GOVERNMENT OF THE REPUBLIC OF ARMENIA

DECISION

No 105-L of 27 January 2022

ON APPROVING THE SUPPORT PROGRAMME FOR LEASING OF AGRICULTURAL EQUIPMENT IN THE REPUBLIC OF ARMENIA

Based on Article 146 of the Constitution of the Republic of Armenia and point 15 of the Annex to the Law of the Republic of Armenia "On the structure and activities of the Government", the Government of the Republic of Armenia decides:

1. To approve the Support Programme for Leasing of Agricultural Equipment in the Republic of Armenia, pursuant to the Annex.

2. This Decision shall enter into force on the day following its promulgation.

Prime Minister of the Republic of Armenia	N. Pashinyan
Yerevan

31 January 2022 CERTIFIED BY ELECTRONIC SIGNATURE

Annex to Decision of the Government of the Republic of Armenia No 105-L of 27 January 2022

SUPPORT PROGRAMME

FOR LEASING OF AGRICULTURAL EQUIPMENT IN THE REPUBLIC OF ARMENIA

1. PROGRAMME DESCRIPTION

1. One of the main prerequisites for the development of agriculture is to increase the level of mechanisation of agricultural works. The latter is one of the main factors for increasing the competitiveness and efficiency of the agrarian sector, the full use of production potential and the growth of volumes of agricultural products.

2. According to the data collected from the marzes of the Republic of Armenia, the number of agricultural equipment in the Republic at the end of 2020 was 26670 units, of which 10487 units — tractors, 1032 units — grain harvesters, 256 units — forage harvesters, 2467 units — field mowers, 2188 units — harvester-pressing machines, 1656 units — row drills, 3733 units — ploughs, 2139 units — cultivators, 314 units — grain-cleaning machines.

3. The analysis of the state of agricultural equipment in the Republic of Armenia has shown that the average level of operable condition of technical means is 88.5 percent. In particular, 86.5% of tractors, 78.3% of grain harvesters, 86.7% of forage harvesters, 91.1% of field mowers, 86.4% of row drills, 91.7% of ploughs, and 92.2% of cultivators are in a good technical order.

4. Within the framework of "State support programme of financial lease, i.e. leasing of the agricultural equipment in the Republic of Armenia" approved by Protocol Decision of the Government of the Republic of Armenia No 11-31 of 16 March 2017, 1859 units of agricultural equipment were provided to 1186 lessees from April 2017 to 31 December 2021, including 815 units of tractors, 14 units of combine harvesters and 1030 units of other agricultural equipment.

5. Given current imperative demand for upgrading the agricultural equipment and the low level of solvency of economic entities in the agriculture, the renewal of agricultural equipment is considered realistic where affordable mechanisms for acquisition of agricultural equipment are applied.

6. The assessment of the current state of mechanisation of agriculture shows that the development and implementation of targeted programmes for technical upgrade of agriculture, the implementation of state support policies with the use of new approaches and tools in relation to the issue are a priority in the field.

7. Due to the need for increase in the level of mechanisation of agriculture, upgrade of machine-tractor set, efficient organisation of cultivation and harvesting activities designated by agro-technical requirements, the support programme for leasing of agricultural equipment in the Republic of Armenia has been developed (hereinafter referred to as “the programme”).

8. The main goal of the programme is to supply agricultural equipment to economic entities in the agriculture under affordable conditions, particularly through the use of leasing mechanisms, to create favourable conditions for efficient use of agricultural soil types and organisation of the manufacture of products.

9. The Programme will be implemented using the following main approaches:

(1) the agricultural equipment to be provided to the economic entities in agriculture under the Programme will be supplied from well-known companies manufacturing agricultural equipment in the Eurasian Economic Union and other countries, which will enable the establishment of agricultural equipment maintenance centres in the Republic of Armenia;

(2) under the Programme, the supply of agricultural equipment to the Republic of Armenia shall be carried out by specialised institutions, which will ensure also warranty and post-warranty maintenance of agricultural equipment;

(3) under the Programme, the leasing interest rate for the economic entities who acquire agricultural equipment and conclude a leasing contract will be partially subsidised during the validity of the leasing contracts concluded within the framework of the Programme;

(4) due to low level of solvency of the economic entities in the field of agriculture and the low solvent demand for acquiring new agricultural equipment, the renewal of the set of agricultural equipment of the Republic of Armenia in the amount of 10.0-12.5 percent per year is not considered realistic, therefore it shall be envisaged under the Programme to carry out the renewal of equipment in smaller volumes, i.e. in the amount of 1.0-3.0 percent, which will create prerequisites for more rapid upgrade of the set of agricultural equipment in the following years.

