Tigran Jrbashyan: EITI Membership will Significantly Increase the Investment Attractiveness of Armenia

This July, there took place the subsequent meeting of the Anti-Corruption Council under the Government of Armenia. During the meeting, the position of the government with regard to Armenia`s joining the Extractive Industries Transparency Initiative (EITI) was announced.  

 

For many this information went unnoticed. However, according to the President of the Board of Directors of the American Chamber of Commerce in Armenia (AmCham) prominent economist Tigran Jrbashyan, the support to this initiative by the government of Armenia can bring forward really revolutionary changes in one of the most important industries in the country, namely the mining industry, as well as contribute to improving the business climate in Armenia. ArmInfo correspondent asked the expert to tell about the initiative and possible ways for Armenia to join it.

 

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EITI is a coalition of governments, civil society, investors, and international organizations.  It was established in 2002 based on the initiative of the then Prime-Minister of Great Britain Tony Blair during the conference on Sustainable Development in Johannesburg. The goal of the initiative is raising the transparency and improving the quality of the management in the extractive industry by publishing regular reports, adhering to standards, and strengthening the institutional potential. Within the framework of the Initiative, the extractive companies shall disclose the information on tax and non-tax payments to the governments, while the latter shall publish the reports on the received revenues. The transparency of the information on the received revenues, which is achieved due to the EITI standards, allows the parliaments of the countries, non-governmental organizations, and the citizens to control the activities of the companies and the government. Not only does such civil control hamper the cases of misuse in this sector, but it also contributes to more effective development of the countries as a result of improved economic conditions and more active attraction of direct investments. As global experience shows, the extractive companies win only as a result of the greater transparency thanks to the formation of equal and predictable economic relations.

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Mr. Jrbashyan, in your opinion, why has the government of Armenia supported this international initiative, when the latter was established still in 2002 and no one here has even remembered about it? And why has the issue of joining the initiative popped out now, given that our country is not the last one in the area of extracting such mineral resources, as building stone, copper, molybdenum, and gold?

 

I was pleasantly surprised that after so many years of discussion and multiple recommendations, Armenian Prime-Minister has finally expressed the political decision on Armenia`s joining the EITI. At the same time, it is a little strange that this position has not received the appropriate assessment of mass media and expert society. A large extractive company Vallex Group, which is a member of AmCham (Teghut project) is ready to join this international initiative. Lydian International (Amulsar project) and Dundee Precious Metals, which are also AmCham members, are already supporting the initiative at a global level. However, if in case of the ore deposits we have more or less developed position, the situation is much more complicated in the area of non-metallurgical deposits. I think that it is the advocates of the interests of the latter, who would not want to follow the EITI standards, since this sector has always been outside of any serious control and would prefer to remain in shadow, out of view of civil society and other public institutions. Today, due to the fact that the economy of the country undergoes serious crisis, partially preconditioned by the external factors, and Armenia has started losing the foreign investments, we have to seriously think of the improvement of investment climate first of all in the export-oriented sectors, which form a significant part of budget revenues and greatly affect the formation of GDP. Taking into account the seriousness of the raised issues, AmCham, as an organization, which represents these mining companies, has discussed this topic for multiple times. Today, when the government has expressed its position on this topic, we find it important to attract to it the attention of all structures, which affect the process, as well as that of public and mass media. 

 

Apparently, the expert and journalistic society have ignored this initiative of Hovik Abrahamyan, thinking that the so called anti-corruption sessions of the government are complete imitation, since there are no anti-corruption activities taking place in the country at all.

 

Many issues would not have been an imitation, if the business, expert society and representatives of civil society would have been consistent in the implementation of the raised issues.

 

Except for a couple of comparatively large companies, Armenia is a real “black whole” in terms of the transparency level of hundreds of small and medium enterprises involved in extractive industry. As a rule, there are unknown off-shores behind these companies, which constantly purchase and repurchase from each other the licenses, once distributed in an administrative and mysterious way. No one knows the volumes of their extractions in our country, the amount of taxes paid and who their end beneficiaries are. Do you think that by joining the initiative it would be possible to bring them to light in Armenia?

 

This is exactly where the problem is. It is impossible to attract to our market large investors and global players under these conditions. Nevertheless, the period of neglect in this area is coming to an end, and the companies involved with extraction of mineral resources, develop greater need for additional investments and technologies. It is already becoming problematic to get them, let alone serious partnership with global giants. We have to change the level of our approach to work, adhere to universally recognized global standards of operation, the good example of which are EITI standards.

 

Please, tell us about these standards in more detail.

 

Initiative is a voluntary coalition of governments, mining companies, and civil society, aimed at raising the level of transparency and accountability in the area of natural mineral resources` management. In other words, those, who join the initiative, assume certain obligations related to disclosing information. It is important to note that these obligations are assumed by the governments, companies, and civil society.

 

 

It is probably not a mere coincidence that Great Britain has proposed this initiative, since British companies have traditionally worked in many countries and needed protection.

 

In a sense, this is largely what happened. The reason for this could be seen in the fact that mining companies often get blamed for hiding the volume of real reserves and real composition of metals, and that they are not accurate in their extraction, resource utilization, and waste reports. The Initiative is directed at establishing the multi-step control in order to address many disputable issues, involve civil society, and make the sector more transparent. It is a good thing that all process participants have the so called “selfish interest”, since, as a result, the process becomes largely objective. This process is extremely important, because it sets information disclosure standards, such as resource, tax, fiscal, environmental.

