Armenia drafts legal framework for TRIPP company; bill open for public discussion

Companies set up under international treaties in which the Armenian state holds at least 25% may be exempted from the laws on procurement, competition and public-private partnership.

The arrangement is set out in a package of draft laws developed by the Ministry of Justice. The package has been published on e-draft.am, and the public discussion will run until October 31.

The drafts do not name any specific project. However, the justification makes clear that the changes are also intended for the Trump Route for International Peace and Prosperity (TRIPP) project.

What changes

The new regime will cover companies that meet two criteria at once. First, the company must be established under an international treaty ratified by Armenia and for the purpose of implementing it. Second, the state’s share in its authorised capital must be 25% or more.

Transactions concluded by these companies will fall outside the Law on Procurement. The laws on protection of competition and on public-private partnership will not apply to them either.

A new article is being added to the Law on Joint Stock Companies. It will allow these companies to deviate from the law’s general rules through their charter or a shareholders’ agreement. The list of permitted deviations is closed. It covers major and interested-party transactions, the procedures of the general meeting and the board, pre-emptive rights when shares are sold, share buybacks, and the liability of shareholders and subsidiaries. All other matters will follow the general procedure.

The charter of such companies, and every amendment to it, must be approved by the government. The ministry sees this as an additional safeguard of the public interest.

Why the change is needed

In the justification, the ministry explains the need for the new regulation. When Armenia implements an infrastructure, transport, transit or energy project under an international treaty, a separate company is usually established. Its shareholders are Armenia and a foreign state or an international organisation. In the treaty, the parties also agree on the company’s basic governance rules: the ratio of shareholdings, the formation of governing bodies, decision-making procedures and restrictions on selling shares.

The justification notes that “these arrangements, being the result of intergovernmental negotiations, often differ” from the general provisions of the Law on Joint Stock Companies. A footnote is attached to this very sentence:

“It is noteworthy that a similar situation will also arise under the TRIPP programme in connection with the establishment and operation of the relevant company in the Republic of Armenia, based on the provisions of the Framework Agreement between the Republic of Armenia and the United States of America on Strategic Cooperation on the ‘Trump Route for International Peace and Prosperity’ (TRIPP) project.”

It was reported earlier that the United States will hold 74% of TRIPP Development Company and Armenia 26%. This is above the 25% threshold set in the draft.

The drafters estimate that adopting the package will not require additional budget spending.

The Armenia-US framework agreement on TRIPP

• What TRIPP is. A transit route across Armenian territory that will connect Azerbaijan with Nakhijevan. It will include a railway, a road, pipelines, fibre-optic and power transmission lines. Sovereignty, border and customs control remain with Armenia.
• The company. A TRIPP development company will be established in Armenia as a joint stock company. The United States will own 74% and Armenia 26%. Key decisions will be taken only with the consent of both parties.
• Land. The company will receive an exclusive right to use the land for 49 years. The term may be extended by another 50 years, in which case Armenia’s share will rise to 49%. At the end of the term, the rights will return to Armenia free of charge.
• Exemptions from laws. Armenia undertakes to allow deviations from the laws on joint stock companies, procurement and public-private partnership. In case of conflict, the agreement prevails.
• Taxes. Dividends, sales of shares and transfers of land rights are exempt from taxes.
• Border. Customer service at checkpoints may be provided by private operators (“front office”). Control remains with the state.
• Disputes and term. Disputes are settled only through negotiations. Either party may withdraw from the agreement with one year’s notice.