Armenian energy market between renovation and foreign interests. A conversation with Hakob Vardanyan

by Silvia Boltuc

New elections will soon take place in Armenia. The country is struggling with a slow economic recovery and the political crisis while the national Government is building some infrastructures in the energy sector to cover domestic demand and diversify energy imports from allied countries.

Since Soviet times, the Metsamor Nuclear Power Plant (NPP) has been one of the main sources of energy production. Located 36 km west of the Armenian capital Yerevan, the Metsamor NPP is the only nuclear power plant in the South Caucasus. However, due to the proximity to a region prone to earthquakes and the necessity of upgrading and modernising the Metsamor NPP, the Armenian Government has been several times criticised by neighbouring countries.

Currently, after the 2020 Nagorno-Karabakh War, which caused an internal political crisis, it seems that the nuclear energy sector might become an interesting sector in which Yerevan will invest and try to attract foreign investors to strengthen the national electric power system. Therefore, we met Hakob Vardanyan, Deputy Minister of Territorial Administration and Infrastructure for the Republic of Armenia, to discuss the role of nuclear power plants and nuclear energy to relaunch the country’s economy.

According to open sources, the Armenian Government is upgrading the Metsamor Nuclear Power Plant (ANPP). Recently, the Armenian Prime Minister Nikol Pashinyan met the Russian President Vladimir Putin to discuss the Russian involvement in a project to build a new NPP. Could you give us more information about it?

On January 14, 2021, the Government of Armenia approved the RoA Government Energy Sector Development Strategy Program to 2040, according to which the Government will stay committed to the policy to maintain nuclear power plant in the country’s generation mix.

The investment program of 330 mln USD focused on the ANPP Unit 2 design lifetime extension to 2026 is currently carried by the Russian Federation’s assistance. However, if a safe operation of the ANPP Unit 2 will be justified after 2026 in accordance with the respective studies, the Government intends to operate it at least until 2036, which required additional 100-150 mln USD investments.

After the expiration of the existing nuclear power plant’s operational lifetime (including its life extensions), constructing a new nuclear unit with replacing capacity on the existing ANPP site is considered. There is not a specific project yet. We have started our negotiation with the Russian company Rosatom, but we can collaborate with other companies and other countries as well. If there will be alternative offers, such as financiers from the United States or any other country producing nuclear power plants, we will have meetings and negotiations with them too.”

Are there any foreign investors interested in Armenian nuclear energy projects?

Considering the lack of fossil fuel and dependence on imported primary energy resources, the Government of Armenia is continuously looking for new opportunities to increase energy security through diversification of supply, energy efficiency, new investments, new technologies, and regional cooperation as sustainable infrastructure.

The energy produced in this single nuclear power plant is considered conditionally as domestically produced primary energy. 1/3 of power generation in Armenia is from the ANPP. An investment package will be prepared in due time for constructing a new nuclear unit considering existing new technologies to attract foreign investments.

Since Armenia has neither oil nor natural gas, which kind of pipeline projects might support the Armenian energy demand?

Currently, natural gas is imported from Russia to Armenia by the territory of Georgia and from Iran by an alternative pipeline Armenia-Iran.

The power system of Armenia operates in conjunction with the power system of Iran, which significantly increases the reliability of the Armenian power system.  It is also connected to the Georgian power system, which is strategically crucial for Armenia. The construction of Armenia-Iran and Armenia-Georgia 400 kV power transmission lines and infrastructures will increase Armenia’s power system’s reliability and security and have a decisive role in having power systems of regional significance (realization of Iran, Armenia, Georgia and Russia interconnection project).

We are now in a tendering process. This infrastructure includes three main components: 220 Kv substation in the Hrazdan region, Miskhan (central Armenia), one back-to-back station to work in parallel with Georgia and Russia in the Georgian-Armenian border and interconnecting lines from Miskhan until the Georgian-Armenian border. Therefore, this project will allow us to work in parallel with Russia and Georgia.

Armenia was part of the energy system of the Soviet Union. After its collapse, we reconnected with Georgia and Russia, and since 1997 we work with the Iranian energy system in parallel, and Georgia stayed with Russia. In order to make the four countries work in parallel regimes, we need to build a back-to-back station for high voltage current. Now, if we want to take electricity from Georgia, they have to disconnect some of their regions and connect with us in an island regime, and it is a very unsatisfying regime.

Turkmenistan might export its natural gas toward the Caucasus thanks to the Trans Caspian Pipeline. Is Armenian interested in this project, considering that Georgia might be used as an interconnector with the Turkmen market?

Armenia is interested in the development of international cooperation in the energy sector. Involvement in regional energy markets and trade of energy resources and products can increase the security of energy supply for the countries.  We are trying to find cheaper sources for gas supply to Armenia and already have negotiations with Turkmenistan on this matter.  We are not discussing the implementation of any specific project, but we started discussing the opportunity to take gas from the country one and a half year ago.”

For years Iran and Armenia have been partners in the energy sector, considering that since 2009 Tehran has exported natural gas to your country through the Iranian – Armenian gas pipeline. How are Armenia and Iran cooperating in the energy field, and in which projects is Tehran involved?

In the energy sector, the Armenia-Iran relationship is strategic, and that will be ongoing in the long-term outlook. A possible extension of the Armenia-Iran gas-electricity exchange program and the increase in exchange volume under mutually beneficial conditions is the key to further developing this relationship. For this reason, a new Armenia-Iran 400 kV transmission line and the Armenia-Georgia 400 kV transmission line projects are being implemented.

Armenia uses only part of a Russian loan to renovate the NPP. However, Prime Minister Pashinyan said that the funds will be attracted to undoubtedly much better times and will give the Government more leverage to increase the efficiency of that loan. Was he referring to some specific project or to a new NPP?

It was about the life extension of the existing NPP. Initially, we got 300 million dollars from Russia, 217 million loans and 30 million grant. Until the end of the agreement, on December 19, we used approximately only 190 million dollars, and we did have an unused 10 million dollar. We decided not to extend the loan agreement, and instead of the remaining money, we got investment from our national budget. This choice allowed our NPP to be more flexible in the procurement process because the Russian loan has some limitations of using the money as the other international loans.

For more information, risk assessment and geopolitical forecasting on Armenia and the Caucasus, please contact our team at