This is the English original for the article
Gullette, David. 2014. ‘Kumtor: Ein Lackmustest für den Bergbau in Kirgistan’,
Zentralasien-Analysen 76: 2-5,
http://www.laender-analysen.de/zentralasien/pdf/ZentralasienAnalysen76.pdf.
Kumtor: The Litmus Test for Kyrgyzstan’s Mining Sector
David Gullette
Summary
Conflict surrounding the Kumtor gold mine in Kyrgyzstan is primarily about the equitable
distribution of resources, but advocates for the nationalisation of the mine present it as a battle
for the sovereignty of the country. The Government has sought to increase its shares in the
mine to gain greater control and bigger revenues. While debates continue in Parliament on
how this should be done, protests and violence have become people’s outlet for frustration at
the drawn-out process. The proposed framework agreement is an achievement, but remains to
be finalised. The deal, however, should not overshadow the need to address underlying
challenges that communities affected by mining operations experience and the lack of
communication between stakeholders. Without this, Kyrgyzstan’s attempts to reform the
mining sector will fall far short of the goal and result in further conflict.
A new beginning?
On 6 February 2014 Kyrgyzstan’s Parliament approved a new agreement framework with the
Canadian company Centerra Gold Inc. regarding control of the Kumtor mine in the east of the
republic. After months of protests and violence concerning the fate of the mine, this is
welcome news. It is, however, only another phase in the process to improve mining
regulations, operations and equitable relations among stakeholders. Tensions are still running
high. Continued calls for nationalisation of the mine by some politicians, however, have
played on people’s frustration of living in poverty and a sense that they have lost control over
a strategic asset.
The country’s largest gold mine has always been a source of contention, but since the 2010
ousting of President Kurmanbek Bakiev there have been renewed attempts to change the
operating agreement. The new agreement framework gives Kyrgyzstan an equal stake in the
restructured mine operating company at Kumtor. The Government has said that the agreement
should be finalised in four months, but industry insiders believe that it will take closer to a
year.
The agreement framework represents a series of political and economic compromises. The
underlying causes of tension, however, remain to be addressed and must be considered for the
future development of the mining sector. Importantly, all sides must examine how to make the
increased mining-generated revenues benefit communities affected by the mining operation
and improve the country’s strategic development.
Pioneer in gold mining
The Kumtor gold deposit is the largest in Central Asia. Discovered in 1978, mining experts
found it was too costly to develop and extraction methods would have resulted in extensive
environmental damage. The Canadian Cameco Corporation was the first company to invest in
development of the deposit. On 3 December 1992 it signed a General Agreement with the
Government of the Kyrgyz Republic. Cameco acquired a one-third interest in the Kumtor
Gold Company, the owner of the mine. Kyrgyzaltyn, the state mining company, received the
remaining two-thirds interest. Kumtor Operating Company, a subsidiary of Cameco Gold
International owned by Cameco Corporation, operated the mine. Construction and
development of the site started in 1994 and was completed in 1997, and production began
only in the second quarter of that year.
In 2004 Cameco Corporation transferred its gold-related shares and loans to Centerra Gold
Inc., a new Canadian-based company, but retained some shares in the new company. As a
result of the restructuring and selling of shares, the Government held around 16 per cent of
shares in Centerra. In June 2009, under President Bakiev, Centerra negotiated a New Terms
Agreement between Centerra, the Government and the Cameco Corporation. In December
2009, according to the New Terms Agreement, Cameco transferred shares to Kyrgyzaltyn. At
the same time, it sold its remaining Centerra shares, concluding its interest in the gold mining
company. Through this process the Government’s overall share of the mining operations at
Kumtor was 33 per cent of all shares, leaving Centerra with the majority of shares. After the
violent overthrow of the Bakiev in 2010, some in the new government felt that the agreement
with Centerra and the reduction in shares was unfair and have requested a renegotiation of the
terms, while others have called for the mine to be nationalised.
The Kumtor mine now represents the largest foreign investment project in the country, and
the largest private sector employer. At the Kumtor Operating Company around 95 per cent of
the 2,500 full-time employees are citizens of Kyrgyzstan. According to Centerra, the main
reserve pit has 3.6 million ounces gold, and total open pit reserves of 9.7 million ounces of
gold proven and more probable reserves according to the latest analysis by the mining
company. The mine contributes to roughly 5.5 per cent of the gross domestic product each
year. Kumtor Operating Company, which conducts the mining, pays a hefty range of taxes
and pays into a development fund for Issyk-Kul Oblast. In addition, the company funds social
projects in nearby communities. According to Kumtor’s website, from 1994 to 2012,
payments within Kyrgyzstan have exceeded USD 2.15 billion.
