BAKU: European bank funds companies operating in Karabakh

Azeri paper says European bank funds companies operating in Karabakh

Ekho, Baku
10 Aug 04

The European Bank for Reconstruction and Development is still
financing companies engaged in the development of gold and copper
mines in Nagornyy Karabakh, Azerbaijani newspaper Ekho has said. In
2003 the bank issued an official denial that it was involved in
funding economic projects on separatist territory, saying that it
ensured that its funds were spent only on projects in Armenia. The
following is an excerpt from N. Quliyeva and N. Aliyev’s report in
Azerbaijani newspaper Ekho on 10 August headlined ” European Bank
gives economic support to separatists” and subheaded “Armenian
companies use EBRD money to drain natural resources from Nagornyy
Karabakh”; subheadings have been inserted editorially:

The European Bank for Reconstruction and Development continues
financing companies engaged in the development of copper fields in
Nagornyy Karabakh. The EBRD is the main creditor of the Vallex group
of companies, which has operated in Armenia for seven-and-a-half years
and invested 20m dollars in the economy. Members of the group – the
open-type joint-stock company Base Metals, Vallex Mining and the
closed-type joint-stock company Mining and Metallurgy Institute – are
engaged in the development of copper and gold deposits in Armenia and
Nagornyy Karabakh.

Thus, the first company is developing the Drmbon copper-gold mine in
Karabakh, the second is carrying out geological exploration on the
gold-pyrite-ore mine in Tandzut, while the third is engaged in
scientific research, projecting and geological exploration
work. Judging by Armenian press reports, the company’s operations were
boosted after it got an EBRD loan and the bank “expects the company to
embark on new projects”.

The president of Vallex, Valeriy Medzhlumyan, is still describing the
business environment and the legal framework for such extensive
investment activities in Armenia as unfavourable.

“Namely, the legal framework is well ahead of the views and the
perceptions of those it is actually supposed to serve. Suffice it to
mention that the state does not refund excess VAT payments to
exporters,” he said.

Meanwhile, Vallex has managed to win licences for the development of a
number of mines to date. Among these are the already mentioned Drmbon
(Karabakh) and Tandzut mines, as well as Tekhut, Kashen (Karabakh),
Aykadzor and the temporarily frozen Alaverdi mines.

As for the Kashen mine located in the village the Armenians call
Tsakhkashen in Karabakh, Vallex is at the project stage. However, if
the economic viability of the project is confirmed, the company
intends to construct an enterprise there within one-and-a-half years,
build roads, set up living quarters, run electricity lines, establish
waste storage, etc. In other words, it hopes to do what, according to
the Armenian mass media, has already been done in Drmbon. It is the
very village where the Azerbaijani mine Qizil Bulaq is located.

Exploration by Azerbaijani geologists

As Ekho already reported, back in the Soviet times Azerbaijani
geologists did a lot of work to explore the mine. They prepared the
feasibility study to develop it, proved its reserves to a state
commission in Moscow and were preparing to build a mining enterprise
there. At the same time, the scientists were aware that the project
would not be profitable, but were trying to secure its implementation
in order to ensure employment of the local population which was
predominantly Armenian.

Incidentally, the Armenian mass media, which tend to react negatively
to Ekho publications, did not leave those publications unanswered. For
them, Qizil Bulaq is not an Azerbaijani but a Turkic name of the
mine. They acknowledge the fact that in the 1980s Azerbaijan started
geological exploration work on the mine which was completed in 1990.

At the same time, Armenian newspaper Golos Armenii said: “It was
supposed that it would only be worth commissioning the copper and gold
deposits once the Armenian population had been banished during the
war. It was precisely for this reason that the documentation on the
gold reserves at Qizil Bulaq (13.5 t) was presented to the USSR state
commission for mineral reserves and protected in 1991, which was a
most difficult year for the people of Nagornyy Karabakh. Here one
should remember that the authorities of Soviet Azerbaijan, who had no
doubts about the swift deportation of the Armenians, insisted on a
return for the use of the mine and the foundation there of a dressing
combine in disregard of the position of the state commission which
claimed that there was already a similar factory in the region in
Ararat, and there was no need for another one.”

Passage omitted: details of how the commission eventually arrived at
the decision

EBRD’s 3m-dollar loan

The Armenian press says that the situation was rectified by Base
Metals which received a loan from the EBRD. The money helped the
company implement the project and this, in turn, gave the opportunity
to improve the economic situation in the village. It is reported that
630 people currently live in the village, half of whom are mining
specialists invited from Armenia.

“The economic development of Drmbon, of course, annoys Azerbaijan. In
particular, the head of the National geological surveying service of
the Azerbaijani Ministry of Ecology and Natural Resources, Saxbaddin
Musayev, has said more than once that Armenians should be grateful to
Azerbaijan for carrying out the geological survey work in the Soviet
period and the idea of creating the plant’. At the same time, of
course, he forgets to name the true reasons for Baku’s jealousy
regarding the start of the project at the beginning of the 1990s. He
also draws attention to the scandalous ecological situation in the
region, which is the consequence of using cheap technology’. A
different view is held by specialists, including specialists from
abroad visiting the mine, who are not afraid of telling Baku that the
technology of the Drmbon mine meets all modern criteria,” this is also
a quote from the Armenian press posted on Golos Armenii newspaper’s
web site on 27 July .

Therefore, the EBRD-funded project economically supports
separatists. Ekho warned about this in early 2003, when information
that the bank was involved in this kind of activity and had signed a
loan covenant with the Armenian Copper Programme (ACP) to the tune of
3m dollars for two years had just emerged.

Then the EBRD issued a statement denying any involvement in financing
any operations in Nagornyy Karabakh.

“The bank has issued a 3m-dollar loan to the closed-type joint-stock
company Armenian Copper Programme which was founded and is functioning
in Armenia. It is owned by an entrepreneur from Yerevan, Valeriy
Medzhlumyan, who has different commercial interests in Armenia and
Russia. He is also the owner of another company based on the territory
of Nagornyy Karabakh with which the EBRD has no business. In addition,
the EBRD is making sure that the loan allocated under this project is
not used to finance any operations on the territory of Nagornyy
Karabakh,” the bank’s statement said.

Passage omitted: minor details

EBRD knows where its money goes

“It is known that the EBRD thoroughly examines all projects before
allocating loans and, of course, it knows for sure what the money will
be spent on,” economist Qubad Ibadoglu has told Ekho. According to
him, it is ruled out that the bank may be unaware that the loan is
used in Karabakh.

At the same time, the EBRD is important for the Azerbaijani economy as

“We should not forget that the bank has financed a number of
strategically important projects in Azerbaijan: the supply of Baku
with drinking water, construction and reconstruction of power
stations, restoration of the Baku seaport, railways. Finally, the EBRD
is one of the main creditors for the Baku-Tbilisi-Ceyhan project,” the
economist said.

Passage omitted: minor details of other EBRD projects in Azerbaijan

“However, all these do not mean that Azerbaijan is dependent on this
institution in any way. On the contrary, cooperation within these
projects allows us to influence the bank as well, especially since our
cooperation programme is designed to last till 2015-20,” Ibadoglu
said. He said that it is necessary to stop the bank from issuing loans
to projects in Nagornyy Karabakh.

MP Mikhail Zabelin has told Ekho that he is outraged by reports of
cooperation between international bodies, including the EBRD, and

“We sometimes seem strangely helpless. It is not the first time this
kind of information has reached us. I think that both the Foreign
Ministry and the Milli Maclis parliament have to be more active and
raise these issues with international organizations,” Zabelin said.