Kyrgyz premier resigns after Kumtor talks stall

By bne IntelliNews April 23, 2015

Jacopo Dettoni in Almaty -


Kyrgyzstan’s Prime Minister Djoomart Otorbayev resigned on April 23 shortly after presenting to parliament his annual report, local press reported. Otorbayev is the third prime minister to step down since parliamentary elections in 2010. He follows closely on the heels of two other former members of the cabinet: Finance Minister Olga Lavrova, who resigned on April 11, and Transport and Communications Minister Kalykbek Sultanov, who left his post on April 21.

Otorbayev, who stayed in office slightly more than a year, did not give an official reason for his decision. “I think it will allow the majority coalition to choose a more decisive prime minister,” he was quoted as saying. However, the timing of his decision, right after negotiations stalled with Canadian mining group Centerra Gold over a restructuring of flagship gold mine Kumtor, suggests that “one of the reasons for the resignation of the prime minister was that he could not solve the problem of Kumtor”, local press quoted Assylbek Jenbekov, speaker of the Jogorku Kenesh, the Kyrgyz parliament, as saying.

Ageing gold mine Kumtor made up 7.4% of GDP in 2014, and 23.1% of the country’s industrial output, according to official figures. Kyrgyzstan, via state mining firm Kyrgyzaltyn, holds a 32.7% stake in Centerra Gold, which fully owns the Kumtor mine and another couple of mining licences in Mongolia.

Under continuous pressure by several parliamentary groups to fully nationalise the mine, the government tried to reach a middle ground by swapping its 32.7% stake for half of a newly established 50-50 joint venture in charge of running only the Kyrgyz operations. Yet the negotiations collapsed when Centerra Gold cut Kumtor’s estimated reserves to 6.1mn tonnes at the end of 2014 from 8.5mn tonnes a year earlier in a report published in February. Under the new circumstances “I do not believe that the creation of a joint venture would meet the interests of the country”, Otorbayev, who had previously supported the deal, said on April 9.

Otorbyaev leaves his post six months ahead of the country’s parliamentary elections scheduled for November 1, and amid serious economic woes only partially related to Kumtor. The country's growth is forecast to slow to 1.7% during 2015, down from 3.6% in 2014 and 10.9% in 2013, according to predictions by both the IMF and the Asian Development Bank. The ongoing slowdown reflects recession in Russia, sluggish performance in Kazakhstan, and a further drop in gold production as the quality of extracted ore declines, the ADB wrote in its latest Asian Development Outlook report.

Meanwhile, the Kyrgyz som has depreciated by 19.6% against the dollar since the end of 2013, triggering a new wave of dollarisation across the country, with deposits in dollars growing to 59% of total deposits at the end of February 2015, from 49% at the end of 2013.

The weakening som also added up inflation pressures as the country heavily relies on imports to meet its internal needs. Annual consumer price inflation (CPI) stood at 10.3% in the first quarter of 2015, up from 4.7% in the same period of 2014.

Kyrgyztan also faces arbitration claims brought forward by former foreign investors in the country with total claims to the tune of around $1bn. 

Otorbayev’s resignation leaves the country without a clear government leadership a few weeks ahead of the official entry into the Eurasian Economic Union (EEU). Launched in January on the foundations of the Customs Union of Belarus, Russia and Kazakhstan, the EEU aims at establishing a common market in the former Soviet space. Armenia already joined the three founding states to become a new member of the common market on January 2. Kyrgyzstan is expected to follow suit on May 9, as confirmed by President Almazbek Atambayev in March during a meeting with Russian President Vladimir Putin. 

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