Kyrgyz resource nationalism
Since the ousting of Bakiev in April and the violence in southern Kyrgyzstan in June 2010
there has been a rise in resource nationalism, that is, a move by people and governments to
exert almost exclusive control over resources on their territory. Ernst & Young, a
multinational professional services firm, describes this as a primary risk for the mining
industry around the world. While it may be a trend, what are some of the factors that have
driven this in Kyrgyzstan? And, what are the prospects for the future? What lies ahead is an
important test for the future of Kyrgyzstan’s mining sector.
In Kyrgyzstan there are two main reasons for the rise of resource nationalism. First,
nationalist leaders have led the charge to strengthen the country’s sovereignty, particularly
after the violence that erupted in June 2010. In the power vacuum that followed Bakiev’s
departure some people felt that ethnic Uzbeks were attempting to gain greater political
prominence, challenging perceptions of authority. The modern Kyrgyz state was founded on
the Soviet policy of establishing republics based on recognised ethnic groups that have a
claim over a territory. As a result the June events, many Kyrgyz saw their sovereignty under
threat. As a control over resources is part of this sovereignty, it heightened a push for resource
nationalism.
Second, nationalist leaders have presented the situation as though the state is under attack
from foreign companies. They argue that companies like Centerra are taking away
Kyrgyzstan’s wealth. There are significant gaps in social and economic development
throughout the country, which become amplified among those living next to the most
lucrative enterprise in the country. This creates the perception that the Kyrgyz are losing
control over their resources as well as limiting the Government’s ability to use the money
from those resources to promote development. High unemployment, migration and
diminished provision of basic services have created serious tensions. According to the
National Statistical Committee, roughly 38 per cent the population live in poverty. People are
desperate for measures that will bring financial benefits and job opportunities.
The demonstrations against the existing Kumtor agreement have therefore not been confined
to Issyk-Kul, but have sparked support protests around the country. These protests have
demanded greater control of Kumtor or nationalisation while highlighting local inequalities
that demand greater government intervention. In one of the most significant demonstrations,
members of the Ata-Jurt (Fatherland) Party parliamentary deputies – Sadyr Japarov,
Kamchybek Tashiev and Talant Mamytov – organised a rally to call for the nationalization of
the mine. On 3 October 2012, about 1,000 people gathered at Bishkek’s Ala-Too Square
which rapidly denigrated into an attempt to break into Parliament after an inflammatory
speech by Tashiev calling for the resignation of the Prime Minister and other top officials. All
three organisers were arrested and their jail terms became a source of continued public
demonstrations against the Government.
The action taken by the Ata-Jurt party members encouraged other protests. In May 2013
protestors blocked the road to the Kumtor mine, demanding that Centerra put more money
into education and health sector in the oblast and that the Government cancel the operating
agreement with the company. Two days later, the demonstrators cut power to the mine.
The riot police then moved in to break up the protest. The demonstration turned violent,
resulting in 92 people arrested and 55 people wounded. This movement spread as protestors
in the southern city of Jalalabad, Tashiev’s stronghold. Claiming to act in support of the
Issyk-Kul demonstration, protestors captured the oblast administration building. Their actions
put pressure on the Government and the Ata-Jurt party members were freed two weeks later,
although the Supreme Court upheld the original decision to strip them of their parliamentary
mandates.
In August 2013 two informal leaders of the May violence were caught on videotape
blackmailing a Kumtor official. Bakhtiyar Kurmanov and Ermek Dzhunushbaev were both
arrested, causing fellow residents from Saruu village to set up roadblocks. The two men were
later sentenced to seven years in prison for their actions, which they denied saying that they
were trying to bring important issues to light and promote development in the region.
In October 2013 more demonstrations took place in the oblast capital, Karakol. During the
protests, people stormed the Issyk-Kul Oblast Administration Office and took the Governor,
Emil Kaptagaev, hostage. The captors demanded that Kaptagaev, although not directly
responsible, work to increase the country’s share in Kumtor or nationalise the mine. During
the negotiations, Kaptagaev was reportedly doused with petrol and threatened he would be set
alight if he did not obey. Eventually, the Governor was released. Some Saruu villagers who
participated in the protest in Karakol have staged several more protest actions, including
setting up roadblocks.