10. Within the framework of the Programme, the following agricultural equipment will be provided to the economic entities:

(1) tractors of different makes;

(2) combine harvesters;

(3) harvester-pressing machines;

(4) row drills;

(5) ploughs;

(6) field mowers;

(7) potato-planters, potato harvesters;

(8) cultivators, rotary cultivators;

(9) spraying machines;

(10) tractor trailers;

(11) other agricultural equipment.

11. Participants of the programme shall be:

(1) natural and legal persons who meet the financial (creditworthiness) requirements of a bank or credit organisation (hereinafter referred to as “financial institution”) for acquiring agricultural equipment, have signed a leasing contract in accordance with the terms of the Programme, communities (where the subject of the given lease is not intended to be acquired under subsidisation programmes), individual entrepreneurs (hereinafter referred to as “lessee”);

(2) any financial institution that provides agricultural equipment to economic entities in accordance with the terms of the Programme.

(3) the Ministry of Economy of the Republic of Armenia (hereinafter referred to as "the Ministry");

(4) Rural Financing Institution (hereinafter referred to as "the RFI") of the State Agency "Rural Areas Economic Development Programme Implementation Unit" of the Ministry of Economy of the Republic of Armenia.

12. Terms of the Programme shall be the following: the terms of provision of and support for agricultural equipment leasing shall be defined in Table No 1;

(1) leasing shall be provided in Armenian drams, with an annual interest rate of up to 14 percent, up to 12 percentage point of which is subsidised in such an amount that the annual leasing interest rate paid by the lessee shall be 2 percent, and subsidisation of the leasing interest rate for economic entities operating in the territories of border settlements receiving social support approved by Decision of the Government of the Republic of Armenia No 1444-N of 18 December 2014 and for citizens disabled as a result of combat duty or operations during the performance of military service duties will be carried out in such an amount that the annual leasing interest rate to be paid by the lessee is 0 percent;

(2) advance payment in the amount of 20 percent of the purchase price of the subject of the lease;

(3) leasing contract shall be signed with repayment period of 10 years for combine harvesters, 6 years for tractors, 3-6 years for row drills, harvester-pressing machines and 3 years for other agricultural equipment, moreover, in case leasing for tractors and other agricultural equipment is provided to the same lessee at the same time, the repayment period may be set at 6 years;

(4) at the request of the lessee, the financial institution may set deferment periods for payment of the principal and the leasing interest rate for a period of up to 6 months per year;

(5) the total amount of the subjects of the lease acquired by the same lessee under the Programme shall not exceed AMD 250.0 million;

(6) during the entire period of validity of the leasing contract, the subject of the lease shall be insured against the risks of damage and loss (Casco) at the expense of the financial institution.

13. The process of subsidisation of the leasing interest rate:

(1) the process of subsidisation of the leasing interest rate shall be initiated by the financial institutions that conduct leasing transactions in accordance with the terms of the Programme;

(2) the leasing process shall be carried out as per months, by means of equal payment of the principal; the leasing interest rate shall be calculated according to the balance of the principal;

(3) the subsidisation of the leasing interest rate shall be carried out on the basis of actual repayments of the principal of the leasing and the non-subsidised part of leasing interest rate;

(4) financial institution shall calculate or charge no penalty or fine for early repayments by the lessee of the principal of the subject of the lease;

(5) the amount of subsidisation of the leasing rate shall be transferred by the RFI to the relevant account of the financial institution based on the requests of the given financial institution. The requirements for the content of the request shall be defined by the contract concluded between the RFI and the given financial institution;

(6) the financial institution shall submit the request for subsidisation of leasing interest rate to the RFI once a month, no later than the fifth working day of the following month. The RFI shall be obliged to grant the request within ten working days after receiving the request and transfer the amount of subsidisation of the leasing interest rate to the account of the relevant financial institution, if the request complies with the requirements of the Programme. In case the request fails to comply with the requirements of the Programme, the RFI shall be obliged to notify the financial institution within three working days, indicating the reasons for non-compliance.

