ARMENIA: Support the Government of Armenia's High Voltage Electric Networks to Improve Their Creditworthiness

The Government of Armenia has sought to enhance the financial and operational efficiency of High Voltage Electricity Networks (HVEN), the country’s transmission company, to enable it to secure sustainable investment financing from private sources. Historically, HVEN has relied heavily on public borrowing to meet its investment needs. Attempts to raise commercial debt have been characterized by high interest rates and short repayment terms, significantly increasing financing costs—tripling between 2017 and 2020. While the World Bank’s Financial Recovery Program (2016–2021) successfully addressed urgent issues for other energy sector state-owned enterprises, including the Armenian Nuclear Power Plant and the Yerevan Thermal Power Company, HVEN continues to face challenges in accessing affordable financing for long-term investments.

This initiative was designed to assist HVEN in improving its corporate strategy, governance, and financial sustainability to unlock more favorable financing options. The analytical work aimed to build on earlier efforts and chart a pathway for HVEN to improve its creditworthiness, reduce its dependency on sovereign debt, and strategically prioritize investments.

The activity included three main components:

1. Corporate Governance Diagnosis and Improvement:
   A comprehensive assessment of HVEN’s corporate governance practices was conducted, focusing on introducing quality and security management systems. This included addressing anti-corruption measures, environmental considerations, and information and communication privacy concerns.
2. Development of a Financing Strategy:
   A detailed financing strategy was developed to evaluate options for mobilizing commercial financing. This included exploring instruments such as bond issuance, syndicated loans, and minority share flotation, alongside assessing their implications for HVEN’s tariffs and the overall cost to end-users.
3. Preparation for Credit Rating:
   HVEN received support to conduct preparatory work for obtaining a public credit rating from an international rating agency. This step is essential for positioning HVEN to attract long-term commercial financing and, ultimately, to issue Eurobonds.

The findings revealed that while HVEN maintains a strong financial position, supported by high profitability and low debt service coverage ratios, it remains dependent on sovereign debt to finance capital expenditures. This reliance limits Armenia’s fiscal space and contributes to the country’s debt burden. To transition toward commercial financing, HVEN is recommended to first address corporate governance weaknesses, refine its tariff methodologies, and manage its existing debt burden. In the medium term, obtaining a credit rating will be crucial to accessing new financing mechanisms, including Eurobond issuance.

The insights from this activity have informed a Program for Results operation by the World Bank, which incorporates outcomes of the initiative as key performance indicators. This work aligns with HVEN’s broader goal of modernizing its governance and management systems, enabling the company to access new financing sources and reduce reliance on public debt.

Ultimately, this initiative supports HVEN’s efforts to facilitate variable renewable energy integration and advance Armenia’s energy transition. By modernizing its governance framework and diversifying its financing sources, HVEN is better positioned to play a pivotal role in the country’s sustainable energy future.