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					                        South Caucasus Regional Program

 Public Administration and Local Self-Governance Initiative (LGI), United Nations
          Development Program (UNDP), World Bank Institute (WBI)


        Policy Paper. Enhancing Fiscal Capacities of the Local Authorities




OPTIMIZATION OF TERRITORIAL AND ADMINISTRATIVE DIVISION OF THE
REPUBLIC OF ARMENIA AND LOCAL SELF-GOVERNANCE DEVELOPMENT


                                    Yerevan
                                 September 2003




                                        1
Authors              David Tumanyan
                     Sos Gimishyan
                     Karo Amyan
                     Levon Tumanyan

Members     of   the David Tumanyan         -        Coordinator
Armenian group       Victor Dallakyan       -        Member of the National Assembly
                     Karo Amyan             -        Senior specialist, Territorial
                                                Administration and Local Self-government
                                                Department, Government of Armenia
                     Ruben Simonyan         -        Head of Kanaker-Zeitun community,
                                                Yerevan
                     Varuzhan Barseghyan    -        Head of Vedi community
                     Vahan Movsisyan        -        President, Union of Local government
                                                financiers
                     Sos Gimishyan          -        AFU Board member
                     Levon Tumanyan         -        Head of Finance division, Kanaker-
                                                Zeitun community of Yerevan




                                        2
                                     CONTENTS

Introduction                                                                     4
Chapter I. The Current Administrative and Territorial System                     4
1.1. Administrative and territorial system in Soviet period                      4
1.2. Development of administrative and territorial system after the              5
independence
1.3. System of public administration                                             11
1.4. Administrative and territorial division as important precondition           15
for development of local self-governance
Chapter II. New Model of Administrative and Territorial Division                 16
2.1. Existing options for administrative and territorial division                16
2.2. Preconditions for reforms in the administrative and territorial             17
division area
2.3. Concept of Administrative and Territorial Division                          19
Chapter III. Inter-Community Associations                                        20
3.1. Legislative basis for creation of inter-community associations and          20
community consolidation
3.2. Units of new administrative and territorial system                          27
Concluding statement                                                             28
Appendix 1 Urban communities of Armenia                                          29
Appendix 2 General description of marzes in Armenia                              31
Appendix 3 Distribution of authorities among various levels of governance in     32
Armenia
Appendix 4      Proposed scheme for administrative and territorial division in   34
Armenia
Appendix 5 Existing system of administrative and territorial division            35
Appendix 6 Glossary of terms                                                     36




                                           3
Introduction

Territorial and administrative division in any country is the basis for building up public
administration, including its local self-governance system. Territorial and administrative division
is construed on the basis of numerous factors, including historic, geographic, demographic,
national, climatic, socio-economic and other factors. The existing territorial and administrative
division in Armenia was formed in 1995 on the basis of the Constitution and the Law on
Administrative and Territorial Division of the Republic of Armenia. Pursuant to the above
legislation, marzes and hamainks (hereinafter communities) have become administrative and
territorial units. State (central) governance is fulfilled in the marzes, and local self-governance is
implemented in communities. Local self-governance is currently formed and under
enhancement.

Experience of the past years indicates that in order to develop local government system it is
necessary to carry out systemic reforms. In particular, it is evident that the existing territorial and
administrative division does not allow for expansion of local self-governance system and
hampers its further progress. Although instituting optimal administrative and territorial division
merely is not sufficient for comprehensive development of local governance system, however, it
is one of the indivisible components thereto, and in combination with other conditions it will
ensure the targeted development of the entire system.

The above is the baseline provision, or fundamental issue, on the basis of which this paper has
been construed. The paper presents the existing system of territorial and administrative division
of the country, identifies its strengths and weaknesses, the interaction with public administration,
floating recommendations on territorial and administrative division and their assessment,
necessity of new division and prerequisites thereto, as well as description of the new model.

CHAPTER I. THE EXISTING SYSTEM OF ADMINISTRATIVE AND TERRITORIAL
                             DIVISION

1.1. Administrative and Territorial System in the Soviet Period

Establishment of Soviet governance system in Armenia gave rise to formation of administrative
and territorial division of the country inherent to the Soviet Union. Administrative and territorial
division of Soviet Armenia formed a part of a powerful system that constituted the Soviet state.
The entire system was regulated pursuant to the provisions of the USSR Supreme Council
Directive, which approved the “Regulations of Administrative and Territorial Structure of the
USSR”. According to the then existing legislative acts, populated settlements were classified into
urban and rural areas. Urban communities were considered the cities and towns of republican
and regional significance, and rural communities included villages and smaller rural settlements
irrespective of their administrative accountability. The territory of Armenia was divided into 37
administrative regions (See: Table 1). Local councils together with their executive committees
implemented state governance in regions. The head of any region, smaller rural settlement, city
or village was elected from among the council elected by the population in the given
administrative and territorial unit. These councils represented local government authorities and
formed part of national government system. Each council was considered to be local branch of
national authorities empowered with quite a large scope of powers envisaged by the legislation.




                                                  4
Table 1: Administrative and Territorial Division in the Soviet Armenia as of 01.08.1988

        Cities of republican subordination                                     22
         Cities of regional subordination                                      5
         Regions                                                               37
         City neighborhoods                                                    10
         Towns (settlements of urban type)                                     31
         Village Councils                                                      479

1.2. Development of Administrative and Territorial Division after Independence

On 23rd of August 1990, the Supreme Council of the Soviet Armenia adopted a decision on
Declaration of Independence, which laid the fundament for furthering independence process in
the country.

In the aftermath of declaration of independence (September 23 1991) Armenia encountered
unprecedented blockade and energy crisis. The state was involved in addressing a number of
other crucial problems, which postponed the commencement of administrative and territorial
division reforms up until 1995. It was evident that given the establishment of market relations,
implementation of old type governance in the former regions will be complicated in view of
different levels of their development. Maintaining former system would force the central
government to get involved in permanent and active reallocation of financial and material
resources, since establishment of market realities would further deepen the differences between
the regions certainly resulting in shrinking interest on the part of local governments towards
efficiency of operations and feed their desire to seize more resources from the central
government. In view of these circumstances an effort was undertaken to create new system of
territorial administration through consolidation of units based on the logical approaches of
minimizing differences between the areas and ensuring availability of resources adequate for
reproduction of public life in each of the marzes.

For the newly established Armenian state priorities were placed with establishment of state
institutions and introduction of public administration system. Changes taking place in the public
administration system were stipulated in the Constitution of Armenia adopted upon the national
referendum held on July 5 1995. The Constitution stipulated powers of all the branches of
government, human and civil rights and obligations.

Implementation of radical measures targeting liberalization of economic relations in 1995-1996
preconditioned the necessity to democratize public administration system. Administrative and
territorial division has special role and place in the public administration system; it is not
incidental that the National Assembly adopted the Law on Administrative and Territorial
Division of the Republic of Armenia as a priority among the first legislative initiatives aimed at
democratization of public administration system taking into consideration that the Article 104 of
the Constitution defined administrative and territorial units of the Republic of Armenia, i.e.
marzes and communities, as well as the fact that marzes are comprised of urban and rural
communities.

The new system of administrative and territorial instituted by the Constitution plays two-fold
role in the building of statehood. First of all, the system of regional authorities are established as
a part of national governance in accordance with the administrative and territorial administration

                                                  5
structure, with the regional authorities performing functions inherent to national executive
authorities. Second, administrative and territorial structure envisages existence of local self-
government bodies.

Administrative and territorial division in any country, types of structural units and their names
are a result of historic, economic, administrative, political, social, cultural and other background
characteristic of a nation. Names like Aragatsotn, Gegharkunik, Lori, Kotayk, Shirak, Siunik,
and Vayots Dzor are of historic sources. The administrative and territorial division of Armenia
takes into account economic, geographic and other factors as well, in particular, possibly equal
allocation of existing infrastructures and other transportation and communication potential. In
defining marz distribution of the country the following principles were employed:
    a) Reproduction potential of each marz had to be based on such resources, which would
        allow its clear specialization within the socio-economic structure of the Republic;
    b) Specifics of the former regions as well as the existing social and economic infrastructures
        had to be taken into consideration in the marz breakdown of the country; and
    c) Preclusion of dissipation of certain regions among various marzes.

Types of administrative and territorial units include marzes, the city of Yerevan with the marz
status, urban and rural, as well as Yerevan neighborhood communities. In accordance with the
Law on Administrative and Territorial Division of Armenia, the territory of Armenia has been
divided into 10 marzes and the city of Yerevan with the status of a marz. There are 48 cities and
952 villages in Armenia, the latter including 8 with the status of urban communities and the
remaining 871 in rural communities. There are 12 neighborhood communities (boroughs)
established in Yerevan (See: Table 2).

