Stealing Armenia – How he did it!

Since the turn of the century the World Bank and the International Monetary Fund have been driving a rampantly corrupt agenda in the Republic of Armenia. This was exposed in 2004 by an Armenian Parliamentary Commission, which found that several tens of millions of dollars worth of World Bank credits were being misappropriated and the IMF was failing in its duty to stop the theft of valuable state assets.

By March 2007, the Bank and the IMF had made no effort to resolve the problems, so Americas leading human rights and freedom of speech organization, the Government Accountability Project (GAP), submitted the details to the Bank’s watchdog body, the Department of Institutional Integrity (INT), and GAP has since been pressing for a full investigation. Throughout 2007, the INT ignored repeated requests to investigate the problems, so in February 2008 GAP submitted a petition to Robert Zoellick, World Bank President, asking for his support. By the end of May, the INT was still not cooperating, so GAP submitted a full report to members of the U.S. Congress, who are now looking into the matter.

Today, Khosq provides the opportunity to bring this information to the attention of a new Armenian internet community.

In 2004, Vahan Hovhanissian’s Parliamentary Commission found corruption estimated to be in the region of two hundred million dollars, a massive amount for Armenia which at the time had a state budget of about four hundred million. The problems were associated with the World Bank’s Municipal Development Project, designed to improve Yerevan’s water utility, and the ‘Government’s Integrated Finance Rehabilitation Plan’, a devious mechanism to eliminate hundreds of millions of dollars worth of old electricity debts, supported by the Bank and under IMF ‘Surveillance’.

The Commission concluded that the Bank and the IMF were clearly in cahoots with the Armenian authorities, depriving Armenia’s under-privileged of tens of millions of poverty reduction dollars and using them for state-backed profit-making activities, and illicitly transferring hundreds of millions of dollars worth of state assets to corrupt state cronies and their partners-in-crime.

Roger Robinson, the World Bank Country Manager at the time, initially reacted to the accusations with anger, but he later backed down and paid lip service to the claims. The IMF’s Permanent Representative in Armenia however had a more philosophical view of the affair. When asked: Should he not be stopping a One Hundred Million Dollar scam, as he was meant to do in accordance with his IMF technical assistance agreement? He replied ‘That depends”. When asked: On what does it depend? – He answered – “My Conscience”.

It turned out that Jimmy McHugh’s conscience was not all it could have been and a worthless document, which the Armenian authorities had valued at $107 million was used to privatize Armenia’s Kajaran molybdenum factory.

Jimmy McHugh was later asked to comment on why the $100 million Sevan – Hrazdan Hydro-Power Cascade was transferred to ‘Russian Companies’ at a reduced value of $25 million in 2002, and then in 2003 the newly privatized Russian owned Sevan – Hrazdan Hydro-Power Cascade received a 15 Billion Dram ($30 million) donation from the state budget. He declined to answer that question.

These two scams totalling about $140 million were used to ‘privatize’ two of Armenia’s most valuable state assets, which had a total book value of more than $200 million. Today, more than a billion dollars would be needed to build the five hydro-power stations which make up the 400+ megawatt Sevan – Hrazdan Hydro-Power Cascade, including the man-made reservoirs, kilometres of water channels, and all the electricity generating, transformation and distribution systems! But the entire system was transferred to Russian companies at virtually no charge, in the same way as the molybdenum factory was transferred to a German company – at virtually no charge!

How many other of the billions of dollars worth of state assets must have been ‘Privatized’ in this criminal way?

Vahan Hovhanissian promised to report the details to the people of Armenia in 2004, together with another $60 million dollars worth of corruption and embezzlement his Commission found in the World Bank financed Municipal Development Project, which accordingly failed to bring the significant improvements to the Yerevan water system the Bank had promised. But he chose the more attractive option of keeping the information to himself. Then in October 2007, Prime Minister Serge Sargsyan said he was ready to re-look at the matter, but that also turned out to be empty words.

The UK’s Serious Fraud Office continues to monitor the INT response to GAP’s request for an investigation, the Armenian opposition press has covered the campaign in a string of articles, the Armenia chapter of Transparency International has added its support, the Institute for Democracy and Human Rights (IDHR) has published an article on this scandal in its quarterly journal, and today readers of khosq can see the details for themselves by applying to the writer of this article for copies of documents.

