Kyrgyzstan’s Golden Problem: Nationalists Come for Kumtor, Again

It’s open season, again, on Kumtor.

On May 6, the Kyrgyz parliament took up a bill that would allow the state to temporarily seize control of the Kumtor mine from its owners, the Canadian mining company Centerra Gold. Less than 24 hours later, the bill was passed. The same day, a Kyrgyz court issued a $3 billion fine to Centerra’s Kyrgyz subsidiary following a civil suit and the tax authorities informed the company that it owes $170 million in back-taxes and other dues. A few days later, a commission set up earlier this year to poke into Kumtor’s operations announced Kyrgyzstan would seek an environmental fine of $4.25 billion for dumping mining waste on glaciers, plus tax violations of over $1 billion.

By May 17, Kyrgyz President Sadyr Japarov had signed the bill into law and Kyrgyz authorities had effectively seized control of the mine.

The new law, proposed by Akylbek Japarov (no relation to President Japarov), applies to any project operating under a concession agreement. Under the terms of the bill, the Kyrgyz state can impose a three-month external management period on such companies if they have committed environmental or safety violations. The law allows the Kyrgyz prime minister to appoint a manager to take over the project from the company, including exerting control of its bank accounts.

Kumtor is the only project to which the law applies, though it is not directly named. The law also doesn’t clarify what happens after the three-month period. For many, it looks like a quick hop from temporary “external management” to nationalization.

Dastan Bekeshev, the only member of parliament to vote against the bill, asked his parliamentary colleague A. Japarov whether the bill applied to Kumtor. A. Japarov replied, “I do not specifically name it. I cannot name it. But we have no other companies operating under a concession. Only one enterprise. The rest work under a license.”

“In the international arena, won't they call it raiding?” Bekeshev countered.

A. Japarov, without presenting specific evidence to back his comments, claimed that Centerra had caused $3.2 billion in damage to the environment and that 19 people had been killed.

Centerra, whose largest shareholder (at 27 percent) is the Kyrgyz government via Kyrgyzaltyn, has faced its share of troubles over the years in Kyrgyzstan. In 1998, one of the company’s trucks crashed into a bridge, dumping more than a ton of toxic sodium cyanide into the Barskaun River – an estimated 2,500 people were poisoned. The company paid $4.5 million in restitution. Over a three-month period in late 2019 into early 2020, three employees died in accidents, one involving a rock slide and the other an excavator driver tipping into a lake. In 2019, putting to rest an extended arbitration case, Centerra made $100 million in environmental and other payments to the Kyrgyz government with the signing of a new strategic agreement.

Mining is a dangerous business, and a dirty one, both environmentally and politically. Kumtor is a prized asset in Kyrgyzstan, which lacks other lucrative resources. The Kumtor mine is the second-highest mining operation in the world, situated among the glaciers that top the Tien Shan range. It has been in commercial operation since May 1997. Centerra’s local subsidiary, Kumtor Gold Company, is reportedly Kyrgyzstan’s largest employer and the state’s single largest taxpayer. In 2019, the mine’s operations were equivalent to nearly 10 percent of the Kyrgyz GDP.

And yet, the mine has served as a flashpoint for both environmental activists and nationalists. It has played an especially important role in the rise of Sadyr Japarov.

Japarov first rose to political fame on the back of strident opposition to foreign involvement at Kumtor. In October 2012, Japarov – along with Kamchibek Tashiev and Talant Mamytov – led protests in Bishkek calling for the ouster of then-Prime Minister Jantoro Satybaldiev a week after he had refused to nationalize Kumtor. Tashiev led the charge over the often-breached fence around the Kyrgyz White House. Ultimately, all three – Tashiev, Mamytov and Japarov – were given prison sentences for attempting to overthrow the government. The three were released after only a few months in jail.

In 2013 protests in favor of nationalizing Kumtor turned violent in the eastern Kyrgyz city of Karakol. Japarov was accused of bankrolling the protests and directing, remotely, the kidnapping of the regional governor. He fled the country. When Japarov returned in 2017 he was arrested, tried, convicted and sentenced to 11 years in jail, a term that ended prematurely on the evening of October 5, 2020 when Japarov walked out of prison amid protests following the country’s messy parliamentary election. Within weeks, Japarov was acting president and Tashiev was appointed head of the powerful State Committee for National Security.

In January 2020, Japarov was formally elected president. In April, he saw through dramatic changes to the Kyrgyz government’s architecture on the back of an entirely new constitution returning the country to super-presidential rule.

Analysts with Canaccord Genuity told the Mining Journal, “We have been anticipating something like this since president Japarov took power on January 10; however, the speed and breadth of these reforms has caught us off-guard.”

"Mr Japarov has made no secret of wanting to align himself with Russia and China at the expense of Western relationships, and we believe there is a reasonably high probability that Kumtor could be a casualty of this geopolitical paradigm shift,” they said.

The barrage against Kumtor came hard and fast, and features a tight network of personalities. There’s an air of purposeful arrangement to how the dominoes fell into place.

Akylbek Japarov, the MP who proposed the “external management” bill is also head of a commission set up in February 2021 to examine Kumtor’s operations. On May 12, according to Barron’s, A. Japarov said that following the commission’s investigation Kyrgyzstan was now “seeking $4.25 billion, adding tax violations of over $1 billion to the environmental fine for dumping mining waste on glaciers.”

Meanwhile, the civil suit brought against Centerra – which ended with the issuing of a $3 billion fine – was brought ostensibly by four private citizens. But one of them is the son of Dinara Kutmanova, the head of the State Ecology and Climate Committee – she was appointed by Japarov last November.

Centerra called the $3 billion fine and the tax authorities’ determination “entirely meritless” in a statement issued in May 7. The company also said that the external management bill would “clearly” violate the legal framework under which Kumtor has operated since 2009.

The Canadian mining company on May 11 said it believed the actions of Kyrgyz authorities “are a concerted effort to coerce Centerra to give up economic value or ownership of the Kumtor Mine or to falsely justify a nationalization of the Kumtor Mine.”

Six days later, Kyrgyz lawmakers unanimously approved the commission’s conclusions and, under the freshly signed law, called for external management of the company. Centerra issued a statement on May 17 that the Kygryz government had “effectively seized control of the Kumtor Mine,” by dispatching government authorities to the mine, as well as raids on the offices and homes of the company’s employees.

“Consequently, Centerra is no longer in control of the Kumtor Mine and can no longer ensure the safety of the mine’s employees or operations,” the company said. At present, Centerra is set to pursue arbitration over the matter. Kyrgyz authorities have pushed back on the notion that this turn of events constitutes nationalization, stressing that the “external management” period will only be temporary.

Nevertheless, it’s not hard to see this as a carefully orchestrated attack: Kyrgyz authorities set up a commission and encouraged a civil suit that concluded nearly simultaneously and found the mining outfit guilty of environmental damages just as the parliament passed a bill that would enable the government to take over, temporarily, Kumtor and its assets – which it has now done.