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Does President of Kyrgyzstan have enough political will to return Kumtor?

On June 8, at the press conference held in Bishkek, the Chairman of the State Committee for National Security (SCNS) of Kyrgyzstan, Kamchybek Tashiev, announced the investigation of criminal cases instituted based on corruption at various stages of the Kumtor project, one of the world’s largest high-altitude gold deposits which provides more than 10 percent of the Kyrgyz Republic’s GDP. The defendants in this case are dozens of officials and all the former presidents who ruled the country since the declaration of independence in 1991 — Askar Akayev, Kurmanbek Bakiyev, Almazbek Atambayev and Sooronbai Jeenbekov. Akayev and Bakiyev, who live abroad, have been put on the international wanted list. We are talking about an unprecedented attempt in the post-Soviet area by the national government to return billions of dollars’ worth of gold stolen with the help of bribes, embezzled and laundered.

Kyrgyzstan is one of the friendliest states to Russia. It is a member of the Eurasian Economic Union and the Collective Security Treaty Organization, half of the country’s population is fluent in Russian, and its official status is enshrined in the constitution. Located in the western and central part of the Tien Shan mountain system and on the Pamir-Alai, the country has a unique nature and mineral reserves. Alas, for 30 years, the leaders of the young republic have been engaged not in the economic development, but in cutting what they inherited from the Soviet Union or what lies in the subsoil. As a result, Kyrgyzstan turned into one of the poorest countries in Asia, a significant part of its citizens were forced to go abroad to work, primarily to Russia. The Kumtor deposit was discovered in 1978 by Soviet geologists. In 1997, the Canadian mining company Cameco began industrial gold production at Kumtor. In 2003, the company should have transferred the mine with all its fixed assets under the control of Kyrgyzstan. At that time, the price of gold increased significantly, so the Canadians involved president Askar Akayev in a corruption scheme. Cameco’s assets were transferred to a new company, Centerra Gold Inc., where the republic no longer owned 67, but only 33 percent. This was done under the pretext of listing on the Toronto Stock Exchange. On the eve of IPO, Akayev managed to sell some of the state-owned shares for a song, although it was clear that in the near future they would rise in price by many times. Thus, the state’s shareholding fell to ... 26 percent instead of 100 percent under the agreement.

Having gained full operational control over the company, «foreign investors» bribed all the ruling elites, who were regularly replaced as a result of revolutions. They were not touched by regulators, environmental supervision, or tax authorities.

Having felt complete impunity, they became a living confirmation of the validity of Joseph Dunning’s formula quoted by Karl Marx that with 300 percent of profit for capital, «there is not a crime at which it will scruple, nor a risk it will not run, even to the chance of its owner being hanged».

As a result, enormous damage was caused to the environment, health and life of 3,500 people who work and live there. The last tragic accident took place in December — two workers were buried under the waste rock and their bodies have not yet been found yet. The other day I saw this nightmarish picture with my own eyes when I spent half a day at the mine site. I saw roads with huge layers of unreinforced rock directly overhanging over them. More than two billion tons of processed rock were dumped directly on the tongues of glaciers at an altitude of five thousand meters above sea level. And this is done in a seismically dangerous zone, in the Tien Shan Mountains! Glaciers can start moving at any time: if in one direction, they will kill 3,500 people, if in the other direction — they will destroy the tailings pond containing cyanide that is used in the gold leaching process. Then these streams will poison the sources of mountain rivers that descend to the plains of Central Asia.

The honorable «investors» did not pay all taxes and scanty dividends. Having received $27 billion in profit over 25 years, all dividends to the Kyrgyz state as a shareholder amounted to only $87 million. In 2017, Centerra’s management accumulated almost $1.5 billion, after which it began investing it in mines far beyond the borders of Kyrgyzstan — for example, in Nevada (USA) for $500 million. A year later, this decision was recognized as «erroneous», since the rock layers lie at the depth of 1.5 km, and the investment was ... written off. A similar story happened in Mongolia and other countries. Thus, under the pretext of «expanding the business», huge amounts of money were withdrawn from the company. While thousands of workers at Kumtor received a miserable penny for their dangerous work, foreign managers paid themselves bonuses worth tens of millions of dollars. They bought second-hand Caterpillar machines for 650,000 dollars, which they then wrote off and sold to other mining companies for 6,000 dollars. While the revenue was $1.2 billion a year, and the costs were 300 million, the company showed a profit of only 200 million.

The current president of Kyrgyzstan, Sadyr Japarov, back in 2012, as a member of the Kyrgyzstan’s Parliament, demanded to restore order at Kumtor.

He spoke about the monstrous damage made to the environment, about bribes and embezzlement. For this, he was sent to prison, because the gold miners corrupted all previous leaders, including prime ministers and presidents. This is evidenced by the huge fortunes of former leaders who fled Kyrgyzstan — Kumtor had always been the main and only source for their illegal enrichment.

Last fall, as a result of another revolution, Japarov was released from prison, and in January 2021 he was elected President of Kyrgyzstan. Together with his like-minded associates, who, like himself, were subjected to criminal prosecution for 9 years for fighting against the barbaric exploitation of Kumtor, he began the process of returning the state control over the deposit. Recently, he managed to do this, although the previous management tried to deprive the mine of «digital brains» — by seizing all IT equipment and software (and there are a lot of complex issues, including monitoring the movement of ore masses).

Nevertheless, the company keeps on working, and Japarov has a real chance to increase the state budget of Kyrgyzstan by many times, and in a fairly short time. In the conditions of instability on the international currency market, gold prices are going up. As we have already found out, «Capex» and «Opex» allow making profits in the amount of billions of dollars. However, previously, the revenues went to the personal family budgets of the leaders of the Kyrgyz Republic, and a maximum of 6-7 percent of the profit fell into the state budget. Moreover, these 6-7 percent provided 20 percent of the state’s income. Imagine that now it will receive all 100 percent.

Of course, now the former owners of Kumtor, who have been appropriating the national wealth of the country for more than 20 years, are exerting enormous pressure on the leadership of the Kyrgyz Republic, acting, among other things, in the international political arena. It is extremely interesting whether Sadyr Japarov has enough will not to turn away from his path.

Alexander Lebedev, President of the National Investment Council, PHD in Economics.