$250mln investments in Amulsar nothing but a bubble - Environmental  Front

ArmInfo. The Armenian Environmental Front initiative of volunteers and Green Armenia NGO  issued a statement, which reads: 

On February 22, 2023, the Government of Armenia announced about a  trilateral Memorandum with Lydian Armenia and the Eurasian  Development Bank (an interstate financial institution with primarily  Russian and Kazakhstani capital) aimed at relaunching the Amulsar  Gold Mine project. Vahan Qerobyan, Minister of Economy of Armenia,  announced that "a package worth 250 million dollars" was being  signed.

Once again, a public outcry followed with NGOs, local residents and  the public at large demanding the Government to abandon the Amulsar  Gold Mine project.  

A freedom of information (FoI) request of Transparency International  Anti-Corruption Center has made it possible to obtain a copy of the  Memorandum and some answers to the questions regarding "the package".

We believe it is of utmost importance to inform the Armenian public  on the Memorandum's details, especially given the fact that the  latter, like many other "deals", has been negotiated behind the  public's back, without consultations and any public awareness on the  ongoing processes.

The Calculus Behind the "Package" 

The obtained documents make it clear that the state-bank-private  company trilateral Memorandum is yet another bubble that seems to be  somewhat instrumental for Lydian's potential objectives in the global  financial market.

The Memorandum states that in order to relaunch the Amulsar project,  Lydian Armenia has to ensure at least 250 million USD investments.  These numbers are surprising as such, because back in May 2018 the  company was stating that the construction was almost completed, and  the mine operation readiness was 80%. The new cost of the project is  considered unrealistic in the article by British journalist Thomas  Rowley as he quotes the internal communication of the Foreign Office  of Britain.

The tentative investment by the Eurasian Development Bank constitutes  less than 50% of the due amount- 100 million USD. Another 50 million  USD is to be invested by a local bank, a plan still under discussion.   That is to say, there is no confirmed local investor at present. And  despite the local bank remains undecided, Clause 2.1.3 of the  Memorandum already attributes liabilities to it. There is no  information on the remaining 100 million USD that Lydian yet needs to  raise.

Moreover, the decision of the Eurasian development Bank to lend 100  million USD is not final, either. The bank is now planning to conduct  assessments and only afterwards is it going to confirm or reject the  loan.

It is noteworthy to remind here that in late April, "Chaarat Gold  Holdings Limited" made a statement about discontinuing talks to buy  "Lydian Armenia", stating that it could not agree on an acquisition  structure within the required time.

Government modus operandi

The saddest thing in this story is the antidemocratic conduit of the  Armenian Government.  From the answers to TI's inquiry and from the  Memorandum, we learn that:

The Armenian Government is not going to audit "Lydian Armenia's"  operations or conduct any due diligence before supporting the  exploitation of Amulsar gold mine and becoming a shareholder in the  project. Apparently, the current government confides by 100% in all  the previous cabinets' positive assessments, as well as assessment of  environmental impact and permits regarding the project. And, at the  same time, it disregards the expertise of ELARD-TRC companies that  had been hired by the Armenian government for the audit of the  company's impact assessments and were paid 500 thousand USD from the  state budget.

In return for 12.5% stake in the company, without any financial  investment in the company's equity capital, the Government assumes  liability to not only secure unrestricted access for the company to  all the sites of the Project (a question arises whether the access  will be secured via police violence towards the local opposing  population) but also to facilitate any process involving receipt or  renewal of licenses or permits.  The Government also pledges to  safeguard the creditor banks against any force majeure, such as wars,  natural disasters, and now, with the new amendment of the "Law on  Mineral Resources" in 2022, also against public resistance (that the  government shall provide project investing banks with financial  guarantees for situations of force majeure, in other words, shall  provide financial compensation, should the risk materialize, is an  unpreceded kind of guarantee, indeed).