14. The subsidisation of the leasing interest rate shall be terminated where:

(1) the lessee has overdue obligations towards the financial institution for more than 90 days in total in one year (previous 12 months) with respect to the given leasing, or as a result of the overdue obligations towards the financial institution, the leasing is not classified into a standard class in accordance with the current procedure on the classification of financial assets;

(2) the subject of the lease is not used in accordance with its intended purpose or the rules of operation of the subject of the lease are not observed. In case the subject of the lease is not used by the lessee for its intended purpose, the amount of subsidisation provided until that moment shall be subject to return. The return of the subsidised amount to the RFI shall be carried out by the financial institution within a period of three months.

(3) a violation of the terms of the Programme has been detected as a result of monitoring.

15. The financial institution shall conduct monitoring in terms of compliance with the rules for the intended use and operation of agricultural equipment. Where the financial institution detects a violation of the terms of the Programme as a result of the monitoring, an appropriate opinion thereon shall be drawn up within ten working days and the Ministry and the RFI shall be informed thereof.

16. As a result of summarising the requests for subsidisation of the leasing interest rate, the RFI shall establish a statistical database that includes information on subsidisation of the leasing interest rate, the problems recorded and the implementation difficulties.

17. The RFI shall be obliged to submit a monthly report to the Ministry by the 10th day following each month.

18. The report shall contain detailed information on the progress of the Programme, including:

(1) information about the leasing contracts concluded by financial institutions with each lessee as per marzes and communities (indicating the name, make, quantity of the equipment, cost of the subject of the lease, the amount of the leasing, the balance of the amount of the leasing, the amount of subsidisation of the leasing interest rate);

(2) information about the violations recorded;

(3) recommendations on the improvement or refinement of the terms of the Programme, etc.

19. The Programme implementation risks shall be the following:

(1) low solvent demand for agricultural equipment in the Republic of Armenia;

(2) proposal of non-preferred versions of agricultural equipment under the Programme;

(3) proposing unfavourable conditions for participants of the Programme;

(4) partial receipt of income expected by lessees due to climatic and other factors;

(5) proposing unaffordable conditions by organisations providing leasing services;

(6) difficulties with import of agricultural equipment to the Republic of Armenia and the significant contingencies for transportation.

20. Risk mitigation directions shall be the following:

(1) Co-operation with experienced and reputable organisations that manufacture agricultural equipment in Eurasian Economic Union and in other countries, import agricultural equipment to the Republic of Armenia and provide agricultural equipment under a leasing contract, as well as providing prompt solutions to the problems having arisen;

(2) proposing affordable supply mechanisms under the leasing contract for agricultural equipment;

(3) providing affordable mechanisms and support to lessees;

(4) import of agricultural equipment and assigning the related risks to the suppliers;

(5) ensuring the warranty and post-warranty maintenance of agricultural equipment.

21. Financial assessment of the Programme:

(1) the source of funding for the implementation of the Programme shall be the State Budget of the Republic of Armenia;

(2) the estimated cost of implementation of the Programme in 2022 will be AMD 719.5 million. Funding of the Programme for the following years will be carried out as a result of discussions held within the framework of the budgeting process of each year, in the amount planned for the Programme under the State Budget for the coming year;

(3) it shall be planned under the Programme to annually carry out subsidisation of agricultural equipment with the value of the subject of the lease constituting about AMD 1.43 billion;

(4) the calculation substantiation drawn up on the basis of the results of the Programme is presented in Table No 2.

22. As a result of implementation of the Programme:

(1) an opportunity will be created for satisfying the solvent demand for agricultural equipment of economic entities in agriculture by applying affordable mechanisms, and for renewal of the set of equipment to a certain extent;

(2) about 1.0-3.0 percent of the set of agricultural equipment will be renewed in the Republic of Armenia; at the same time opportunities will be created for establishment of machine-tractor stations;

(3) every year the existing set of equipment will be updated in the Republic with about 500 units of new agricultural equipment of various types;

(4) the level of mechanisation in agriculture will increase, the beneficiary rural farms will be economically strengthened and conditions will be created for organisation and further development of commodity production thereby.

Table No 1

TERMS OF PROVISION OF AND SUPPORT FOR AGRICULTURAL EQUIPMENT LEASING

Table No 2

CALCULATION SUBSTANTIATION OF THE PROGRAMME-BASED RESULTS

Date of official promulgation: 31 January 2022.

Published on a joint site 06.06.2024.