Armenia’s comatose giant awaits mercy killing

By bne IntelliNews September 22, 2015

Monica Ellena in Tbilisi -

 

Nairit, once one of the Soviet Union’s major chemical companies, is on a life support machine that the Armenian government dares not switch off.

The plant on the outskirts of Yerevan has been completely idle since 2011, and before that it had been only working partially for two decades.

Nairit is waiting in vain for investors willing to pour in up to $350mn (€309mn) to bring it back to life, while thousands of workers demand answers about their future from a cash-stripped government that does not have any.

In early 2015 the government asked the World Bank to assess the financial and technical viability of the plant. The findings were not what the government wanted to hear: reviving the plant is not “economically viable” and decommissioning is the only real solution.

Reviving Nairit would require investment of some $210-346mn (€185.8-306.1mn) and even then it would have one of the highest unit costs in the global market.

In fact the estimated cost of inputs would exceed the projected price for the polychloroprene rubber produced. Also known as neoprene, polychloroprene rubber is a synthetic rubber used for chemical and weather-resistant applications such as cables, transmission belts, and conveyor belts.

The energy and natural resources minister, Yervand Zakaryan, stressed that the World Bank’s recommendations, including on the environmental cleanup of the site, are not “mandatory” and stated that the liquidation of the plant is not “suitable” for the Armenian government. Earlier this year he said the bankruptcy of the plant and the environmental clean up of the site would require sizeable financial resources, money that the government simply does not have.

“There has been no capital investment since the Soviet times, the production is outdated, the technology antiquated,” Richard Giragosian, founding director of Armenian think-tank Regional Studies Centre tells bne IntelliNews “Nairit is commercially not viable, and simply not competitive,” he says.

In January, the management sacked all 2,270 staff, hiring back 487 of them, and in February all workers received a final pay envelope, covering one month’s wages. However, they were still owed months in back pay as for the last two year salaries were paid sporadically and mostly not at all.

The majority of workers are breadwinners, with families relying on the meagre AMD120,000 (€221.5) average salary. Demonstrations, sit-in and pickets have been staged for over a year demanding the AMD5.7bn (€10.5mn) in back wages. In August the government stated that “all wages were paid”.

Obsolete Soviet past

Nairit is a vestige of Armenia’s Soviet past and a victim of the corruption and failed crash course in capitalism that followed the early 1990s meltdown. The sprawling complex, incorporating warehouses, production lines, and cooling towers, was built in 1936 and became a flagship chemical plant and the Soviet Union’s only producer of polychloroprene rubber. Closed in 1989 on pollution concerns, it re-started partial operations in 1992 and since then it has been grappling with vanishing markets and obsolete equipment.

In 2006, the Armenian government pocketed $40m (€30mn) from the privatisation to UK-registered Rhinoville Property (a consortium set up by Polish Samex, US-based Intertex, and Russian Eurogaz), retaining a 10% stake in the plant. Rhinoville took a loan from the CIS Interstate Bank but never made the promised upgrades and the plant is now back under state control.

Since 2011 – the year of its last financial statement available on the website – it has produced nothing more than an ever-growing debt. In June this year its liabilities exceeded AMD121bn (€224.8mn), including the AMD23bn (€189.5mn) debt with CIS Interstate Bank that the bank wrote off in early April.

A potential partnership bringing together the government, Rosneft, and Italy-based Pirelli, which was flagged in September 2013, did not come into being and the memorandum of understanding remained just ink on paper.

As the Russian interest was short-lived, the government looked east and reached out to Beijing “which wasn’t interested either but ended up buying some parts, hence adding asset stripping” to the whole mess, says Giragosian.

So for now the giant plant remains in a coma, without a hope of recovering, but this is something no official from either the ruling party or the opposition dares to admit, as the social, and hence political costs, are so significant.

 

 

 

 

 

 

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