Cablegate: Armenia News Highlights

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UNCLAS SECTION 01 OF 03 YEREVAN 001073

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SUBJECT: ARMENIA NEWS HIGHLIGHTS

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(U) Sensitive but unclassified. Please protect accordingly.

1. This is the inaugural issue of a new, periodic digest of news
events which we hope will inform, educate, and perhaps occasionally
amuse our readership.

2. TABLE OF CONTENTS

(U) POLITICAL NEWS:
-- Chief Prosecutor Killed in Vanadzor
-- Police stop opposition leafleting
-- Iranian Vice-President Attends 4th Pan-Armenian Games
-- When Minnows Mate: Dashink/Ramkavar party merger

(U) ECONOMIC NEWS
-- Russian cell firm hungrily eyes Armenia's VivaCell
-- New Taxpayers' Handbook published
-- Armenian Economy grows 12 percent in January-July
-- Russo-Georgian firm buys disputed gold company
-- Canadian firm explores for natural gas
-- European Commission funds education (15 million Euro)
-- Can Russia's ALROSA restore sparkle to diamond trade?
-- EBRD launches SME lending program

3. (SBU) CHIEF PROSECUTOR KILLED IN VANADZOR

The chief prosecutor of Lori marz was shot to death in the regional
capital of Vanadzor August 25. Albert Kazaryan was walking home
from work just after midnight when an unidentified assailant fired
four bullets into him. He died later in the hospital. Four shells
from a makarov pistol were found at the murder site. President
Kocharian said in a statement that he would personally oversee the
investigation. Some accounts allege that Kazaryan was notoriously
corrupt, while others suggest he was hated by prominent local
figures for disrupting their own corrupt dealings.

4. (U) POLICE STOP OPPOSITION LEAFLETING

Police interfered with several opposition activists, among them
Heritage parliamentarian Zaruhi Postanjyan, distributing leaflets
August 18 to the participants and spectators at the opening of the
Fourth Pan-Armenian Games. The opposition movement Aylentrank
(Alternative) said that police detained three of its members and
later released them after confiscating all the leaflets, which
called for the release of some government critics who are now in
prison (most notably former FM Alexander Arzumanyan). According to
Postanjyan, she and her aide were jostled by police officers as they
distributed the leaflets. The Police refused to confirm or deny
Alternative's information, but told RFE/RL they are looking into
Postanjyan's allegations.

5. (U) IRANIAN VP ATTENDS 4TH PAN-ARMENIAN GAMES

On August 18, Iranian Vice-President and Chairman of the Iranian
Athletic Organization Mohammad Aliabadi arrived in Armenia to
participate in the launch of the Fourth Pan-Armenian Games. The
event gathered 2500 amateur athletes of Armenian decent from 94
cities around the world. Notably, the Iranian delegation was the
largest, numbering 321 persons. Aliabadi met with President
Kocharian, Deputy Prime Minister Hovik Abrahamian, Foreign Minister
Vartan Oskanian, Sports and Youth Minister Armen Grigorian, and
Armenian National Olympic Committee President Gagik Tsarukian. He
also signed a 5-year Memorandum of Understanding between the Iranian
Athletic Organization and the Armenian Sport and Youth Ministry. On
August 20, after the signing ceremony, Aliabadi had a short press
conference on the topic of sports. He also referred to a public
statement by Secretary Rice on talks about sanctions against Iran.
Aliabadi said that if the U.S. and its allies were capable of
imposing sanctions, they would have done so in the course of the
last 30 years.

6. (SBU) WHEN MINNOWS MATE: DASHINK/RAMKAVAR PARTY MERGER

On August 21, Nagorno-Karabagh's former military leader Samvel
Babayan, whose minor Dashink party ran unsuccessfully for Armenian
parliamentary seats in May 2007, confirmed reports that his party is
in talks to merge with small, diaspora-linked Ramkavar Azatakan (or
HRAK) and the virtually unknown National Rebirth parties. Media
report the new party will bear Ramkavar's name and be led by
Babayan. A Dashink spokesperson told the press that his party will
likely meet for an extraordinary congress in September to seal the
merger. Ramkavar's current leader Harutyuan Arakelyan said that he
did not mind ceding his powers, as long as HRAK got stronger. Like
a penniless aristocrat marrying a rich commoner, the merger links
Ramkavar's distinguished pedigree, dating back to Armenia's 1918
Republic, with Babayan's money and NK war hero credentials. Their
de facto alliance in May 2007 yielded no electoral success,
however.

