On December 3, the Armenian government decided to place a Russian-manufactured block in Armenia’s planned new nuclear power plant (NPP). The government also decided to create a joint venture for constructing the block, with equal shares for the Armenian government and the Russian company Rosatomstroieksport.

The future block will replace the current one, which was constructed in 1980 and, as the Armenian government has pledged, will be taken out of service in 2016. The new block will be constructed near the current NPP in the town of Metsamor, 38 kilometers west of Yerevan, and is expected to be ready by 2017. The construction cost of the new block will be US$4-5 billion.

Armenia’s NPP is the only one in the region. Currently, its only block with a capacity of 407 megawatts provides up to 40 percent of the electricity produced in the country, and the government considers it a major element of Armenia’s energy security. The government has repeatedly stated it will not close the NPP (as the EU has long demanded) unless an equivalent capacity is built. In May 2009, the government signed a consultancy agreement with the Australian company Worley Parsons which will also control the construction process.

The new block, with a capacity of 1060 megawatts, will be a Russian AEK-92 type water-water nuclear reactor. Its lifetime is 60 years and it has a European safety certificate. According to the official report, the decision was made according to the recommendation of the consultancy company, but at the same time, Prime Minster Tigran Sargsyan said it was a “political decision”. This means that Russian technology will be given a governing role in the construction of the new NPP.

Several issues remain to be formally clarified at a later stage. In particular, the government’s choice of a Russian nuclear reactor does not mean that the steam generator and the automatic regulator system of the block must also be of Russian origin, and the field is still open for other producers. In particular, France’s AREVA and the U.S.’ Westinghouse are also reportedly interested in this project. The investors in the project remain unknown, although the Russian government will evidently be a leading investor. The involvement of other investors is also possible, and a small part of the shares is expected to float at the stock exchange.

One thing that is certain is that Rosatomstroieksport has obtained a lucrative contract. This is good news for the Russian company, especially given that a tender that a consortium under its leadership had won for the construction of the first NPP in Turkey was annulled by a Turkish court last month.

Armenia’s power industry is dominated by Russia, as most of the Armenian power-generating enterprises are controlled by different companies with considerable control by the Russian government. The Metsamor NPP was an exception, as it has been recognized as the exclusive property of the Armenian government. However, the new NPP block is not included in this limitation and the Russian government is likely to have a significant, if not dominant, share in it.

In addition, the construction of the new NPP block will enhance Armenia’s role as a regional power exporter. Currently, Armenia is the only country in the region with excess power generating capacities and it exports electricity to Georgia and Iran. An initial agreement on exporting electricity to Turkey from 2009 was announced last fall, but it has not been realized due to political reasons. Replacing the current NPP block of 407 megawatts with a new one of 1060 megawatts will enhance Armenia’s export capacity. Also, new generating capacities are under construction at the thermal power stations in Yerevan and in Hrazdan. Since all Armenia’s four neighbors suffer from electricity shortages, Turkey most of all, Armenia will have good chances to increase its electricity exports in the future. Russia will also benefit from this, due to its dominating position in Armenia’s power sector.