Bruce Tasker

Senior Specialist

Armenian Parliamentary Commission (2003/4)

More Armenian Foreign Direct Investment Games

According to Nikolay Pavlov, Russia’s Ambassador, and Alexander Zaytsev, trade commissioner to Armenia, Russia will be extending a $500 million dollar loan to the people of Armenia, to support Russia’s existing Armenia projects; specifically construction of a new power-generating unit and modernization of the railways.


The new power-generating unit could possibly be the multi-billion dollar nuclear power station that Armen Moffsissian has promised, an absolute must during this crisis period. Or it could be the 5th block of the Hrazdan gas fired power-generating unit, which has soaked up the best part of a billion dollars through its ten or more years of construction, but recently transferred to HyRusGasArt on the promise that Russia would invest a further two hundred million dollars to finally bring it into operation. Or maybe it could be Yerevan’s new gas-fired power-generating unit, for which Japan provided a $140 million credit in 1999, the construction of which started in 2005, and although Moffsissian has been uncommonly silent about that major project, no doubt now close to completion. Or it could be one of the Araks hydro-power plants, or a host of other impressive Armen Moffsissian energy projects.


Modernization of the railways does not however present so much of a quandary; Armenia’s entire system was handed over to Russia a year ago, on the understanding that Russia would invest $570 million. According to the Armenian media, to date the investment has amounted to a 1.8 million dollar repair of an electric locomotive in Georgia, the purchase of modern apartments, the import of numerous ‘Jeeps’, and enormous salaries for the company executives who will soon be occupying the new Russian rail administration offices at the head of Kocharian’s Northern Prospect. Gurgen Sargsyan, Armenia’s recently appointed Minister of Transport, and an exceptionally level-headed official amongst an otherwise impressive gang of regime bandits, recently said.... “Not everything, that is invested, may be considered investments". Armenia now knows the truth of those words.

As has happened so many times before in Armenia that which on the surface appears to be healthy foreign direct investment, in practice turns out to be a regime-backed financial scam. In the same way as the 5th block of the Hrazdan gas fired power-generating unit has for the past ten years served as a multi-hundred-million-dollar money spinner for the regime, so now is the Armenian railway system. In this instance a $500 million Russian credit is being imposed on the people of Armenia, to pay for investments promised by one of the various Russian companies which have methodically taken over the vast majority of Armenia’s billions of dollars worth of state assets.

Armenia’s state propaganda machine prefers to explain that this $500 million is for funding small and medium business development projects - a sum somewhat larger than the five or ten million dollars the regime normally manages to find to titillate the Armenian fancy. But in practice Russian investors are again being allowed to get away with this highly corrupt, fraudulent and illegal multi-billion dollar activity. Why, because within the ranks of those Russian foreign investors will be found a dominant representation of Armenia’s bandit regime.

So whilst Armenia plunges ever-deeper into the crisis which the regime has long been preparing, with enthusiastic support from the World Bank and the IMF, Kocharian and Sargsyan will continue to divert massive funds to their personal indulgence – funds that rightfully belong to the people.

Armenia Gives a Hundred Million Dollars to Russian Companies

Since the turn of the century, President Kocharian’s administration has ‘Privatized’ most of Armenia’s billions of dollars worth of state assets, much of it transferred to Russian companies using deceitful finance mechanisms. The ‘Blowing the World Bank Whistle’ campaign has exposed that agenda and how the World Bank, the IMF and the Armenian authorities have fabricated an economic boom and covered up the alarming increase in corruption that has led to Armenia’s present crisis.

Now Armenia’s recently self appointed President Sargsyan is donating hundreds of millions of dollars to those private Russian companies to help their owners make even greater profits – again at the expense of the Armenian people.

On the 16^th May the Armenia Liberty news reported that Tigran Davtian, Armenia’s newly appointed Minister of Finance, signed an agreement under which Germany will provide Armenia with another 74 million Euros ($117 million) in fresh low-interest loans designed to improve energy and water infrastructure and financial services. Davtian explained that the bulk of the sum (64 million Euros) will be spent on upgrading Armenia’s largest hydro-electric plant and building two high-voltage power transmission lines in the country’s northern regions.

