Not all that glitters is gold

A panorama of Jermuk, a mountain spa town whose facilities contribute significantly to the livelihoods and the region’s economy and lies six kilometres downstream from Amulsar’s cyanide leaching facilities. Photo: Irina Ovchinnikova / Shutterstock

The Amulsar project represents the refined practices of state capture as the Armenian elite appropriated foreign funds and multinational corporations exploited resources – ignoring local outcries and breaking international conventions.

Resource extraction is a cornerstone of the Armenian economy. Hundreds of mining operations, most of which flaunt international environmental standards, account for more than half of Armenia’s exports. Mines, which opened since Armenia’s independence, are usually part owned by oligarchs, politicians, or both. There is no shortage of allegations of corruption and conflicts of interest. Amulsar’s track record, initially, did not seem to differ from such mining projects – other than the fact that it actually exploited resources. It differs, however, due to the extraordinary success of the local community in organising itself to halt the mine’s opening.

Breeding ground for corruption

Efforts by environmental activists, anti-corruption lobbyists, and organised local groups ensured that Amulsar was top-of-mind for citizens and politicians. However, it was due to the Velvet Revolution that their endeavours came to fruition. Specifically, the defenestration of the elites with close ties to Amulsar, and a reshuffling of ministry positions with previous ties with Lydian International, resulted in few vested interests in the project’s continuation. As protests flared without being doused by violent, government-sponsored crackdowns, protesters besieged all roads leading to the goldmine during the two-and-a-half year’s standoff. Lydian International – lacking both physical access to its mine and sufficient support from the new regime under Nikol Pashinyan – was left with no choice but to file for bankruptcy protection.

Mining is one of Armenia’s top economic sectors in terms of export and inflows of foreign exchange making it a cornerstone of the economy. Most productivity gains over the past decade were reaped in the mining sector. While contributing to the moderate per capita growth experienced since the new millennium, the industry is capital intensive but generates few jobs. In 2019, the World Bank estimated that just one per cent of Armenia’s workforce is employed in the mining industry. Investors estimated that 700 direct jobs and thousands of indirect ones would be created by Amulsar. Lydian would be one of the top five corporate taxpayers in the country, adding 50 million dollars in annual taxes to state coffins.

The highly profitable industry makes it a breeding ground for political interference and embezzlement. After Russia and Kazakhstan, Armenia was the largest mining republic in the Soviet Union. With independence came a wave of mine privatisations under the presidencies of Levon Ter-Petrosyan and Robert Kocharyan. In a textbook example of state capture, Ter-Petrosyan (president between 1991-1998) and friendly business ties lauded Armenia as a mining-friendly country: the industry was deregulated and it was ensured they gained their share of profits through bribes and direct ownership of firms. Ter-Petrosyan’s legacy continues under successive presidents. Vardan Ayvazyan, a mining tycoon and former minister of environmental protection within Kocharyan’s government, was found guilty by a US court for soliciting a bribe to exploit a goldmine. He was ordered to pay 37 million dollars in damages. Kocharyan himself was charged in 2018 with taking a three million dollar bribe to allow the sale of a mining company. In 2020, Serzh Sargsyan, president of Armenia between 2008 and 2018, was put on trial for an embezzlement scheme to enrich government officials. The ruling indicated that no mine was exploited without the highest level of government’s personal involvement. Under Sargsyan’s tenure, Prime Minister Hovik Abrahamyan attended Amulsar’s official opening ceremony.

Winds of change

The 2018 Velvet Revolution changed the balance of power. Pashinyan led a protest movement which peacefully overthrew the Sargsyan’s authoritarian regime and heralded a democratic transformation. Riding on the tails of the revolutionary surge, Jermuk and nearby communities around Amulsar rose in revolt against the mine’s construction in May 2018. For years activists had unsuccessfully contested the operation. In 2011, locals were made aware of the mining activities to come: five years after investors first indicated their interest and three years after Lydian received its first license.

Various reports by third parties and activists indicate that dozens of infringements of international and Armenian law were taking place, including violations of Water and Lake Sevan Legislation (Armenia’s largest lake, lying downstream from Amulsar), the Bern Convention (on critically endangered species) and the EU directive on habitats diversity (on flora and fauna). The IFC, Bankwatch, and other independent organisations would later confirm legal, environmental and social transgressions took place throughout the project’s approval and construction.

Regardless, locals were unable to do much more than voice their concerns. “If we protested during Serzh Sargsyan’s rule, we would have been arrested right away,” says one local resident. After 2011, town halls were held in communities to discuss the project’s social, environmental and financial impact. However, these consultations were restricted to those labelled “affected communities”. Jermuk, a mountain spa town whose facilities contribute significantly to the livelihoods and the region’s economy, was not included. Jermuk lies six kilometres downstream from Amulsar’s cyanide leaching facilities. Other communities, too, were excluded from this designation and the consultations. Dissent was generally subdued in pre-revolutionary Armenia, especially for those in fear of reprisals and job losses, says Fidanka Bacheva-McGrath of Bankwatch, a network of environmental NGOs. Over two-thirds of those employed in the region are employed by the government.

