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Centerra Gold and Kyrgyzstan: time for a marriage counsellor Add to ...

The June, 2009, deal boosted Centerra’s tax to 14 per cent of the mine’s gross revenues, roughly doubling payments. The agreement also set a fixed annual environmental fee of about $310,000. Kyrgyzaltyn, the state-run gold company, received one-third of Centerra shares and Cameco divested itself. Today about 54 per cent of shares are held by institutional funds.

Centerra insisted on “insurance” against future flip-flopping and saw to it that parliament, Bakiyev’s cabinet and the Constitutional Court signed off on the new deal, recalls Andrew Sazanov, Kumtor Operating Co.’s vice-president for government and corporate relations.

Yet now Bakiyev’s successors say that deal was unfair. This winter, Economics Minister Temir Sariev, a former presidential candidate and one of the leaders of the 2010 uprising, pushed for renegotiation, claiming Centerra bribed Bakiyev and is responsible for vast ecological damage. Sariev headed a state commission investigating the 2009 agreement; in January, the commission suggested the deal be scrapped. Though the commission’s own environmental audits, carried out by German and Slovene researchers last fall, said Kumtor has not broken any Kyrgyz or European environmental regulations, Sariev empowered two state agencies to issue approximately $457-million in fines, many dating back to the start of production.

In addition to a sliding tax based on the price of gold—which in the last two years would have come to between 16 per cent and 20 per cent of gross revenues—Sariev’s commission recommended more Kyrgyz take seats on the Centerra board and that a Kyrgyz national replace Fischer.

On Feb. 21, at Sariev’s urging, legislators gave the government and Centerra a little over three months to negotiate terms more favourable to Kyrgyzstan. (The environmental fines, disputed by Centerra, have been rolled into this process.) Parliament also instructed the Prosecutor General’s Office to initiate a broad criminal investigation, focusing on allegations of corruption.

“The agreement was signed by a corrupt government and therefore even an average person can see that the conditions are not good for us,” says Bakyt Ryspayev, the akim, or district head, of Ton, a grouping of 30 villages on the southern shore of Lake Issyk Kul, on the road to Kumtor.

Executives at Centerra vehemently deny charges of wrongdoing and feel the government is moving the goalposts mid-game. “We remain committed to continuing operations for the duration of Kumtor’s mine life,” says Ian Atkinson, Centerra’s CEO. “Our dealings with the Kyrgyz Republic have always been and will continue to be open and transparent.”

By Atkinson’s count, Centerra has “invested in excess of $840-million” since 2009, extending the mine’s life from 2012 to 2026. Moreover, the company says that under the terms Sariev proposes, Kyrgyzstan would profit disproportionately. “We’re meeting with the government and looking for a solution, but this must be fair for all shareholders,” says Sazanov, the VP. “Sariev’s proposal benefits one shareholder at the expense of all others.”

In his Bishkek office, I pressed Sariev repeatedly for evidence of corruption. He called the line of questioning naive, twice, before simply saying that anyone who dealt with Bakiyev had to have been corrupt.

 

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Officials in Kyrgyzstan eye the future nervously, never sure when they’ll find themselves cast out. The anemic economy relies on aid. Hundreds of thousands of Kyrgyz work abroad, mostly in Russia–their remittances equalling about 30 per cent of the national economy, according to the World Bank. Trafficking of Afghan narcotics makes up a sizable–though uncountable–portion of the economy and helps blur the lines between politician and gangster. Lack of trust in government is high. By one account, Kyrgyzstan saw an average of two protests a day in 2012.

Shairbek Juraev, a political scientist at the OSCE Academy in Bishkek, feels the lustre is wearing off the 2010 revolution, prompting outbreaks of knee-jerk populism. “You have to please teachers, the health care sector, law enforcement agencies, at least to make clear you are different from Bakiyev.

“They are desperate to find new money. There are no investments. Money is not coming in. The budget is empty,” he says.

The post-Bakiyev administration’s promises have seen government spending increase over 40 per cent since 2010 and the deficit balloon. But this has done little to improve living standards. Wealth remains concentrated in the hands of a small group that rotates in and around power. When the going gets tough, President Almazbek Atambayev blames everything on Bakiyev.

There’s other fiscal pressure on Bishkek, too. Despite its poverty, Kyrgyzstan is geopolitically important. At Moscow’s insistence, Atambayev has repeatedly said the United States must vacate the Manas air base—a major hub for the war in Afghanistan—in mid-2014, when the lease expires. Washington pays $60-million annually for the base (about 3 per cent of Bishkek’s budget). Adding in local contracts, airport fees and jet fuel, Manas spent $350-million last year (equivalent to about 6 per cent of GDP). The shortfall must come from somewhere.

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