Power Sector Financial Recovery Program

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The development objective of the Power Sector Financial Recovery Program for Results (PforR) Project for Armenia is to support the Borrower’s efforts to maintain adequate and reliable electricity supply through improvement of the financial standing of the state-owned power generation companies and the private power distribution company. The part of the government program supported under the proposed PforR includes the following activities: (a) decision by the shareholder’s meeting of the state-owned power generation companies to prohibit the non-core business related expenditures, lending and borrowing by those companies; (b) reducing the payables for natural gas; (c) recovery of receivables from electric networks of Armenia (ENA) to allow state-owned power companies to finance the required maintenance costs; (d) refinancing of the principal amounts of commercial loans of state-owned generation companies with concessional resources attracted from an International Financial Institution; (e) overhaul of the gas turbine at the existing combined cycle gas turbine (CCGT) plant of Yerevan Thermal Power Centre (YTPC) as part of the regular maintenance. The overhaul will allow preserving the generation capacity of the gas unit and, thus, the capability of the CCGT plant to supply the required amount of electricity; (f) amendment of ENA’s license to allow adjusting the margin by the full size of loss (profit) incurred due to mismatch between actual and forecast cost of electricity purchased by ENA; (g) revision of tariff-setting methodology to allow adjusting the tariff by the full size of natural gas purchase related loss (profit) incurred due to fluctuation of Armenian Dram (AMD) and United States dollar (U.S.) exchange rate; and (h) preparation and adoption of liquidation program for Haigasard and its implementation. These activities are grouped into four results areas: results area 1, elimination of cash outflows of state-owned power generation companies for non-core business related reasons. Results area 2, reduction of expensive commercial loans of state-owned power generation companies, recovery of receivables, and repayment of YTPC’s payable for natural gas. Results area 3, setting of tariffs reflecting changes in the cost of electricity supply. Results area 4, maintaining the generation capacity of the gas turbine at YTPC’s CCGT plant.