Kyrgyzstan is once again absorbed in a debate over ownership of the Kumtor Mine, highlighting the government’s fragility and the importance of the mine for the country’s economy.
Following a series of tense debates that involved accusations of treason and demands for the dissolution of the government, the Kyrgyz parliament approved a memorandum last week to develop a new partnership with Centerra Gold, the mine’s Canadian partner.
The Kyrgyz state gold mining subsidiary Kyrgyzaltyn and Centerra will each have equal ownership of the mine until 2026, after which the Kyrgyz government will have the right to increase its control to 67 percent. Furthermore, the new operating plan increases the profits granted to the Kyrgyz government by 84 percent, to $1.5 billion per year.
The mine has been the site of frequent protests over the past several years. Centerra and Kyrgyzaltyn reached a dual ownership agreement in 2003. This initial agreement granted Kyrgyzaltyn only a 16 percent stake in the company. Despite a series of renegotiations over mine ownership that have granted the government a higher stake, some factions of parliament, including those within the ruling coalition, have pushed for the full nationalization of the mine, raising questions about how stable the governing coalition will remain.
This latest clash over the mine’s ownership began in February 2013, when concerns over the environmental degradation caused by the mining operations led the government to fine Centerra $315 million for environmental damages and demand a renegotiation of ownership rights. According to a government investigation, the 2009 agreement had been completely tainted by corruption, leading to serious losses for Kygyzstan.
The situation surrounding Kumtor reached a new level of intensity in June 2013 as protesters demanding the mine’s nationalization clashed with police, injuring dozens and leading the government to declare a state of emergency. Protestors managed to disrupt the mine’s operations by cutting off electricity and supplies for several days. Disorder spread as demonstrators attempted to storm provincial administrative offices and install their own leaders from the Ata-Jurt opposition party.
Over the past few weeks, the inhabitants of local villages have again begun blocking access to roads leading to the mine. The Kyrgyz Miners Union has denounced the blockades, calling on law enforcement to disperse the protestors.
The protests and debates have highlighted the country’s heavy dependence on the mine for state revenue as well as the continuing difficulties with establishing stable governing coalitions in the country. As a result of the continuing uncertainty over the gold mine’s membership, the Kyrgyz state budget has lost $80 million, according to Prime Minister Zhantoro Satybaldiyev. He warned that nationalizing the mine would cause even greater losses.
Production at the Kumtor mine is responsible for 8 percent of Kyrgyzstan’s economy, according to December 2013 figures, and supplies between 15 and 25 percent of the country’s industrial output. The mining operations were also responsible for much of the increase in Kyrgyzstan’s GDP in 2013 and account for half of the republic’s exports.
Resolving the question of the mine’s ownership is all the more important as Kyrgyzstan prepares to join the Russia-led Customs Union in 2015 and continues to be reliant on both the re-export of Chinese goods and remittances from Kyrgyz guest workers in Russia.