Kyrgyzstan revokes gold mining licences

By bne IntelliNews April 25, 2012

Clare Nuttall in Almaty -

The Kyrgyz government has revoked 46 gold mining licences, as it continues a bid to clean up the mining industry and improve the country's corrupt image among international investors. However, not everyone is convinced.

Fines amounting to KGS242m ($5.2m) were collected in connection to undeveloped deposits and returned to the national budget, Prime Minister Omurbek Babanov said April 24 at a meeting of the Birimdik ruling coalition, according to local newswire 24.kg.

The cancellations were part of the government's efforts to clean up procedures for issuing mining licences. None of the licences revoked are for Kyrgyzstan's major mining operations. Kyrgyzstan's largest gold deposits are at the Kumtor and Jerooy mines.

After former President Kurmanbek Bakiyev was toppled in the April 2010 revolution, the interim government announced it was planning to clean up corruption within government agencies. Bakiyev came to power in the previous revolution of March 2005, promising to do away with the corruption and nepotism rife under his predecessor Askar Akayev. However, after a brief period of reforms, Kyrgyzstan became increasingly authoritarian and corrupt during his five-year rule.

The Kyrgyz State Geology and Mineral Resources Agency, which was responsible for issuing licences, was said to be one of the most corrupt agencies under the Bakiyev government. It was common during this time for licences to be issued to businesspeople with no connection to the mining industry, who would hold onto them in the hope of selling them on for a profit to a foreign investor. As a result, many potentially lucrative deposits remain undeveloped.

After coming to power in April 2010, Rosa Otunbayeva's interim government launched a moratorium on issuing new licences or renewing existing licences, which at the time prevented the handful of international investors developing deposits within Kyrgyzstan from going ahead with planned investments.

In fact, hand in hand with concerns over the country's political instability, the moratorium on issuing licences brought many projects to a halt. In November 2010, Dzheruialtyn - controlled by Kazakhstan's Visor - had its licence for the Jerooy gold deposit annulled. It is yet to be reallocated.

However, the situation has eased, and new licences are gradually being issued once more. Still, while many businesspeople in Kyrgyzstan believed the interim government's intentions towards the industry to be good, if dangerously heavy-handed, there have been complaints that licencing decisions are still politically motivated.

To that end, the government, seeking to encourage foreign investment and accelerate development of the country's mineral resources, now plans to reform the process. Economy and Antitrust Policy Minister Temir Sariev announced on March 13 that in future licences will be issued transparently, with a competitive tender process to be used for large deposits and either auctions or the right of first application to be used for smaller deposits.

Bishkek has also drawn up new mining legislation, which is currently being considered by parliament. The package of laws is intended to create clearer conditions for foreign investors, reduce bureaucracy and introduce an effective mechanism to revoke licences issued to companies who fail to develop their deposits.

However, there is already widespread criticism of the draft legislation, with the Kyrgyz Mining Association claiming that it does not prevent government and local officials from making arbitrary decision, according to reports in the Kyrgyz press.

Kyrgyzstan, which was ranked 164th out of 178 countries on Transparency International's Corruption Perceptions Index, has been making efforts to improve the situation. In addition to the plans for mining, Babanov's government has scrapped the Financial Police, which was notorious for corruption, replacing it with the new State Service for Combating Economic Crimes. Applicants for posts at the new agency have to take qualifying exams, which have been broadcast live on Kyrgyz television to show viewers that the test is impartial.

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