ARMENIA COMMERCIAL NEWS SUMMARY: FEBRUARY

UNCLAS SECTION 01 OF 02 YEREVAN 000308 SIPDIS DEPT FOR EUR/CARC, EUR/ACE E.O. 12958: N/A TAGS: ECON ETRD KTDB BEXP BTIO AM SUBJECT: ARMENIA COMMERCIAL NEWS SUMMARY: FEBRUARY 2006 -------------- SUMMARY -------------- ¶1. This cable summarizes press reporting on commercial developments in Armenia for February ¶2006. Major headlines include: -- GOAM approves a USD 240 million investment plan for Zangezur Copper-Molybdenum Plant; -- Armentel plagued by customer lawsuits; -- EBRD issues 2006-2007 Strategy for Armenia; -- Forbes ranks Armenia as most attractive investment regime in the Caucasus; -- January 2006 economic data. End Summary. -------------- -------------- GOAM APPROVES ZANGEZUR 2005-2020 INVESTMENT PROGRAM -------------- -------------- ¶2. On February 16, the Ministry of Trade and Economic Development approved the Zangezur Copper- Molybdenum Plant's USD 240 million investment program for 2005-2020. The initial phase of the program is scheduled to run from 2005 to 2008 and calls for a USD 157 million investment to increase plant production. Ultimately, the project is designed to double production rates to 16-18 million tons of ore processed annually. The project also includes an allocation of USD 4 million for improved environmental protection. The Zangezur Copper- Molybdenum Plant is Armenia's largest mining complex and was privatized in December 2004 when a group of investors purchased the site. The German company Chronimet acquired a 60 percent stake in the plant for USD 132 million. Chronimet controls an additional 15 percent stake through its wholly-owned subsidiary Pure Iron, a Yerevan-based smelting company. The remaining shares are owned by Armenian Molybdenum Production and Zangezur Mining. -------------- ARMENTEL PLAGUED BY CUSTOMER LAWSUITS -------------- ¶3. The Armenia Telephone Company (ArmenTel) reported that the number of subscribers to its mobile phone service has doubled since June 2005 when it lowered prices in response to a second mobile network operator's entry into the Armenian market. Armentel remains plagued, however, by customer lawsuits for alleged overcharging and other fraudulent activities. The most recent case stems from a customer's allegations that she was billed USD 800 for long distance calls which she never made. According to ArmenTel, the customer used an ArmenTel phone line to connect to the internet and view an erotic website which automatically charged a fee to the user's phone account. The customer denied visiting such sites and accused the phone company of fabricating the charge. The Head of the ArmenTel Department of International Relation Hasmik Chutilyan said Armenian courts ruled in favor of the company in two similar cases in December 2005. A representative of the customer, the Union of Consumers NGO said, however, that approximately 400 citizens have received similar bills and that many of these customers are considering legal action against the company. This particular case is currently on-hold pending an expert review of whether websites can charge such fees automatically without customer consent. -------------- EBRD ISSUES 2006-2007 STRATEGY FOR ARMENIA -------------- ¶4. On February 10, the European Bank for Reconstruction and Development (EBRD) issued a new two-year strategy for Armenia underscoring its continued commitment to strengthening the Armenian financial sector and develop local small and medium sized businesses. The Bank plans to target both sectors by providing credit lines to local businesses through local banks as well as lending directly to businesses through the Bank's Direct Lending Facility (DLF) and Direct Investment Facility (DIF) programs. EBRD also indicated that it would work to strengthen the local mortgages and insurance markets, both of which are underdeveloped in Armenia. In the strategy paper, EBRD credits Armenia for its strong macroeconomic performance, an effective monetary policy, improved fiscal performance, improved management of external debt and rapid progress in structural reform. The release of this new strategy coincides with the local official release of the EBRD Transitions Report 2005 held on March 2, 2006. -------------- FORBES' INDEX RANKS ARMENIA ABOVE NEIGHBORS -------------- ¶5. According to Forbes Magazine's third annual Capital Hospitality Index survey, Armenia has the most attractive investment regime in the South Caucasus. The index, which scores countries on a scale from highest to lowest with higher numbers indicating a greater openness to investment, gives Armenia a score of 53.4, ranking it above both Georgia (at 48.8) and Azerbaijan (at 35.3). The score was based on macroeconomic indicators, poverty and bureaucracy levels, technological development, corruption, the threat of terrorism, crime rates and the overall political situation. Forbes based its ranking of Armenia on the government's targeted GDP growth rate for 2005 of 8 percent and a purchasing power parity estimate of GDP per capita of USD 5,100. According to the Armenian National Statistical Service (NSS),the actual GDP growth rate for 2005 was 13.9 percent and GDP per capita was USD 1,512. The NSS does not issue a purchasing power parity estimate. (Note: Purchasing power parity is a method of adjusting GDP information to equalize purchasing power across different currencies and to control for prices difference in various countries so as to simplify comparisons between countries' economies. End Note.) -------------- ECONOMIC DATA FOR JANUARY 2006 -------------- ¶6. According to the preliminary data from the National Statistical Service, Armenia's real GDP for January 2006 grew by 7.4 percent year-on-year to USD 159.8 million. Industrial production totaled USD 94 million, falling by 1.3 percent compared to January ¶2005. Gross agricultural output for January 2006 grew by 4.1 percent compared to January 2005 and was valued at USD 31.1 million. Construction reached USD 7.7 million, a 4.6 percent increase. Foreign trade turnover was USD 165.3 million, with imports accounting for USD 117.4 million and exports for USD 47.8 million. The consumer price index was 3.6 percent in January 2006 due to a 5.8 percent increase in food prices. The average exchange rate was AMD 451.74 to the dollar. EVANS