Important notice

The following table sets forth Armenia’s total electricity capacity for the years indicated:

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Note:

(1) Kilowatt hours.

The Metsamor Plant, which is located 36 km outside Yerevan, operates a single unit that first came into use in 1980; a second unit of equal capacity is not in operation. After closing as a precautionary measure following the 1988 earthquake, the second unit of the Metsamor Plant was re-activated in 1995 to help address electricity shortages. Although the EU has publicly requested its closure, in April 2012 Armenia announced that the Metsamor Plant would remain in operation for the next decade. In December 2014, it was further announced that Rosatom, the Russian state-owned nuclear power company, would undertake a project to extend the operating lifetime of the Metsamor Plant to 2026, and in February 2015, Russia agreed to provide a U.S.$270 million financing (and also a U.S.$30 million grant to support safety upgrades) to finance this project. See “Risk Factors—Risk Factors Relating to Armenia—Relations with Russia.” Russia provides the fuel used at the Metsamor Plant, which is transported by air to Yerevan.

There are three thermal power plants in Armenia: the Hrazdan Thermal Power Plant, with a capacity of 1,100 MW, the Yerevan Thermal Power Station, with a capacity of 550 MW, and the Vanadzor Thermal Power Station, with a capacity of 96 MW. Of Armenia’s thermal power plants, only the Hrazdan Thermal Power Plant is currently in operation, although it is not operating at full capacity. Armenia’s thermal power plants are fired by natural gas imported from Russia and Iran.

The Hrazdan Thermal Power Plant operates four Soviet-era units and a fifth unit with a capacity of 440 MW that came on line in 2012. In 2004, Armenia transferred ownership of the fifth unit of the Hrazdan Thermal Power Plant to Gazprom Armenia (the joint venture that was previously known as ArmRusGazprom when it was 80% owned by Gazprom and 20% owned by the Armenian Ministry of Energy and which was renamed Gazprom Armenia after the Ministry of Energy sold its 20% stake to Gazprom in January 2014 (see “—Petroleum Products and Natural Gas”)) as a means to satisfy certain Armenian state debt to Russia. Gazprom completed the construction between 2006 and 2008 of the fifth unit at the Hrazdan Thermal Power Plant (initially begun in the 1980s) in return for an increased equity stake in Gazprom Armenia.

The Yerevan Thermal Power Station has one Soviet-era turbine and a second unit with a capacity of 240 MW. Construction of the second unit was financed by a long-term, U.S.$247 million loan from the Japanese Bank of International Cooperation. The loan was extended on concessional terms. The Yerevan Thermal Power Station is wholly-owned by the Government.

Thermal power has become an increasingly important part of Armenia’s electricity policy since the Yerevan Thermal Power Plant came on line in 2010. Whereas, in 2010, thermal power accounted for approximately 22.2% of Armenia’s electricity supply, in 2014, the share of thermal power was 42.1%.

Armenia also operates a series of hydropower plants, which, in 2013 and 2014, collectively generated 28.6% and 26.1%, respectively, of Armenia’s electricity supply. Armenia’s largest hydropower plant is the Sevan-Hrazdan Cascade, with an installed capacity of 556 MW. The Sevan-Hrazdan Cascade was built between 1936 and 1961 and consists of seven hydropower stations, canals and reservoirs between Lake Sevan and Yerevan. The Sevan-Hrazdan Cascade is majority-owned by the Russian company RusHydro. Armenia’s second largest hydropower plant is the Vorotan Cascade, located in the Syunik region of Armenia. The Vorotan Cascade was built between1970 and 1989 and maintains three stations with an installed capacity of 404 MW. The Vorotan Cascade was sold by the Government in February 2015 to ContourGlobal Hydro Cascade CJSC. There are also over 165 commercial size small hydropower plants operating in Armenia (with a total installed capacity of approximately 282MW), as well as numerous micro size units that are operated by individuals for personal use. Plans have been developed for the construction of the 100 MW Meghri Hydropower Plant on the Araks River bordering Iran. In addition, under the auspices of the Climate Investment Fund, in 2014, the Renewable Energy Investment Programme of Armenia was approved, which contemplates the construction of a 40-50 MW solar-powered grid power station and a 30 MW geothermal power station. Hydroelectric power accounts for approximately 10% of Armenia’s electricity supply.