Table 2: Neighborhood Communities of Yerevan and their Population as of January 1 1999
(thousand people)

Name of the Neighborhood Community                              Number of Population
Ajapniak                                                        125.9
Avan                                                            50.5
Arabkir                                                         151.4
Davidashen                                                      50.7
Erebouni                                                        126.5
Kentron                                                         180.5
Malatia-Sebastia                                                159.6
Nor Nork                                                        131.5
Nork-Marash                                                     14.6
Nubarashen                                                      9.3
Shengavit                                                       145.5
Kanaker-Zeitun                                                  102.7
Total in Yerevan                                                1248.7

10 of the former urban type settlements (Anipemza, Azatamout, Aragats, Argel, Arzni, Gagarin,
Nor Kharberd, Dzoraget, Pemzashen) are classified as rural settlements, and 17 (Agarak,
Akhtala, Aparan, Berd, Dastakert, Yeghegnadzor, Talin, Tumanian, Shamlukh, Tchambarak,
Maralik, Martouni, Masis, Noyemberian, Vayk, Vardenis and Vedi) received the status of cities,
and Noubarashen, the formerly urban type settlement, has been included in the structure of
Yerevan as a neighborhood (See description of urban communities in the Appendix 1).




                                                 6
The concept of “marz territory” has been defined to include the territories of the communities
located in the marz as well as the pertinent state-owned land and water areas. Marz territories
include a number of former administrative regions (See: Table 3).

Table 3: Former Administrative Regions Included in the Marzes of Armenia
Marz                Former     Administrative       Regions:     (name     in     1988/date     of
                    establishment/territory in square kilometers/population in thousand people)
Aragatsotn          Ashtarak (1930/679 sq.m./37.1 thousand people); Aparan (1930/592/20.0),
                    Aragats (1972/382/14.2), Talin (1930/1091/35.3)
Ararat              Ararat (1930/1396/68.9),
                    Artashat (1930/-512/70.9),
                    Masis (1969/169/66.0)
Armavir             Armavir (Hoktemberian) (1930/421/75.7),
                    Baghramian (1983/453/17.2),
                    Echmiadzin (1930/359/68.6)
Gegharkunik*        Kamo (1930/636/28.5)
                    Krasnoselsk (1937/697/27.7),
                    Martouni (1930/1185/67.8),
                    Sevan (1937/387/17.8),
                    Vardenis (1930/1151/60.4)
Lori                Gougark (1930/771/31.3),
                    Toumanian (1930/1109/32.5),
                    Spitak (1937/544/28.4),
                    Stepanavan (1930/630/16.4),
                    Tashir (Kalinino) (1937/690/38.9)
Kotayk              Kotayk (Abovian) (1930/805/55.8), Hrazdan (1930/923/23.4),
                    Nairi (1972/344/48.7)
Shirak              Akhourian (1937/576/39.4),
                    Amasia (1930/608/19.2),
                    Ani (1937/429/20.0),
                    Ashotsk (Ghoukasian) (1937/457/9.9),
                    Artick (1930/478/24.7)
Siunik              Goris (1930/747/16.8),
                    Kapan (Ghapan) (1930/134/23.2),
                    Meghri (1930/664/15.4),
                    Sisian (1930/1719/34.7)
Vayots Dzor         Yeghegnadzor (1931/1134/35.5),
                    Vaick (Azizbekov) (1931/1172/16.8)
Tavush              Ijevan (1930/1332/28.8),
                    Noyemberian (1937/538/29.9),
                    Tavoush (Shamshadin) (1930/824/34.1)
* Territory of the Marz of Gegharkunik includes surface of the Sevan Lake

Borders of marzes and Yerevan city are described in the Law on Administrative and Territorial
Division of Armenia and depicted in the topographic map of 1:200000 scale, which forms an
indivisible part of the same Law.

Populated settlements are territorial units, which have permanent population, structures and
constructions, and form territorial entirety, as well as separate from other populated settlements
in terms of territory, economic and/or historical background.



                                                7
The list of the populated settlements of Armenia, Yerevan including its neighborhoods, as well
as their stratification by village or city is presented in the Appendices to the Law on
Administrative and Territorial Division of Armenia. The same Law describes borders of
settlements and depicts them on the topographic map of marzes scaled 1:25000. Borders of
Yerevan and its neighborhoods are depicted on the topographic map scaled 1:10000. However,
the legislation unfortunately does not define the concepts of city and village yet, nor it has
defined the criteria to identify an area as a city or village.

All the settlements in Armenia – taken separately or together with other settlement (settlements)
– are included in communities. Communities (hamainks) are administrative and territorial units,
where local self-governance is fulfilled. Communities, which include settlements classified as
cities are called urban communities; those, which having exclusively settlements classified as
villages (rural) are called rural communities; and, finally, the communities reflecting
neighborhoods and other settlements of Yerevan are called neighborhood communities. The list
of communities of Armenia has been defined in the Appendix 2 of the Law on Administrative
and Territorial Division of Armenia, according to which borders of the communities have been
defined on the basis of borders of the constituting settlements.

A community composed of only one settlement has taken the name of the latter, while those
comprising two and more settlements have taken the name of the settlement with the utmost
number of population. The center of community consisting of more than one settlement has been
chosen to be the settlement with the utmost number of population.

Changes in division by marzes, borders and administrative centers of marzes, the neighborhood
communities, settlements and neighborhoods, as well as establishment of new communities or
new settlements, changes in classification of various settlements, naming and renaming marzes,
settlements, neighborhoods, communities and neighborhood communities will be carried out
through introduction of amendments in the Law on Administrative and Territorial Division of
Armenia further to legislative initiative of the Government of Armenia.

Renaming populated settlements will take place exclusively with the objective to restore historic
names, remove foreign, unpleasantly sounding and repeating names and in taking into account
public opinion.

In order to regulate the procedures applicable to renaming administrative and territorial units
(marzes and communities) of the Republic of Armenia, a Governmental Commission has been
created on the basis of the Prime Minister Resolution N 494, dated October 29 1997, which will
carry out renaming of administrative and territorial units in accordance with the regulations
stipulated in the above Resolution.

Under another Prime Minister Resolution (N 433, dated September 10 1997, On Description and
Mapping of Marzes and Settlements of the Republic of Armenia) Governmental Commission has
been created to organize description and mapping of the marzes and settlements in Armenia in
accordance with the Law on Administrative and Territorial Division of Armenia; this
Commission will submit to the Government of Armenia the description of marz borders and the
map of Armenia (scale 1:200.000), description of borders of communities and the topographic
maps of marzes scaled 1:25.000 (1:50.000) stipulating settlement borders.

930 communities have been created in Armenia, of which 47 are urban, 871 are rural and 12 are
neighborhood communities of Yerevan. It should be mentioned that there are substantial
differences between the communities in terms of both number of population and areas, as well as
social and economic infrastructures. These differences are applicable to both urban and rural

                                               8
communities. There are around 36 rural communities in Armenia having a population of less
than 100 people; 163 communities with population of less than 300; 176 communities with
population between 301 and 500 people; 185 rural communities with population between 501-
1000 people. In terms of number of population the largest village in Armenia is Akhourian
(10,049 people, Shirak Marz), and the smallest is Qashouni village in Siunik Marz (37 people).
Indeed, the biggest rural community in Armenia is 271 times larger than the smallest one.

Communities differ from each other in terms of their status as well. The Government Resolutions
N 713, November 17 1998 (Approval of the List of Bordering Communities of Armenia) and N
756, November 27 1998 (Classification of Populated Settlements in Armenia by Elevation
Marking) approved special status for a number of communities.

Those communities are considered to be mountainous which are situated on the altitude of 1700-
2000 meters above the sea level. Higher mountainous are those communities, which are situated
on 2000 and more meters. Mountainous communities are urban communities of Tchambarak,
Vardenis, Hrazdan, Tsakhkadzor, Artik, Maralik, Dastakert, and Kajaran, as well as 187 rural
communities. Higher mountainous status has been provided to urban communities of Aparan,
Martouni, Gavar, Jermuk, and 139 rural communities.

Cities of Tchambarak, Goris, Kajaran, Meghri, Agarak and Noyemberian are included in the list
of bordering communities. Bordering communities broken down by marzes are presented below:
2 in Aragatsotn, 8 in Ararat, 7 villages in Armavir, and 21 villages in Gegharkunik in addition to
the cities mentioned earlier. On top of that, there are 4 bordering villages in Lori marz, 9 in
Shirak, 64 in Siunik, 13 in Vayots Dzor, and 40 in Tavush. These data indicate that the largest
number of bordering communities is in Siunik marz. The only marz where there are no bordering
communities is Kotayk. Attaching special status to certain communities pursues the following
objective: first of all, before 2000 subsidies to local budgets allocated under Law on Financial
Adjustment (Level-up Subsidies) were assessed on the basis of three criteria, one which, i.e. c)
was the mountainous or higher mountainous status of the targeted community. In addition, the
Government issued Resolution N 246, April 21 1999, to approve The Plan of Actions in
Mountainous and Higher Mountainous Settlements and stipulate the communities meeting the
above criteria, including their problems, deadlines for solving them and those responsible for
implementation of the Plan. In 2002 the National Assembly adopted a Law on Approval of
Comprehensive Development Program for Bordering Regions of Armenia. This Law obliged the
Government to adopt, on an annual basis, Bordering Regions Development Plans and apportion
certain funds for problems identified in such plans. In particular, the 2003 State Budget
envisages around 1 billion drams for these purposes.

