Kyrgyzstan’s Showdown With Western Investors – The Diplomat

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On the surface, Kyrgyzstan is one of the world’s poorest nations, but just beneath the ground it holds almost unimaginable wealth. Carved high into the side of the Tien Shan mountain range, the Kumtor gold mine was built to extract that wealth, making the the Central Asian nation, and the Canadian firm behind the project, rich in the process.

Instead, the vast mine, one of the world’s largest, has become the center of a long-running political row. In May, just weeks after being inaugurated as the country’s president following violent riots last October, Sadyr Japyrov ordered officials to roll in and take charge of the site, claiming that the operator, Toronto-based Centerra Gold, was failing to maintain safe working conditions and risking an ecological catastrophe. Since then, authorities in the capital, Bishkek, have effectively torn up a series of agreements stretching over three decades that saw foreign investors plow millions into the country.

Japarov’s supporters say the deal was rigged in favor of the Canadian firm, and that since the start of the arrangement, the company has taken home some $11.5 billion in profits, while Kyrgyzstan has seen just $1.5 billion in returns. At the same time, the new government blames Centerra for the alarming speed at which a nearby glacier is melting, and says the water running off it threatens to overflow a storage pool holding cyanide and other byproducts from mining. If it does, they say it could contaminate rivers that millions of Kyrgyzstan’s citizens, and those in downstream countries, depend on for drinking and farming. The firm, however, chalks the issue up to global warming and insists it took steps to minimize the risk.

The project was once Kyrgyzstan’s flagship foreign investment, and directly or indirectly provided jobs for thousands of local people. The new government, however, is eyeing a better deal if it is able to pocket the entirety of proceeds from the mine, which churns out up to 16 tons of gold each year and is believed to have enough still underground to maintain current levels of extraction for more than half a century. 

Debate around Kumtor has also become the centerpiece of Japarov’s vow to tackle corruption. His government has arrested a series of top officials from the former administration, with former prime ministers Temir Sariev and Taiyrbek Sarpashev among those detained in the row. Several ex-MPs have also been arrested, and Kyrgyzstan’s first president, Askar Akayev, made a surprise return to the country (his first after being overthrown 16 years ago) for questioning over his role in managing the relationship. Officials say those at the top took bribes in exchange for allowing what they say was a deeply unfavorable relationship to continue without question.

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The legal battles don’t just end at home. Centerra has launched a bid in U.S. courts against what it deems state efforts to appropriate the mine and drive its subsidiaries into bankruptcy. The company disputes the financial figures put forward by the Kyrgyz government, insisting that the $11.5 billion relates only to revenue and doesn’t take into account all of its outlays, and that its profits haven’t exceeded $1.4 billion since 1994 — less than the amount that has stayed in the country.

In response, Kyrgyzstan has placed the company’s top executives, Yana Atkinson and Michael Fischer, on its wanted list, issuing orders to detain them on charges of conspiring to defraud the country. In a statement last week, Bishkek’s State Committee for National Security said that investigators has “irrefutable evidence” of the Canadian business embezzling at least $200 million as part of a dodgy deal.

Speaking to The Diplomat, a representative for the company insisted that “there is absolute no merit to the absurd corruption allegations.” According to Centerra, the claims are “baseless” and part of efforts to “falsely justify a nationalization  of the Kumtor mine.” While the company says it hopes to settle the issue through bilateral talks, it is also planning to “vigorously pursue all legal means to protect our interests and those of our stakeholders.”

Blowback from the row is already affecting Kyrgyzstan’s relations with the West. The Canadian and British embassies in Bishkek issued a joint statement warning that the move has “far-reaching implications for foreign direct investment in Kyrgyzstan.” Canada’s Foreign Affairs Minister Marc Garneau and International Trade Minister Mary Ng have also said they are “very concerned” about the decision to take over the mine, citing their country’s role as a “significant investment partner” for the Central Asian nation.

In addition, Kyrgyzstan’s state-owned gold producer was suspended last week from the Independent Precious Metals Authority’s “Good Delivery List,” which regulates exports of the coveted commodity. As a result, it will be blocked from trading on London’s markets, dealing a blow to its lucrative bullion sales and jeopardizing much-needed revenues that its new government depends on to prop up spending plans. At the same time, a judge in New York threw out a request from Japarov’s government for providers to make good on deliveries of essential spare parts and heavy machinery that were in transit to the country, but have since been suspended.

While environmental concerns were cited as part of the decision to take over Kumtor, it is not clear what steps, if any, have been taken to address what has been described as a pressing crisis. Earlier this month, Centerra warned that it had seen photographs indicating that the central pit of the mine has been flooded, with large quantities of water running down from the melting glacier. “As any experienced miner would know, water in an open pit mine decreases stability and increases the risk of a wall failure,” the company said. “This is dangerous and we are worried about the safety of workers at the mine.”

For the time being though, Bishkek shows no signs of budging from its stated position that corruption has dictated the terms of its deal with Centerra. For a nation that gained its independence from the Soviet Union just 30 years ago and has seen little improvements in living standards as a result of transitioning to a market economy, the idea that wealth could have been extracted at the expense of its citizens touches a nerve. Given that Kyrgyzstan owes $1.8 billion to China, making up 40 percent of its total external debt, and has applied to Beijing for relief since the start of the COVID-19 pandemic, Japarov’s government will be hoping that its gamble to go for gold will pay off.



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