This is not entirely about sovereignty, however, as the economic advantage of the mining
assets is a significant factor in the protests. When the mine opened in 1997, the average price
of gold was USD 323.50. In 2012 the price peaked at USD 1,657. However, increased mining
costs mean that the profit margin is not as profitable as many might expect. Nonetheless,
politicians and communities affected by mining operations view the revenues from mining as
an important reason to control more of the mine and bolster the state and community coffers.
Environmental pollution
A central argument for many protestors is that Kumtor has caused extensive environmental
pollution. This is a legitimate concern. In May 1998 a truck rolled over and lost some
packages containing around 1.7 tonnes of sodium cyanide which dissolved into the Barskoon
River that flows into Lake Issyk-Kul. Sodium cyanide is an inorganic compound used in the
leeching process, and experts claim that it does not cause long-term environmental damage.
Local villagers complained that they had been made sick by the sodium cyanide, but an
international report did not find conclusive evidence to support those claims.
Claims of environmental pollution have been important to the case of nationalists, some of
whom, it is alleged, have distributed DVDs outlining Kumtor’s violations in southern
Kyrgyzstan. A government commission report has also claimed that there is environmental
pollution at the mine site. However, other reports have not supported the claims, instead
suggesting that Kumtor operates within European standards. Nonetheless, in 2012 and 2013,
various government bodies filed claims against Centerra for a total of USD 467 million in
alleged environmental damages. Some of these have been dismissed by Bishkek courts, but
others are still being considered.
Irrespective of the report findings, many people claim that the Kumtor mine and other mines
in the country are causing environmental pollution. As in the 1998 Barskoon incident, many
people claim that worsening crops and health are the effects of environmental damage. There
are, however, a number of contributing factors. Outdated agricultural methods, a lack of
fertilisers and dilapidated irrigation networks in some places result in poor agricultural
production. Poor health is often caused by a lack of hygiene and sanitation, unhealthy diets
and limited health services which contribute to high morbidity rates.
The pollution argument also acts as a banner for a range of other concerns. Some object to
Kumtor because it had an accident in the past, but also because it is run by a foreign company
which, in their view, may leave behind a potential disaster. However, few people have the
same concerns regarding the actions of Kyrgyzaltyn. People perceive the company as more
aware of the local context and more accountable to the people. When there is foreign
company involved, irrespective of its local partners, people worry about how much the
company can be trusted and how it will compensate the people for development of the land
through a social development package for the community. There is no experience of a
successful mine closure in the country, and thus no standard to measure Kumtor against. The
country’s lack of experience in mining has made people concerned about the companies and
what will be the end result. In this context, nationalists arguing against foreign companies and
highlighting pollution easily win supporters.
Corruption allegations
Corruption has been another factor driving protests. Corruption has been a continual problem
in the Kyrgyz Republic and allegations abound in the mining sector. According to
Transparency International, a leading corruption rating organisation, the Kyrgyz Republic was
ranked 150 out of 177 countries for its level of perceived corruption in its 2013 report. The
Government and companies have been implicated in corruption scandals and have lost
people’s trust. Many people see this as another reason that the mining sector needs to be
reformed.
Amendments to the Law ‘On Subsoil’, the main legislative act overseeing regulation of the
mining sector, have helped to establish more transparent procedures, but this has apparently
not helped to curb informal payments or other illegal acts in the sector. Some accuse former
politicians of devising corrupt schemes to get pay offs from Centerra or extort money from
the company. Others maintain that the company promotes corrupt business practices for their
own benefit. As a result, the General Prosecutor’s Office is examining allegations of
corruption during the conclusion of the 2009 agreement.
Future prospects and proposals for solution
The Government and Centerra must now finalise the agreement regarding Kumtor. Even if
this phase of the process is relatively smooth, it will not automatically resolve the social
tensions in Issyk-Kul Oblast. The Government, Centerra, the Kumtor Operating Company and
local residents must discuss an equitable way for mining operations to continue without the
threat of violence. This should mark a change in way Government views its role in the mining
sector. The Government has focused on legislation and monitoring, rather than community
engagement and strengthening village-level administrations to promote dialogue and conflict
resolution.
Legal provisions are just part of the solution. Proposed amendments to the Law ‘On Subsoil’
seek to improve the legislative base and to clarify the responsibilities of companies.
Nonetheless, the conflict around Kumtor and other mining sites will require long-term
government commitment, especially through increased support to the village-level
administrations by the State Agency for Local Self-Government and Inter-Ethnic Relations
and other state technical bodies.