In reviewing specifics of communities it is crucial to take into consideration the fact that there 57
communities in the country more than 50% of population of which are refugees, requiring
special approaches.

Variations in the number of population bear special meaning, since in implementing community
policies the state attaches huge importance to this indicator. In particular, number of population
is considered in the Law on Financial Adjustment as one of the factors underlying the estimation
of subsidies to communities. As a consequence of amendments introduced in the above Law,
special approach will be employed towards communities with population less than 300 people,
through allocating budgetary funds in the amount of dram 1,5 million per annum at the same
time neglecting other factors underlying such allocations. In other words, in this particular case
the number of population acquires exceptional significance and importance.



                                                 9
Experience of the past six years reveals both positive and negative aspects of the existing
administrative and territorial division of the country.

Positive aspects are:
   - Transition from the former, Soviet administration system to national marz and local self-
       government, increasing the role and importance of local self-government as the basis of
       sustainable development of democratic institutions and the economy;
   - Consolidation of administrative territories (one marz normally covers 3-4 former
       administrative regions) and relevant redundancy measures in public administration.

Negative aspects are:
   - Creation of single-layer local self-government system and preclusion of the second layer
       (removal of regions);
   - Enlargement of administrative units (creation of marzes) was not accompanied with
       allocation of larger scope of authorities to local self-governments;
   - Numerous communities were created, which are small, weak and incapable of rendering
       services to their population;
   - Declarative nature of the powers attributed to marz administrations, absence of
       implementation mechanisms and legislation on territorial administration;
   - Extremely complex relief structure, broken terrain, diverse climatic conditions, specifics
       of zoning, absence of unified transportation infrastructure or the remoteness of
       communities from administrative centers of marzes have not been taken into
       consideration; the latter is an impediment to regular communication between
       communities and marz administration. Neglected have also been the historically
       established generalities, certain contradictions between the regions, traditions and
       specifics.

Thus the administrative and territorial division of the country put in force since 1996 has had
negative impact on socio-economic conditions in certain areas. In all the formerly administrative
centers of 37 rural regions there is a recorded drawback since the time they seized to be such.
The factor of being an administrative center has played decisive role not only for the
development of the center itself but also for that of subordinate settlements. However, it is not
only the administrative and territorial division that is a reason for such a drawback. Prerequisites
also lie with peculiarities of the transition period. Transition from former and existing system to
the newly created local self-government practices imposes complications in terms of governance
efficiency.

1.3. Public Administration System

Having regained independence in 1991, Armenia adopted the strategy of democratization and
transition to market economy and embarked on carrying out reforms in the public administration
system. National authorities inherited expanded network of state government bodies from the
Soviet system. Only the government structures included 44 ministries and agencies1.

According to one of first laws adopted by the Supreme Council (Parliament) of newly
independent Armenia, there were 31 ministries and agencies 2 in the national government.
Reduction of the government continues in subsequent periods. Such structural changes have been
taking place in parallel with radical reformation of the contents of government functions in new
social and economic circumstances. Nevertheless, it is worth mentioning that in 1991-1995 there
has been no clear public administration reform strategy in the country. Certain reforms were
1
    The Law of USSR on Council of Ministers of the USSR, adopted on 15.12.1978
2
    The Law of Armenia On Compositions and Structure of the Government of Armenia, adopted on 04.12.1991

                                                      10
underway at the level of central government dictated by the realities of the period, while the
reforms at the level of regional and local governance were virtually dormant. Efforts were
undertaken to ignite the former Soviet structures. Taking into consideration that communist party
was ousted both from the political and economic life and regional governance system was quite
acceptable without the ruling and guiding force, it took time to test it and to certain extent this
approach was justified.

Constitution of Armenia was adopted in 1995 to lay legal fundaments for establishment of new
political system and reforms in local governance. Later a number of laws and sub-legislative acts
were enforced, which enabled creation of new structures of regional administration and local
self-governance in rather a short notice.

Armenia is a semi-presidential republic. Both in legal and actual terms President of Armenia has
large powers. There is a two-fold governance system in the country, i.e. national (central) and
local self-governance. Government implements functions of the central administration consisting
of the Prime Minister and Ministers. President appoints members of the government. Structure of
the government and procedures of its operation are stipulated in the relevant Presidential Decree.

Territorial administration in Armenia is fulfilled through marzpets (hereinafter Regional
Governors) appointed by Government and regional administrations. Mayor of Yerevan (Yerevan
has a status of Marz) is appointed by the President further to presentation by the Prime Minister.
National governance is carried out in marzes. These are not a separate level of governance since
they don’t have elected officials or own budgets.

According to the Constitution and legislation, Regional Governors will implement their activities
along the four main lines:
    1. Implement territorial policies of the government;
    2. Coordinate activities of territorial representations of the republican executive branch;
    3. Supervise activities of local self-governments;
    4. Ensure the link between the government and local self-government authorities.

The existing public administration system in Armenia is described in the Chart 1 below:

                      Chart 1. Public Administration Structure in Armenia

                         President                                         Parliament



                 Central Government                                  Local self-governance
                   (Government)                                     (Local self-governments)



    Governmental         Ministries          Regional               Head of         Community
      Agencies                              Governments           community          councils


      Territorial            Territorial
    representative         representative
        offices                offices



                                                11
                        Supervision

                        Subordination


Local self-governance is implemented in the communities. Community is a legal entity. It has a
territory, population, property, administration bodies and budget.

Bodies of the local self-governance are community councils and head of community, elected
through direct, general, equal and confidential elections for a three-year term. Community
council is a representative authority. Number of members in the councils depends on the number
of electorate, i.e. 10 in communities with population of 3000-20000 people; and 15 in
communities with population of more than 20000 people. Head of community is the executive
body of the local self-government, and will implement the decisions of the community council
through the staff, organizations and budgetary institutions of local subordination.

Powers of the central government bodies are defined and stipulated in the relevant legislative and
sub-legislative acts, those of local self-governments are defined in the legislation. Distribution of
functions among various levels of governments is presented in the Appendix 3. The Appendix
indicates that powers of local authorities in Armenia are too limited in respect of certain areas of
public services (such as education, health, and social security), which are in the domain of local
self-governments in many countries. Very often this is explained by limited capacities of local
self-governments. However, one should not be afraid of delegating more powers to local self-
governments since this will promote their strengthening and development.

Public administration system in Armenia is in operation since end 1996. The experience of more
than six years indicates that there are many shortcomings and deficiencies in it. This paper will
reflect mainly on those observed in the local self-government level of public administration.

First of all it should be mentioned that there is no single or unified approach to reforming public
administration system, that is central and local governance are viewed as separate items.
Constitutional provision stipulates that national governance is enforced in marzes, while local
self-government seems to be omitted from the general system of public administration in
communities (the principle of subsidiary). Hence high is the probability that this logic dictated
establishment of two different commissions of the national governance (under the 1999
Resolution of the Government) and that of local self-governance system (under the Presidential
Decree of 1998). There is an evident lack of communication and coordination between the two
commissions. Thus, decentralization is not treated in a framework of single and unified approach
and there is no decentralization strategy. Indeed, these commissions - and especially the national
governance reform commission - are involved in certain activities. The latter, for example, has
elaborated the draft Law on Civil Service (adopted by the National Assembly in 2001) and the
Concept of Structural Reform of the Government. Nevertheless, in the absence of comprehensive
state building strategy, efficiency of the operation of these commissions is very low. The above
shortcoming has - to certain extent - been lifted in the Poverty Reduction Strategy Program
adopted by the Government on August 8 2003. However, if a more concrete plan of actions were
not adopted, that would make implementation of the strategy more realistic than the content of
the program will not be more than a wishful thinking.

In the absence of plan of actions of the decentralization strategy, it is impossible to ensure
harmonized development of the self-government system. There are a number of closely and
logically interconnected issues, while neglecting such linkages and implementation of relevant
measures in certain stages it will be impossible to develop self-government system.

                                                 12
Development of local self-government system will be impossible without:
    Consolidation of communities;
    Strengthening capacities of local self-governments;
    Timely replenishment of legislative framework;
    Assignment of new powers to local authorities; and
    Allocation of financial resources adequate to their powers.

With the objective to enhance the efficiency of public administration system in general, and
development of local self-government system in particular an important role is attached to
streamlining the roles and functions of regional administrations as bodies of national regional
governance, and their operational compliance with the contemporary requirements. Currently,
one of the main powers of regional administrations is the implementation of territorial policies of
the central government is on very weak bases. Because of scarcity of budget resources,
implementation of territorial policies is insignificant, while such policies bear crucial role for
community development. Territorial policies may be instrumental in meeting issues of national
(inter-community) importance, such as communication, roads, water supply and many others. In
these circumstances staff of regional administrations are too redundant as to existing needs
(Table 4).

