Kyrgyz Politicians Go for Gold
Kyrgyzstan’s largest gold mine has long been a controversial subject, and especially so over the last year as the authorities have tried to bat away calls for its re-nationalisation.
The Kumtor gold question just keeps coming back, however, and some analysts believe this is because it offers such good opportunities for politicians to make a name for themselves without having to consider the consequences.
Foreign management of the Kumtor mine, the country’s most lucrative asset, has always been a focus for nationalist outrage.
Canada’s Centerra group has operated the mine since 1997, but it is the present contract issued in 2009 that angers those politicians who argue that the firm got an over-generous tax arrangement.
Last year, a parliamentary commission headed by a member of the nationalist Ata Jurt party suggested revoking the contract altogether. This left the government in an uncomfortable position. It would not wish to seem less patriotic than its opponents, yet it was acutely aware that redrafting – or worse, annulling – contracts was not the best way to attract investors, and that in any case it could not run the mine on its own. And as Centerra pointed out, the Kyrgyz state was already a 33 per cent shareholder in the parent company, and was thus earning dividends as well as taxes.
In spring this year, the government took the bull by the horns and set up a commission which it tasked with revising the contract in consultation with Centerra.
After months of discussion, and amid continuing opposition calls for complete nationalisation and angry protests near the mine site in northeast Kyrgyzstan, the government agreed terms with the Canadians this September.
The deal amounted to a restructuring of company ownership whereby state gold company Kyrgyzaltyn would exchange its 33 per cent stake in the parent company Centerra for 50 per cent of a new joint venture.
Kyrgyz officials insisted they got the best terms possible. But it was not over. The proposed deal went before parliament, which promptly rejected it. A majority insisted that Kyrgyzstan should have a 67 per cent share in the joint venture, and sent the document back to the government with a deadline of December 23 to sort it out.
The government has been under immense pressure, with deputies threatening to force its resignation. President Almazbek Atambaev has dismissed those campaigning against the deal as populists.
It seems unlikely that Centerra would agree to further significant changes at this point. But Prime Minister Jantoroo Satybaldiev has had little option but to try, even though he says his team faces an impossible task.
On December 4, the prime minister met Centerra’s president and chief executive, Ian Atkinson. According to Justice Minister Almambet Shykmamatov, quoted by local media, the company refused to budge on the ownership percentage.
“Our proposal that Kyrgyzstan should own 67 per cent of Kumtor [joint venture] alarmed them,” Shykmamatov said.
Centerra says it is already contributing 5.5 per cent of Kyrgyzstan’s gross domestic product, plus 300 million US dollars in taxes, payments to local suppliers and other expenditure. It argues that its shareholders will not allow it to accept disadvantageous terms and has warned that it will take the dispute to international arbitration if need be.
EMBATTLED GOVERNMENT MAKES EASY TARGET
Analysts in Kyrgyzstan say the dispute has been exploited by various forces ranging from parties both in opposition and in the ruling coalition, to organised crime groups hoping to extort money from a foreign investor.
“It’s always very beneficial to stay in the public eye by making statements about a pressing matter like Kumtor,” Medet Tiulegenov, a politics lecturer at the American University in Central Asia, told IWPR.“It’s easy for [parties] in parliament to portray themselves as the ones who care about the people and defend the interests of the public and the country, while shifting responsibility onto the government.”
Nadira Narmatova, a parliamentarian from the Ata-Jurt party which has pressed for re-nationalisation rather than renegotiation, denied the campaign was a cynical political move.
“We raised this issue because of the economic situation that people are in,” she told IWPR. “It’s being politicised by others – we aren’t involved in that.”
While the president and prime minister have made their positions clear, Tiulegenov noted that parts of the governing coalition they represented had shifted stance. As long as the Kumtor issue was being championed by their Ata-Jurt opponents, they steered well clear of it, but a series of protests in northeast Kyrgyzstan prompted them to act.
In November, Omurbek Tekebaev, party leader of coalition member Ata Meken, made the surprising announcement that he was working on a bill to nationalise Kumtor. It was the first time he had made a public statement on the mine controversy.
In an interview for IWPR, Tekebaev rejected accusations that he had taken up a populist cause, insisting that he had always wanted the nation to benefit from its natural resources. He went on to criticise the prime minister’s handling of recent negotiations.
“The government is not fulfilling parliament’s request, which had unanimous backing,” he said. “Instead, it is trying to sabotage it and put up resistance. It’s pursuing the same line of argument advanced by Centerra.”
The backdrop to the high-level discussions is a series of demonstrations in Issykkul region. In incidents in May, June and August protester blocked a highway leading to the mine and clashed with police. In October, the same thing happened again, and this time the protesters briefly held hostage government negotiator Emil Kaptagaev hostage.
Two men identified as leaders of the August protest were later charged with trying to extort three million dollars from Centerra. Video footage showed Ermek Junushbaev and Bakhtiar Kurmanov threatening further grassroots action unless the company paid up. Prime Minister Satybaldiev described them as “a crime group”.
WHO STANDS TO GAIN?
Experts say the dispute has many facets. For some politicians, campaigning on Kumtor is a way of building popular support with an eye on the 2015 parliamentary election. For others, it is a stick with which to beat both president and prime minister.
Finally, there is the prospect of personal gain if it becomes possible to carve up Kumtor’s assets and top jobs. This autumn, the Anti-Corruption Public Initiative, a Kyrgyz NGO, asked stock exchange regulators in Canada to look into what it suspected was an attempt at insider trading. It believed that officials with advance warning of the final terms of the deal could benefit by publicly attacking Centerra, driving down the share price, and buying up stock up.
Advocates of nationalisation are unclear on how they envisage the gold mine being be run in a scenario where Centerra departed, taking its funds and technical expertise with it.
IWPR asked Narmatova to comment on the issue, but she said only that this was a matter for the government to worry about.
Economist Iskender Sharsheev points out that if it happened, the government would not simply be able to assume immediate control of Kumtor. There was likely to be a protracted legal battle and a massive compensation claim, during which time the gold mine would be shut down.
Then there is the loss of over 2,500 local jobs, the contracts lost by local supply and service companies, and above all the damage done to an already investment-starved economy by the summary ejection of a major foreign partner.
“This is being blown out of proportion by political groups which say that if Kumtor is nationalised, everyone will benefit. That isn’t true,” economist Iskender Sharsheev said.
For the current government, it is a no-win situation, according to Tiulegenov.
“If it [Kumtor] is nationalised, parliament will see the government as the loser. If it manages to retain the 50-50 terms, parliament will still portray it as the losing side,” he said.
Timur Toktonaliev is an IWPR contributor in Bishkek.