All sides must work to identify and mitigate the potential environmental impact of mining.
This is essential to identify and limit potential impacts on the health and livelihoods.
The Government and companies must also work together to identify more effective use of
funds to support local development. This also means that transparent mechanisms for tax
payments into local budgets and frameworks for the formulation of social packages from
mining revenues must be developed. The mining sector will not be the cure to overcome
development challenges, but funds can be used to improve basic social services in
communities affected by mining operations and contribute to the country’s development
strategy.
In sum, instead of focusing on ultimatums, issuing threats and protesting, all sides should
concentrate on setting achievable and transparent milestones to increase mutual cooperation to
have a greater impact on the future of sustainable mining activities in the country. Thus the
importance of Kumtor is more than just revenues, but about identifying ways to overcome
tensions and conflict for sustainable development. What is happening in Kumtor, then, is very
much a litmus test for the rest of the country.
About the author
David Gullette, PhD, is Senior Research Fellow at the University of Central Asia, Bishkek,
Kyrgyz Republic. Dr Gullette is an anthropologist and development specialist. He conducts
research and analysis into energy and mining, peacebuilding and disaster risk reduction and
community resilience.
Further reading
Gullette, David (2014). ‘Conflict Sensitivity in the Mining Sector of the Kyrgyz Republic.’
Bishkek: OSCE Academy, Bishkek,
http://www.osce-academy.net/upload/file/Mining_report_final.pdf.
Trilling, David (2013). ‘Centerra Gold and Kyrgyzstan: time for a marriage counsellor’. The
Globe and Mail, 25 April 2013, http://www.theglobeandmail.com/report-on-business/robmagazine/centerra-gold-and-kyrgyzstan-time-for-a-marriagecounsellor/article11541901/?page=all
Chronology of recent events
1978
3 December 1992
Kumtor gold deposit discovered.
Government of the Kyrgyz Republic and Cameco Corporation sign a
Master Agreement on the Kumtor Deposit. Cameco acquires a onethird interest in the Kumtor Gold Company from the Government with
Kyrgyzaltyn, the state mining company, holding the remaining twothirds interest.
1993
Kumtor Operating Company formed.
1994
Construction at Kumtor deposit site began.
1997
Commercial gold production began.
May 1998
Truck rolls over losing packages which dissolve 1.7 tonnes of sodium
cyanide into the Barskoon River.
2004
Cameco Corporation transfers gold assets to new Canadian-based
company Centerra Gold Inc.
24 March 2005
Ousting of President Askar Akaev, ushering in a new government.
19-22 December Illegal walkout of some staff over disputes about the renewal of labour
2006
contracts. Work on site resumes after Centerra reaches an agreement
with the Trade Union over all material issues in the two-year labour
agreement.
26 August 2008
Bishkek Inter-District Court dismisses lawsuit filed by a Vice-Speaker
of Parliament, K. S. Isabekov, against the Government of the Kyrgyz
Republic relating to the Kumtor project. The lawsuit sought to annul
previous government decrees and agreements which would limit
Kumtor’s right to explore and develop the deposit.
24 April 2009
5 May 2009
30 December 2009
7 April 2010
11-15 June 2010
1 October 2010
10 October 2010
5 December 2011
6 December 2011
14-16 February
2012
3 October 2012
14 December 2012
21 February 2013
21 February 2013
5 March 2013
28 May 2013
30 May 2013
31 May 2013
31 May 2013
2 June 2013
3 June 2013
5 June 2013
17 June 2013
28 August 2013
Parliament ratifies Agreement on New Terms for the Kumtor project.
President Kurmanbek Bakiev signs legislation implementing the
Agreement on New Terms between Centerra Gold Inc., the
Government of the Kyrgyz Republic and Cameco Corporation.
Cameco Corporation sells all common shares of Centerra and transfers
additional shares to Kyrgyzaltyn, as per the New Terms Agreement.
Ousting of President Kurmanbek Bakiev in a violent uprising killing
86 people.
Deadly violence in southern Kyrgyzstan.
Unionised employees began a strike stopping work.
Unionised employees return to work.
Illegal roadblock interrupts transfer of diesel fuel and other supplies to
marshalling yard of the mine.
Transfer of supplies resumes.
Strike by Kumtor workers over payment structure, work delayed as
glacier ice covered pit.
Ata-Jurt holds rally calling for nationalisation of Kumtor.