Armenia’s largest hydro-electric plant is Gurmush, one of the five Sevan – Hrazdan Hydro Cascade Power Plants (HPP’s). In 2003 the entire Sevan – Hrazdan Hydro Cascade system was valued at over one hundred million dollars but was ‘Privatized by Russian Companies’ at the giveaway price of twenty-five million dollars. In 2004, Vahan Hovhanissian’s Parliamentary Commission studied the Privatization and found that the package included a fifteen billion Drams ($29 million) cash donation from the Armenian Government and a 15 million dollar loan from Kfw. The result was that the Armenian people paid several million dollars for the honor of having that particular state asset privatized.

Armenia’s power transmission system was privatized in 2002 by Midland Resources Holding Ltd (MRH), this time at a giveaway price of $37 million, after the Government had spent a $40 million World Bank credit to prepare for the privatization, plus a further $45 million from Japan’s Overseas Economic Corporation Fund. That state asset privatization gambit cost the Armenian people more than fifty million dollars.

MRH stems from Moscow, with offices in Canada, so it was not surprising when in December 2004 the Armenian News Network / Groong reported that the company was transferred to Russia's power grid monopoly company Unified Energy System, better known as ‘RAO UES’

Today, the people of Armenia will be pleased to hear that, after having paid tens of millions of dollars to be relieved of the burden of their strategically vital and most profitable energy sector assets, the Government has now taken on a new Kfw loan to donate to the Russian owners so that they can make more profit from their companies. And Minister Davtian has signed a sovereign guarantee on behalf of the Government, committing the people of Armenia to repaying the more than one hundred million dollar credit.

Letter to IMF

12th January 2005

International Monetary Fund

Representative Office

1 Melik-Adamyan Street

Yerevan 375010

Attn: Mr James McHugh - Resident Representative

Ref: Privatization of the "Sevan-Hrazdan HPPC" CJSC.

Dear Mr McHugh,

With respect to the ‘Government’s Integrated Finance Rehabilitation Plan’, which is subject to IMF surveillance, Item 32, Post Balance Sheet Events in the 2002 Armenergo statement includes:

• "In accordance with the RA Government decree #405A, dated 29 March 2003, the liability of 40 million USD owed to Russian companies for the nuclear fuel exported to Armenia during 1995-2001 should be secured by the Company:
• The Company undertakes the liability of ANPP CJSC at the amount of 40 million USD owed to the Russian companies, offsetting its own liabilities towards ANPP CJSC.
• The liability of "Sevan-Hrazdan HPPC" CJSC at the amount of 35 million DM is transferred to the Company.
  
• In return, the Company receives assets of "Sevan-Hrazdan HPPC" CJSC at the carrying amount of 54,400,000 KAMD as at 1 April 2003, at the equivalent to 35 million DM, determined by the realisable method.
  
• The Company disposes of the assets from "Sevan-Hrazdan HPPC" CJSC to Russian companies, at the price of 25 million USD, regarding it as payment of ANPP liability undertaken. At the same time Russian companies undertake, under the same terms, the liability of the Company owed to the State budget on the subsidiary loan provided in the framework of the project implemented by KFW."

Mr. McHugh, the sudden increase in Payables to "Sevan-Hrazdan HPPC" CJSC, to 17,242,226,000 Drams in 2003, from 1,720,864,000 Drams in 2002, is of interest, especially as the Sevan-Hrazdan HPPC has been transferred to Russian companies, and supplies only approximately 2 billion Drams worth of energy to Armenergo each year.

Assets worth 54,400,000,000 Drams have effectively been transferred to Armenergo, revalued to 35 million DM, and disposed of for $25 million, a total devaluation of about 75 or 80 million dollars.

The Russian companies undertake the subsidiary loan of 7,716,850,000 Drams (about $15 million) provided in the framework of the project implemented by KFW and receives a cash incentive from the Government of more than 15 billion Drams ($29 million approx.)

