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

The guys who had set up the roadblock agreed to meet me in the dirt lane outside the village of Barskoon’s school. At sunset, as arranged, a black Mercedes-Benz comes creeping along the edge of the soccer field. An electric window drops and a hand waves me over. The local “youth council” has arrived to talk about the gold mine.

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The question at the heart of our meeting: Is a Canadian mining company here in the Central Asian nation of Kyrgyzstan taking advantage of the locals, as the young men say–or the other way around?

Naris Kalchayev and his two friends, all in their 20s, look a little out of place in the village. Kalchayev prefers speaking Russian over Kyrgyz. Wearing a turquoise baseball cap with a Superman decal pulled low over his eyes, he looks like a nightclub DJ—not a shepherd, like most of the local guys.

Kalchayev says he’s concerned about what’s happening on the remote plateau far above this sleepy hamlet. But it’s unclear if he is legitimately worried about the environment and corruption, or is just political muscle. He might be more persuasive if he didn’t use the words “blah, blah, blah” to punctuate his arguments.

He promises to e-mail me documents about pollution and corruption before speeding off to “meetings in Bishkek,” Kyrgyzstan’s Soviet-built capital. But he never does.

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At 4,000 metres, Kumtor is one of the highest-altitude gold mines in the world. It’s a 90-minute drive up into the mountains from the schoolyard in Barskoon. Having produced about 270 tonnes of gold since opening in 1997, the open-pit mine is the largest and most valuable asset of Centerra Gold, which is one-third owned by the government of Kyrgyzstan—a small, landlocked country, one of the poorest in both the former Soviet Union and Asia. Centerra is Kyrgyzstan’s largest taxpayer and biggest investor: In a good year, Kumtor accounts for nearly 12 per cent of the country’s GDP and half of its exports—over $900-million in gross revenues (all currency in U.S. dollars).

“Kumtor is the only cow giving milk in Kyrgyzstan,” one rights activist memorably said last year.

Indeed, the mine is one of few things working smoothly in Kyrgyzstan, where popular uprisings have ousted two presidents in the past eight years, basic infrastructure—like roads, schools and hospitals—is crumbling, the rule of law is virtually absent, and a third of the country’s 5.5 million people live below the poverty line.

But the dependency runs in both directions: Kumtor accounted for 81 per cent of TSX-listed Centerra’s revenues last year. And that was a bad year at the mine.

Despite Centerra’s outsized contributions to the Kyrgyz economy, the company has a major image problem. Little of the wealth it generates trickles down in any visible way. On the contrary, there’s a perception that Centerra colludes with venal officials or thuggish local power brokers.

By the company’s account, that perception is fiction. But in this charged atmosphere, Kumtor is an easy scapegoat for leaders contending with Kyrgyzstan’s entrenched problems. Like Canadian miners working everywhere in the developing world, Centerra finds that regardless of whether complaints about pollution—or corruption or wealth-sharing—are legitimate, they make good vehicles for resource nationalism and its provincial cousin, the local shakedown. Since calls for nationalization of Kumtor picked up in February, 2012, the company’s stock has dropped about 70 per cent. For now, Kyrgyz authorities insist they are not interested in expropriating the mine. But in February, parliament gave officials until June 1 to come up with a new operating agreement. Centerra, for its part, has threatened to seek international arbitration.

So the clock is ticking. How the game of chicken will end is anyone’s guess, but it makes one high-level international donor “terrified” of the potential effect on foreign investment. More immediately, should arbitration proceed, production at the mine would stop, causing state revenue to plummet and, he says, thrusting Kyrgyzstan back into “anarchy.”

 

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Headlights cut across a mountain face, lighting up a lumpy field of coal-coloured gravel. Bulsunbek Arykbayev crashes the SUV-sized claw of his $6.2-million Hitachi shovel into the earth beneath a creeping glacier. His cab swivels and shakes like an amusement-park ride. Next to the machine, with its man-high treads, two Caterpillar dump trucks stand on duty: one getting filled with frozen earth and ice, the other waiting its turn. Each fill-up, totalling as much as 177 tonnes, takes about a minute.