 

 

If the Prime Minister keeps his word, how long it will take Armenia to become EITI member?

 

The way it happens is not like you announce your support of the Initiative and then it starts working the next day. At a first stage, there is a need to form a working group, comprised of the representatives of the government, mining companies, and civil society. The group is responsible for developing reporting standards inside the country by including it in the general system, prepare working plan on when and which industry shall become transparent and switch to these standards. Then, the country receives the status of the joining candidate, which takes 1.5-2 years. The annual reports on the country, which are eight different reports, are prepared, and the information disclosure requirements are developed and refined, which makes it another five reports.  In turn, the representatives of the civil society conduct reviews and confirm these reports, which accounts for another two comprehensive reports. For this, another 1.5 years are allocated.

 

As to the terms, we can acquire full membership in the Initiative rather quickly. After the government announcement in July, a preliminary group of interested parties was formed in August and meetings with certain companies were conducted. The first meeting of the group shall take place in September. However, as of now there is a concern that this issue will remain on a wish list, with no political process supporting it. We need to consistently move the process from the dead point. If we manage to do so, we may submit an application to EITI Council in November, start the process and receive the candidate status in February of 2017.

 

 

Can Armenian part refer to the absence of money as a good excuse?

 

In principle, the issue here is not financing but the presence of political will, which was expressed during the meeting of the Anti-Corruption Council.

 

Why do you think that without EITI membership extractive industry of Armenia will be on the losing side? It is rather attractive in itself, and it is quite a different issue that not everyone is allowed to enter this industry.

 

I will refer to the recent study by Heidelberg Institute, which evaluated the impact of the Initiative on the volume of foreign direct investments (FDI). It analyzed the experience of the past 10 years, which showed that once the country becomes EITI candidate the investments increase significantly and GDP grows at 2% points on average. In other words, the country`s joining EITI becomes a precondition for foreign mining transnational companies to enter this country. According to our assessment, the assessment of AmCham, Armenia`s joining the EITI in the capacity of the candidate can result in attracting foreign direct investment of around $200 million, since in this case the attractiveness of mining projects as investment projects grows sharply. And the government needs investors, since it will not be able to develop the leading industry in the country with limited internal resources. This is also the recommendation of the international institutes, including the World Bank.

 

It is important that EITI allows concentrating all information on resources in one place, unified data base by country and by company in accordance to the unified international standard.

 

This is very advantageous for the “greens”, who are rather active in our country. I think that one of the main problems of ecological NGOs is the absence of the actual data on the resources and activities of the companies, which are reluctant to share this information with ecologists. It turns out that the balancing and opposing party does not have enough information and does not possess methodological basis to really pursue the environmental goals. When you hear the conversation between the representatives of the civil society and mining industry, you realize it resembles the conversation between a deaf and a blind. Correspondingly, the mechanism of the Initiative gives the opportunity to ensure the participation of all parties in the unified format and attract the attention of the society and players to resolving the existing issues. Not only do the ecologists receive access to information, but they also have important functions within the framework of the Initiative. It means that this Initiative forms an information field, and the parties acquire certain functions within the framework of the Initiative to review and valuate the reports, submitted according to Initiative standards. In other words, the representatives of the civil society also bear responsibility to confirm the data contained in the published information, at the same time turning into real participants of the unified system. This is very important.

 

 

Does the Initiative require the revaluation of the mineral reserves, which were once provided as to this or that deposit, given that the methodology in the Soviet period was somewhat different? Today, we hear of cases when not so sophisticated and educated investors were roughly speaking “fed” with the so called low grade deposits, which gave way to scandals. 

 

It is impossible to attract large and serious investors with the stories of deposits explored still in Soviet times. The officials, representing the state, will not be able to cunningly sell the deposits, the made-up reporting of which will not correspond to international standards. May be this is the reason for certain differences in opinions of decision-makers, which did not allow to accept the invitation when Armenia was offered to join the Initiative earlier. But the times are changing. And if we want to have serious strategic investments in Armenia, which do not only mean money, but also technologies, experience, manufacturing and management culture, social responsibility, ecology, then we have to follow the global trends. Large investors, and especially those, whose shares are listed on international markets, pay great attention to all this, since it is their reputation, which is at stake. Armenia is also risking its reputation by not joining the Initiative, and it’s a good thing that this understanding is already in place.  

 

Which of the Eurasian Economic Union member countries is a candidate or member of the Initiative? You understand that the question is not rhetoric.

 

 

These countries are Kazakhstan and Kyrgyzstan, and from CIS countries, these are Azerbaijan and Tajikistan. It is interesting that developed countries, which serve as source of formation of transnational companies, are still in the process of membership, whereas the members and candidates are developing countries, which are in need of large institutional investments. Developed countries have their own traditionally formed market institutes- stock markets, exchanges, which require the disclosure of information. There, they know how to deal with investors, shareholders, NGOs, population. This is not the case in the countries with high corruption rates and bureaucratic arbitrariness, which lack the market investment institutes and mechanisms.

 

Thank you for the interview. I still hope that EITI will find application in our country. Nevertheless, I cannot but remember that one of the first decisions of the new Armenian government was the cancellation of the decision on the necessity to publicize the audited financial statements of the large companies operating in the country under the weird pretext that it was not necessary. May be the government is right. Why publish the accounting reports of those, who in reality have double accounting.  

 

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