Wednesday, July 25, 2007

Who Owns the Yerevan Water Utility?

If you are following my efforts with the World Bank’s Department of Institutional Integrity, for them to send a team to Armenia and investigate my claim of fraud, corruption and embezzlement under the Municipal Development Project, then you will see that I make an issue about a ‘Security Agreement’ which the Yerevan Water & Sewerage Company should have entered into with the Ministry of Finance & Economy, pledging its assets against the World Bank loan.

This might seem to be of little significance - but the wider implications need to be understood. So, through this Blog, which covers matters of interest, rather than through my ‘Blowing the World Bank Whistle’ Blog, which is designed to release facts, I will expound on why the Security Agreement is so important.

The World Bank finances water projects in many parts of the World, and they inevitably involve ‘International Operators’, as do the water projects for Yerevan. Those operators are usually subsidiary companies of one of the four major water companies, which are referred to as the ‘Water Barons’, and they have been making massive profits, in no small way thanks to World Bank projects. Three of those four Water Barons have been in Armenia for the past seven or eight years – ACEA (Italy) SAUR (France) and now Veolia (France). Scandals often follow these projects; the price of water goes up and often there is no noticeable improvement in water supply. Moreover, there are reports of where water supply situations have actually deteriorated as a result of these World Bank projects.

But one major philosophical aspect of the approach to providing water has recently been challenged by the international community; most notably of late by the United Nations. The international community has acknowledged that water is not a ‘Commodity’, to be bought and sold, such as wheat, or rice, or even oil. Water is a ‘Human Resource’ that people have the right to, and those who are responsible for providing that resource have an obligation to do so in the most effective way for the water consumer, even if the cost to provide the resource needs to be subsidized in one way or another.

The World Bank has been very reluctant to subscribe to this approach, and in some cases continues even to press for privatization of water resources and the utilities.

This is the crux of the need to pay attention to the Yerevan Water & Sewerage Company security agreement with the Ministry of Finance & Economy, in which the water company is obliged to pledge ‘All its Assets’ against the World Bank loan.

In 2002 the Yerevan Water & Sewerage Company assets were re-valued by a local auditing company, in accordance with a Government Decree. The revaluation was done in a competent manner, but the water company manipulated the results in their accounts, to show a massive over-valuation for the ‘Non-Fixed Assets’, which are worth very little, and a miniscule amount for the ‘Fixed Assets’ which include all the buildings and infrastructure, including the major pipework systems.

If the company assets are pledged against a security agreement, the company has an obligation to repay the Municipal Development Project credit. On the contrary, if the security agreement is not in place, the water company has no obligation to repay the loan. Or as things stand at the moment, with only the non-fixed Assets pledged, the Company is obliged only to the extent of the value of the non-fixed Assets, which are virtually worthless.

Today, thanks to financial jiggery-pokery by the Italian operator A. Utilities, highly valuable fixed assets are not only free from the security burden, they are valued at such a low figure that any potential ‘Buyer’ can pick up the Yerevan water utility for a song.

So when the Yerevan water utility becomes yet another part of Armenia’s Foreign Direct Investment (FDI) statistic - ‘Privatized’ by one of our state cronies, through one of their international ‘Front’ organizations, and ‘Rubber-Stamped’ by the Government, our children will finish up paying back the $30 million dollars World Bank credit - for the privilege of knowing that the owner of the water company can go on making massive profits ………… ‘Year-in-and-Year-out’.

So, through my action with the World Bank, one of the items for consideration is the valuation of the Yerevan Water & Sewerage Company assets. Hopefully, the Bank will respond to my claim and have this and other problems investigated, so that Yerevan’s water utility will remain our children’s property, and our children’s children’s property, for years to come. – Or maybe we are already too late?

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