Despite the cold—it’s minus 35 C on this February evening—efficient little groupings like these labour non-stop, in round-the-clock shifts, across the expanse of the terraced pit in this remote spur of the Tien Shan mountains, just a few dozen kilometres from China. In all, 500,000 tonnes of dirt and glacier are moved aside each day, making a hole that’s now 3.2 kilometres long, 1.9 kilometres wide and 550 metres deep.

To the naked eye, the dirt has nary a fleck of gold. About 17,000 tonnes of ore a day are dumped into vats of cyanide and other chemicals that chew up the rock. For every tonne of ore it mills (about the weight of a classic VW bug), the mine produces some 3.3 grams of gold (about the weight of a teaspoon of sugar). “It’s a mature open-pit mine,” explains Michael Fischer, president of Kumtor Operating Co. “We’ve got to dig more waste out to get to the gold.”

Nothing that looks remotely like gold is visible until the pour: Inside a cinder-block room, men in silvery, head-to-toe bodysuits tip a cauldron to send molten liquid cascading into three loaf pans. Each resulting brick, shiny and pockmarked, weighs between 15 and 25 kilos, and can be worth over $1-million at today’s prices, though it’s only gold doré—75 per cent to 80 per cent gold and 15 per cent to 20 per cent silver. Every few weeks, a couple dozen of the bricks get trucked to a state-run smelter, where they’re refined into 99.9999 per cent gold.

Security at the mine is predictably tight. In the pour room, a no-nonsense guard in a Muslim prayer cap uses a hand-held metal detector to sweep all who exit, paying special attention to boots. At the entry gate to the mine, visitors and workers alike get searched and X-rayed: no gold going out, no booze coming in.

Beyond the snow-covered expanse surrounding Kumtor, Kyrgyzstan’s landscape rises and falls in rugged peaks—a barren terrain that’s made it all the harder to overcome poverty and underdevelopment. For the Soviets, Kyrgyzstan was a source of raw supplies—minerals, meat and vegetables—too remote to infuse with industry. Ethnic Kyrgyz have long been nomadic herders, and some families still take their animals from one alpine pasture to another as the seasons change, summering in yurts and producing batches of kumys, a fermented mare’s milk.

Even in Soviet times, few had made it up to the plateau where Kumtor now operates, save for a handful of mad geologists. They were looking for uranium: A few valleys over, a mine was already fuelling the Soviet nuclear program. In 1978, the geologists unearthed gold instead, but the site was too remote and the gold too fine to extract. It lay untouched for nearly 20 years.

It was the uranium that first drew a young Canadian company to this hinterland of hinterlands in 1992, one year after the Soviet collapse and Kyrgyzstan’s unexpected independence. Saskatoon-based Cameco had been born only four years earlier during the privatization of two Crown corporations not known for taking risks: Eldorado Nuclear Ltd. and Saskatchewan Mining Development Corp. Some Kyrgyz officials asked, the story goes, if Cameco was interested in gold. Five years later, the mine opened as a joint venture, with Cameco holding one-third of Kumtor Gold Co. (KGC).

With gold valued under $300 an ounce in the late 1990s, the mine took years to become profitable; Kyrgyzstan, run since independence by a Russian-educated physicist named Askar Akayev, insisted on restructuring the joint venture. Under the new deal, signed in late 2003, ownership of KGC and the Kumtor Operating Co., plus all of Cameco’s gold interests in Mongolia (acquired in 2002), went to the newly christened Centerra Gold, Inc., which was listed on the TSX in June, 2004. Cameco wound up with 54 per cent of Centerra, and the Kyrgyz, who quickly sold off about $85-million worth of their 33 per cent stake, were left with 15.7 per cent.

But by spring, 2005, Akayev had been swept away by mass protests dubbed the “Tulip Revolution,” and Centerra would soon come up against a more formidable dealmaker.

In 2007, when the new president, Kurmanbek Bakiyev, started calling for another new Kumtor agreement, no one knew that he, too, would be kicked out of office. Unlike Akayev’s relatively bloodless ouster, Bakiyev’s, in 2010, came at the cost of some 90 lives—overwhelmingly civilian protesters who were shot by security forces in Bishkek. As chaos swept the streets, looters rampaged in Bakiyev’s once—white headquarters, sheets of A4 paper raining down from broken windows in the charred façade.