Table 4. Marzes of Armenia and Number of Employees in Regional Administrations (as of
March 2003)

        Marzes                                  Number of              Number of employees in
                                               communities             regional administrations
        Aragatsotn                                114                             114
        Ararat                                     97                             130
        Armavir                                    97                             110
        Gegharkunik                                92                             179
        Lori                                      113                             169
        Kotayk                                     67                             132
        Shirak                                    119                             187
        Siunik                                    113                             132
        Vayots Dzor                                44                              85
        Tavoush                                    62                             102
        Yerevan                                    12                             379
        Total                                     930                            1719

Redundancy measures will be the proper action to carry out. Exaggerated staff of regional
administrations aggravated by their unclear functions and powers very often facilitates
unjustified intervention in the activities of the local self-governments. At the same time, a Soviet
tradition is still widespread whereby regional administrations act in the manner of Regional
Committees, with partial blame in preservation of this tradition attributed to local self-
governments as well, which do not confront unjustified interventions in view of their weakness,
low capacities and other reasons. In addition, there is a need to adopt Law on Territorial
Administration, which would streamline function of regional administrations and their
interrelations with local governments as well as territorial representative offices of the central
government.

One of the important preconditions for community and local self-government development is
establishment and strengthening capacities of the latter. Merely legislative stipulation of powers

                                                13
is not sufficient to ensure development. To this end, it is necessary to create relevant conditions
prioritizing capacities of local self-governments. An important role here is attached to all the
major segments of the public at large, i.e. the state, private sector and civil society with the
emphasis on the role of the state. It is the state that imposes rules of the game, which will lay
grounds for establishment of and strengthening the capacities of local self-governments. Of
particular importance is human factor. Unfortunately, lack of relevant legislation has not allowed
for establishment of the critical mass of sustainable and professional servants employed by the
local self-government system. A number of studies indicate that the level of professionalism
among employees in local self-government sector steadily decreases. A matter of urgency is to
define the scope of service with local self-government bodies, requirements to the employees,
their rights and obligations, job descriptions, training and security, and so on.

1.4. Administrative and Territorial Division as an Important Condition for Development of
Local Self-government System

Experience of modern developed democratic countries indicates that had ensured high degree of
living standards through creation of local self-government systems independent of central
authorities. On the basis of such experience transition economies have set the objective of
decentralization of government and creation of real local self-governance systems as a
component of state building. Local self-governance system reflects the impact of such factors as
political will of the authorities, decentralization strategies, availability of plans of actions, social
and economic conditions of the country and alike. Special role is attached to administrative and
territorial division of the country.

Public administration system is anchored onto the administrative and territorial division system
of the country. Proper and optimal division is an important precondition for enhancing the
efficiency of public administration. Public administration is carried out throughout the country.
Application of its various types (central and local governance), territorially and scope-wise, as
well as establishment of interrelations between these types is an important and continuous
process requiring constant attention. It is a particular priority in newly independent countries in
transition, where there is a lack of established traditions in this area, and which undergo
complicated processes of institutions and structural reforms.

One of the preconditions for establishment and development of local self-governance system is
the requirements to administrative and territorial unit where self-governance is implemented.
Administrative and territorial units must meet certain conditions.

Physical Conditions: the territory and environment where local self-governance is implemented.
Of particular importance is availability of relevant land resources. Development perspectives for
any administrative and territorial units depend upon the size, quality and utilization capacities of
agricultural, urban development and other land resources. There might be certain units
possessing certain types of land resources. In such cases it is crucial to properly identify strategic
objective of the unit, which will be contingent upon its geographical location, natural resources,
transportation routes, existence of recreation areas, etc. Rational utilization of land, natural and
material resources will precondition establishment and development of the economy and
infrastructures of a unit in question.

Economic and Financial Conditions: these are the opportunities provided to local self-
government bodies to carry out efficient governance and render public services to the community
population. Local budgets will serve these objectives, the formulation and size of which largely
depend on many factors, size of shared tax revenues of local budgets, authority to institute local
fees, charges and rental payments, the authority and capacity to ensure collection of revenues to

                                                  14
local budgets, etc. In these circumstances local self-governments are in a position to construe
adequate budgets to provide relevant public services to the population. Availability of markets
and market instruments and mechanisms will substantially promote these processes.

Legislative and Institutional Conditions: these ensure natural activities and development of local
self-governments and protect their interests. Constitutional and legislative framework is the basis
of activities of the local self-governments, the safeguard of stability of this system and against
unjustified interventions on the part of central authorities. Formation of institutional scope of
public administration makes the existence of local self-government sector irreversible.

Availability and Realization of Human Resources: these relate to capacities of local self-
government bodies. Human resources are an active element ensuring development in general.
Population of a given administrative and territorial unit should possess intellectual potential, a
chance to head in appropriate direction and the will to do so. Only employment of capacities
(elaboration of policies, establishment of mechanisms, availability of and upgrading professional
skills, professionalism and so on) of local self-government bodies may ensure progress.

The above conditions should be viewed in the complex of their interrelation and interaction. If
administrative and territorial division of a country (particularly, formation of such administrative
and territorial units where self-governance is implemented) takes into consideration these
conditions, as well as a number of other external conditions (territorial policies of a state,
regional markets and else), the system of local self-governance will have huge development
potential.

CHAPTER II. NEW MODEL OF ADMINISTRATIVE AND TERRITORIAL DIVISION

2.1. Existing Options for Administrative and Territorial Division

Since regaining independence, population, authorities and experts in Armenia have kept the issue
of administrative and territorial division of the country in the center of their attention. Its urgency
has not subdued even after adoption of the Constitution and enforcement of the new division.
Currently two options of new administrative and territorial division are in circulation:
    1. Return to the territorial division existing before 1995 (37 regions). Adepts of former
       division do not suggest any new justifications and arguments whatsoever, considering
       that system has been an established and efficiently operating one.
    2. The other proposal is brought about by S. Melkumian, Doctor of Geography, and Head of
       the Economic Geography Department of the Yerevan State Economic Institute. He
       believes that administrative and territorial division of the republic in transition should be
       implemented not through enlargement of units as suggested by the existing system, but
       through creation of relatively smaller administrative and territorial units, taking into
       consideration specifics of complex landscape of our country, as well as generalities of
       transportation and other infrastructures. Taking into consideration the above
       requirements, he is proposing to divide the country into 19 marzes (including Yerevan)
       instead of currently existing 11 (Appendix 4).

Both proposals attach priority to creation of relatively small units, which according to the authors
will ensure more efficient public administration in the regions. Both proposals emphasize marz
or region based division, where republican public administration is implemented. None of the
options contains any provision in respect of local self-government system. Thus, local self-
government per se is left outside the context of administrative and territorial division of the
country. In solving the problem of administrative and territorial division of the country the


                                                  15
emphasis should be placed on development of local self-government system, increase of its role
leaving regional administration only the function of implementation of republican issues.

2.2. Preconditions for Reforms in Administrative and Territorial Division

Conceptual bases of administrative and territorial division and local self-government of Armenia
are stipulated in the Constitution adopted in 1995.

The Constitution prescribes that administrative and territorial units of Armenia are marzes and
communities and that the National Assembly will approve the administrative and territorial
division of the country further to its presentation by the Government.

Constitution stipulates also that republican governance is implemented marzes and local self-
governance is implemented in the communities, and that marzes consist of rural and urban
communities. This Constitutional provision prescribes that the area of a marz will be equal to the
aggregate sum of administrative borders of communities comprising that marz, which in turn
means that local self-governance is enforced in the entire territory of the Republic of Armenia.

Another Constitutional provision stipulates that Yerevan has the status of marz, where national
governance is implemented and the city is divided into neighborhood communities as
administrative and territorial units, with the local self-government in Yerevan implemented in
the neighborhood communities.

The Constitution is the basis of administrative and territorial division and self-governance in the
Republic of Armenia. In 2001 Armenia ratified the European Charter of Self-government
(hereinafter European Charter), which together with the legislation regulating local self-
governance and the law on administrative and territorial division replenished the system.

Principles of the European Charter further develop the local self-governance and constitutional
system of administrative and territorial division of Armenia, in particular, the right to establish
community association and unions:

   1. In exercising their powers, the right of communities to collaborate and unite, in
      accordance with the legislation, with other communities in order to solve problems of
      common interest.
   2. The right of communities to establish associations with the objective to protect their
      interests and goals, as well as cooperate with similar structures established in other
      countries for the same purposes.

Development of administrative and territorial division system in Armenia is stipulated in the
Law on Local Self-government as well. Based on the conceptual provisions of the Constitution
of Armenia and the European Charter, this law promotes further development of the system of
administrative and territorial division, in particular:

   1. As a subject of private and public law, community is recognized a legal entity founded by
      community population, administrative borders of which are defined in accordance with
      the Law on Administrative and Territorial Division, and governing bodies of which are
      the directly elected head of community and community council, whose powers and
      responsibilities, as well as property are defined in the law. Community will have its
      budget.



                                                16
   2. Another article of the law defines administrative borders of a community as an
      administrative and territorial unit, which consists of one or more bordering settlements.
      This provision constitutes the basis for the process of community consolidation.
   3. One of principles of local self-government is the right of communities to establish - in
      accordance with the legislation - inter-community associations with other communities
      with the objective to solve certain problems.
   4. The law contains a separate Chapter dedicated to formation of inter-community
      associations, their bodies and powers, in particular:
       With the objective to solve certain problems existing in the communities and reduce
          related costs, communities may create inter-community associations under their own
          initiative and they will be recognized legal entities;
       With the objective to fulfill inter-community goals, council of the association will be
          created represented by heads of the participating communities, who will elect the
          Chairman of such Council. The Council will appoint chief executive of the Council.

