Clare Nuttall in Astana -
The Kyrgyz government's attempt to introduce a new, transparent era in the mining sector blew up in very pubic fashion on August 28, when the first of a series of auctions broadcast on live TV was broken up by an invading mob protesting the involvement of foreign investors.
In a further sign of growing resource nationalism, the demonstrators said they wanted to prevent the sale of the country's mineral resources to foreign investors. The incident is a further worry for investors who have already been plunged into a new phase of uncertainty after the collapse of Kyrgyzstan's ruling coalition on August 22.
The live broadcast of auctions has been introduced in Kyrgyzstan in an attempt to raise transparency in the mining sector. However, the process was abandoned after around 50 men forced their way into the studio hosting the programme, just as the auction was about to begin.
The demonstrators are reported to have been mainly young men, from several organisations including the New Kyrgyz Opposition. Many were wearing traditional Kyrgyz "kolpaks", felt hats, and chanted "We won't allow our beloved lands to be sold!" and "The motherland is not for sale!", according to reports in the Kyrgyz press. Security guards failed to prevent them from entering the studio, and as fighting broke out employees of the television station fled the building.
On the auction block were the licences for 11 gold deposits and one coal deposit, most of which are at the exploration stage. Prospective bidders included companies from Azerbaijan, Turkey, China and Russia, as well as domestic investors.
The auctions for the 12 mining licences are now due to be rescheduled, according to Kyrgyzstan's State Agency of Geology and Mineral Resources. Speaking to Reuters, agency head Uchkunbek Tashbayev insisted that the process will continue. "This was the work of those who want to sell licences under the carpet... We must not deviate from this path," he told the newswire.
However, it's unclear whether the investors will be back for another round after witnessing the risks investors now face within Kyrgyzstan, on top of the huge political uncertainty following the collapse of Omurbek Babanov's government on August 22. The five parties represented in the parliament are now in talks as they try to reach a new coalition agreement, a process that is likely to take several weeks.
The failed auction comes four months the government approved a new mining law aimed at making the process for issuing licences more transparent. Under former President Kurmanbek Bakiyev, who was ousted in the April 2010 revolution, licences to develop many of Kyrgyzstan's mineral deposits are reported to have been handed out to cronies of government officials for nominal payments. Many holders of the deposits did nothing to develop them, instead holding onto their licences for several years in the hope of selling them for a higher price to a genuine developer. As a result, work in the mining sector stalled.
Since then, first Kyrgyzstan's interim government, and the later governments under the next two prime ministers Almazbek Atambaev and Omurbek Babanov, have tried to tackle the situation and make the sector more transparent, but the process has thrown up new problems. Initially, the interim government introduced a moratorium on licences, including renewals of existing rights. While the intentions were believed to be good, this created problems for companies, including Kyrgyzstan's handful of foreign investors active in the sector, who were unable to continue with investment plans.
A new law on mining was then adopted in April 2011, under which even licences for relatively small deposits have to be auctioned in a transparent bidding process. The August 28 TV bonanza was the first of these events.
At the same time as the government has been pushing its reforms, resource nationalism has been growing, both at grassroots and government level. Respect for property rights has also been shaky since the April 2010 revolution unleashed a wave of illegal squatting and violence against businesses, especially those owned by foreigners and ethnic minorities.
In one of the most serious incidents, Anglo-South African joint venture Talas Copper Gold was the victim of a violent attack by armed horsemen in October 2011. The company's mining camp in the mountainous Talas region was attacked, several buildings torched, and an attempt made to kill the security manager.
More recently, MPs from several parties have been taking an increasingly nationalist stance over the country's mineral resources. On June 27, the parliament voted in favour of revising its agreement with Centerra Gold on the country's largest gold mine, Kumtor. MPs want Kyrgyzstan to increase its stake above the 33% it has held in Toronto-listed Centerra since 2009.
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