The EBRD in Armenia: Lessons for Responsible Exit and Remedy

Accountability Counsel is preparing for the annual meeting of the European Bank for Reconstruction and Development (EBRD) in Yerevan, Armenia, scheduled for May 14th to 16th. Against the backdrop of this gathering, where bankers, business representatives, government officials, and civil society come together, the EBRD is spotlighting Armenia’s rich culture and history, presenting it as an attractive country for private investment.

However, behind the celebration lies the sobering story of one of the EBRD’s most contentious projects in Armenia – the Amulsar Gold Mine. This project serves as a reminder of  what can go wrong when investment happens without adequate preparation for remediating negative impacts on local communities. As the EBRD revises its Environmental and Social Policy (ESP) governing its operations, it must commit to remediating harmful impacts and develop a plan for responsibly divesting from projects.

Background: Amulsar Gold Mine Project

The Amulsar Gold Mine Project, located in Mount Amulsar, has become a battleground for local communities’ rights to clean water, health, livelihoods and a protected environment. Funded by the EBRD and spearheaded by Lydian Armenia, a subsidiary of Lydian International, the project has raised significant environmental and social concerns.

Critical shortcomings in meaningfully consulting with affected communities have plagued the project from the start, with the absence of open public hearings on the environmental and social impact assessment, inadequate disclosure of project information, dismissal of community opinions, and the exclusion of specific impacted communities. Concerns heightened during the exploration phase, with local communities raising concerns about potential water contamination, ecological degradation and detrimental effects on tourism.

Complaints submitted by communities to the EBRD’s Project Complaint Mechanism in July and October 2014 were prematurely dismissed, missing an early opportunity to address project impacts effectively. A subsequent EBRD investment approved in 2016 further exacerbated concerns. The beginning of mine construction in 2017 resulted in tangible adverse impacts, including contaminated water sources, adverse effects on agriculture, and health issues among residents. Protests against project operations were met with legal action and escalating violence, revealing a disregard for dissenting voices.

In May 2020, residents filed a third complaint, alleging non-compliance with international standards and the EBRD’s Environmental and Social Policy. While the EBRD’s Independent Project Accountability Mechanism (IPAM) initiated a compliance review in response, a corporate restructuring in 2020 transferred ownership of the Amulsar project, severing the EBRD’s stake in the project and leaving the community without remedy.

Despite the EBRD’s exit presenting a major challenge for providing remedy to impacted communities, the IPAM compliance review could still hold the EBRD accountable for its role in the harm. The IPAM’s compliance report, pending publication, will provide a public evaluation of the EBRD’s responsibility and failures in relation to the harm faced by communities.

Key Issues:

Lack of effective remedy

In their complaint to the EBRD, the community requested the responsible withdrawal of the EBRD from the Amulsar project, restoration of their environment, livelihoods, and of their right to participate in decisions affecting them. However, as of today, no remedy has been provided to the communities impacted by the Amulsar mine. This lack of remedy undermines the EBRD’s development mandate and the well-being of the communities it aims to assist, underscoring the urgent need for the Bank to create a robust remedial framework.

The Amulsar project also highlights concerns about biodiversity offset programs. In this project, the EBRD planned to fund an offset program as a way to mitigate the project’s impact. However, amongst various other issues, the proposed offset, the establishment of Jermuk National Park, was criticized as insufficient to counteract the adverse effects of the mine, particularly on water sources and local communities, or adequately address the project’s impact on numerous habitats and protected species. The offset program also never materialized as the mitigation measures outlined in the environmental and social management plans relied on third parties, state agencies, to implement them. This left the specific risks unmitigated.

The right to effective remedy, a fundamental principle in international law that applies to business entities, remains elusive in the EBRD’s projects. The Amulsar case exemplifies a systemic failure to provide substantive remedy, with community concerns persistently unaddressed. This failure is evident throughout the project cycle, from the lack of meaningful community engagement early on, the absence of a planning process for remedy, to ineffective mitigation measures, and no protection from retaliation for human rights and environmental defenders speaking out against the project. These issues are out of compliance with the EBRD’s safeguards, indicating a failure in project supervision.

The EBRD’s irresponsible exit

Lydian International’s corporate restructuring severed the EBRD’s stake, instantly limiting the EBRD’s leverage over the project. As this exit lacked responsible transition measures, it left affected communities vulnerable and without recourse. A responsible exit plan would anticipate premature divestment, ensuring post-exit monitoring, technical support, and action plans to prevent and mitigate potential negative impacts on the community and address any unremediated adverse impacts.

Failure to ensure remedy for affected communities is problematic on many levels, including leaving the EBRD vulnerable to reputational damage, and a possible loss of confidence from the global public and civil society, making it harder for the EBRD to operate in the countries it operates in.

Recommendations for Remedy and Responsible Exit:

The EBRD’s draft ESP, which is currently open for public consultation, does not go far enough in addressing the deficiencies highlighted by the Amulsar case. In order to ensure these harms aren’t repeated in the future, we recommend the following changes to the ESP, emphasizing:

• The EBRD’s Commitment to Remedy:
  • Adopt a commitment that the EBRD will contribute to remedy where EBRD’s actions or omissions contributed to harm.
  • Allocate sufficient funding for remedial actions at both EBRD and client levels.
  • Strengthen community engagement by actively involving affected communities early on in decision-making processes, ensuring their concerns are addressed, and conflicts are prevented.

• Responsible Exit Principles:
  • Develop and implement responsible exit principles to ensure post-exit monitoring, technical support, and action plans to prevent and mitigate potential negative impacts on communities.

The Amulsar case is a sobering reminder of the imperative to embed remedy and responsible exit principles within the EBRD’s Environmental and Social Policy. As we convene in Yerevan for the annual meeting, we call on the EBRD to seize the opportunity to reaffirm its commitment to environmental and social responsibility, prioritizing these principles in its decision-making processes and learning from past failures to chart a more sustainable path forward.