Bakiyev—who fled to Belarus—was widely hated in Kyrgyzstan for running the country like a private piggy bank, installing relatives in lucrative, high-level positions. In 2009, the year the third Kumtor deal was finally reached with his administration, Kyrgyzstan ranked 162nd of 180 on Transparency International’s Corruption Perceptions Index. This, however, did not cast Kumtor as a victim of Bakiyev’s in the public eye; on the contrary, it fuelled the perception that Centerra had been in cahoots with a vilified regime.

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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.

The efforts to renegotiate with Centerra carry substantial risks, which Juraev fears officials haven’t grasped. “Do they understand the real implications? This is no minor thing. Do they think they can really negotiate with Kumtor and win arbitration? But beyond Kumtor, if the future of the economy is linked to the presence of international, private investors, what kind of signal are they sending?”

His questions are not hypothetical. A short stop in Kumtor’s production in February, 2012, shocked the national economy. The 10-day strike (which saw Centerra acquiesce to demands that it pay a new social-security tax) came at an especially bad time. Accelerated glacier movements—which workers were absent to combat—forced Kumtor to move excavation and revise its plan for the year. The change contributed to a 46 per cent drop in production; gross revenues fell from $941-million to $534-million (Centerra’s global revenue fell $1.02-billion to $601-million). Tax payments to Kyrgyzstan slid by 43 per cent, and the country’s GDP contracted 0.9 per cent. Such a difference can decide whether teachers get paid. Things got so tight that Kumtor advanced $30-million in tax payments to Bishkek.

 

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Driving back from Kumtor, an azure horizon comes into view: the first glimpse of Lake Issyk Kul. The descent is steep, scrunching our plastic water bottles with the change in pressure, but the lake still sits high, at 1,600 metres, about the altitude of Denver. Soviet-era sanatoriums and rusty metal umbrellas dot the beaches, where ponies nibble tufts of grass.

Barskoon, which sits among apple orchards on a bluff overlooking the lake’s southern shore, attests economically to its status as the closest village to Kumtor. Not that it’s wealthy; it just looks a bit better off than many Kyrgyz villages. Children have new shoes; there are fewer abandoned houses. One can almost pick out the homes of people who work at Kumtor, where drivers’ salaries start at $1,500 a month, 7.5 times the average national wage. (A mid-career teacher in Bishkek earns about $170.)

Last year, Oxus International, a research consultancy in Bishkek, surveyed citizens nationwide about mining. “People living around Kumtor have by far the most positive opinion of mining in the country. And that’s the only community with mining in the country,” says Farrell Styers, Oxus International’s director. “If you read the press here, you’d think Kumtor only rapes and pillages.” Many residents around Barskoon have a relative who works at the mine, which employs over 2,600 Kyrgyz and another 620 contractors. (The mine also employs 97 expats.)

About 10 workers say in separate conversations that they support the status quo, as do some local residents. Several mention they’d like to see the government get more money out of the mine, but express concern the revenues would simply be stolen. All agree on one thing: Bishkek can’t run the mine on its own.

“We Kyrgyz wouldn’t be able to dig out the gold by ourselves,” says Sosul Aidasheva, head of the local health department, whose son works at Kumtor. “It’s not that easy, and I think the general population understands this.”

Of Centerra’s taxes, 1 per cent—$27-million since 2009—is earmarked for development in Issyk Kul province. But beyond Barskoon, that money doesn’t bring the company and the community much closer together. Instead, it seems to exacerbate suspicion.

The development fund is managed at the far end of the lake, in Karakol, the provincial capital. The regional government’s headquarters is a drab Soviet-era prefab building whose halls smell of urine. But the people at the top seem to be better off than their accommodations suggest: A row of shiny Lexus SUVs stands outside the building, each worth roughly a civil servant’s lifetime salary.

The director of the fund, Aitbek Okenov, has served since June, 2011. His predecessor is awaiting trial on corruption charges. A commission manages the money, Okenov tells me in his chilly office. But he can’t explain how the members are chosen, and says he finds attempts to monitor the spending “irritating.” Despite his predecessor’s arrest, the fund has never been independently audited.

Okenov estimates about 10 per cent of the fund disappeared under his predecessor. “They were buying cheap material and writing fake invoices,” Okenov explains. A Kumtor executive believes the money is still disappearing, and put the figure closer to 50 per cent.