In addition to the above, Civil Code of Armenia entitles communities, as legal entities, to
establish associations and unions, this provision completing the legislative prerequisites in
respect of reforming administrative and territorial division of the country.

Another prerequisite for optimization of the existing administrative and territorial system is the
situation predominant in marzes and communities. Deprived of mechanisms to perform inherent
powers, regional governments intervene the sphere of local self-government substantially
impeding operations of the latter. According to the legislation, communities have the same
powers irrespective of the size and financial capacities, but smaller communities are not in a
position to exercise majority of their powers, while it is in the best of public interest that citizens
receive high quality services irrespective of the place of residence. Nevertheless, the following
issues will have substantial impact in terms of efficient solution of these problems:
    1. Aggregate sum of actual budgets of all the communities in Armenia makes only 5-6% of
        consolidated budget of the country.
    2. Total number of the existing communities, i.e. 930, is too large a figure for Armenia with
        a population of around three million people. As a consequence, small communities
        (majority of communities, indeed) are not financially capable of meeting at least their
        mandatory powers, which is in immediate conflict with crucial interests of the
        population.
    3. According to the law on local self-government, the state has delegated a number of
        powers to communities, which had not been financed since 1996; moreover, no
        regulations guiding implementation of such powers had been elaborated yet. This entails
        failure in performing these powers in most of the communities, or, in the best case,
        bigger communities perform some of them funded from scarce own resources. Even if in
        coming periods delegated powers are financed and implementation mechanisms are
        elaborated, majority of communities will not be capable of performing under these
        powers in full in view of lacking technical and professional capacities.

All the above is a serious impediment to establishment of communities, which in turn tangibly
hampers further development of decentralization process and hence further reforms in the sphere
of local self-government.

With the objective to overcome the above problems it is absolutely necessary to substantially
decentralize financial resources so that the share of local government budgets constitute at least
20-25% of consolidated budget of the country. However, it is a priority to establish optimized
system of administrative and territorial governance, which will contribute to more efficient and
targeted utilization of human and financial resources of marzes and communities.

                                                  17
2.3. Concept of Administrative and Territorial Reforms

Reforms in local self-government are directly dependent on optimal administrative and territorial
system. Implementation of reforms in administrative and territorial division should result in
elaboration of amendments in the existing legislation, in the framework of which the following
measures will be implemented with a view of establishing optimal administration systems in
communities:

1. Consolidation of communities and marzes:
        Consolidate communities through merger of bordering or associated communities thus
substantially reducing their quantity, centralize financial resources, curtail administrative costs
and, consequently, increase financing of mandatory powers.
        The functions of territorial development program elaboration and state and legal
supervision of community operations must be assigned to regional governments (marz
administrations). A result of marz consolidation will be reduced administrative costs and that of
unjustified interventions on the part of regional administrations in the activities of communities.

2. Identify the communities, which are capable of meeting the mandatory powers in full at the
expense of own financial resources and recognize them autonomous (these are communities with
population of 15000 and more).

3. Unite small communities into community associations (regional) assigning them the
implementation of such powers, which may not be performed by small communities.

4. Taking into consideration specifics inherent to implementation measures of urban importance,
adopt a law on creation of neighborhood community association of Yerevan with the objective to
fulfill the relevant powers.

This concept should be reflected in full in the legislation to replenish the regulatory framework
of territorial and local self-government systems, which should envisage:

a)   Principles and mechanisms of marz and community consolidation;
b)   List of communities recognized autonomous;
c)   Communities covered in inter-community associations and their administrative borders;
d)   Bodies of inter-community associations and procedures of their establishment;
e)   Powers of marzes and inter-community associations;
f)   Budgetary sources of inter-community associations;
g)   Bodies of Yerevan neighborhood community association;
h)   Powers of Yerevan neighborhood community association;
i)   Budgetary sources of Yerevan neighborhood community association.

Upon implementation of these changes, the developments in administrative and territorial system
must be stipulated in the Constitution on the basis of outcomes of the reforms. In particular:
   1. To institute the send layer of local self-government and recognize inter-community
       associations (regions) as units administrative and territorial system to be elected through
       direct elections.
   2. To establish two-layer local self-government system in Yerevan whereby urban council
       and Mayor to be directly elected by the population will be responsible for implementation
       of municipal powers, while currently existing neighborhood communities will be
       responsible for implementation of neighborhood powers.


                                                18
These changes will enable formation of optimal administrative and territorial division system
will promote development of local self-government and territories.

                  CHAPTER III. INTER-COMMUNITY ASSOCIATIONS

Because amendments in the Constitution may be made exclusively through referendum requiring
a long period of time, it is possible to perform legislative changes within the existing
Constitution, in order to promote development of local self-government and lay grounds for
introduction of amendments in the Constitution in later periods. Below are the directions along
which these problems may be solved.

3.1. Legislative Basis for Formation and Inter-Community Associations and Consolidation
of Communities

The Objective of Consolidation of the Communities and Intercommunity Associations

Local self-government is the right and obligation of the communities prescribed by the
Constitution, the efficient enforcement of which is linked to optimization of the administrative
and territorial division. In parallel with decentralization of the powers of the national authorities
and financial resources, and for the best interests of the population, with a view of utmost
efficiency in implementation of the community objectives and spending, the communities may
undergo consolidation and/or enter into intercommunity associations in accordance with the
legislation.

Consolidation of the Communities

Communities may unite in the following circumstances under the legislation:
  1. On the basis of decisions of the Community Councils in that respect;
  2. At the legal initiative of the Government, on the basis of the best interests of the
     population;
  3. If the elections of the local self-government bodies have not resulted in creation of local
     government bodies in the community two times in a row.

Consolidation of communities may take place only following the consultations with the
population of the involved communities.

The communities to unite shall have shared border.

Naming of the newly created community shall be pursuant to the legislative requirements, taking
into consideration the opinion of the uniting Communities Councils.

The newly created community shall be the legal heir of the uniting communities, and the
territory and property thereof shall be correspondent to the territories and properties of such
communities.

Formation of Inter-Community Associations

Creation of intercommunity associations is prescribed by this law and carried out at the initiative
of communities, the National Assembly and/or Government.




                                                 19
Bordering communities may be the initiators of creating intercommunity associations addressing
to the authorized state bodies, which must be reflected in the legislation further to the initiative
of the government.

Intercommunity associations may be established under a law as well, under the initiative of the
National Assembly and/or the government.

Intercommunity associations shall be established following consultations with the populations of
the involved communities.

Cities with population of above 15000 shall not be included in the intercommunity associations.
The cities not covered in the intercommunity associations shall carry out the powers ascribed by
the law independently and in full.

Intercommunity association shall be a legal entity and has a seal bearing the coat-of-arms of the
Republic of Armenia or intercommunity association.

Communities, Territories and Premises of Intercommunity Associations

The lists of intercommunity associations and communities involved, their administrative
territories, as well as the residence of their governing bodies defined by the legislation.

The administrative territory of an intercommunity association shall be congruent to the
administrative territories of the participating communities, including lands outside such borders,
but bordering the territory of the association.

Communities not Covered in the Intercommunity Associations

The following communities shall not be covered in intercommunity associations, and thus they
shall carry out the powers prescribed by this law independently and in full: Abovian, Armavir,
Alaverdi, Ashtarak, Ararat, Artik, Artashat, Gavar, Giumri, Goris, Dilijan, Ijevan, Kapan, Masis,
Hrazdan, Charentsavan, Sisian, Spitak, Stepanavan, Sevan, Vagharshapat, Vanadzor, and
Vardenis cities (hereinafter referred to as autonomous cities).

A community where the number of population will exceed 15000 may address to the authorized
state body, and introducing the respective amendment as provided for by this law, be recognized
an autonomous city.

The Bodies of the Intercommunity Association

The bodies of intercommunity associations shall be the Council and the Executive Officer of
intercommunity association.

The residence of an intercommunity association shall be located in the largest, geographically
central participating community, which shall be defined by the legislation and the opinion of the
Council of the association taken into account.

The Council of intercommunity association shall consist of Chiefs of Communities involved in
the association and one representative from each of the participating Community Councils. The
Council of intercommunity association shall elect its chairman; deputy chairman and a secretary,
who shall perform their duties on an unpaid basis.


                                                20
The Council of the intercommunity association shall appoint, under an open competitive
procedure, the chief executive of the intercommunity association. Chief executive of the
intercommunity association may not be a member of the Council of intercommunity association.
The Council of intercommunity association shall define the rate of remuneration of the chief
executive, which shall be no more than 70% of the salary of the Regional Governor.

The Council of intercommunity association shall concluded a two-year contract with the chief
executive of the intercommunity association, and should such contract be breached, the
association may be dissolved at the initiative of 1/3 votes of the Council of the intercommunity
association, decision of the Council or under a judicial procedure.

