Speculation looks set to continue over the future of mineral extraction in Kyrgyzstan after the spotlight was cast on the Kumtor goldmine amid parliamentary discussions over its nationalisation. On 27 June 2012, parliament decided that the mine’s operating licence would be reassessed with a view to increasing the government’s stake. Foreign investors are reviewing the outcome of the parliamentary decision, which is hardly ideal for owner Centerra Gold, aware that a less favourable decision might have resulted.
Kumtor, currently 67% owned by Canadian Centerra Gold, is one of Central Asia’s largest gold mines and illustrates the increasingly intrusive direction that Kyrgyzstan’s natural resource policy has been heading. The mine has produced 243 tonnes of gold since opening in 1997 and accounts for almost 10% of Kyrgyzstan’s annual GDP. Whilst integral to the country’s economy, Centerra’s history in the country has been controversial, with environmental accidents and industrial action disrupting operations several times. Two revolutions, a number of tax disputes and a cyanide spill have meant the company has been forced to renegotiate its original contract several times before.
Environmental concerns – at least nominally – were the source of Centerra’s trouble this time around, although populism is also behind the attacks on foreign firms. Parliament was presented with an 800-page report detailing allegations of ecological crimes that have occurred at Kumtor, including poisoning water supplies, destroying plant life and thawing a nearby glacier.
Those behind the bill – belonging to the Kyrgyz nationalist Ata-Zhurt party – pushed for the state to acquire all of Kumtor and kick Centerra out of the country. Whilst extreme, this hostility towards foreign miners is not unique to Centerra. Other firms have reported harassment, death threats and physical violence intended to force them into quitting Kyrgyzstan, with several politicians apparently keen to capitalise on public opinion and stoke resentment towards foreigners.
Parliament voted 67 to 11 in favour of renegotiating the Kumtor contract and increasing its stake in the mine, but decided against nationalising the project completely. A special commission is to be appointed, tasked with negotiating a new contract with the company and investigating the allegations of environmental degradation and social damage caused by its operations.
Details are yet to be announced, but the contract revision will presumably see the state increase its stake and will negatively affect Centerra’s earnings. The allegations of ecological damage are likely to stick regardless of the commission’s findings and may well be used again in the future in order to attack firms and increase the state’s control of the mining sector. Investors in Kyrgyzstan should remain aware of this.