Okenov—who admits corruption continues to be a problem in the country—seems eager to put his 33 years of experience in construction (including a spell running a chain gang) to work. “In the long term, our first priority is to build a cement factory because this will create jobs,” he says. A coal mine desperately needs $1-million in new equipment, he adds.

Okenov talks imprecisely about wanting to build gymnasiums and hospitals. But asked for a copy of the fund’s long-term plan, which he insists exists, Okenov looks up at a wall calendar: “The lady with the plan is on vacation.”

“When’s she back?”

“In mid-March.”

I call back in mid-March and Okenov asks me to call back in a few hours. Then he stopped answering the phone.

In Bishkek, representatives at the national chapter of Transparency International, the Berlin-based watchdog, don’t have much nice to say about Okenov or the development fund. “In our country, construction is a very easy way to steal money,” says chapter head Aigul Akmatjanova.

Akmatjanova doesn’t have much nice to say about Kumtor, either, which she thinks has been too hands-off: “They ask no questions about how the fund is used. People in this community are very angry about Kumtor. And they don’t even know it provides money. So when people have bad crops or a bad hair day, they blame Kumtor.”

Kumtor gets a chance to veto, at the final stage, projects on Issyk Kul’s southern shore, where 50 per cent of the development funds it contributes are supposed to be spent. But the company has no say in monitoring, strategy, contracting or selecting projects. Doug Grier, a Canadian who is Kumtor’s director of sustainable development, concedes that many of the plans—for things like statues—are foolish. “There’s no thinking ‘let’s have a list of priorities.’ Just spending. Everyone wants to build a school. The problem is schools belong to a federal ministry. Who maintains them? That’s not thought out. They’ll build a sports hall but no one goes to it, or a school, but there will be no teachers,” Grier says. “We’re looking ahead now for ways to make the spending useful.”

 

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In villages throughout Issyk Kul province, young men squat by the road, hulling sunflower seeds with their teeth and waiting for their chance to leave. They give credence to the generalization made by Akmatjanova: Few know about the development fund. Instead, talk is about the mine’s environmental impact, and one episode in particular.

In May, 1998, a year after production began, a Kumtor truck spilled 1,762 kilograms of sodium cyanide, an inorganic compound used in the leaching process, into the Barskoon River. Some local officials tried to cover up the disaster; others told villagers to expect health problems; a few reportedly advised pregnant women to have abortions.

Every day at the mine, 30,000 tonnes of cyanide-infused sludge are pumped into an 890-acre tailings pond. During the five relatively warm months, the effluent is treated, tested and released into a tributary of the Naryn River. The amount of cyanide in the water is “significantly below” limits allowed in Germany, according to a study by the German Institute for Environmental Hygiene and Toxicology. The rest of the year, the pond freezes, a small vapour cloud drifting over the point where the freshest sludge enters.

But what happens to the tailings in an earthquake? Will the dam hold? What about after Kumtor is gone?

Concerns about everything from the mine’s effect on glaciers to the effects of the cyanide spill (which scientists broadly agree is no longer harmful) make Kumtor’s environmental record an evergreen subject. Centerra’s insistence that the dam can withstand an earthquake and that the company will clean up when it leaves seem to be of little solace.

No doubt, gold mining is a dirty business. At the pit, the thin air is heavy with yellowish smog from diesel-guzzling machinery. Environmentalists have been concerned for years about effects on the fragile, high-altitude ecosystem, home to endangered species like the snow leopard.

For Centerra, the question is not whether the mine has an environmental impact—no one denies that—but whether the company is breaking any laws or the international standards it pledges to uphold. Centerra insists it’s not, and that officials see what they want to see. Sariev, indeed, used environmental concerns to bolster his commission’s report even though the audits he commissioned turned up nothing unusual. He tried to hide the audits.

In Barskoon, opinions are divided. Kamchybek Elebesov, 55, says Kumtor is bad “because it is damaging our environment. Up on these mountains we used to have glaciers. They were 30 metres thick. Now you can see they are melting.” Villagers frequently mention the glaciers, which, according to Swiss scientists, have been hard hit by global warming.