Powers of the Bodies of Intercommunity Association

The intercommunity associations shall exercise only such powers that are prescribed by the law.
The powers transferred in accordance with the legislation to an intercommunity association shall
not be carried out by the involved communities.

The Council of intercommunity association shall take decisions and messages within its
jurisdiction.

The intercommunity association shall have a staff to be formed by its Council and on the basis of
the proposal by the chief executive. Chief executive of the intercommunity association shall
submit the structure, number of employees, rates of remuneration, as well as candidates for the
posts of the deputy chief of association, secretary of the staff, head of divisions and directors of
the community budgetary institutions to the Council for approval, and the above officials may be
dismissed exclusively in accordance with relevant decision of the Council. Staff of the divisions
of the Council, budgetary and other institutions shall be appointed and dismissed by the Chief
executive of the Council of intercommunity association.

Chief of the intercommunity association shall implement the decisions of the Council of the
intercommunity association and other responsibilities envisaged by the law through his staff,
budgetary and commercial institutions and organizations.

The following shall be the mandatory duties of an intercommunity association:
   1. Approval of the regulations of the Council of intercommunity association, as well as the
       charters of its staff, budgetary institutions and commercial agencies and enterprises;
   2. Approval of the five-year development program of the intercommunity association;
   3. Formation of its staff, budgetary institutions and commercial agencies and organizations;
   4. Definition of the rate of remuneration of the chief executive of the intercommunity
       association, which shall not exceed 70% of the salary of the Regional Governor;
   5. Maintenance and operation, current repair and construction of water supply, sewage,
       irrigation, gas, electricity supply and heating networks and utilities in the communities
       participating in the intercommunity association;
   6. Organization of trash removal service, as well as construction and operation of sanitary
       cleaning stations in the participating communities;
   7. Current repair and construction of intercommunity roads, bridges and other engineering
       utilities;
   8. Organization of intercommunity transportation utilities, as well as the activities of
       transportation companies;
   9. Organization of route defined taxi service in the territory of inter-community association;
   10. Organization of the activities of community health agencies;


                                                21
   11. Ensuring development of physical culture and sports, construction of sports facilities and
       founding recreation zones;
   12. Elaboration of the drafts of urban development plans, zoning and land use schemes in
       accordance with the development programs of the intercommunity association and
       participating communities;
   13. Approval of the zoning and land use scheme of the intercommunity association agreed
       with the authorized state body through the Regional Governor within a period of one
       month;
   14. Elaboration of the draft budgets of the intercommunity association and participating
       communities in accordance with their development programs;
   15. The Council of the intercommunity association shall approve its budget;
   16. Approval of the annual inventory statements of the intercommunity association;
   17. Management and use of the state owned lands outside the borders of the participating
       communities but within the borders of the intercommunity association;
   18. Carrying out other powers prescribed by this law and not prohibited by the legislation.

An intercommunity association shall carry out all the powers delegated by the State to the
communities.

An intercommunity association shall carry out its powers in the entire territory of the
consolidated communities.

The Financial Resources of an Intercommunity Association

The financial resources of an intercommunity association shall be construed on the basis of the
following deductions from the budget revenues collected onto community budgets:
    1. Land tax deductions;
    2. Property tax deductions;
    3. Income tax deductions;
    4. Obligatory payments charged for services rendered by intercommunity associations;
    5. Allocations from the state budget earmarked for fulfillment of the powers delegated by
        the state;
    6. Subsidies envisaged under the Law on Financial Adjustment;
    7. Subsidies and subventions;
    8. Rent payments for leased and used state owned lands and property of the intercommunity
        association;
    9. Property tax collections from the property located in the territory of the intercommunity
        association, which are located outside the administrative borders of the participating
        communities;
    10. Land tax collections from the lands located in the territory of the intercommunity
        association, which are located outside the administrative borders of the participating
        communities;
    11. Taxes paid in a centralized manner;
    12. Other sources not prohibited by the law.

Budget of an Intercommunity Association

Budget process of the intercommunity associations shall be carried out in compliance with the
requirements and rules applicable to the community budget process. The Chief of
Intercommunity association shall submit the budget of intercommunity association to its Council
for approval.


                                              22
The budget of intercommunity association shall have a separate account number and served by
the field treasury office.

Powers of the Communities Participating in an Intercommunity Association

The Community Council and the Chief of Community participating in an intercommunity
association shall carry out such powers attached to the communities, which have not been
transferred to intercommunity associations under this law.

The chief of community participating in the intercommunity association shall carry out his
powers through the staff and budgetary institutions. The number of employees of such staff shall
not exceed five, including the deputy chief and the secretary of the staff.

Implementation Modalities for Powers of a Community Participating in an Intercommunity
Association

Powers of the community participating in the intercommunity association, which may not be
efficiently enforced through the budgetary institutions of the community, shall be carried out by
the intercommunity association pursuant to the decision of the Community Council. Such powers
shall be subject to mandatory implementation if the adequate funds have been allocated from the
community budget to the budget of an intercommunity association.

Local Self-Government in the City of Yerevan

Yerevan shall have a status of a Marz. State management in Yerevan shall be enforced by the
Mayor and funded by the budgetary resources.

Local self-government in Yerevan shall be carried out through the neighborhood communities.

With an objective to implement the local self-government in Yerevan in an efficient manner, the
Council Yerevan neighborhood communities shall be established.

Neighborhood communities shall delegate to the Yerevan Council of neighborhood communities
a part of the powers prescribed by the legislation, accompanied with the adequate financial
resources and property. Such resources shall constitute the revenue item of the Yerevan Council
of neighborhood communities (hereinafter referred to as Yerevan budget).

The Yerevan Association of neighborhood communities shall be a legal entity, it shall have its
own name and its seal bearing the coat-of-arms of the Republic of Armenia or Yerevan.

Bodies of the Yerevan Neighborhood Communities

The bodies of the Yerevan Association of neighborhood communities shall be the Yerevan
Council and chief executive.

Yerevan Council shall consist of chiefs of neighborhood communities and one member from
each community council. The representatives of community councils in the Yerevan Council
shall be elected by neighborhood councils.

Chief executive of the Yerevan Council shall be the Mayor of Yerevan.



                                               23
Powers of the Yerevan Council

1. Adopt its Charter;
2. Adopt the Yerevan municipal budget and the report on budget execution, as well as introduced
changes in the budget;
3. Adopt the zoning, land use schemes and urban development plan of Yerevan;
4. Adopt planning drafts of detailed individual parts and urban development complexes of the
city in conformity with the zoning and urban development master plan of the city;
5. Adopt the Urban Development Charter of Yerevan;
6. Arrange and regulate water supply, removal, heating gas supply and electricity supply of
Yerevan;
7. Define the rates and tariffs for municipal services as prescribed by the legislation;
8. Arrange and regulate urban transport utilities in Yerevan;
9. Issue permissions for employing taxi and passenger transport vehicles in Yerevan;
10. Set the municipal rules and regulations in respect of agencies and organizations involved in
commercial, catering and service activities in Yerevan, and supervise fulfillment thereof;
11. Regulate issuing permissions for holding referenda, rallies, demonstrations and other mass
measures in conformity with the legislation;
12. Set cemetery maintenance rules and regulations;
13. Name and rename streets, avenues, squares, parks of the city, municipal educational, cultural
and other agencies and organizations;
14. Set the rules and regulations to protect the municipal land from slides, flood, mooring,
pollution from chemical and radioactive materials, as well as industrial exhausts;
15. Take decisions on leasing state owned land plots and defining the rates;
16. Define the regulation for granting “Honorary Citizen of Yerevan” to citizens and non-
citizens of the Republic of Armenia;
17. Adopt the Charters of the budget agencies and organizations established by the Yerevan
Council;
18. Manage, own and use the assets of the Yerevan Districts Community Association, and
approve the annual inventory documents of the Association;
19. Take decisions on alienation of the Yerevan Districts Community Association further to the
submission of the Mayor;
20. Appoint the managers of budget agencies and commercial organizations established by the
Yerevan Council as submitted by the Mayor, and dismiss them independently;
21. Carry out other powers prescribed by the legislation.

Powers of the Chief Executive of the Yerevan Neighborhood Association

The Mayor of Yerevan, as the Chief Executive of the Yerevan Neighborhood Association, shall
fulfill the decisions taken within the powers attributed thereto by the legislation.

The Mayor of Yerevan shall carry out the powers prescribed by the law through the staff of the
Yerevan Municipality and budgetary institutions established by the Yerevan Council.

