Armenia and Russia have signalled a potential dispute over the management of Armenia’s railway network, with Prime Minister Nikol Pashinyan saying Yerevan could seek international arbitration if talks fail, while Russian Railways warned it would seek compensation for its investments if the concession agreement is changed.

The dispute centres on a 30-year concession agreement signed in 2008 under which South Caucasus Railway (SCR), a subsidiary of Russian Railways, took over operation of Armenia’s rail network.

"The railway belongs to the Republic of Armenia, and there is no other option," Pashinyan said on July 30, according to Armenian media reports. He added that Yerevan wanted to resolve the issue through dialogue but was prepared to pursue legal avenues.

"We want to resolve the railway issue in a friendly manner, but a situation may arise in which we have to make legal decisions. If there is a disagreement, we will go to an arbitration court and discuss it there," the prime minister said.

Pashinyan argued that Armenia should be able to determine how its infrastructure is used, saying the country had the right to employ "any legal mechanisms" available.

The comments followed remarks by Russian Railways CEO Oleg Belozerov, who said the company intended to continue complying with the existing agreement but would expect compensation if Armenia sought to alter or terminate it.

"All rights and obligations of the parties are spelled out in the concession agreement, to which the Armenian government is also a party. We intend to strictly adhere to it, and if the Armenian side considers terminating it or changing its terms, we have the right to expect a return on our investment," Belozerov told Russian news agency TASS.

He said Russian Railways and SCR had fully met their obligations under the agreement.

"It should be noted that the Russian side, represented by South Caucasus Railways CJSC and its sole shareholder, Russian Railways JSC, has been consistently and fully fulfilling its obligations under the 2008 Concession Agreement," Belozerov said.

The Russian company said the concession had modernised Armenia’s railway system while reducing pressure on the state budget, adding that all profits had been reinvested into railway development.

The disagreement comes as Armenia seeks to diversify economic and political ties away from its traditional dependence on Russia. Pashinyan said earlier this year that Yerevan could consider transferring railway management rights to another country acceptable to both sides, naming Qatar, the United Arab Emirates and Kazakhstan as possible partners.

Armenia has also pressed for the restoration of several railway sections linking the country with Turkey and Azerbaijan, including routes near the borders with both countries.

In February, Russian Security Council Secretary Sergei Shoigu said Russian investment in Armenia’s railway system over nearly two decades had exceeded 30bn roubles. Pashinyan said the railway issue was separate from broader Armenian-Russian relations but reiterated that Armenia needed alternatives.

"The era in which we had no alternatives is over," Pashinyan said. "We must always have alternatives in every area. The more alternatives we have, the better. Our people must know that they have the opportunity to make choices."