Privatizing the New Gas Pipeline

Recent news have nearly confirmed that a firm in Armenia, partly owned by Russians, is about to acquire the Armenia-Iran gas pipeline under construction (see here). I know that a lot of people have complained that another vital industry is being taken over by the Russians. But this outcome is in many ways inevitable in the marketplace for energy related resources in that region, particularly as the acquiring firm is also the owner of the gas distribution network and a number of thermal power stations.

The government is ill suited to manage the energy resources of the country, both in generation and distribution. So privatization is the only way to go. However, is all this secrecy and behind the door negotiations leading to the transfer of these assets necessary? Why not simply have an open bidding process. Granted that the very same firm will most likely win the bid, and take over these assets, but at least the process will be transparent. This will likely help facilitate similar future transactions (reputation effect), as well as potentially yield a higher price for tendering these assets as more firms bid for them.

Many were critical of a similar process by which the electricity distribution network was privatized only a few years ago. A major critic of the transaction at the time was the World Bank. Yet in recent analysis, the Bank has reported to be very pleased with the outcome if not the process of the privatization (see here).

Again, I think the focus should be on the process and not the acquirers of the privatized assets. However, equally if not more important is the effect of this and similar transactions on market concentration and the creation of a vertically integrated monopoly in Armenia.