Even under Pashinyan, those that were actively protesting faced systemic marginalisation and public smear campaigns, according to Bankwatch. Debasing information about environmentalists and Jermuk residents was published on Facebook in order to quash dissent. Tehmine Yenoqyan, a local activist, discovered that Lydian International employees were photographing her and her house for months, sharing the images online using fake profiles along with reprehensible comments and insinuations.

In parallel, Lydian International launched a tsunami of legal challenges against more than 30 individuals for “expressions that damaged their business reputation”. The company is litigating various government entities for their alleged refusal to deal with the activists and “honour past agreements”. Nazeli Vardanyan, an environmental lawyer investigating Amulsar since 2009 and appointed by the Pashinyan government to aid an Amulsar fact-finding mission, is being sued for defamation. She has twice called for hearings to contest the defamation claim requiring her to pay Lydian, with the court deciding both times in favour of Lydian International. Currently undergoing trial in Armenia’s cassation court, she is willing to take the case to Strasbourg’s European Court of Human Rights. Armenia’s Civil Society Institute raised the issue with the International Federation for Human Rights to urge authorities to end the alleged judicial harassment. The cases are still ongoing.

Sitting on a goldmine

Arpine Galfayan and Anna Shahnazaryan are part of the Armenian Ecological Front, a prominent collective responsible for whipping up domestic and international interest, organising protests and mounting challenges against Lydian International. They too are facing lawsuits. They corroborate that the interests of local communities and the impact on the economy in Jermuk and elsewhere had been ignored. However, catalysed by the political winds of change, protests grew in intensity and culminated in the blockade of the mining site to halt construction spur the new government into action. The blockade was met with generally positive responses, as protesters in Yerevan and other cities drew awareness to the Amulsar cause and its environmental and legal shortcomings.

The protesters caught the attention of the country through incessant media exposure and public outrage – Pashinyan even travelled to Amulsar at the end of 2018 to speak to the protesters and reassure them that the environment comes first. Worried that the siege would ruin Armenia’s international reputation and turn the country into a “black hole on the world’s economic map”, Pashinyan subsequently changed track, calling for the protestors to end their blockade. Despite this apparent reversal, Pashinyan did not exert much pressure to lift the blockade, only sending in the police to break up the occasional clashes between Lydian’s hired security forces and the activists. The Armenian Ecological Front states that police brutality decreased under Pashinyan watch, but it did not provide further support. As a result of the blocking of the three access roads, activities built makeshift barricades and facilities for the long haul. The blockade continues for over two and a half years, including winters where temperatures dropped below -20 degrees Celsius.

The post-revolution government’s mixed messaging provides insight to other factors at play: international interests, especially from the United States and the United Kingdom. Lydian International’s financial backers are two American funds (together contributing 325 million dollars) and a Canadian mining business contributing nearly 100 million dollars. To finance its capital-intensive equipment, it has contracts worth over 86 million dollars with Armenian, British, Dutch and Danish firms. The International Finance Corporation and the European Bank for Reconstruction and Development were early backers of the project.

The UK ambassador under Sargsyan’s government stressed that he was impressed by Lydian International’s approach to environmental issues, stating that this is likely to be the largest ever British investment in the country. Lydian International’s HQ lies in Jersey, a known tax haven, and it employed no people in the British Isles. Prince Charles already visited the country in 2013 to improve business standing and lobby for Amulsar, amongst other investments. US ambassador Richard Mills praised it during a site visit in 2015. According to a European Union report, Pashinyan himself is under intense pressure from the international community. A US spokesperson called for the respect of law in a predictable and transparent manner to provide confidence to existing and potential investors. The message is clear: comply with done deals of the previous government. Or else.

Not all beneficiaries are foreign. As mentioned, Armenian politicians at the highest levels of state are connected to mining projects, including Lydian International. Armen Sargsyan, the former prime minister (1996-1997) and current president since 2018, served on Lydian International’s board in 2013, although he denies holding any shares in the “Lydian Armenia Company”. Lydian’s complex organisation is split into 11 subsidiaries, and Sargsyan, intentionally or not, only refers to his links with one of them. In the past he also served as governor of the European Bank for Reconstruction and Development, and was the Armenian ambassador to the UK. A visit (presumed to be to Amulsar) with Prince Charles was called off as protesters prevented the royal convoy from reaching the mountain. Separately, Yura Ivanyan was the head of the Investigative Committee probing the Amulsar project under Pashinyan. Exposed as being the cousin of the previous minister of environmental protection (who approved the goldmine), Ivanyan was dismissed. These close-knit ties provide a glance into the myriad of relations that permeate the contemporary Armenian political and economic landscape.