YEREVAN 00001073 002.2 OF 003

7. (SBU) RUSSIAN CELL FIRM HUNGRILY EYES ARMENIA'S VIVACELL

Russia's top cellular operator, Mobile TeleSystems (MTS), is
reportedly in talks to buy Armenia's leading mobile network
provider, K-Telecom, operator of the popular and successful local
VivaCell network. K-Telecom, controlled by the Lebanese Fattouch
Group, entered the Armenian market in 2005 and quickly overtook the
stodgy former monopoly Armentel to seize a dominant market share in
mobile telephony. Vivacell has been coy, but company sources have
told us privately that a deal seems close. MTS' corporate parent,
Sistema, confirmed its interest in mobile assets in the former
Soviet republics, K-Telecom being one of the possible opportunities.
Sector analysts estimate the value of K-Telecom, which currently
has over 1 million subscribers, at around $600 million. Last year
Vimpelcom, MTS's key rival in Russia, bought Armenia's No.2 mobile
provider Armentel for $488 million. Vimpelcom's client base in the
country stands at 530,000. K-Telecom is closely related, but
corporately independent, of the Fattouch-owned cellular provider in
Nagorno-Karabakh.

8. (U) NEW TAXPAYERS' HANDBOOK PUBLISHED

On August 10, the Armenian Commerce and Industrial Chamber presented
a Taxpayers' Handbook, published with the support of the USAID. One
thousand copies of the book will be disseminated among Armenian
businessmen and entrepreneurs. The handbook will also be posted on
the Chamber's and the State Taxation Service's websites. Martin
Sarkisian, the chairman of the Commerce and Industrial Chamber, said
the handbook will help make the tax authorities' performance more
transparent.

9. (U) ARMENIAN ECONOMY GROWS 12 PERCENT IN JANUARY-JULY

The Armenian Statistical Service reports Armenia's economy grew 12.1
percent in January-July over the same period a year ago, and
amounted to $3.6 billion (1USD equals to 356.7 AMD). Industrial
output grew by only 1.3 percent, and agriculture grew by just 2.2
percent. The biggest growth was again in construction, which saw
$712 million in new investments. Armenia's total foreign trade in
January-July rose 37 percent from a year ago to $2.263 billion.
Exports grew 21 percent to $631 million, and imports were up 44.5
percent to $1.632 billion.

10. (U) RUSSO-GEORGIAN FIRM BUYS DISPUTED GOLD COMPANY

The Russian firm Industrial Investors Group's Georgian subsidiary,
Madneuli, signed a contract to buy the Canadian holding company that
owns Ararat Gold Recovery Company (AGRC) on behalf of the Indian
mining conglomerate Vedanta. The price has not been announced, but
observers suspect it may surpass $100 million. Meanwhile, the
August 20 trial date to resolve an underlying legal dispute for
AGRC's rights to its major mine passed without action, as neither
party to the action bothered to show up. Armenian authorities have
moved to seize and resell AGRC's mining rights, apparently to
Madneuli, charging the Indian subsidiary with numerous counts of
fraud, tax evasion, and other sins. Many believe, however, that the
GOAM sold AGRC its mining rights at bargain basement prices when
gold prices were quite low, and now is simply engineering a
lucrative "do-over" now that the assets are worth vastly more.

11. (U) CANADIAN FIRM EXPLORES FOR NATURAL GAS

Canadian company Transeuro Energy is to start exploration in the
Armavir region for possible natural gas deposits. It plans to spend
about $10 million for preliminary exploration and well-drilling.
The first-stage works should last 3-4 months, which should clarify
whether commercially-worthwhile deposits exist.

15. (U) EUROPEAN COMMISSION FUNDS EDUCATION

The Education and Science Ministry has announced that the European
Union will give Armenia 15 million Euros to help it reform its
vocational and pre-school education systems. The money will be
spent in three stages in 2008-2010, and will be aimed at improving
facilities, training 3500 teachers, and developing new teaching
methodologies.

16. (U) CAN RUSSIA'S ALROSA RESTORE SPARKLE TO DIAMOND TRADE?

ALROSA chairman Sergei Vybornov met with Prime Minister Serge
Sargsian to sign a partnership agreement between the GOAM and
Russia's ALROSA CJSC, one of the world's leading gold and diamond
mining companies. The joint venture will perform diamond cutting
and jewelry manufacture. Armenia's diamond-cutting industry has
suffered a major slump in the past two years, and the government
hopes this new iniative will lead the troubled sector back to
health.

YEREVAN 00001073 003.2 OF 003

17. (U) EBRD LAUNCHES SME LENDING PROGRAM

The European Bank for Reconstruction and Development (EBRD) has
signed a contract with Armenian ACBA Credit Agricole Bank CJSC to
provide 12 million Euros to finance an SME lending program. EBRD
will provide half of the total loan amount, with the remaining Euro
6 million coming from Citigroup. This is the first syndicated loan
to a financial institution in Armenia, and will be directed to SME
lending both in urban and rural areas.

PERINA

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