There is one wind farm in operation in Armenia, the Lori 1 Wind Farm, which is located in the Lori region in the north of the country. It consist of four 660-kW wind turbines and has an installed capacity of 2.6 MW. Lori 1 was built with the support of the Iranian company Sunir.

Total electricity generation declined by 4.1% in 2013 and increased by 0.5% in 2014. Apart from domestic usage, Armenia also exports electricity to Georgia and Iran. In 2007, Armenia and Iran entered into a 20-year barter arrangement, under which the Government-owned Yerevan Thermal Power Station delivers electricity to the state-owned National Iranian Gas Company in exchange for natural gas. Armenia generally uses the gas for its own domestic needs – especially heating – in the winter months and provides more electricity generated by the use of the supplied gas to Iran during the summer months. See “Risk Factors—Risk Factors Relating to Armenia—Relations with the Islamic Republic of Iran.”

Armenia’s electricity transmission grid consists of over 160 km of 330 kV lines, over 1,300 km of 220 kV lines and over 3,100 km of 110 kV lines. One 220 kV line connects Armenia with Georgia, and two 220 kV lines connect Armenia with Iran. Armenia also maintains several other transmission lines that are currently not in use because the borders with Turkey and Azerbaijan are closed. Inter RAO UES owns and operates Armenia’s electricity distribution network.

Electricity tariffs are regulated by the Armenian Public Services Regulatory Commission. The tariff for electricity exports is currently not regulated. As a result of the increase in natural gas pricing, daytime electricity tariffs increased by 27% in July 2013,and by an additional 10% in August 2014. See “—Oil and Natural Gas” and “Risk Factors—Risk Factors Relating to Armenia—Relations with Russia.”

Armenia’s energy sector faces three significant challenges going forward. It will need approximately 500 MW of new generating capacity by 2020 as obsolete infrastructure is taken off-line and demand continues to grow. It will need to preserve energy supplies and avoid supply interruptions as it is dependent on imports for all of its transport fuel and heating/cooking fuel as well as a substantial share of fuel for electricity. It will also need to ensure that energy remains affordable for the population in the face of rising gas and electricity prices and the development of new, potentially more expensive, generating units. To meet these challenges, Armenia works closely with international organisations and other governments to implement projects designed to improve energy efficiency and promote increasing use of renewable energy supplies.

Armenia has no proven reserves of oil or natural gas, nor does it have a refinery to refine crude oil. The following table sets forth Armenia’s imports of petroleum products and gas by source for the years indicated:

Russia is Armenia’s principal supplier of natural gas. In 2014, Russia accounted for 84.6% of Armenia’s gas supply, down from nearly 100% in 2008 and 2009. Beginning in 2010, Iran has become an increasingly important source of gas for Armenia. In 2012, 2013 and 2014, Iran accounted for 20.5%, 17.5% and 15.4%, respectively, of Armenia’s gas supplies. Russia supplies gas to Armenia by means of a single pipeline that transits through Georgia. There is one gas pipeline that runs between Armenia and Iran, the Iran-Armenia Natural Gas Pipeline, which came on line in 2009 and within Armenia is owned by the Armenian High Voltage Network Company.