In my recent E-mail messages, I have referred to a number of IMF documents, which relate to transparency and accountability of Government activities, particularly with respect to the privatization of public enterprises. I include the following from the IMF web site, which I think adequately covers the approach of the CGHA Commission study into the liquidation of Armgasard and Armenergo, the financial rehabilitation, and the associated privatisation activities.

"Serious transparency concerns can arise over the manner in which public financial institutions and non-financial public enterprises are privatized. Privatization should be conducted as openly as is consistent with sound marketing considerations. It is a basic requirement of fiscal transparency that the privatization of government assets should be open to independent audit (e.g., by a national audit body), to ensure that it is carried out in accordance with the law, that the business is properly valued, and that there is competition among bidders. Indemnities given to purchasers should also be disclosed (and included in a statement of contingent liabilities)".

I thank you again for your assistance with our study, and I look forward to receiving the requested information.

Yours Sincerely,

Bruce Tasker

Senior Specialist and Analyst

CGHA Commission

A Blowing the World Bank Whistle Revelation

The first ‘Blowing the World Bank Whistle’ annual report of 11^th April 2008 was accompanied by a message in which I accused the Bank and the IMF of having colluded with the Armenian authority since the turn of the century in a highly corrupt Five Billion Dollar politically motivated agenda in preparation for the imminent resolution of the Karabakh conflict. The report was distributed to hundreds of Email recipients, including Vardan Oskanian, Armenia’s outgoing Minister of Foreign Affairs, who has been reporting on the Karabakh issue for the past ten years of his tenure.

A week after that report, the Armenian press covered an analysis by Vardan Oskanian, who commented that “for the first time ever in the history of this conflict a document that they thought has reached the maturity which can be put at the OSCE Secretariat as a clear guideline”. Oskanian then makes his revelation that International financial assistance would be made available for reconstruction and resettlement of internally displaced persons - not only in the formerly occupied territories, but in all the war-affected regions of Nagorno-Karabakh. His analysis presumably includes financial assistance (which this campaign has referred to as ‘Compensation’) for resettlement of internally displaced persons who will be obliged to leave the presently occupied surrounding territories and from Karabakh.

This is the first time an Armenian or international public official has talked with the Armenian media about the question of financial assistance for displaced persons. The Minsk Group has referred to the 7 or 8 thousand Armenian and Karabakhi civilians who live in the surrounding occupied territories as ‘occupying forces’, who will simply have to leave the territory, and the 140ish thousand who presently live in Nagorno-Karabakh will apparently live in harmony with their new Azerbaijani neighbours. Neither of course is the case; there will be tens of thousands of displaced persons, and so financial assistance must be in place to compensate their losses and to assist with their re-location.

The Minsk group and the international community prefer the philosophy of Azerbaijanis and Armenians living peacefully side-by-side under an international peacekeeping force, and so they have not made public the question of compensation for displaced persons. The Armenian authorities have been eagerly looking forward to receiving the displaced persons, but preferring to keep that lucrative multi-billion dollar part of the re-settlement equation under their monopolistic control, they have withheld information about the compensation package from the Armenian and Karabakhi people. The Azerbaijani authorities keep quiet on compensation, knowing how hard it would be to explain to their people how several billions of dollars were paid to peacefully regain sovereignty of Karabakh and the surrounding territories. Russia, who will probably act as a go-between by converting the financial assistance package to investment, will be quietly sitting back and waiting to take its cut. And the World Bank and the IMF who have been supporting this thoroughly corrupt program, will have been scheduling in a few more years of economic boom for Armenia, based on foreign investment in Armenia’s construction sector.

But could this be a sign that the times are now a changing for Armenia’s new tyrannical authority. This recently announced Vardan Oskanian analysis of international finance for displaced persons is certainly a revelation. The details of the finance package must now be fully revealed to the peoples of Armenia and of Karabakh so that they will be able to claim the compensation that is due to them. After all, these are the peoples who will suffer after Serge Sargsyan eventually signs the agreement that will lead to resolution of the long-standing Karabakh conflict. It is for these peoples that the compensation money is being paid; not so that Armenia’s corrupt inner circle can make billions more dollars at the expense of the Armenian (and now the Karabakhi) people.

Let us hope that with enough pressure we will soon see more revelations to add to this latest revelation from Vardan Oskanian.

