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Edik Baghdasaryan

What Issue Does the Government Have with Madneuli?

In August this year, the efforts made by the government to solve problems that had come up in the mining industry finally bore some fruit.  On August 15, a preliminary contract was signed regarding the sale of the Ararat Gold Recovery Company (AGRC), while on August 30, a preliminary contract was signed between Global Gold and the Armenian government, regarding the cessation of the international arbitration process.

The government truly spared no effort in forcing the Indian owner of AGRC, Anil Agarwal, to sell the company.  This much had been explicitly stated by the President’s office to the general director of AGRC, B. Sharma.  Numerous inspections, fines, accusations of concealing gold reserves and the initiation of legal action forced the Indian owner to sell the company.  Vedanta Resources signed a contract regarding the sale of 82.4% of AGRC shares belonging to the Canadian company Sterlite Gold to GeoProMining.  As noted in an announcement dated August 15 from Vedanta Resources, the Georgian company Madneuli, which owns GeoProMining, was ready to pay US $86 million and buy Sterlite Gold’s shares as well as take responsibility to pay off the latter’s debt to Vedanta Resources, which total US $25 million.  This deal should have been completed by the end of September.

In March, Global Gold had started an international arbitration process against the Armenian government in the International Center for Settlement of Investment Disputes, within the World Bank.  The Government, represented in this case by former Minister for Environmental Protection Vardan Ayvazyan, stood accused of impeding the company’s operations.  The minister, in particular, had allegedly refused to extend permits for exploratory work on certain mines.  This mainly referred to the copper-molybdenum mine at Hankavan and the polymetallic mine at Marjan.  The company insisted that the Minister had gone against the 1992 agreement between Armenia and the United States of America on the encouragement and protection of mutual investment.  The August 30 agreement signed between Global Gold and the Armenian government stated that the two sides had ceased legal proceedings until a comprehensive agreement of reconciliation was signed.  “…It is expected that the agreement of reconciliation would be signed within 10 days of this agreement,” noted the announcement released by the Prosecutor’s Office.

The implementation of both agreements has been delayed without any satisfactory explanation from either side.

The AGRC deal had been delayed because Madneuli is now being asked to pay another price - taxes and fines are being added to the initially agreed sum  - US $5 million - with an additional US $5 million in debts to agents and so on.  Thus, Madneuli is being made to agree against its will to pay US$ 139 million to buy AGRC and the right to exploit the Sotk mine.

Madneuli belongs to the Russian PromInvest group, headed by the former Russian Minister for Energy and ex-parliamentarian Sergey Generalov.

Earlier this year, the very same Madneuli bought the Armenian company Golden Ore, which had a 25-year permit to exploit the copper-molybdenum mine at Hankavan.  

This is the mine where Global Gold accused the Armenian government of impeding their operations and for which they applied for an international arbitration process.

Although the conditions of the future agreement between Global Gold and the Armenian government remain unclear, it was obvious that the primary point among the accusations and demands made by Global Gold in the petition for international arbitration was the restoration of its rights to the Hankavan mine.  The Armenian government does not know how to deal with Madneuli, who bought Golden Ore a few months ago and, along with it, a 25-year permit to the mine at Hankavan.  Golden Gold would agree to a number of concessions in the agreement, as long as its primary aim were fulfilled.  The agreement of reconciliation was not signed within ten days as planned, because the government was trying to secure guarantees against the responsibilities outlined in the agreement.

Now the government must somehow regain the mine at Hankavan from Madneuli.  Otherwise, Global Gold, having already gone for international arbitration once before, would readily do so again and accuse the government of not fulfilling its responsibilities.

During a press conference on September 28, Minister for Environmental Protection Aram Harutyunyan said whoever the new owner of AGRC would be, they would have to pay the fines to the state budget accrued by the company for concealing its gold reserves.  According to him, all of the demands made by the Minister for Environmental Protection towards AGRC must be met for the new owner to be given a permit to exploit the mine.

Before this announcement, the new owners of AGRC were informed that they would have to pay some fines and debts, totaling US $139 million, but payments due to concealed reserves of gold had not been mentioned earlier.  Just as a reminder, Vardan Ayvazyan announced in 2006 that AGRC had concealed 1.6 tons of gold.  At current prices, 1.6 tons of gold is worth around US$ 35 million.

According to experts in the field, if this amount were to be made a pre-requisite for Madneuli to buy Sterlite Gold’s shares and gain permission to exploit the Sotk mine, then the deal would be called off.  But the Armenian government does not want it to be called off; rather, they would like to seal some kind of mutually beneficial deal with Madneuli, at the same time solving their other problem - signing a reconciliation agreement with Global Gold to end the international arbitration process.

But there is a problem here - two of the owners of Madneuli are high-ranking Armenian officials.