Mining Industry as a Fanciful Game of Cats-and-Mice

ArmInfo.Arminfo: “Let the people know the facts, and the country will be safe.” These words of Abraham Lincoln have become challenging for post-revolutionary Armenia more than ever. Such huge piles of political and economic “garbage” have accumulated in the country that its rakers , most likely, not keeping up with their own promises and even thoughts, begin to turn their backs on the astringent smell and stench coming from those. Whatever one may touch it breaks down or threatens to collapse the socio-economic structure built up over a quarter-century, which turned out to be worthless and a non-effective one.  

Balance of convenience

One of the relevant decisions requiring to dot the i's and cross the t's turned out, as expected, to be the mining industry of our country with its too heavy social and environmental load, but it was exactly  this raw material industries sector was the most “tasty bit” for the former power-holding elite . Therefore, in an attempt to solve its problems not from the standpoint of the effectiveness of this industry as such, but from the position of public morality and state interests, this sphere of the economy today loses the apparent stability it had previously and threatens to become the Achilles heel of the new Government. That is why, feeling the entire danger of the collapse of a knocked-down structure and possible adverse consequences for maintaining a balance of interests and social consensus, the Government decisions are still pending, because the latter conceives the ways of these decisions very poorly.

This is precisely why the revolutionary Prime Minister, as if for prevention, has repeatedly warned the population that the country will not follow the path of the further development of mining industry, while perfectly understanding and warning the population about the possible enormous economic and reputational and investment costs when trying to terminate already operating   projects that have accumulated unresolved environmental issues for decades.

The Amulsar Trap

As a result of a public debate on this topic, the Amulsar gold project turned out to be the first victim, because it was at the construction stage and ore mining has not yet begun. We must pay tribute to Pashinyan, who, in fact, did everything in his power to maintain, on the one hand, the balance of public interests, notoriously existing  for any  society of real democracy, and, on the other, to try not to lose face and get outplayed in  the world’s investment community, which, judging by the activity of foreign diplomatic missions defending  the project univocally, was seriously concerned with the threat of the project cancellation, which, in its turn,  would lead to the loss of enormous resources, generated by ordinary citizens and Nationalists of Western, and not only Western, countries.

After all, it is well known that the operation of the Amulsar mine is a vivid example of the successful combination of a large industrial program with an equally large well-thought-out financial and, one might say, a mining venture project. Having just and only the development license in their hands, the authors of the project, with the minor help of the European Bank for Reconstruction and Development and the International Finance Corporation, managed to engage into the project hundreds of millions of dollars owned by Western investment and pension funds, which believed in it. Closing the project would put Armenia in a very unenviable position on the investment map of the world. And this is a direct road to being the world's outsiders. 

Without going deep into professional debates about whether the Amulsar project can actually pose a danger to the region’s ecology (there are professionally skilled environmental scientists, experts, and engineers for that, unfortunately still not ready to end their tough battle and put down the swords), let's say that the history of the mining industry knows either a large number of projects which turned unsuccessful from a technological and environmental point of view, and  more than successful ones. The quality of such projects depended entirely on the level of development of the country, and not so much the development of the economical as the socio-political, that is, when the country lives on the basis of really working principles of public checks and balances. It is exactly this model of society that the revolutionary Prime Minister calls inclusive and it is it that is able to maintain public consensus in the country, despite the fact that the problem of the “Amulsar” in the hands of political technologists began to turn into a hot topic of the information war between the so-called "white and black."

A vivid example of whether the state can transform the environmental challenges it faces into opportunities is provided by mining companies operating in developed countries we use to call Western. The five countries with the most developed mining industry in the world include such democratic countries as Canada, the USA, South Africa, and Australia. At the same time, the role of the industry in the economy of these countries has significantly increased over the past 10-15 years. The reason is the increase in demand, primarily in China. Very active exploitation of oil and gas fields is carried out in the Netherlands and, of course, in Norway. Speaking about the successful combination of environmental challenges with immediate benefits, outside the mining sector, it is enough to recall the unique garbage recycling plant in the very center of the Austrian capital Vienna. This architectural and technological phenomenon is a real standard of hyperbolic conjugation of malicious production, environmental barriers, and an architectural masterpiece.

Do these democracies maintain and comply with the necessary environmental standards? Without a doubt, yes. The reason, most likely, is a balanced approach based on strict state control and the presence of public consensus. That is precisely what we should be guided by today when it comes to choosing a middle ground in achieving this consensus, not allowing ourselves to be driven into a trap prepared for us by common and unwritten world rules.

The Teghut Syndrome

The Teghut problem is perhaps not the last among the numerous environmental issues in Armenia. The battles for Teghut, it would seem, have long been over, the development of the mine provided thousands of jobs in the north of the country providing considerable direct benefit to ensure economic growth and at least some balance in the severing foreign trade account.

The ongoing dependence of the economy on the state of condition of mining raw materials export is evidenced by recent reports of international organizations. Thus, the Eurasian Development Bank recently emphasized in one of its reports that the Armenian economy is growing rapidly and that the indicator of economic activity increased in August 2019 by 7.6% YoY (+ 7.0% YoY in January - August 2019). At the same time, according to the Bank, industrial production grew by 16.8% YoY and it was against the backdrop of an increase in mineral production by 55.0% YoY, which is largely due to the resumption of work of the Teghut mining and processing plant. So, the continuing extreme dependence, let's say, is obvious.