Centerra receives five claims from the State Inspectorate Office for
Environmental and Technical Safety (SIETS) under the Government of
the Kyrgyz Republic related to alleged environmental damages totally
USD 152 million.
Government passes a decree requiring that Centerra work to revise the
Kumtor agreement within three months.
State Agency for Environmental Protection and Forestry (SAEPF)
under the Government of the Kyrgyz Republic files USD 315 million
claim against Kumtor for alleged environmental damages at the
Kumtor site.
Protests in support of jailed Ata-Jurt members in Issyk-Kol, Jalalabad
and Osh Oblasts.
Protestors block access road to Kumtor site in Issyk-Kul Oblast.
Protestors cut electrical power to Kumtor site, forcing mining activities
to be suspended.
Riot police move in to break up protest. Violence ensues with 92
people arrested and 55 people wounded. Government declares state of
emergency (lifted on 3 June 2013).
Demonstrators in Jalalabad city protest in support of the events in
Issyk-Kul. Demonstrators capture the Jalalabad Oblast Administration
building. Meder Usenov, one of the protest leaders, names himself the
‘People’s Governor’. He is later arrested.
Protestors in Jalalabad Oblast block the main road between Bishkek
and the southern city of Osh. Work the Kumtor mine resumes.
Kamchybek Tashiev, one of the jailed Ata-Jurt members, goes on
hunger strike in support of the demonstration in Jalalabad Oblast.
Usenov released on bail and joins protestors in Barpy village, Suzak
District, Jalalabad Oblast. Protestors remove roadblock.
Ata-Jurt members released from jail after protests at court hearing, but
a later Supreme Court ruling upholds the verdict that they are stripped
of their parliamentary mandates.
Video emerges of two informal leaders of the May demonstration in
9 September 2013
7 October 2013
23 October 2013
12 November 2013
13 December 2013
24 December 2013
2 February 2014
6 February 2014
18 March 2014
31 March 2014
10 April 2014
23 April 2014
Issyk-Kul Oblast appearing to blackmail a Kumtor official.
Centerra Gold Inc. states that it had signed a non-binding
memorandum of understanding with the Government regarding the
restructuring of Kumtor operations. Kyrgyzaltyn, would receive 50 per
cent interest in the joint venture company that would own the Kumtor
Project in exchange for giving up its equity ownership in Centerra and
USD 100 million to be paid to Centerra by adjusting its joint venture
distributions.
Protestors captured the Issyk-Kul Oblast Administration building in
Karakol, and took the Governor, Emil Kaptagaev, hostage. Kaptagaev
was later released. Protestors demanded that the Government get up to
70 per cent of shares in new Kumtor operating company.
Parliament rejects the Memorandum of Understanding with Centerra
Gold Inc. Parliament asks Prime Minister Jantoro Satybaldiev, to seek
67 per cent of shares in new Kumtor operating company.
Leader of the Ata-Meken Party (Fatherland), Omurbek Tekebaev,
initiated a motion to nationalise the Kumtor mine.
Centerra Gold Inc. announces that SIETS claim against the company
for environmental damages was dismissed by Bishkek City Court.
SAEPF, however, commenced court proceeding in the Bishkek InterDistrict Court for USD 315 million for environmental damages.
Prime Minister Jantoro Satybaldiev announces that the Government
entered into a Non-Binding Heads of Agreement with Centerra for a 50
per cent stake in the new operating company, similar to the deal
rejected in October, but with fewer concessions to be paid to Centerra.
Agreement would also give the Government the option to increase its
shares up to 67 per cent before the expected closure of the mine in
2023.
Saruu village residents block the road in protest against Kumtor.
Government approves new agreement with Centerra and asks that all
details be negotiated within four months.
Ata-Meken (Fatherland) Party withdraws from the ruling coalition, and
President orders resignation of the government the following day. This
raises concerns about the Kumtor negotiations.
New ruling coalition formed between Ar-Namys (Dignity) Ata-Meken,
Social Democratic Party of Kyrgyzstan. No new statements on Kumtor
have been announced.
National Opposition Movement, a coalition of opposition parties, hold
nationwide demonstrations. Protestors urge the Government to
nationalise the Kumtor mine, among other demands.
Parliament adopted amendments to the Law 'On Subsoil'. Among the
amendments, there are provisions expanding the Government’s powers
over issuing licences, broadens the use of social packages beyond
those sites that had a competitive bidding process, and introduces a
fund for the reclamation of land from the time exploratory work
begins. This must still be approved by President Atambaev.