Elebesov also complains of problems with his teeth and kidneys, and says it is getting harder to breathe—he blames these ailments on the 1998 spill. During our five-minute conversation, he lights up two cigarettes.

Aidasheva from the health department doesn’t feel the community’s health suffers from the mine: “Diseases you find here you will find everywhere in Kyrgyzstan.”

Some fears might be the product of poor education combined with xenophobia. One environmental scientist working for a miner exploring on the other side of Kyrgyzstan describes a constant barrage of complaints: “Villagers say there is radiation coming from our exploration holes, which is mutating their cherry trees, causing oddly shaped apples and a one-eyed sheep. Some men complain their beards are not as bushy as they used to be.”

 

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Since strongman Bakiyev’s departure, Kyrgyzstan has experimented with a parliamentary system, which has decentralized power and left the country edgy and divided. Even before that, local power brokers were mobilizing their supporters to ensure against predation by opponents (including ones in office). But with each successive revolution, a sense of injustice seems to spread. It is easy to exploit, regardless of the truth. And Kumtor—which means money and jobs in a country with little of either—is a sitting target for opposing elites pushing agendas that are populist or nationalist, or both.

During the workers’ strike in February, 2012, when Kumtor was in the spotlight, MP Sadyr Japarov announced the formation of a parliamentary commission to look at the mine’s environmental impact. (This body helped inspire Sariev’s current commission.) Japarov—who had recast himself as a nationalist after heading Bakiyev’s anti-corruption agency (a joke even when Bakiyev was in power)—said Kumtor had made “$10-billion in profit” since opening; in fact, Kumtor’s gross revenue since 1997 is about half that. No one was surprised when, in mid-June, Japarov’s 300-page report accused Kumtor of stealing gold and devastating the environment. His call for nationalization was narrowly defeated in parliament.

As Japarov was itching for nationalization, in late May and early June, villagers in Barskoon turned to a tried-and-tested method of extracting concessions from the mine. They blocked the service road, stopping supplies like the 340,000 litres of diesel the mine needs daily. It’s not clear whether the two events were linked and, if so, how.

Kalchayev, in the Superman hat and the Benz, says he and his friends organized the roadblock on behalf of a community furious about environmental damage. So does a young man named Joldosh. He has similar grievances, but, with his poor Russian and calloused hands, he is clearly not a city boy like Kalchayev. Joldosh, who only provides his first name (for “security reasons”) and refuses to discuss Kalchayev’s role, says “the youth” of the villages around Barskoon elected him in 2011 as their representative.

Joldosh based his complaints on a concern I heard echoed across the country, from villagers, other mining outfits, government officials and non-governmental organizations: that until the latest revolution and subsequent talks of nationalization, Kumtor was “unavailable,” obsessively secretive and ignored the community. (Some Kumtor representatives admit the company has not always been good at community relations, and pledge to do better.)

During the May roadblock, Joldosh led a group of young men (he says 500 or 600, Kumtor says 100 to 150) to stop traffic. Their concerns were primarily environmental, he says, but jobs were also a factor.

Roadblocks are an effective way to get Kumtor’s attention. In previous years, roadblocks forced the mine to employ more locals and make its hiring process more transparent. “People know they can block a road and get a concession. Then everyone goes home and it’s quiet for a year or two until they want something else. The rest of the country sees this and I think it’s created a real risk for other companies,” says Styers of Oxus International.

Kumtor executives believe the youth groups around Barskoon have political connections in Bishkek and may be paid. They’re too well-organized to be acting on their own, the argument goes. Fischer, the president, says that far from being unavailable, Kumtor is on the receiving end as the groups constantly blackmail the mine with demands for contracts. Young men who somehow have 20-tonne dump trucks at their disposal say they are the legitimate representatives of “the youth” and ask him to chase off other groups with similar demands. “One week it’s one group and the next week it’s another group unhappy that we’ve engaged the first group,” Fischer says.

In October, the anti-Kumtor protests reached their climax. This time, Kamchybek Tashiev, a brutish populist admired among ultra-nationalists for his racist comments about Kyrgyzstan’s minorities, and Japarov, whose motion had failed in parliament, led protests in Bishkek calling for nationalization.

