[Congressional Record Volume 143, Number 66 (Monday, May 19, 1997)]
[Extensions of Remarks]
[Page E958]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




        U.S. ASSISTANCE IN SUPPORT OF ECONOMIC REFORM IN ARMENIA

                                 ______
                                 

                          HON. LEE H. HAMILTON

                               of indiana

                    in the house of representatives

                          Friday, May 16, 1997

  Mr. HAMILTON. Mr. Speaker, I have exchanged correspondence over the 
past 2 years with the executive branch on the question of how our 
assistance programs help to promote the United States objective of 
economic reform in Armenia. In recent months, I have exchanged 
correspondence with the Agency for International Development [AID], 
pertaining to its plan to provide a $30 million grant to Armenia during 
fiscal year 1997 to purchase natural gas. It is my firm belief that 
U.S. assistance to each of the New Independent States should, whenever 
possible, be conditioned on the achievement of specific reform 
objectives.
  The text of a March 7, 1997 letter from AID, my reply of March 19, 
and AID's reply of April 16 follow:

                                                   U.S. Agency for
                                        International Development,
                                    Washington, DC, March 7, 1997.
     Hon. Lee Hamilton,
     House of Representatives, Washington, DC.
       Dear Congressman Hamilton: As a follow-up to staff 
     discussions on January 3, 1997, with Mr. Kupchan on the FY 
     1997 Armenia natural gas program, I am writing to confirm 
     that our provision of natural gas commodity assistance to 
     Armenia is contingent on significant energy sector reforms.
       Ambassador Tomsen has recently communicated to the Prime 
     Minister and Minister of Energy that the provision of FY 1997 
     natural gas would require: (1) evidence of progress in 
     implementing conditions contained in last year's agreement, 
     e.g., creation of an independent energy regulatory authority; 
     and (2) commitment to new conditions that deepen and broaden 
     the movement to restructure and privatize the energy sector. 
     Furthermore, we are coordinating this position closely with 
     the World Bank as well as introducing elements that go beyond 
     the World Bank's conditions.
       If you should require more detailed information, my staff 
     are available to discuss our position and progress in 
     obtaining energy reforms.
           Sincerely,
                                                   Thomas A. Dine.


     
                                  ____
                                                  Committee on    
                                          International Relations,


                                     House of Representatives,

                                   Washington, DC, March 19, 1997.
     Hon. Thomas Dine,
     Assistant Administrator, Bureau for Europe and the NIS, 
         USAID, Washington, DC.
       Dear Mr. Dine: Thank you for your letter of March 7 
     regarding the Armenia natural gas program and the reforms 
     upon which this agreement would be contingent.
       I support your decision not to release the $30 million 
     until: (1) the government of Armenia provides evidence of 
     implementing conditions contained in last year's agreement, 
     and (2) Armenia commits to new conditions which go beyond the 
     World Bank's conditions.
       However, I would appreciate receiving more detailed 
     information on both issues before I could support providing 
     another round of funding for fuel. First, what progress has 
     Armenia made, in AID's view, on complying with last years' 
     agreements? According to a letter of April 3, 1996 from 
     Assistant Secretary Barbara Larkin to me, the US was to seek 
     Armenian agreement to increase tariffs in the private sector, 
     pursue energy sector reform in parliament, and reform the gas 
     sector. Your letter of March 7, 1997 mentions creation of an 
     independent energy regulatory authority as a US goal. Where 
     are we on these issues?
       Second, if this year's $30 million award goes forward, what 
     specific conditionality over and above that already in World 
     Bank agreements, will US assistance be contingent upon? What 
     steps will you insist that Armenia take to deepen and broaden 
     the movement to restructure and privatize the energy sector?
       I look forward to working with you on this issue and other 
     matters pertaining to NIS assistance.
       With best wishes,
           Sincerely,
                                                  Lee H. Hamilton,
                                        Ranking Democratic Member.


     
                                  ____
                                                   U.S. Agency for
                                        International Development,
                                   Washington, DC, April 16, 1997.
     Hon. Lee H. Hamilton,
     House of Representatives, Washington, DC.
       Dear Congressman Hamilton: We appreciate your continuing 
     interest in the Armenia energy program and wish to reconfirm 
     that our provision of natural gas commodity assistance to 
     Armenia is contingent upon significant energy sector reforms.
       As requested in your letter of March 19, 1997, to Assistant 
     Administrator Tom Dine, I would like to highlight some of the 
     significant progress Armenia is making in achieving energy 
     sector reforms. Tariffs have been raised and are on a path to 
     economic cost recovery, a goal that may be reached in early 
     1998. The Armenian Government recently completed its first 
     round of privatization in the power sector, focused on small 
     hydropower plants. Although the Energy Law has not yet 
     passed, the Law was submitted to Parliament March 31 and 
     should be acted upon shortly. Meanwhile, the Government of 
     Armenia has just issued a presidential decree acceptable to 
     both the U.S. Agency for International Development (USAID) 
     and the World Bank establishing an independent energy 
     regulatory body. The new regulatory body will play a 
     critical, catalytic role in further movement toward a 
     financially-viable, market-oriented utility system. According 
     to USAID energy advisors who have worldwide experience, both 
     the decree and the Energy Law are superior to those enacted 
     in other NIS and Eastern European countries.
       We have established new covenants in connection with the 
     provision of natural gas in 1997 that go beyond the 
     conditions set by the World Bank. These conditions relate to:
       Full implementation of the aforementioned regulatory body;
       Establishment of a financial settlement process and 
     procedures for improving cash flow in the power sector;
       Consolidation of power distribution companies to a 
     reasonable number;
       The formation of power sector joint stock companies with 
     corporate charters;
       Development of an action plan for further privatization;
       Promotion of a Petroleum Law to encourage foreign 
     investment; and
       Implementation of a least-cost power investment plan to 
     provide replacement power for the Armenia Nuclear Power 
     Plant.
       We have discussed these covenants with the Government of 
     Armenia and expect them to agree to these covenants in the 
     very near future.
       The 1996 delivery of gas to Armenia amounted to $15 
     million, which purchased 201 million cubic meters or about 33 
     percent of Armenia's total annual gas use. Due to changes in 
     international gas prices, this year's $30 million should 
     purchase about 290 million cubic meters, which could 
     represent from 25 to 50 percent of Armenia's 1997 gas 
     imports, depending on future industrial demand, next winter's 
     severity, and alternate energy supplies.
       If you should require more information, please let us know.
           Sincerely,
                                                  Robert K. Boyer,
     Senior Deputy Assistant Administrator, Bureau for Legislative 
                                               and Public Affairs.

     

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