But this is not just an addiction, it is a challenge, and, in all likelihood, a challenge that, as in the case of Amulsar, simply needs to be turned into an advantage based on public consensus on the new formula proposed by the new Government.

But right here, in this case, for some uncertain reason, the new Government began to omit and move away from its basic principles. Anyone who at least sometimes monitors the state of affairs in the mining industry, including from the point of view of ensuring their environmental safety, today asks why the revolutionary Prime Minister considers non-problematic the implementation of the project, which was suspended in 2017 precisely because of serious environmental challenges that have been confirmed by reputable international experts working in Teghut. The project, which was sustainably funded by a large Russian lender, had to be stopped due to the refusal of another, this time already a western, lender, who saw serious gaps in it, either in the literal and figurative sense of the word. It was about the tailings dam, which began to collapse from the inside both for objective and for technological reasons. Moreover, the Vallex operating company at that time stated that the reason for the suspension of ore production was the need for ongoing repairs, and two months later the Company had to tell the whole truth that the tailings dam was problematic and the operation would be terminated for long. That is, it was about the need for an urgent solution to an acute problem. Attempts to get an answer from the company why the problem did not find a solution, namely why the dam was not thoroughly repaired and strengthened, or why there was no place for the construction of a new waste area for Teghut, were not successful although it is clear that the company that ceased to receive income is unlikely could do something serious.

One way or another, the problem has not been resolved, but the new operator has already resumed the operation of the mine. The strangest thing in this plain story is that the words of Pashinyan about the safety, of Teghut, did not fit in with the words of his own minister. After the environmental accident at the Zangezur Copper-Molybdenum Combine, he failed to clearly answer the question, how safe is the Teghut mine and is it safe from environmental disaster? According to an interview given by one of the leaders of the Teghut expert group to our colleagues from the Hetq investigative information resource, the Teghut dam can be blurred and is a rather risky object. He even appeals to the bitter experience of Brazil near the city of Brumadinho, where a stream carrying millions of tons of waste from mining iron ore washed away roads, forests and buildings, and took the lives of hundreds of people. It was then that they began to look for the guilty, although it is clear that the root of the problem was not in an inclusive, but rather in an extremely extractive model of the socio-economic arrangement of this country, where international standards, like ours until recently, were purely paper in nature, and in fact, everything, including the interests of society, subordinated and submitted solely and exclusively to His Majesty PROFIT!

That is why the problem of Teghout also remains the most important test for the socio-economic block of the new Government. Will it remain within the streamline of new ideas and a new paradigm of inclusiveness, or will it be the forerunner of rolling down into the former swamp?

The Zangezur Wrap-Up

The Zangezur Copper-Molybdenum Combine, both in Soviet times and nowadays, continues to be one of the flagships of the Armenian industry. But this is a pig in a poke, wherein being a "golden" one and access to the pouch was originally reserved exclusively for the political elite of this country. While the latter always, at any opportunity, launched its hands there, receiving resources for various, mostly personal, and sometimes for solving state urgent tasks.

That is why the capital structure of ZCMC up to individuals and companies directly affiliated with the main shareholders of ZCMC is transparent just and only nominally; there is no information about its ultimate beneficiaries. The media recently shared the information about the presence of interests of family members of the third President of Armenia Serzh Sargsyan resigned after the Velvet Revolution. A number of parliamentarians of Armenia appealed to the relevant authorities with a demand to begin an investigation due to the fact that the Company’s multimillion assets are actually owned by rather modest individuals, especially close to the family of the former President. Let's see if law enforcement officers will respond to these calls of lawmakers because we are talking about very large assets. By the way, the Company recently issued bonds that were supposed to replenish the company's assets by more than 50 million dollars. Whether they will be aimed at environmental purposes or exclusively at refinancing past debts?

The too complicated scheme of ZCMC’s capital structure, its affiliates, companies, interests, conflicts, incomprehensible stories, big and small environmental “troubles” testifies to the need to open this golden bag, displace it from the shadows and make it public, and again both in the literal and figurative sense of the word. Perhaps, the best scheme for this would be to search for paths for the organization of the scheme (imposed by the "New Armenia") of an additional issue of the Company's shares for public stock exchange sale under severe restrictive conditions that put a barrier to their possible consolidation in the hands of old and, give it a shott, new relatives. Today ZCMC is the best model and the best platform for launching a nationwide project to develop a public capital market, which will never be replaced by any so-called Extractive Industries Transparency Initiative (EITI), in which Armenia has become a member and the feasibility of which is equal to "zero" as of today.

The trap for the Power

To get out of this mining trap with honor is only possible if there is a powerful unwavering political will that can turn the situation in the direction of sustainable, as we use to say today, inclusive development. It is not too late yet, but it is simply dangerous to postpone issues related to the numerous risks in the mining industry for later. On the other hand, chopping them down according to the Gordian knot principle curtailing and driving out investors, who are not at all to blame for the fact that they received advanced conditions for operation from the former authorities, not for their good look, will be no less dangerous, and stupid. But this does not mean yet that in this highly profitable sphere, on which the solid volume of the country economic and export potential is still based, one must continue to play a fanciful game of cats-and-mice.

It is probably time to move on to certainly phased tough measures to regulate the industry, including that done through public privatization mechanisms, so that investors, evaluating their own benefits and risks, could deem the state a partner who knows how to punish and encourage.