Both are members of the opposition Ata-Jurt (“Fatherland”) party. Tashiev, a presidential contender the year before, had grown famous for getting into bloody fistfights with other lawmakers and regularly calling for the government to resign, while himself lending little substance to the legislature. On Oct. 3, he led a group of protesters over the fence around parliament. News footage showed Tashiev chasing armed security guards across the lawn. He later said he was just trying to get to work.

Tashiev, Japarov and one other Ata-Jurt deputy were arrested. In late March, they were found guilty of attempting to seize power, handed short sentences, and stripped of their parliamentary seats. Outside the courtroom, protesters demanded their release—and the nationalization of Kumtor.

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Last August, a state television studio in Bishkek prepared to host Kyrgyzstan’s first live auction of mining licences–part of the post-Bakiyev government’s promised efforts to boost transparency. But before the broadcast could begin, a group of men burst into the building shouting, according to a Reuters correspondent present, “We won’t let you sell our motherland.” The auction was cancelled.

“This was the work of those who want to sell licences under the carpet,” Uchkunbek Tashbayev, director of the State Geology Agency, told Reuters. Four months later, Tashbayev was arrested, accused of stealing gold and selling exploration licences–under the carpet, to use his own phrase.

Kumtor is an outlier, the lucky one that got in before the mining sector became so messy. Though the Geology Agency says it has issued 164 gold-mining licences, Kumtor is the only place pulling gold out of the ground besides two small state-run mines. Other Western and Chinese firms are exploring, but every one has been prevented from digging by trouble with licences or local opposition.

A fair share of Western miners blame Kumtor for fuelling the anti-mining movement by failing to engage local communities. But authorities have fanned the flames. The Kumtor drama is “turning the whole society against us. The state media narrative is, constantly, ‘fighting investment is a good thing,’” says one foreign miner with 10 years’ experience in the country. “Kyrgyzstan’s reputation has been destroyed.” In February, a survey by the Fraser Institute ranked Kyrgyzstan the fifth-worst place in the world to invest in mining.

Kumtor may be lucky. In 2011, men on horseback twice attacked a South African-run exploration camp in Talas province, once with Molotov cocktails. In the same province that year, horsemen threatened supporters of an Australian project. Some miners exploring the area feel they have upset feudal hierarchies, provoking opposition from local big shots who fear foreign investment will dilute their own power.

The national government promises to auction five deposits this spring, hoping to garner at least $460-million. One is Jerooy in Talas, estimated to be the second-largest deposit in the country, with up to 100 tonnes of gold reserves. But the licence, for which Kyrgyzstan is asking $300-million, has been in legal limbo for years.

The only investors thought to have the patience for this chaos are from China, Kyrgyzstan’s leviathan of a neighbour. With their cheap credit and tolerance for unorthodox business practices, the thinking goes, the Chinese have the time to wait until no one else is interested.

“The Chinese are happy to sit and wait because that ensures Kyrgyzstan stays poor and, they’re thinking, ‘as we in China get richer, it will be cheaper to take over eventually in relative terms,’” says the foreign miner who has logged 10 years in the country.

The Chinese will get no easy pass from local communities, though. In 2011, in Naryn province, employees of a Chinese-owned mining company and several local police officers were beaten by a mob demanding that the mine’s licence be annulled, again ostensibly on environmental grounds. Throughout the region, China is increasingly viewed with suspicion for indulging corrupt officials and showing a barefaced disregard for public health. “Merited or not, the stereotype of China as the new economic imperialist is taking root,” the International Crisis Group, a Brussels-based think tank, reported in February.

 

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The man who ultimately decides how to spend the money Kumtor contributes for the Issyk Kul development fund is the provincial governor. He would only meet on the condition I ask nothing “personal” or “political.” On the one day a meeting was possible, after a wait in his Karakol office, it turned out he was out of town anyway. So I never got to ask him about a story going around town.

The governor, a local businessman told me, wanted a particular vanity tag for his car. (Licence plates with unusual sequences—“7777 B” or “1111,” for example—alert everyone, including the greedy traffic police, that this guy is not to be messed with.) The plate he sought, being the number-one guy in Issyk Kul, was “0001 IK.” But the number was already registered to a local woman. The governor tried to take it. She resisted, the businessman explained.

“Then he had all the various inspectorates harass her until she gave in.”

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  • ABX-N
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