IN THE NAME OF THE REPUBLIC OF ARMENIA

ON THE CASE OF DETERMINING THE CONFORMITY OF OBLIGATIONS UNDERTAKEN BY THE AGREEMENT AMENDING DEVELOPMENT CREDIT AGREEMENT (HIGHWAY PROJECT) BETWEEN THE REPUBLIC OF ARMENIA AND THE INTERNATIONAL DEVELOPMENT ASSOCIATION SIGNED ON JULY 17, 1997, IN WASHINGTON DC, WITH THE CONSTITUTION OF THE REPUBLIC OF ARMENIA

Yerevan, 16 January, 1998

The Constitutional Court of the Republic of Armenia, chaired by G. Harutiunian, President of the Constitutional Court, represented by V. Hovhannisian, Deputy President of the Constitutional Court, and A.Gyulumian, F. Tokhian, H. Nazarian, V. Poghosian, V. Sahakian and M. Sevian, Members of the Constitutional Court,

With the participation of H. Kochinian, Minister of Transportation of the Republic of Armenia, official representative of the President of the Republic of Armenia, and M. Alexanian, Minister of Justice of the Republic of Armenia, A. Darbinian, Minister of Finances and Economy of the Republic of Armenia, A. Tavadian, Chairman of the Control Chamber of the National Assembly of the Republic of Armenia, R. Krmoyan, Deputy Minister of Transportation of the Republic of Armenia and N. Elarian, Director of the Highway Project Implementation Office, all invited to the hearing,

Pursuant to section 2 of Article 100 and section 1 of Article 101 of the Constitution of the Republic of Armenia, to paragraph 2 of Article 5, paragraph 1 of Article 25 and Articles 56 and 67 of the ''Law of the Republic of Armenia on the Constitutional Court of the Republic of Armenia,''

Considered in a public hearing the case ''On determining the conformity of obligations undertaken by the Agreement Amending Development Credit Agreement (Highway Project) between the Republic of Armenia and the International Development Association, signed on July 17, 1997, in Washington DC, with the Constitution of the Republic of Armenia.''

The case was initiated by the petition of the President of the Republic of Armenia, filed with the Constitutional Court, requesting to determine the conformity of the obligations undertaken by the above mentioned agreement with the Constitution of the Republic of Armenia.

After hearing the reports of H. Nazarian, Member of the Constitutional Court and A. Gyulumian, Member of the Constitutional Court, both rapporteurs for this case, and the explanations of H.Kochinian, representative of the President of the Republic of Armenia , as well as the explanations of M. Alexanian, A. Darbinian, A. Tavadian, R. Krmoyan, and N. Elarian , invited to the hearing, after having examined the Agreement, and having studied the certificates submitted by the Control Chamber of the National Assembly, the Government of the Republic of Armenia, Prosecutor-General's Office of the Republic of Armenia, the Ministry of Finances and Economy and the Ministry of Transportation, as well as other documents of the case, the Constitutional Court of the Republic of Armenia finds that:

The Agreement Amending Development Credit Agreement (Highway Project) between the Republic of Armenia and the International Development Association was signed on July 17, 1997, in Washington DC, to provide to the Republic of Armenia a loan amount in various currencies equivalent to eleven million Special Drawing Rights, for the purpose of the implementation of the Highway Project.

The Republic of Armenia and the International Development Association entered, on October 2, 1995, into an agreement on the implementation of a project on highways, which was ratified by the National Assembly of the Republic of Armenia on December 13, 1995. To finance the project, it was planned to use an amount equivalent to 15 million USD from the credit resources of the Kuwait Fund. Since it became impossible to use that fund later, the International Development Association agreed to the proposal made by the Republic of Armenia to undertake that funding and this has caused the necessity to amend the former agreement.

By this amendment the credit is provided to Armenia on more favourable conditions. It is also envisaged that if the Amending Agreement shall not have come into force and effect by a date ninety days after the date of the Amending Agreement, the Amending Agreement and all obligations of the parties hereunder shall terminate, unless the Association establishes a later date. As specified by a document contained in the case, February 15, 1998 is designated as the new date.