Embezzlement allegations on a more local scale is rife. Hayrapet Mkrtchyan, the former mayor of Gndevaz, for instance, is being investigated for selling real estate to his underage son at below-market price. His son went on to sell the property for 300,000 dollars – a 3,500 per cent mark-up – to Lydian International who needed this site following an amended plan for its greenfield investment. Dozens of such cases are listed in an investigation into Gndevaz’s land privatisation. Jermuk’s mayor vocally opposed the goldmine in 2011-2012, once Jermuk was considered part of the “affected community”. In the following years, Lydian International is alleged to have transferred 150,000 dollars to the Jermuk Development Fund, whose director was the mayor’s son. From here on, the mayor halted anti-mine petitions as well as public consultations. The Gndevaz mayor, a staunch Lydian International supporter, repeatedly stated that there were no opponents to the project, while downplaying any damaging impact on local livelihoods. Once the mine construction started, though, the harmful impacts manifested itself as locals’ incomes, and health and quality of life deteriorated.

Environmental negligence

Allegations of negligent ecological and social due diligence lie at the core of the project’s opposition. Environmental and social impact assessments evaluate the economic aspects of mining projects, including environmental and social consequences. They are mandatory to in order to make use of natural resources in most countries. According to an EU report, Armenia’s government had rid itself of the expertise to conduct these independently. Bureaucrats were left to rubber stamp the environmental audits put forward by commercial players. Bacheva-McGrath from Bankwatch reveals that many of the relevant experts in the Armenian scientific community were bought out to ensure the project’s approval in 2016. Despite protests, construction started the same year and continued until the siege’s start in 2018.

The potentially harmful impacts of the project were insufficiently taken into consideration. Development banks are also to blame. In the early stages of the project, the EBRD determined the impact to be site-specific and controllable. It was wrong in both cases: polluted waterways and a reduction in tourism in Jermuk due to noise complaints and dust pollution swiftly accompanied the initial construction. The EBRD did manage to get environmental concessions from Lydian International, earmarking two tranches of funds to create a biodiversity reserve and a water treatment facility. A 2020 EBRD internal review argues that the project did not cause material harm and that the bank complied with its environmental policies. Nor does it agree that it failed to adequately disclose information and engage stakeholders. This resonates with the marginalisation and side-lining of opponents during the Sargsyan period. The bank officially divested its shares in 2020. The IFC of the World Bank Group already divested its investments in 2017 following an investigation in environmental concerns and illicit land sale procedures.

Pashinyan’s regime solicited a foreign auditor to conduct another report, which initially concluded that risks could generally be mitigated, until the auditor backtracked: the information received by Lydian International was incomplete and parts were falsified. The auditor even called for a new report. Nonetheless, Pashinyan used the original audit’s conclusions to argue that Amulsar must be mined. In 2020, Lydian International declared bankruptcy and underwent a restructuring process in Canada, where it was listed on the stock market, and now continues as Restructured Lydian. Amulsar activists finally lifted the siege as they picked up arms against Azerbaijan in the 2020 war over Nagorno-Karabakh. The blockade is down, and some key figures are missing having become prisoners of war, or having lost their lives in the conflict. Protests might resume as spring comes.

Support for mining projects is increasing, as politicians and others express the need for funds to revitalise the country. They point to the battered economy, the attractiveness of mines to foreign investors and the unresolved Nagorno-Karabakh conflict as reasons to launch new projects. Amulsar portrays the democratic deficiencies in the decision-making and approval processes for international projects in Armenia, marred by allegations of corruption and breaches of environmental and social considerations. It also demonstrates how events can converge in a critical juncture, as a revolution inspired Armenians to act while those in power did not have the same stakes in the game as the Ancien Regime.

With the government blamed for the recent loss in the war against Azerbaijan and the country’s track record in handling the pandemic, Pashinyan’s support is decimated. With an alleged coup declared on February 25th and with the political crisis unfolding, new elections are likely to be held later this year. A decision on Amulsar is not a political priority. The question is whether Pashinyan will still be in power to make the verdict. If the old regime returns, the stakes will be higher and previous obligations may have to be met.

Dylan van de Ven is a consultant working for multinationals, international organisations and policymakers. Holding degrees in economics, finance and management, his main areas of interest are political and economic development, peacebuilding and the fostering of democracy. He contributes to these fields through research and analysis as part of the Eastern Circles editorial team, a geopolitics club focusing on the post-Soviet region, by working with various regional NGOs, and as a freelance journalist.

Armenia, gold mine, Nikol Pashinyan