Lawmakers may have destroyed Kyrgyzstan’s reputation among investors in the process, but after a year of heated arguments, which often spilled out into the streets, parliament voted to accept a restructuring roadmap with the country’s largest investor on February 6. The arrangement evenly splits control of the Kumtor gold mine between Bishkek and Kumtor’s Canadian owners.
But Kumtor will probably remain divisive. Outside the high-altitude mine in Issyk-Kul Province, villagers have been holding another one of their periodic roadblocks in recent days, demanding concessions from the government and the mine. In a country with widespread unemployment and few opportunities, young men like those blocking the road this week are easily whipped into a fury. Many observers believe they are paid. The ostensible reason for the latest roadblock is the arrest of several local men last August on charges of trying to extort $3 million from the mine.
In the late-afternoon vote on February 6, after weeks of deliberation, 60 deputies voted for the resolution and 35 against. Two abstained and 23 were absent, according to a count published by AKIpress.
Under the agreement, Kyrgyzstan would trade its 33-percent share in Toronto-listed Centerra Gold for a 50-percent interest in a new company that would own and operate Kumtor. In 12 years, Kyrgyzstan would have the opportunity to purchase another 17 percent of the joint venture at market value.
Centerra welcomed the news, but cautioned that the parliamentary resolution "contains a number of recommendations that are materially inconsistent" with the draft agreement between the company and the Kyrgyz government. "Among other things, the resolution calls for further audits of the Kumtor operation and for the government and the General Prosecutor’s Office to continue pursuing claims for environmental and economic damages, which the company disputes," the company said in a statement on its website.
The Kumtor gold mine is the largest industrial asset in the impoverished Central Asian nation, accounting for approximately 8 percent of GDP last year and over 50 percent of industrial output.
The latest restructuring began in February 2013 when parliament, acting at the urging of Economics Minister Temir Sariev, gave the government three months to renegotiate a 2009 operating agreement or abandon it, the third since Canadian investors began developing Kumtor in the mid-1990s.
In October, parliament voted overwhelmingly not to accept a deal with Centerra almost identical to the one passed Thursday, demanding the government negotiate a 67-percent share. Centerra, which has invested almost $1 billion since the 2009 restructuring, threatened to seek international arbitration.
With negotiations between the government and Centerra apparently deadlocked, in late December the government announced another draft deal that looked much like the first.
Throughout the year, some lawmakers had urged nationalization. Few reasonable people in Bishkek or beyond think Kyrgyzstan has the capacity to operate the mine, but such calls are a painless and cost-effective way for populists to score points.
Often they use environmental arguments. Environmental concerns have plagued the operation since it began in the mid-1990s, heightened by a sodium cyanide spill into a river in 1998. But few believe environmental concerns alone are behind the regular unrest including riots outside the mine in May and the kidnapping of the provincial governor in October.
Business leaders fear that parliament’s protracted debate has frightened off foreign investors. Despite Kyrgyzstan’s vast mineral deposits, Kumtor is its only substantive mining operation. Repeated changes in government, high-level corruption, and an opaque licensing process have been part of the problem. Regular riots that appear to be led by shady business groups with alleged ties to parliamentarians have not helped Kyrgyzstan’s image as a safe haven for investors. Moreover, regular attacks on other mining sites have further shaken confidence.
“What’s happening with Kumtor signals to the world that we cannot secure property rights and have normal relations with Western countries,” prominent businessman Emil Umetaliev told EurasiaNet.org in November.
Kumtor employs over 2700 locals, many of whom had lobbied parliament to pass the resolution. They should sleep well tonight. But it seems unlikely after this drawn-out battle that Kyrgyzstan’s few remaining foreign investors will sleep well anytime soon.