More turmoil in Kyrgyzstan's mining sector

By bne IntelliNews September 24, 2012

Clare Nuttall in Astana -

The unrest in Kyrgyzstan's mining sector shows no signs of abating as the adoption of a new mining code earlier this year, with the aim of encouraging investment, is being overshadowed by a wave of protests targeting the industry.

The most dramatic of these was the attack on the Kyrgyz state broadcaster on August 28, just as the first televised auction of mining licences was about to begin. This was followed by protests targeting miners in the Naryn and Jalal-Abad regions as local residents demanded a better deal from the companies developing deposits in their regions.

Bishkek has started using live broadcasts after the April 2010 revolution as a means to demonstrate transparency. Candidates for the 2011 presidential elections, for example, had to sit televised Kyrgyz-language exams. They have now been extended to the allocation of mining licences, which post-revolutionary leaders say was a hotbed of corruption under former president Kurmanbek Bakiyev.

But the attempt backfired on August 28, when the very first set of auctions was broken up by an invading mob. Around 50 men forced their way into the studio 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 "kolpak" 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 just 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, whose director Uchkunbek Tashbayev told Reuters: "We must not deviate from this path."

Code for investment

The failed auction took place four months after the government approved a new mining code aimed at making the process for issuing licences more transparent. Under Bakiyev, licences to develop many mineral deposits were allegedly 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 sector stalled.

Since then, first Kyrgyzstan's interim government, then later governments under prime ministers Almazbek Atambaev and Omurbek Babanov, have tried to 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 their investment plans.

A new mining code was then adopted in April 2012, under which even licences for relatively small deposits have to be auctioned in a transparent bidding process. However, there are still questions over the way the new regime is being implemented.

Feelings for home

Kyrgyzstan has also seen an upsurge in resource nationalism since April 2010. Respect for property rights was severely damaged when the revolution unleashed a wave of illegal squatting and violence against businesses, especially those owned by foreigners and ethnic minorities. Both these factors have been bad news for companies still keen to exploit Kyrgyzstan's mineral wealth.

In one recent incident, a construction company rebuilding a road to a mine operated by Chaarat Gold in the Jalalabad region was raided by local villagers on September 10. Around 100 people seized bulldozers from the construction company, Spektr, which they said was too slow in repairing to the road that serves two villages as well as the mine. Demonstrators threatened to block roads in the nearby town of Zhany-Bazaar unless action was taken against Spektr.

A week later, residents near the Kara Keche coal deposit in the mountainous Naryn region demanded that Sharbon, which is developing the deposit, cut coal prices, employ only locals and mend roads in the region. A delegation first approached the local authorities, threatening action against Sharbon unless officials agreed to "nationalise" the mine. Kyrgyzstan's new Prime Minister Zhantoro Satybaldiyev visited the region on September 18 to try and resolve the situation peacefully.

The most serious recent incident took place in October 2011, when armed horsemen attacked Anglo-South African joint venture Talas Copper Gold's mining camp. Several buildings were torched, and an attempt made to kill the security manager. Talas Copper Gold suspended operations for several months.

All these incidents have led to growing instability in Kyrgyzstan's beleaguered mining sector, worsened by the latest change of government. Babanov's government was brought down by a corruption scandal after less than eight months, although in a more positive sign, three of Kyrgyzstan's parliamentary parties were quick to form a new coalition. However, Aktilek Tungatarov, executive director of the International Business Council in Bishkek, points out that Satybaldiyev is the 23rd prime minister that Kyrgyzstan has had in its 21 years of independence. "Political instability is one of the main constraints for our economic growth," he tells bne.

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