Analyzing, pursuant to Article 67 of the "Law of the Republic of Armenia on the Constitutional Court," the legal practice established during the implementation of the Development Credit Agreement (Highway Project) signed on October 2, 1995, between the Republic of Armenia and the International Development Association, the Constitutional Court finds also that:

1. Neglect and dereliction were allowed for in the process of the implementation of the credit agreement. These shortcomings and faults, stated also in the documents submitted to the Constitutional Court, are as follows:

-The established procedures were violated during the organization of competitions for the implementation of the project and during the summarizing of the results;

-The agreements were signed not by the competent authority and there have been violations of the relevant requirements. In fact, the same organization, i.e. the Project Implementation Office has been charged with both the conclusion of the agreements, use of resources and the organization and supervision of the work, and due efficiency of supervision is not ensured under these circumstances;

-There has been no clear system of intermediary reports, continuous supervision and feedback and the existing system is defective and inadequate;

-Necessary and sufficient publicity regarding the use of credit resources has not been safeguarded and no independent auditing has been conducted by the Borrower;

-The competent government authorities have failed to take timely and necessary measures to exercise their supervisory powers over the use of the credit resources with due consistency and quality;

2. The Foreign Assistance Coordination Centre of the Ministry of Economy of the Republic of Armenia, has acted ineffectively and inadequately; spending large sums from the credit resources to pay salaries and acquire equipment, it has not provided for the necessary pre-conditions required for the efficient use of the credit either during the organization of competitions, or at other phases as the conclusion of agreements, acquisition of equipment, making payments and the submission of reports.

According to the certificates submitted by the Prosecutor-General's office of the Republic of Armenia, the Minister of Economy of the Republic of Armenia had submitted a report to the Prime Minister of the Republic of Armenia on February 2, 1995, requesting the Prime-Minister's consent for establishing an office for the implementation of the projects. The consent was granted on February 17, 1995, however, the Ministry of Economy, bypassing it, has created a centre with an entirely different status and has paid to its employees salaries equivalent up to 930 USD, reducing them after September 19, 1997, to sums equivalent to 204 USD.

Apart from these, as explained by a certificate submitted by the Ministry of Justice, the Charter of the above-mentioned Centre contains provisions which contradict the Armenian laws.

3. The Ministry of Transportation of the Republic of Armenia has failed to carry out its duties provided in paragraph 18 of Decision # 577 of the Government of the Republic of Armenia, dated December 15, 1994, on the procedures of using credit resources.
4. After the ratification of the Credit Agreement, the Government of the Republic of Armenia has not controlled the process of its implementation with due consistency.

It is provided by # 577 Decision of the Government of the Republic of Armenia, dated 15.12.1994, regarding the procedures of the use of foreign loans provided to the Government of the Republic of Armenia, that: "It is the purpose of this procedure to increase the efficiency of the use of foreign loans provided to the Government of the Republic of Armenia and to improve the control over the conducting of competitions." In practice, the Council that has been established for the above-stated purpose, has not fully fulfilled its duties pertaining to this Agreement either. Moreover, as most of the members of the Council have changed their jobs, and as a consequence of the structural changes in the Government, the Council has found itself in a situation when it has no powers but continues to take decisions.

The investigation of the case revealed also that the Government of the Republic of Armenia has taken concrete measures to ensure the efficient utilization of the loans and credits provided on the basis of international agreements, with the aim to develop and implement a more reliable system of implementation of credit agreements, as well as of overcoming the shortcomings and faults found in the legal practice.

5. It is provided by Article 77 of the Constitution of the Republic of Armenia, that the National Assembly supervises the realization of the state budget, as well as the utilization of the credits and loans provided by foreign countries and international organizations. Article 145 of the Regulations of the National Assembly provides for the mechanism of implementation of these constitutional powers. According to this Article, the parliamentarians may, as a legislative initiative, propose to include in the agenda of their session, the Government's report on this issue.

It is provided by section "c" of Article 2 of the "Law of the Republic of Armenia on the Control Chamber of the National Assembly" that the Control Chamber reports to the members of the National Assembly at the start of every six months about the realization of the state budget during the past six months, as well as about the use of credits and loans provided by other countries and international organizations. In addition, pursuant to paragraph "d" of Article 5 of the same law, the Control Chamber has the right to audit the use and meeting of the loans and credits received from other countries and international organizations.

The Control Chamber of the National Assembly has not considered in the course of 1997 the issue of the use of credit resources provided for the implementation of the highway project, hence, naturally, the parliamentarians have not been respectively informed. In fact, due and continuous supervision provided for by Article 77 of the Constitution of the Republic of Armenia has not yet been ensured in regard of this Agreement.

Pursuant to Article 54 of the "Law of the Republic of Armenia on the Constitutional Court," the Constitutional Court will inform the Government of the Republic of Armenia and the Prosecutor-General's Office of the Republic of Armenia about its findings during the review of this case on the violations of law concerning the evaluation of the legal practice of the implementation of this international agreement, so that the Government and Prosecutor's Office can take measures within their competence.

As to the Agreement signed on July 17, 1997 in Washington DC, proceeding from the results of the investigation of the case and pursuant to section 2 of Article 100, sections 1 and 3 of Article 102 of the Constitution of the Republic of Armenia, paragraph 2 of Article 5, and Articles 67 and 68 of the "Law of the Republic of Armenia on the Constitutional Court," the Constitutional Court of the Republic of Armenia decides:

G. Harutiunian
President of the Constitutional Court