The Chief Executive of the Yerevan Neighborhood Association, i.e. Mayor of Yerevan shall:
1. Preside the sessions of the Yerevan Council in accordance with the legislation and regulations
of the Yerevan Council;
2. Elaborate the Yerevan budget, amendments thereto, as well as the report on budget execution
and submit them to the Yerevan Council for approval;
3. Elaborate the charters of the budgetary institutions and submit them to the Yerevan Council
for approval;


                                               24
4. Submit the draft decisions on establishment, restructuring and/or liquidation of budgetary
institutions in the jurisdiction of the Yerevan neighborhood association to the Yerevan Council
for approval;
5. Define and change the structure, number of employees, staff-list and official rates of
remuneration of budgetary institutions, which shall be submitted to the Yerevan Council for
approval;
6. Approve the composition of Boards and supervisory councils of commercial companies in the
jurisdiction of the Yerevan neighborhood association, to which shall be submitted the Yerevan
Council for approval;
7. Submit the candidates for the posts of directors of budgetary institutions in the jurisdiction of
the Yerevan neighborhood association to the Yerevan Council for approval;
8. Submit the agreements and contracts concluded on inter community and interstate
cooperation, as well as on membership in Armenian and international associations to the
Yerevan Council for approval;
9. Conclude agreements and contracts within his jurisdiction; submit contracts on alienation and
leasing of property of the Yerevan neighborhood association to the Yerevan Council for
approval;
10. Submit proposal on granting or withdrawal of the title of Honorary citizen of Yerevan to
Armenian and foreign nationals to the Yerevan Council for approval;
11. Take decision and issue directives within his jurisdiction.

Budget of Yerevan

Budget process in the city of Yerevan shall be carried out in compliance with the requirements
and rules attached to community budgets.

The budget, upon submission of the Mayor of Yerevan, shall be approved by the Council of
Yerevan. The budget of the Yerevan neighborhood association shall be served by the treasury
and shall have separate account.

Sources of the Yerevan Budget

The Yerevan city budget shall be formed from the following allocations of the Yerevan
community neighborhood budgets:
   1. Land tax deductions;
   2. Property tax deductions;
   3. Income tax deductions;
   4. Profit tax deductions;
   5. Obligatory payments collected for services rendered by budget institutions in the
       jurisdiction of the Yerevan Neighborhood association;
   6. Charges for organization of urban and taxi services;
   7. Subsidies and subventions;
   8. Rent payments for state owned property, and property of the Yerevan Neighborhood
       association;
   9. 30% of the proceeds generated on realization of the state owned lands;
   10. 50% of the tax payments charged to the neighborhood budgets in a centralized manner;
   11. Other sources not prohibited by the legislation.

Powers of Yerevan Neighborhood Communities




                                                25
Yerevan neighborhood communities will perform the powers prescribed by the legislation save
those, which are transferred to the Association of Yerevan Neighborhood Communities in
accordance with the legislative procedure.

3.2. Units of New Administrative and Territorial Division

In accordance with the Constitution in force, amendments in the legislation will constitute new
system of administrative and territorial division. Community consolidation process will result in
establishment of around 300-350 communities, 24 autonomous cities with population over 15000
people, and 40-45 inter-community associations with population between 15000 and 50000
people, as well as the association of Yerevan neighborhood communities comprised of 12
neighborhood communities.

In elaborating the territorial administration legislation, marzes will be gradually consolidated
(united) in parallel with development of communities and inter-community associations, as a
result of which Armenia will be viewed as a single marz. As a result of development in
communication infrastructures, the Ministry of Territorial Administration will easily fulfill the
legitimate powers of regional governments.

The result of an efficient development of the system should become the introduction of
amendments in the Constitution:
   1. Inter-community associations will be recognized administrative and territorial units, and
      direct elections of the Councils and chief executives will take place in these units;
   2. The city of Yerevan will be recognized as community, where the Yerevan Council and
      Mayor directly elected by the city population will perform municipal administration,
      while neighborhood communities will perform neighborhood administration;
   3. Marz structures will be removed as administrative and territorial units. As a result
      Armenia will become a unitary state with three-level governance system, including
      national and two-level local self-government.

Epilogue

Analysis of the existing administrative and territorial division of Armenia indicates that it does
not encourage further expansion and development of local self-government system. Despite it is
on the basis of the existing system that the local self-government had been established, however,
the contemporary realities necessitate further changes in both administrative and territorial
governance and local self-government systems.

Indeed, huge number of communities has been created without sound justification or
consideration of requirements thereto. Local self-government in many of these communities is
only of formal nature with no service rendered to population whatsoever and further maintenance
of these structures is absolutely inappropriate. There is no clear distribution of functions in the
between the two levels of the existing two-fold administration system, which often gives rise to
various problems.

With the objective to further development of local self-government system in Armenia it is
required to enhance one of its fundaments, i.e. administrative and territorial division of the
country. Hence it is necessary to carry out the following measures:
   1. Consolidation of communities: some bordering communities will merge resulting
        establishment of around 380 communities to replace the existing 930;
   2. Establishment of around 45 inter-community associations, which will later become
        administrative and territorial units to implement local self-governance;

                                                26
   3. Recognition of Yerevan as a community with two-fold level of local self-government.

In order to implement the above measures it is required to introduce appropriate amendments in
the Constitution and legislation, carry out public awareness measures involving mass media in
the process.




                                             27
                                                                   APPENDIX 1
       Urban Communities of the Republic of Armenia (as of January 1 1999)

      Community           Date when       Distance from       Number of
                         urban status     Yerevan (km)        population
                         was provided                     (thousand people)
                                                          1996       1999

Yerevan                       782              ~          1249.4    1248.7
Abovian                      1963              16           61.6      61.1
Agarak                       1995             256            5.1       5.1
Armavir                      1930              48           46.4      44.7
Alaverdi                     1938             167           25.3      24.9
Akhtala                      1995             185            4.0       4.1
Aparan                       1995              59           10.1      10.3
Ashtarak                     1963              20           28.8      29.7
Ararat                       1962              48           21.9      22.2
Artik                        1945             105           23.7      24.0
Artashat                     1961              29           34.0      35.0
Berd                         1995             199           11.8      11.8
Biureghavan                  1994              18           11.9      12.1
Gavar                        1924              98           34.1      34.3
Giumri                       1940             116          211.1     211.7
Goris                        1924             246           28.8      29.2
Dastakert                    1995             231            0.6       0.6
Dilijan                      1951             101           23.9      23.9
Yeghegnadzor                 1995             119           11.4      11.7
Yeghvard                     1995              22           13.1      13.5
Ijevan                       1961             137           20.4      20.8
Talin                        1995              66            7.5       7.6
Toumanian                    1995             152            2.4       2.5
Tskakhkadzor                 1984              58            1.5       1.5
Shamloukh                    1995             203            1.7       1.7
Tchambarak                   1995             118            6.6       6.6
Kapan                        1938             316           46.7      46.8
Maralik                      1995              95            7.7       7.9
Martouni                     1995             130           14.3      14.5
Masis                        1995              17           26.7      27.1
Metzamor                     1992              48           12.4      12.5
Meghri                       1984             400            5.6       5.6
Noyemberian                  1995             185            6.5       6.5
Nor Hadchn                   1991              18           12.8      12.9
Hrazdan                      1950              50           63.8      63.9
Charentsavan                 1961              38           36.3      36.3
Jermuk                       1961             170           10.3      10.3
Sisian                       1974             210           18.8      19.0
Spitak                       1960             100           21.4      21.7
Stepanavan                   1938             144           24.9      25.0

                                    28
Sevan                    1961         66     30.6     30.9
Tashir                   1983        162     14.2     14.3
Kajaran                  1992        342      8.8      8.8
Vayck                    1995        135      7.6      7.7
Vagharshapat             1924         21     64.7     65.5
Vanadzor                 1924        120    172.6    172.7
Vardenis                 1995        168     17.4     17.6
Vedi                     1995         48     13.9     14.4
Total urban population     x          X    2535.1   2541.2




                                29
                                                                            APPENDIX 2
                                     Total Population in Marzes

Marz               Territory     Marz      Distance     Number of     Population, including
                    (square      center       to           urban        urban (thousand
                  kilometers)              Yerevan    (neighborhood         people)
                                            (km)       in Yerevan)     1996         1999
                                                         and rural
                                                       communities
Yerevan              227        Yerevan        -            12/-      1249.4      1248.7
                                                                      1249.4      1248.7
Aragatsotn           2753       Ashtarak     120          114/ 3       162.5      166.7
                                                                        45.7       46.9
Ararat               2086       Artashat      29           97/4        305.0      310.0
                                                                        96.5       98.7
Armavir              1242       Armavir       48           97/3        315.5      321.1
                                                                       123.5      122.7
Gegharkunik         5348 *       Gavar        98           92/5        272.4      277.6
                                                                       101.1      102.0
Lori                 3789       Vanadzor     120          113/8        392.4      394.1
                                                                       265.4      265.6
Kotayk               2089       Hrazdan       50           67/7        325.9      328.9
                                                                       201.0      201.3
Shirak               2681        Giumri      116          119/3        358.3      361.8
                                                                       242.5      243.6
Siunik               4506        Kapan       316          113/7        161.9      163.6
                                                                       114.4      115.1
Vayots Dzor          2308       Yeghegna     119           44/3         68.3       69.1
                                  dzor                                  28.0       28.4
Tavush               2704        Ijevan      137           62/4        154.8      156.6
                                                                        62.6       63.0
Republic     of     29733       Yerevan                   930/47      3766.4      3798.2
Armenia                                                               2530.1      2536.0




