Armenia

The World Bank's Country Assistance Strategy (CAS) supports reforms and investments in the three key areas identified in the Government's Poverty Reduction Strategy (PRSP): promote private sector and support economic growth; spread benefits of growth among all layers of the population; and reduce poverty. The PRSP emphasizes improving the quality of infrastructure and, in particular, roads, and strengthening the regulatory capacity to support privately-owned operators’ involvement in energy and infrastructure and to accelerate access to social services.

Transport sector development, together with trade facilitation, is an effective way to support sustainable economic growth and alleviate pervasive poverty in Armenia. Mining and construction, the industrial sectors currently blossoming in Armenia, depend heavily on affordable and reliable transport. Agriculture and food processing have large export potential; there is also a huge potential in reviving the tourism industry. Radically improved transport infrastructure and logistics services, and, for tourism, upgraded facilities and hospitality services are, therefore, paramount for the successful development of these sectors.

Railways. Transport market share in Armenia has increased since the economy began to recover. The company “Armenian Railways” (AR), however, is in dramatic need of investments, including replacement of the majority of its rolling stock, rehabilitation of the main line between Yerevan and the Georgian border, renewal of its overhead power systems, and reconstruction of damaged bridges. AR also copes with a significant loss-making passenger service and a weak capacity to adequately plan maintenance needs for stations and number of facilities, including depots and workshops.

Overall, rail transport is slow and unreliable. Consequently, rail traffic remains low compared to European countries with similar network, amounting to only 2.6 million tons of freight and 0.85 million passengers in 2004. Staff is too important compared to the level of transport performance. The operating environment for the railways has deteriorated dramatically since the Soviet Union’s collapse: between 1989 and 1999, AR lost about 93 percent in its traffic volume. However, after the recent reforms which permitted to set cost-based tariffs, renew obsolete assets, and reduce staff, AR’s financial situation has improved and positive net profit has been recorded for the past few years. In addition, a supervisory board has been established in 2005, even though it remains an entity under the control of the state.

Means to improve the profitability of railways include, but are not limited to: (i) improving the management system, (ii) ensuring independence of joint stock companies, (iii) developing and diversifying transport services, (iv) reducing energy consumption, (v) setting cost-based tariffs, (vi) attracting private freight forwarders and shippers, and (vii) implementing international procurement rules.

Roads. Armenia has a relatively well-developed road network, serving all areas of its economy with 257.6 kilometers of roads per 1,000 square kilometers. Most of freight and passenger transport is made by road. The road network is 7,700 kilometers long with 1,400 km of interstate roads, 2,520 km of regional roads and 3,780 km of local roads.  Interstate and regional roads are administered and managed by 'SSCC Armenia Roads', a Government entity. Thanks to technical assistance received in the past, SSCC Armenia Roads is now competent to contract out most of its civil works, including engineering design and contract supervision.

Financing of road maintenance and rehabilitation remains limited. Indeed, Armenia has no Road Fund, and the allocation from the State has reduced dramatically after the independence. This arouses suspicion about the country's ability to keep the roads in operating condition without external assistance. There is a need to plan a sound program for financing road maintenance in the future. In particular, road user charges should be increased, especially for trucks, in a view to mobilize local resources for maintaining roads. Local roads which provide access from villages to markets are in poor condition in several areas of the country and will require improvement if living standards and conditions in the rural areas are to improve.

Urban Transport. In Armenia, buses and minivans offer the most reliable form of transportation. There is a small metro system in Yerevan, but it is quite limited and not very reliable. Financial needs to upgrade the metro system are necessary to accommodate a growing traffic. Also, trolley buses still run in Yerevan but remain very unreliable due to lack of maintenance and sporadic disruptions in electricity supply. Tickets are subsidized by the municipality and therefore, cost recovery on ticket income is very low and does not allow full depreciation and equipment renewal.

Air Transport. Civil aviation infrastructure consists of three international airports, Zvartnots (Yerevan), Erebuni, and Gyumri, and nine local (non-military) airports, although most domestic airports are not functioning. Air services suffer from inadequate physical infrastructure, as aged runways and landing lights can attest, and air terminals lack of modern conveniences to attract international business travelers and tourists. Aviation is allegedly one of the Armenian government's priority areas for development. Modernization, including replacement of practically all airport equipment, and purchase or lease of passenger aircrafts is needed. In 2002 Armenia's government and an Argentine company, Aeropuertos Argentinos 2000, signed a contract on a 30-year concession of Zvartnots airport.  The national carrier, Armavia has been privatized and granted monopolistic rights till 2013. The Armenian aviation market is emerging slowly. Number of international carriers operates flights from and to Zvartnots airport and the passenger traffic is steadily growing (23% growth registered in 2004).

Trade Facilitation. The World Bank has been active in promoting Trade and Transport Facilitation (TTF) projects in Armenia, Georgia and Azerbaijan. The region faces high transport costs and low credibility as trading partners. The objective of the World Bank's TTF work is to promote and expand the instauration of soft barriers to trade and transport along with active public-private interactions. Please also visit our Regional Initiatives in South Caucasus site for additional information.

World Bank’s Involvement. Closed and on-going projects aim at liberalizing the transport market and promoting best practices of market economies. The existing gap is important, and lot of work still needs to be done in order to bring Armenian transport infrastructure and services to the level of the rest of Europe. In 2004, the World Bank has completed a Transport project, which assisted the Government in alleviating key transport bottlenecks that undermined trade and reduced investment prospects for the private sector. The project objective was threefold: (i) improve the main road network, with commensurate reductions in transport costs, improve road safety and increase the operational efficiency of Armenia Roads; (ii) improve the rail service between Yerevan and the Georgian border, as well as the financial and managerial performance of the Armenian Railway Department; and (iii) strengthen the planning capabilities of the Ministry of Transport and Communication.

A PPIAF-funded study on railways is currently underway. The objective of the study is to develop a plan for restructuring "Armenian Railways" and promoting private participation.

Updated 3/06/2006