A World Bank Crisis for Armenia – The Intrigue

Now that the Kocharian / Sargsyan team has imposed its new Presidency in Armenia, they are ready to move to full implementation of the World Bank Crisis for Armenia Program.

The UN General Assembly has adopted an Azerbaijani motion which reaffirms territorial integrity of Azerbaijan, demands the withdrawal of all Armenian forces from the occupied territories, and refers to outrageous and massive illegal Armenian settlement in the territories. Sargsyan is already on his way to Russia and immediately after his inauguration he will be meeting with his Azerbaijani counterpart to talk about resolution of the Karabakh conflict.

Blowing the World Bank Whistle has covered how the signing of the Karabakhi agreement will initiate the re-location of settlers from the occupied territories to their recently constructed apartments in Yerevan and through acknowledgment of Karabakhi independence Armenia will be relieved of any responsibility it may have to Karabakh. The occupied territories have been held by Armenia since 1993 as a security ring for the capital city Stepanakert, and with them under Azerbaijani control, Karabakh will be under increasing threat, causing its population to join the exodus.

The finance for the World Bank Armenia Crisis Program is the intriguing part of the jigsaw, a closely guarded secret. And no doubt for the people of Armenia, who will be paying for the whole sordid and highly corrupt affair, it will remain that way. But the World Bank, the International Monetary Fund (IMF) and the Armenian tyrants who have for the past five years or more been carefully preparing for this moment, are in no doubt of where the finance is coming from; of how many billions of dollars are involved, and of how that money will be surreptitiously manoeuvred into Armenia to create another fabricated wave of foreign investment, and importantly to escape the attention of the rightful beneficiaries, the people of Armenia.

A most suiting scenario is of course through the Kocharian / Sargsyan friends in Russia, who in the run up to the recent Presidential election farce came to Armenia announcing their intention to increase investment in the Armenia construction sector. Why would Russian oligarchs want to increase their investment in Armenia’s construction sector, when projects they have purportedly already financed been stacking up for the past years and as yet have failed to find the tens of thousands of occupants needed to return the hundreds of millions of dollars investment already committed.

Blowing the World Bank Whistle has been posing that question throughout the past year, and today the answer is no longer a secret. The apartments are needed to re-house the residents who are driven from Karabakh and the surrounding territories when Sargsyan signs the agreement he has been keeping under his belt as a tool to persuade the international community the legitimacy of his recently enforced Presidency.

But Russia’s private investors will not be providing the apartments free of charge, and equally those who are forced to re-locate will not cherish the thought of losing their homes in Karabakh, or the surrounding territories, and having to pay the exorbitant prices being asked for Yerevan’s recently constructed real-estate. A compensation package must therefore be in place to finance the entire re-location program, and that compensation will undoubtedly be from the party who stands to gain most - Azerbaijan.

Azerbaijan will undoubtedly pay the multi-billion dollar cost of the program in preference to expending even more money, losing many lives and destroying valuable assets in a war to regain Karabakh sovereignty. The international community would be persuaded to support such a scenario, preferring not to unduly publicize the tens of thousands forcibly re-located; Russia would take a healthy cut for facilitating the compensation to investment conversion program, and Armenia’s state cronies will pick up their multi-billion dollar reward for the years they have been patiently laundering their money. And yet again, all at the expense of the people of Armenia, who will find themselves under years of increasing tyranny at the hands of the very people they saved from an Azerbaijani onslaught in the early 90’s.

That is why, for the past year the World Bank’s investigatory unit, the Department of Institutional Integrity, has refused to carry out an investigation into rampant fraud and corruption in World Bank Armenia projects, despite repeated requests from me and from the influential international group that supports my claim, because it knows that this World Bank Crisis Program for Armenia has been completely unscrupulous and highly corrupt.

Armenia – A Crisis Long in the World Bank Making

A Parliamentary Commission study into World Bank (WB) projects in 2004 amazingly found that the World Bank and its sister institution the International Monetary Fund (IMF) were clearly orchestrating ways and means to divert state assets from the Armenian public to a small circle of state associated cronies. Although the commission worked for only a year and studied a very limited sector of WB/IMF projects, it exposed fraud and embezzlement valued at more than two hundred million dollars, about a third of the state budget. Much of that was facilitated through a wider illicit program to transfer, virtually free-of-charge, billions of dollars worth of state assets to state officials, who operated through international front companies, often in Russia, and it included other methodologies which were used to siphon off hundreds of millions of dollars of poverty reduction funds to fill the coffers of the same corrupt state officials.