Gas imports from Russia are provided by Gazprom Export (a subsidiary of Gazprom, Russia’s national gas company), which sells the gas to its subsidiary Gazprom Armenia, pursuant to a gas price agreement signed in December 2013 (the “Gas Price Agreement”). Pursuant to the Gas Price Agreement, a new base price of U.S.$189/1,000 cubic metres (effective January 2014) was set, reflecting Russia’s waiver of a 30% customs tax (such waiver granted in connection with Armenia’s accession to the EEU). The sales price is subject to adjustment for changes in the domestic gas price in the Orenburg region of Russia and U.S CPI. The Government estimates that the discount will save Armenia approximately 1.5% of GDP per year. The Gas Price Agreement also contains a 30-year immunity clause shielding Gazprom Armenia from any changes in Armenian laws (including tax rates).

Historically, Gazprom has exported gas to Armenia at prices substantially below Western European pricing. However, Gazprom has been pursuing a policy of moving to market pricing in its exports to various CIS markets, including its sales to Armenia. Between 2011 and 2013, the price charged at the border by Gazprom increased substantially, which prices were not passed on to end-consumers. As a result, Gazprom Armenia incurred over U.S.$300 million in liabilities to Gazprom Export. According to the Gas Price Agreement, Armenia repaid U.S.$155 million of this debt by transferring its remaining 20% stake in Gazprom Armenia to Gazprom. The remaining portion of this debt, which had accrued from 1 April 2013 until the Gas Price Agreement came into effect, was written off in the form of an exemption granted by Russia to Gazprom Export from the requirement to pay the 30% customs tax at the Russian border (and the corresponding reduction of Gazprom Armenia’s debt to Gazprom Export).

Gazprom Armenia sells gas to end-consumers in Armenia at tariff rates established by the Armenian Public Services Regulatory Commission. On 7 July 2013, the Armenian Public Services Regulatory Commission increased the tariff price for natural gas from AMD132,000/1,000 cubic metres to AMD156,000/1000 metres. See “Risk Factors—Risk Factors Relating to Armenia—Relations with Russia.”

Iran supplies gas to Armenia pursuant to a 20-year barter arrangement in exchange for electricity supplies. See “—Electricity.”

As Armenia has no oil refining capacity, it does not import crude oil. Russia is Armenia’s largest supplier of petroleum products, accounting for 68.7% of Armenia’s petroleum products’ imports in 2014, a significant increase from 29.9% in 2013. A substantial share of the petroleum products provided by Bulgaria are now provided by Russia on account of lower prices due primarily to Armenia’s accession to the EEU. Armenia also receives substantial supplies of petroleum products from Romania, Iraq and Israel. Most of Armenia’s petroleum products are transported by tanker across the Black Sea to the Georgian port of Poti and from there to Armenia by rail.

Privatisation

Armenia completed a substantial part of its privatisation programme in the 1990s. To date, over 2,000 enterprises have been privatised, including nearly all of the enterprises operating in the trade, services, banking and industry sectors. Privatisation can be carried out by means of a public offer, such as an auction or tender, or by direct sale, with public offers accounting for most privatisations (by number of sales).

Some of the key privatisations in recent years include the following:

• 
  the Zangezur Copper and Molybdenum Combine in 2004 for U.S.$132 million (see “—Principal Sectors of the Economy—Mining and Quarrying);”
  
• 
  the telecommunications company Armentel in 1997 for U.S.$73.1 million (see “—Principal Sectors of the Economy—Information and Communications);”
  
• 
  the Yerevan Brandy Factor in 1997 for U.S.$30.0 million; and
  
• 
  the Hotel Armenia in 1997 for U.S.$8.0 million.
  

The primary strategic goals of Armenia’s privatisation programme include the following:

• 
  generate revenues for the State Budget;
  
• 
  promote market competition and exports;
  
• 
  invest in state-owned assets, including real estate, in preparation for future sale; and
  
• 
  create jobs and reduce poverty.
  

Armenia’s natural resources include its land, forests, water, subsoil resources and air. Armenia occupies approximately 2,974.3 thousand hectares of land, of which approximately 2,049.4 thousand hectares are agricultural land and 334.3 thousand hectares are forested land. Armenia currently operates four national parks and three nature reserves. In total, specially protected areas cover 13.1% of Armenia’s total territory.

