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

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.



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.

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