 1998. To date, the Treaty has been signed or acceded to by fifty-two states, the European Community and Euratom (the total number of its members is therefore fifty-four). The fundamental aim of the Energy Charter Treaty is to strengthen the rule of law on energy issues, by creating a level playing field of rules to be observed by all participating governments, thereby mitigating risks associated with energy-related investment and trade. In a world of increasing interdependence between net exporters of energy and net importers, it is widely recognised that multilateral rules can provide a more balanced and efficient framework for international cooperation than is offered by bilateral agreements alone or by non-legislative instruments. The Energy Charter Treaty therefore plays an important role as part of an international effort to build a legal foundation for energy security, based on the principles of open, competitive markets and sustainable development. The Treaty was developed on the basis of the 1991 Energy Charter. Whereas the latter document was drawn up as a declaration of political intent to promote energy cooperation, the Energy Charter Treaty is a legally-binding multilateral instrument. 3 The information contained in this work has been obtained from sources that are believed to be reliable. However, neither the Energy Charter Secretariat nor its authors guarantee the accuracy or completeness of any information published herein, and neither the Energy Charter Secretariat nor its authors shall be responsible for any losses or damages arising from the use of this information or from any errors or omissions therein. This work is published with the understanding that the Energy Charter Secretariat and its authors are supplying the information, but are not attempting to render legal or other professional services. This document and any map or reference included herein are without prejudice to the status of or sovereignty over any territory, to the delimitation of international frontiers and boundaries and to the name of any territory, city or area. This documents does not involve any endorsement by the Energy Charter Conference or by any of its members in this respect. © Energy Charter Secretariat, 2015 Boulevard de la Woluwe, 56 B-1200 Brussels, Belgium English Paperback ISBN 978-905948-163-3 Depot number: D/2014/7850/7 English, PDF ISBN 978-905948-164-0 The reproduction of this work, save where otherwise stated, is authorised, provided the source is acknowledged. All rights are otherwise reserved. Layout Design and Prepress: Diana Spotinova for Spotinov print Ltd. Printed by Spotinov print Ltd. Photo on the cover provided by the Ministry of Energy and Natural Resources of the Republic of Armenia. Foreword Armenia has been very successful in attracting foreign investment to promote energy production in a sustainable manner, nevertheless the development of secure and diversified sources of energy imports/exports remains pressing issue for the country. The performed review shows that potential of Armenia in the electricity sector could be further facilitated by improved interconnections with countries in the region. The Energy Charter Secretariat is preparing grounds to launch a regional taskforce on a technical level to address issues of electricity interconnections among countries in the region of Caucasus with a view to the creation of a regional electricity market in the long-term future. It should be emphasised that the Energy Charter Treaty is an important mechanism for addressing national development of the energy sector of Armenia and provides a stable platform for multilateral co-operation with increasing number of countries around the world. In 2014 Armenia took active participation among almost one hundred countries in the negotiations of International Energy Charter which is a political declaration mapping out common principles for international cooperation and common areas of cooperation in the field of energy. It is anticipated that the International Energy Charter will be adopted in May 2015 in The Hague, Netherlands. Armenia’ participation in the Energy Charter process is an important factor in promoting the development of the country’ energy sector. By observing the principles of the Energy Charter the Government of Armenia convey a strong political message to foreign investors that the country is committed to observe the principles of openness and non-discrimination in the energy market. This book provides extensive information about investment climate in Armenia along with valuable information on the legal frameworks to establish business in the country. Insights into structure of the energy market provide valuable analysis related to potential of further development and investment opportunities. The results of the performed review lead to policy conclusion and recommendations that are intended to assist the national government policy makers in designing better investment climate policies that motivate energy market players to make timely investments in appropriate technologies with more certainty. At stake are energy security, economic growth and environment protection. Urban Rusnák Secretary General 5 Table of Contents In-depth review of the investment climate and market structure in the energy sector of the Republic of Armenia | 22 January 2015 Introduction .............................................................................................................................................................................................................................................................13 Policy Recommendations and Executive Summary ...................................................................................................................................15 Overview .......................................................................................................................................................................................................................................................................21 1. Summary Information ................................................................................................................................................................................................................................22 2. Geography and Climate ...........................................................................................................................................................................................................................22 3. Population .................................................................................................................................................................................................................................................................23 4. State Structure .....................................................................................................................................................................................................................................................23 5. Economic Situation ........................................................................................................................................................................................................................................24 a) Economic Outlook.................................................................................................................................................................................................................................24 b) Sector Performance ............................................................................................................................................................................................................................26 c) Trade .......................................................................................................................................................................................................................................................................27 d) Investment Climate ............................................................................................................................................................................................................................30 e) Foreign Direct Investment (FDI) ...........................................................................................................................................................................................33 Legal Framework for Investments .........................................................................................................................................................................................37 1. Main Elements of Legislation Relevant to Foreign Investment in the Energy
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