2018 REPUBLIC OF ARMENIA EXTRACTIVE INDUSTRIES TRANSPARENCY INITIATIVE (EITI) REPORT 2016-2017 REPUBLIC OF ARMENIA EXTRACTIVE INDUSTRIES TRANSPARENCY INITIATIVE (EITI) REPORT 2016-2017 PUBLISHED IN DECEMBER, 2018 EITI Report Dear readers, As the Chairman of Extractive Industries Transparency Initiative in Armenia, I am pleased to present to the public at large the first EITI National Report covering the fiscal years 2016 and 2017. The Report is the outcome of the multilateral co-operation between the Government, the civil society, the business sector and international partners, without precedent in Armenia. It is valuable especially in terms of processing and publication of a large amount of information on the metal mining sector which is traditionally considered to be a closed sector. The participatory nature of the process and the consensus decision making impart greater importance to the Report. The natural resources of Armenia are the exclusive property of the state. Therefore, the Government, among other areas, has prioritized the issue of improving the sector governance. In particular, the Government has already established the need to develop a new strategy and has undertaken sectoral studies. However, effective reform can only be achieved by ensuring a high level of accountability and transparency, which will help increase public control, reduce corruption risks and build a stable environment of mutual trust through good governance. The consistent implementation of the EITI Standard in Armenia aims at accomplishing all of these tasks. It was by the joint development of this Report that the Government, together with the civil society and business people, broke the stereotype existing perhaps two years ago that there are no overlapping concerns between the three parties on controversial issues. By publishing through this Report data of completely new quality and volume, we anticipate a substantial expansion of public participation through conducting studies, raising problematic issues and establishing an informed dialogue. The Government, remaining loyal to the open, transparent and effective work style, will carry out the activities of continuous implementation of the EITI Standard. Ararat Mirzoyan First Deputy Prime Minister Chairman, EITI MSG Armenia 2 EITI Report On behalf of the mining companies’ constituency of the EITI MSG, I would like to congratulate on the publication of the first Armenian National Report. It is a significant step toward more transparent, accountable and responsible mining. Previously it was not always possible to find full information included in this report from open sources, and there were numerous entities possessing this information. With the publication of the Report, data became more available, and structurally systematic and accessible. Online availability of data in accordance with the Open Data principle is a great opportunity for interested people, including representatives from the government, civil society, academy and or, local self- governments, officials, to download data in a more convenient format and re-use it. In order to make the implementation process of the EITI Standard sustainable and based on the institutional grounds, necessary mandatory regulations have been adopted, and systems have been developed and introduced during this period. Nevertheless, we attach more importance to the fact that EITI helps to gradually develop a new culture among the extracting companies in Armenia. More companies now acknowledge the benefits of open and responsible work style also from the very business viewpoint. It is worth mentioning also the EITI Multi-Stakeholder Group, that is a unique platform for the interested parties of the government, civil society and business. It does not only grant an opportunity to hold meetings and discussions, but also work together and achieve the aspired results. Due to such cooperation and opportunity to listen to each other’s grounded viewpoints, a certain atmosphere of mutual trust and confidence has been achieved, which can also be considered unprecedented. We are profoundly grateful to all the parties involved in a process of the preparation of this Report, especially to the Armenian EITI Secretariat team for the efficient and dedicated work. This success would not be impossible without their genuine efforts. EITI Multi-Stakeholder Group has committed to continuously improve the Report over the coming years both in terms of data quality and diversity. We hope this Report will become a stimulus for other sectors as well to increase transparency and accountability. Vahe Vardanyan Member of mining companies’ constituency, EITI MSG Armenia General Manager of Geomining LLC 3 EITI Report Armenia is rich in various mineral resources, and we must be able to use those natural resources for the benefit of the country and every citizen. The set goal can be achieved through the rational, complex and civilized extraction of resources and highly effective management of the activities, along with maintaining the principle of causing minimum harm to the environment and promoting the socio-economic development of the country. In terms of the latter, the good governance system of the mining sector, deep processing of mineral raw materials and the targeted and equitable distribution of the revenues from mining are especially important. The implementation of EITI in Armenia and compliance with requirements of the Standard would lead to the accountability and transparency of the extraction of public wealth, as well as to raising the awareness on the sector. The EITI global standard, in addition to the established requirements, also enables a country to set its national priorities and perform the activities arising from these through its Work Plan. The tripartite EITI Multi-Stakeholder Group comprised of representatives of the Government, mining sector and civil society is an exclusive forum for establishing a dialogue on sector governance issues and implementation of measures aimed at their effective solution. The first Report of RA EITI is very important and should be thoroughly reviewed by all of the interested parties. In this sense, the role of the RA EITI MSG and especially that of the Civil Society constituency is very important for making the report available to various groups of the society, discussing it, collecting feedback and recommendations from them on potential shortcomings and including them in the agenda of the RA EITI MSG. It is necessary to consistently continue the implementation activities of the EITI Standard in Armenia, extending, in the near future, the requirements of the Standard to all types of mineral resources use, as well as stating, beyond the main requirements of the Standard, the importance of transparency of enterprise productivity, level of extraction and other technical and economic indicators, in order to enable to more accurately assess the effectiveness of mining and its role in the development of the country. Harutyun Movsisyan Member of the Civil Society Constituency, EITI MSG Armenia Associate Professor of the Chair of Prospecting and Exploration of Mineral Deposits, Yerevan State University 4 EITI Report TABLE OF CONTENTS1 Table of Contents ................................................................................................................................................................ 5 List of abbreviations ............................................................................................................................................................ 7 Some Definitions used in the 3rd Chapter ............................................................................................................................. 8 Introduction .......................................................................................................................................................................10 1. The methodology and the scope of the EITI report ...................................................................................................... 15 1.1 Companies and State agencies presented in the EITI report ........................................................................ 15 1.2 Taxes and payments Included in the EITI report ........................................................................................16 1.3 Process of audit certification in State agencies and mining companies ......................................................... 17 2. Background information on the mining industry ......................................................................................................... 19 2.1 The share of the mining industry in the economy of Armenia (requirement 6.3) ...........................................19 2.2 Employment in the metal mining industry (requirement 6.3)...................................................................... 22 2.3 State revenues from the metal mining sector and their distribution (requirement 6.3) .................................. 27 2.3.1 The contributions of metal ore extractive companies to the state budget ......................................... 27 2.3.2 The contributions of metal ore extractive companies to community budgets .................................... 32 2.3.3 Revenues designated for special projects or geographical areas (requirement 5․1, 5.2, 5.3) ............ 40 2.4 Production, reserves, export and local sales in the metal mining industry.................................................... 47 2.4.1 Production in