This record is a partial extract of the original cable. The full text of the original cable is not available.

UNCLAS SECTION 01 OF 02 YEREVAN 001899 
 
SIPDIS 
 
SENSITIVE 
 
STATE FOR EB/CBA, EUR/CACEN, EUR/ACE 
 
E.O. 12958: N/A 
TAGS: ECON EAID EIND ETRD PGOV KCOR AM
SUBJECT: ARMENIA'S OLIGARCHS: STAYING RICH ON FOOD, GAS, AND 
CIGARETTES 
 
Refs:  A) Yerevan 1456  B) 03 Yerevan 2975  C) Yerevan 777 
 
¶1. (U) Sensitive but unclassified.  Please protect 
accordingly. 
 
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SUMMARY 
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¶2. (SBU) Trade in the most basic goods in the Armenian 
economy is controlled by a small number of oligarchs with 
strong ties to government.  While it is considered common 
knowledge that oligarchs use political power and their 
dominant market position to keep competitors at bay, there 
is little political will to investigate or regulate these 
businesses under Armenia's competition law.  The 
government's fledgling State Commission for Protection of 
Economic Competition (the Commission) is not yet strong 
enough to successfully tackle the goliaths who control basic 
commodities.  The Commission has taken on small cases and 
the unpopular Armentel telephone monopoly (ref A), Armenian 
consumers and would-be competitors are the losers as basic 
goods remain subject to the control of a few.  Until the 
GOAM is willing to address the corruption throughout 
government which allows the oligarchs to control their 
markets, they will continue to gouge Armenia's most 
vulnerable consumers, the poor.  End Summary. 
 
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OLIGOPOLIES IN FOOD, GAS AND CIGARETTES 
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¶3. (SBU) While the empires controlled by Armenia's oligarchs 
are insignificant when compared to those in Russia, they 
have managed to amass impressive holdings by controlling 
access to basic goods, like wheat, sugar, salt butter, 
gasoline, beer and cigarettes (ref B).  Key to their ability 
to control much of the supply of these staple goods are 
close relationships with powerful government actors.  A 
single importer, Samvel Aleksanian (aka Lfik Samo) controls 
90 percent of sugar imports, nearly all butter imports and a 
large sector of the grain market.  Areg Ghukasian, a 
National Assembly member and brother of Nagorno-Karabakh's 
"president," controls all the salt sold in Armenia.  Wheat, 
which is the most important commodity in the consumer price 
basket, is controlled by three major players:  Gagik 
Tsaroukian (aka Dodi Gago, a National Assembly member and 
 
SIPDIS 
Armenia's best-known oligarch), Samvel Aleksanian, and 
Mikhail Bagdasarov, a friend of Serzh Sargsian, the powerful 
Minister of Defense.  Close friends of Sargsian, including 
Bagdasarov, control nearly all the competing interests in 
the gasoline market. 
 
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COMPETITION COMMISSION STILL LEARNING TO WALK 
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¶4. (SBU) The Commission was created in January 2001 to 
address the undeniable de facto monopolies of the oligarchs, 
but clearly lacks the clout or political support to take on 
the major "crony capitalists."  Pavel Ghaltakhchyan, Deputy 
Chair of the Commission is quick to point out that his is a 
young agency (the age of its members notwithstanding). 
Charged to enforce Armenia's competition law, the Commission 
members lack authority to request information from other 
government agencies and to inspect business records. 
Commission members also point to their lack of practical 
experience in competition policy and enforcement.  Even 
though its decisions are subject to judicial review, the 
Commission has no lawyer.  While the activity of the 
Commission has nonetheless increased, it has enforced no 
decision involving wheat, gas, sugar, or poultry, despite 
widely publicized recent prices increases and pressure from 
critics. 
 
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OTHER GOVERNMENT AGENCIES PROTECT OLIGOPOLIES 
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¶5. (SBU) The ultimate capacity of the Commission to deliver 
a competitive market in the goods dominated by oligarch 
traders is severely limited by the Commission's weakness vis- 
a-vis other government agencies.  Among the government 
entities instrumental in preserving the oligopolies is the 
Customs Committee.  For dominant importers, it appears that 
Customs lets imports pass under the table:  official imports 
of gasoline have inexplicably declined over the last three 
years despite double digit growth in GDP and increasing 
traffic.  New market entrants can expect much worse 
treatment.  Commissioner Hrayr Aramyan told us that if a new 
company sought to import sugar, for example, "Customs might 
not let it in, or might hold it in storage for a long time." 
(Note:   The Embassy knows of two cases where Customs 
wrongly held a market entrant's shipment of wheat until it 
rotted.  End Note.)  Aramyan pointed out that in such a case 
the shipper would complain to Customs, rather than to the 
Commission, as the dominant importer cannot be liable for an 
illegal act of Customs except in the unlikely event the 
Commission could prove that there was an arrangement between 
the two. 
 
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COMMENT: CORRUPTION MUST END FIRST 
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¶6. (SBU) The creation of the Commission was only a first 
step in solving Armenia's competition problems.  In most 
cases the oligopolies' competitive advantage lies in a cozy 
relationship with some other government agency, and the 
government overall lacks the political will to challenge the 
oligarchs' control over markets.  The uncompetitive 
environment in Armenia's basic goods is as much a question 
of corruption in government -- especially Customs -- as it 
is of abuse of dominant position or anti-competitive 
agreements between private companies.  We believe that 
reform of the Customs administration and a change in 
Armenian cultural tolerance to a certain level of 
corruption, rather than a European-style competition law, 
that will eventually reduce barriers to entry in Armenia's 
markets. 
EVANS