                                             30
                                                                            APPENDIX 3

             Distribution of Functions between Various Levels of Administration

                                         Local self-government      Central or regional
                  Powers
                                                 bodies              administration
Education

1. Pre-school                                      X
2. Elementary                                                               X
3. Secondary                                                                X
4. Technical                                                                X
5. Higher                                                                   X
6. Vocational                                      X

Social security

1. Boarding houses for elderly                                              X
2. Social assistance to elderly and                                         X
vulnerable
3. Special services (homeless,                                              X
displaced, etc)

Health

1. Primary health care                             X
2. Health care                                                              X
3. Hospitals                                                                X
4. Policlinics                                                              X

Culture, recreation and sports

1. Clubs                                           X
2. Libraries                                       X                        X
3. Culture houses                                  X
4. Theaters                                        X                        X
5. Museums                                         X                        X
6. Recreation zones                                X                        X
7. Sport institutions                              X

Economic services

1. Water supply                                    X
2. Sewage                                          X
3. Electricity supply                                                       X
4. Gas                                                                      X
5. Heating                                         X

Sanitary cleaning and environment

                                            31
protection

1. Trash removal                            X
2. Beatification and green planting         X
3. Cemeteries                               X
4. Environment protection                   X   X


Communication and transport

1. Roads                                    X   X
2. Outdoors illumination                    X
3. Public transport                         X   X

Urban Development

1. Compilation of community master          X   X
plan
2.    Economic    development   of          X   X
communities
3. Tourism                                      X

Governance

1. Administrative powers (licensing,        X   X
etc)
2. Other administrative powers              X   X
(registration of electorate, etc)
3. Police                                       X
4. Fire service                                 X
5. Civil protection                         X   X
6. Protection of consumers rights           X   X




                                       32
                                                                          APPENDIX 4
Proposed Scheme for Administrative and Territorial Division of the Republic of Armenia




                                                                        APPENDIX 5

                 Administrative and Territorial Division of Armenia




                                         33
                                                                                  APPENDIX 6

GLOSSARY OF TERMS

Village – Rural populated settlement. The legislation of Armenia does not provide for definition
of the village. The list of villages is provided in the Law of Armenia on Administrative and
Territorial Division of Armenia.

City – Urban populated settlement. The legislation of Armenia does not provide for definition of
the city. The list of cities is provided in the Law of Armenia on Administrative and Territorial
Division of Armenia.

Community – Commune of population residing in one or more populated areas where local
government bodies elected for a term of three years will be charged with management of
community property and solution of community issues. The local government bodies will be the
head of community and community council, which will have powers and budget prescribed by
the Constitution and legislation.

Municipality – The legislation of Armenia the municipality is the community.

Bordering community – Communities located on the border between the Republic of Armenia
and neighboring countries, the list of which is stipulated in the Government Decree N713,
November 17 1998.

Special status of some communities – The Government of Armenia attaches special status to
mountainous and bordering communities, which are under special sponsorship of the state.

Autonomous community – It is proposed to qualify communities as autonomous if they have a
population of more than 15000 people, which – in view of their physical, material, human and
budget capacities – are in a position to independently perform under all the powers prescribed to
the communities by the legislation.

Inter-community union (association) – It is proposed that inter-community unions covered the
communities located in the same geographical area and have transport communication,
population of fewer than 15000 people and which are not in a position to perform under certain
powers prescribed to them by the legislation. With the objective to perform under such powers,
the latter will be assigned to the inter-community unions, which will have their own budgets.




                                               34
SUMMARY

       I. Current local self-government system and problems

The state government system has been established pursuant to the Constitution of Armenia
adopted through referendum of July 5 1995, which laid legal grounds for reforms in the political
and governance systems and formation of these systems.

Armenia is a semi-presidential republic. Two-tier governance system is in effect in Armenia
including state (central) and local self-government. The government fulfils state governance
through ministries and agencies, as well as territorial administration bodies, i.e. regional
governors (marzpets), while the local self-governance is implemented in the communities.

The Constitution represents the fundaments of administrative and territorial division of the
Republic of Armenia, as well as territorial and local governance. In 2001 Armenia ratified the
European Charter of Local Self-Government, which completed the system of governance
together with the legislation regulating local self-government and the Law on Administrative and
Territorial Division of Armenia.

Administrative and territorial division of the country has a specific place in the system of state
governance, and taking into consideration that according to the Article 104 of the Constitution
the units of administrative and territorial are the marzes and communities, as well as the fact that
marzes consist of rural and urban communities, the National Assembly of Armenia adopted the
Law on Administrative and Territorial Division of Armenia. This law divided the territory of
Armenia into 10 marzes, the city of Yerevan with a status of marz, and 930 communities,
including 47 urban 871 rural communities and 12 districts of Yerevan:

Communities are administrative and territorial units where local self-government is
implemented. Through direct elections population of communities elects local government
authorities or bodies for a term of three years, these bodies being community councils and the
executive body of the community, i.e. head of community.

The regional governors (marzpets) will implement their activities pursuant to the Constitution of
Armenia and Presidential Directives along the following three major lines:
      1. Implement territorial policies of the government;
      2. Coordinate activities of territorial representations of the republican executive branch;
         and
      3. Supervise activities of local self-governments

Local self-government is implemented in the communities, which are legal entities. The
community will have defined territory, population, property, government bodies and own budget.

The experience of the recent seven years disclosed both positive and negative aspects of the
existing system of territorial and administrative division of the country. Negative aspects are.

      Numerous communities were created, which are small, weak and incapable of rendering
       services to their population, while the legislation assigns the same powers and functions
       to all the communities irrespective of their size and financial capacities;
      Creation of single-layer local self-government system and preclusion of the second layer
       (removal of regions);
      Enlargement of administrative units (creation of marzes) was not accompanied with
       allocation of larger scope of authorities to local self-governments;

                                                35
      Declarative and unregulated nature of the powers attributed to marz administrations,
       absence of implementation mechanisms as well as almost complete lack of territorial
       development programs, which results in intervention of regional administrations in the
       scope of activities of local self-governments thus significantly impeding their operation
       and development of the system;
      Impossibility to provide for modern equipment, professional human resources, and
       training for the communities;
      Impossibility for the small communities to perform under the numerous powers delegated
       by the state;
      Extremely complex relief structure, broken terrain, diverse climatic conditions, specifics
       of zoning, absence of unified transportation infrastructure or the remoteness of
       communities from administrative centers of marzes have not been taken into
       consideration; the latter is an impediment to regular communication between
       communities and marz administration. Neglected have also been the historically
       established generalities, certain contradictions between the regions, traditions and
       specifics.

All the above is a serious impediment to establishment of communities, which in turn tangibly
hampers further development of decentralization process and hence further reforms in the sphere
of local self-government.

II. Concept of Administrative and territorial reforms

Enhancing the efficiency of state and territorial governance, as well as development of local self-
government are directly dependent on optimal administrative and territorial system, which will
enable removing the above mentioned negative aspects of the administrative and territorial
division. To this end, it is necessary to carry out the following changes:

    Consolidate communities, streamline and regulate powers of regional administrations,
    Consolidate communities, expand their powers and financial capacities,
    Identify the large communities, which are capable of independently performing their
     legitimate powers and recognize them as autonomous communities,
    Unite the remaining, small, communities in preserving their elected local self-government
     bodies and the powers, which are possible to carry out locally, into inter-community
     unions assigning such powers to them, which cannot be performed by small communities,
    Taking into consideration specifics inherent to implementation measures of urban
     importance, adopt a law on creation of neighborhood community association of Yerevan
     with the objective to fulfill the relevant powers.

III. Expected results

Upon implementation of these changes and taking into consideration the outcomes of the
implemented reforms, it is necessary to stipulate the relevant developments in the system of
administrative and territorial division of the country in the Constitution. In particular:
    1. Adopt the second layer of local self-government system and recognize the inter-
       community unions (regions) as administrative and territorial units with their government
       bodies are elected through direct voting by the population.
    2. To establish two-layer governance system in Yerevan, according to which the
       community council and Mayor – directly elected by the population – will be charged
       with fulfillment of relevant legitimate powers, while the currently existing borough self-
       government bodies will be responsible for tackling the issues of borough powers.


                                                36
The following will be established as a result of changes in the legislation:

   1. Optimal territorial governance system. Regional governors will have legal task of
      development and of territorial development programs and fulfillment of state and legal
      overview of the communities. As a consequence of marz consolidation the administrative
      costs of territorial governance will be reduced and unjustified interventions of the
      regional administrations in the activities of communities precluded.
   2. Consolidated communities as a result of their merger or unification of bordering
      communities. Because of this, the number of communities will be reduced down to 300-
      380, financial resources centralized, administrative costs reduced and increase of funding
      of mandatory powers.
   3. Establishment of approximately 25 communities recognized autonomous, which are
      capable of fulfilling the legal requirements in full (these are the communities with
      population of 15000 and more people).
   4. Small communities united into 40-45 inter-community unions (regions) assigned with
      such powers, which small communities are not in a position to perform if acting
      separately.
   5. Establishment of union of 12 Yerevan boroughs with the objective to jointly fulfill
      powers of urban significance.




                                                 37

				
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