UK Gold Firm Runs into Trouble

The Uzbek government is deploying the judicial system to elbow once-favoured foreign investors out of the gold industry so that it can regain total control over the sector, NBCentralAsia commentators say.



In the latest move, a court in Navoi region on October 26 found that the British-Uzbek joint venture Amantaytau Goldfields, AGF, owed the state some 224 million US dollars in taxes and fines. Britain’s Oxus Gold and the Uzbek government each have a half-share in AGF.



AGF is not the first gold mining company facing a huge tax demand. On September 29, a court in Navoi declared Zarafshan-Newmont, an Uzbek-American joint venture, bankrupt and gave it three months to wind up business. Once again, the state holds 50 per cent of the stock in the company, and the rest belongs to the United States’ Newmont Mining, which the court accused of failing to pay 49 million dollars in taxes.



The Uzbek government changed its tax legislation in summer 2005, removing certain tax benefits for companies with foreign investors. Now it is demanding the payment of taxes it says are owed for 2005-06.



According to one NBCentralAsia commentator, there is nothing new in what the authorities are doing. They have a record of enticing in foreign companies with all their technology, and then it tries to get rid of them the moment it believes it can manage on its own.



If the American and British investors are forced out of the Uzbek gold business, they will leave behind technology, equipment, a working production system, and trained personnel.



Uzbekistan has confirmed underground reserves of 2,100 tons of gold, and a total estimated at 3,350 tons.



Another political commentator agrees that the move is a deliberate step by the authorities to drive foreign companies out of the profitable mining business. Uzbekistan itself is now in a position to develop its underground deposits further, and might bring in new experts from Russia or Kazakstan.



This view is reinforced by a decision in mid-August to strip Oxus Gold of a license to development of a large non-ferrous metals seam in Surkhandarya, which went instead to the state-owned Almalyk mining company.



According to a foreign observer who has spent a lot of time in Uzbekistan, the latest court action will make the investment climate even worse. “[It] will make foreign investors consider whether it is worth investing in the country at all,” he said, noting that it plays into the hands of Russian and Chinese companies which would like to replace the western companies now working in the sector.



The commentator believes that even if Uzbekistan is unable to pursue these projects under its own steam, it will be able to use the possibility of license concessions and foreign access to the mining industry as a handy bargaining tool with western governments.



(News Briefing Central Asia draws comment and analysis from a broad range of political observers across the region.)