Fully aware of this massive theft of state assets and misappropriation of state funds, the Bank and the IMF continued to report years of economic boom, led by Foreign Direct Investment in the privatization of state assets, and followed by a boom in the construction sector. The Northern Prospect project of shops, offices and apartments is the star in the construction crown, adorned by dozens of apartment buildings. The construction epidemic has been spreading since the turn of the century, and with ever-increasing fervor; new apartment buildings occupy every available square meter of Yerevan’s city center and even sprawl throughout the outer suburbs in what appears to be a determined rush to expand the availability of real estate square meterage. But the offices and apartments continue to stand empty. Moreover, during the same period, Armenia’s population has seen a reduction of more than half a million, the lesser-privileged having been driven from their Republic to earn a living elsewhere.

In 2004, this presented a quandary to the Parliamentary Commission. Why were the corrupt state cronies continuing to pump hundreds of millions of their illicit dollars each year into construction projects, when there was no sign of the rush of eager punters they needed to turn their money laundering full circle? But by the beginning of 2007, the clouds over the internationally sponsored Yerevan horizon transformation started to clear. It became apparent to those in the know that the ground works were being laid for an eventual resolution of the Karabakh problem. The international community has long been demanding that Armenia withdraw from the occupied territories around Karabakh, as a lead-in to the full return of Karabakh to Azerbaijan. But despite ever-increasing pressure from the Minsk group, their final guidelines of 2004 continued to gather dust. In fact, the guidelines for compromise of the Karabakh issue are essentially the same as those President Kocharian used against his predecessor, Levon Ter-Petrossian in 1997, to drive him out of his Presidential office.

The preparation has been going on in secret right under every one of Yerevan’s million noses, with Kocharian determined the people of Armenia and of Karabakh should not have an inkling of his plan. So he waited his moment, the 2008 Presidential election, when he was to hand over his Presidential sword to his hand picked successor, Serge Sargsyan. With that feat behind them, and with total dominance over Armenia, Sargsyan and Kocharian could finally wash their hands of any responsibility toward their kindred folk and eventually sign the Karabakh agreement. That would lead to an immediate outflow of several thousand refugees from the surrounding territories, followed by an inevitable second wave of tens of thousands from the Karabakhi homeland, more than sufficient to fill the recently constructed Yerevan apartments.

It has been a well-conceived, well planned internationally supported program, essentially to resolve the Karabakh problem, but at the same time giving Armenia’s corrupt state cronies the opportunity to finally reap the rewards of the billions of embezzled dollars they have been laundering through the past years of construction. Azerbaijan will happily pay the two or three months worth of oil revenue needed to have Karabakh back under its control, Russia will probably act as go-between, converting the multi-billion dollar Azerbaijani compensation package to increased Russian investment in Armenia’s construction sector, and the people of Armenia will not only find themselves under increasing Karabakhi led tyranny for the next who knows how many years, they will again have the pleasure of knowing that billions of dollars of their compensation money will have been nicely siphoned off by their leaders - and all with the support and assistance of the World Bank and the International Monetary Fund.

It is for this reason that, since January 2007, I have been pursuing my internationally supported ‘Blowing the World Bank Whistle’ campaign, and why through the past year I have been articulating this message to senior representatives of the international community, including the UK Government, the Council of Europe, the OSCE, the UN, and the World Bank, for them to be assured that the people of Armenia know what the international community has been planning since the turn of the century and why Armenia is now under a state of emergency. And in as far as after a year of asking, the World Bank’s watchdog organization, the Department of Institutional Integrity (INT) obviously has no serious intention to investigate my claim of World Bank fraud and corruption in Armenia, it is for that reason I support Levon Ter-Petrossian in his fight to return independence to Armenia.

Bruce Tasker

Senior Specialist

Armenian Parliamentary Commission (2003/4)