Primary responsibility over environmental protection in Armenia rests with the Ministry of Nature Protection. The Ministry of Nature Protection collaborates with other Governmental ministries handling environmental issues and maintains close relationships with environmental protection agencies worldwide. The Government receives assistance within the framework of multilateral and bilateral cooperation and from private donors for the implementation of projects designed to remediate, protect and make sustainable use of Armenia’s natural resources.

In addition to its core departments, the Ministry of Nature Protection also oversees four separate agencies that have specific mandates with respect to environmental protection: (i) the Bio-Resource Management Agency, which provides services in the fields servicing biodiversity conservation and resource management; (ii) the National Environmental Inspectorate, which is a supervisory body that monitors overall compliance of both the public and private sectors with Armenia’s environmental legislation; (iii) the Waste Matter and Air Pollution Management Agency, which enforces waste and emission quotas for legal entities and individuals and maintains the national registry of waste disposal sites; and (iv) the Water Resource Management Agency, which regulates water management and monitors the overall supply and demand of the country’s water resources.

Armenia is a party to a number of international environmental conventions on the environment, including four regional conventions, two protocols and 12 multilateral conventions as of 31 December 2014. Armenia ratified the UN Framework Convention on Climate Change (the “UNFCCC”) in 1993 and the Kyoto Protocol to the UNFCCC in 2003. Armenia is associated with the Copenhagen Accord, which the Conference of Parties to the UNFCCC took note of in 2009. Armenia joined the Kyoto Protocol as a “Non-Annex 1” party, which means that Armenia, while committed to reducing emissions, is not subject to binding emissions targets. Armenia endorses the continuation of the Kyoto Protocol.

Environmental protection in Armenia is mainly financed out of the State Budget. There are various ongoing environmental projects in Armenia that are being financed by private enterprises, international organisations, donors and governments, including projects related to renewable energy, reforestation, biodiversity protection, water and waste management and energy conservation. Since 2010, the international community has disbursed approximately U.S.$20.2 million in funds for projects related to the environment that were implemented by the Ministry of Nature Protection. In 2014, approximately U.S.$7.8 million of funds from the State Budget were spent on environmental protection measures. Armenia’s mining industry generates tailings and other waste rock and materials, which may cause damage to the environment if not properly disposed of. Therefore, a portion of the State Budget’s funds for environmental protection measures is spent on the maintenance of over 20 storage sites for tailings and waste resulting from mining activity.

The table below sets forth certain information concerning the protection of Armenia’s environment for the years indicated:

Certain Environmental Indicators

	For the year ended 31 December
	2009		2010		2011		2012	2013
Discharges
Waste water discharge (mln. cubic metres)	359.9	431.0		750.0		813.0		938.0
Hazardous atmospheric emissions (thousand tonnes), of which	235.1	263.9		269.3		259.8		261.4
Emissions from stationary sources	74.7	97.5		114.6		117.4		119.7
Emissions from vehicles	160.4	166.4		154.7		142.4		141.7
Payments
For protection of the environment (AMD millions), of which	591.1	735.1		803.4		546.5		706.1
Harmful discharge into water bodies and sewage	279.3	283.8		366.1		223.6		237.9
Emissions from stationary sources	203.1	356.4		293.7		163.4		133.8
For use of natural resources (AMD millions)(1)	2,788.4	4,073.5		4,792.7		1,091.9		1,224.7
Total	3,379.5	4,808.6		5,596.1		1,638.4		1,930.8

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Note:

The following tables set forth key figures on wages for the years indicated. Figures for 2010 and 2011 do not include social security contributions made by employers, whereas the figures for 2012-2014 do reflect such contributions. Therefore, figures for 2010 and 2011 are not comparable with figures for 2012, 2013 and 2014.

Notes:
(1) Calculated using the average AMD/U.S.$ exchange rate for the relevant period. See “Exchange Rates.”