A question arises: what is the purpose of showcasing government  support to the project, pledging assistance in obtaining licenses and  what not, and eventually signing the Memorandum, involving high  officials? For, to do it all, there are relevant government  institutions with respective functions within their official  capacities that  operate in compliance with law and the RA  Constitution.  Do the Memorandum signing officials think that the  respective government bodies in charge might fail to comply with the  law? Or, on the contrary, are these officials serving the interests  of Lydian Armenia and plan to "instruct" violation of law to  subordinate executive bodies in an outright demonstration of power  abuse? In either case, we are dealing with governmental "support"  that shells nepotism, preemptively obstructs state functions and  attempts to bypass the checks and balances of the state, as such, is  an illegal and antidemocratic collusion. It is even more so, when the  government is aiming at owning shares in the company in question.  Since there's a high risk of conflict of interests in such  transactions and operations, it is even more critical to conduct  truly independent oversight. Contrary to the philosophy of the  Extractive Industries Transparency Initiative (EITI), the malignant  practice of "granting" mining company shares to the government in  return for some "guarantees" is taking roots in Armenia (in 2021, the  25% of Zangezur Molybdenum and Copper Combine shares were ceded to  the Armenian Government), although internationally, this would have  given rise to an outstanding corruption scandal.

Another similarly worrisome part of the Memorandum is the clause on  providing 7 million USD annually to the local communities. Especially  when it concerns communities that are clearly against metal mining in  their regions.  It should be reminded that in 2018 the enlarged  Jermuk community signed a collective public petition and the  community council made a decision based on it, that no mining is  permitted locally and that the community is pursuing the development  of green economy.  So, what is a promise of the annual 7 million USD  funding to the local communities if not a method of clearing the  public opposition with money? This method, by the way, is not new and  has been widely used by large corporations to weaken the resistance  in the impacted communities. The same practices were used by the  company in relation to the impacted communities during the governance  of the past governments. Take, for example, the pledge of 5.7 million  USD for the establishment of Jermuk National Park, donations to Luys  Foundation and Jermuk Development Fund, as well as business and NGO  grants lavished on community members by the company.

A Memorandum on Nothing

Although it has been months since the Memorandum was signed, there is  no agreement on the 12.5 % governmental share signed yet, nor is it  defined which governmental institution is going to be in charge of  managing its shares at "Lydian Armenia" CJSC, or what the  government's liabilities are as a shareholder, or, what the possible  ramifications are for the government, should the company default  again and so on.

It is still unknown which sources the remaining 100 million USD are  going to be raised from and which Armenian bank is co-funding the  project. It is also unknown, whether or not the Eurasian Development  Bank is actually going to lend 100 mln USD to the project after it  competes relevant assessments. Should the Eurasian Development Bank  decide to get involved in the project, risks will arise for other  stakeholders, as they might face Western sanctions for doing business  with a primarily Russia-funded state financial institution.

The nature of this document is well explained in Clause 3.2 of the  Memorandum: "The Parties hereby state, that the Memorandum is not a  legally binding document, and it shall not entail liabilities or  legal consequences under any jurisdiction. The Memorandum, its  signing, and any actions within the scope of the Memorandum shall not  mean and shall not envisage denial or approval of any of the factual  circumstances, nor shall it impose any liabilities of one party on  another within the framework of the RA legislation or within legal  power in general and the international law".  

Conclusion

The trilateral Memorandum is nothing, but a bubble as it does not  entail any power. It rather fits the logic of a PR campaign and most  likely aims at helping Lydian Armenia issue yet another round of  lucrative statements on the global financial markets. In the past,  Lydian Armenia made statements on the securities markets boasting  reduction of project costs due to government decisions.  

It is hard to censure words to describe the behavior of the Armenian  Government on this matter and the fact that it signed such a  Memorandum and shouldered liabilities that fortunately have no  validity. By acting against the people's will, the Government behaves  as a proponent of private interests only. This does not breed any  good for either the ruling party, or the state.

We do hope, however, that common sense will prevail, and the  situation will not proceed any further to disastrous consequences,  but will rather remain at the status of a Memorandum with no power.

We suggest that the potential local and international investors of  the Amulsar project talk and exchange information with all those  shareholders who have been investing in the program since 2007, since  it is highly likely they will face the same fate.