The authorities of Kyrgyzstan constantly declare their support for entrepreneurs and protection of investors. But it is quite different in practice. They continue to tighten the screws in the mining sector, where most of all foreign business is concentrated.
It is less and less profitable to work in this sector with each passing month.
It turns out that instead of support, the state is trying in every possible way to squeeze foreign participation out of the sector and establish rules of the game that are beneficial to it only. But the country has no money to develop mineral resources, and new investors are unlikely to come to work on such draconian terms.
Raise the rates for everyone
At the end of September, the Cabinet of Ministers of Kyrgyzstan approved new rates for the retention of licenses for the right to use subsoil in the search, exploration and development of minerals. The rates have been increased tenfold, twentyfold, and in some cases even a thousandfold.
Thus, the rate of a license for geological exploration of indigenous gold in the fourth year of operation increased thousand times, for geological exploration in the sixth year of operation — 20 times, and the rate of a license for development in the eighth year — 55 times.
If earlier a company engaged in geological exploration works paid a little more than 5 million soms a year, then at the new rates — more than 12 billion soms.
The company, which holds a license for geological exploration, paid on average about 7.5 million soms, and now — more than 154 million soms per year. Companies holding licenses for the development of subsoil paid on average about 170,000 soms a year at the previous rates, now — more than 11 million soms.
By the decree of the Cabinet of Ministers, the rates for retention of licenses were significantly increased in relation to enterprises that extract raw materials for building materials (marble, limestone, clay and loam, sand and gravel mix, etc.) and coal. For example, the rate of a license for the development of deposits of building materials in the seventh year of operation (the most common term in this area) has increased 20 times.
«Today we are witnessing high competition in the building materials market. Even a small increase in the cost of production can lead to non-competitiveness of local producers of building materials in the domestic and foreign markets. The price of building materials for the population will rise again, and quite considerably,» Askar Sydykov, Executive Director of the International Business Council (IBC), said.
The license rate for the development of coal deposits in the seventh year of operation increased 16.6 times.
The increased non-tax burden on coal enterprises may affect the price for consumers and place an additional burden on the population of the country.
It is interesting that the future amendments were not discussed with the business. The sector was simply presented with the fait accompli. In the opinion of the business, the decree distorts the main purpose of the license retention fee. At one time, it was introduced as one of the tools for dealing with entities that are holding licenses without carrying out work on the sites with the aim of their further resale. In this sense, the procedure for payment, calculation of fees and rates of fees for retention of licenses for the right to use subsoil, both in the existing and in the recently adopted variant, does not correspond to its spirit and intent.
The increased rates for retention of licenses will affect all subsoil users, and bona fide enterprises will suffer the most.
International Business Council
The rates for retention of licenses are applied to everyone — prospectors, exploration companies, and developers. Unreasonably high payments will be levied on everyone. This can lead to the fact that prospecting and exploration companies will wind down their work and leave for other countries.
«They will leave, and there will be no one to fulfill this role for the state. The licensed areas will be idle, and the mining industry and geology as a whole will come to stagnation,» Askar Sydykov said.
«Golden» surface waters
In October 2021, the Cabinet of Ministers of Kyrgyzstan presented the subsoil users with a new gift. The charge rates for the use of surface water have been increased. It is unknown whether the document passed the public discussion procedure. It is absent on the special Koom Talkuu portal, or on the website of the Cabinet itself.
Subsoil users were not invited to a dialogue on this issue in advance.
Askar Sydykov
«We cannot say for sure whether there was a public discussion or not. It may have been, but we have not seen this document. It is extremely difficult for subsoil users now to react to the ongoing changes. They need to work, not to sit and monitor the websites of government agencies, when new rules of work are brought up for discussion there,» Askar Sydykov said.
The decree of the Cabinet of Ministers approved a permanent procedure for determining and collecting fees for the use of surface water resources. Previously, there was a temporary order, and the amounts depended on the actual volume of used water. The standard for the use of surface water as a natural resource was 0,025 soms per cubic meter.
It was decided to calculate the standard for the use of surface water differently.
Now it is the charge rate for the use of surface water resources and it is equal to the ratio of the sum of the actual costs of state organizations and institutions for the management, study, accounting, assessment and protection of water resources, protection from the harmful effects of water resources, as well as the costs of measures for the functioning of the State Water Administration to the annual volume of all surface water resources in Kyrgyzstan, assessed by an authorized government agency.
There are suggestions that the new order was introduced following the example of the neighbors. Their rates depend on a reservoir, water source and region, but with one caveat — rates are set for 1,000 cubic meters of water, and not 1 cubic meter as in Kyrgyzstan.
The officials responsible for the decree remain silent. The document has not been published on the website of the Cabinet of Ministers. You can find it only in the database of the Ministry of Justice, if you know exactly what document is needed. Such is the courtesy and care for the business.
Squeeze out of the market! What’s next?
Situation in the mining sector began to deteriorate in 2020. Against the backdrop of the coronavirus pandemic, the economic crisis and the loss of budget revenues, the state did not find anything better than to raise taxes for the sector.
Mining was one of the few industries that worked steadily over the past year.
Its income tax was increased. Then the business did not become particularly indignant. Everyone understood the complexity of the situation and associated the increase in the burden with the need to help the treasury. But that was the beginning.
«Unfortunately, there is a tendency when they want to impose payments on subsoil users from all sides. The size of the income tax, license retention rates have been increased, the tariffs for electricity, the payment for the use of surface water have been raised. In addition, the requirements for the work of mining companies are being tightened,» the head of the IBC said.
In such a situation, the business, which is largely represented by foreign investors in the mining sector, has only one way out — to shut down. There are concerns that the state wants to achieve exactly this.
The country’s authorities have repeatedly stated that they want to get their share in each license for the development of subsoil.
They even took their first steps. In August 2021, the procedure for granting subsoil use rights was approved by the decision of the Cabinet of Ministers. It provides that state-owned companies will get an advantage in obtaining licenses.
«Okay, the state will achieve its goal. Today’s subsoil users will leave. The authorities will gain control over the licenses. What is next? The state has no money to develop the deposits. We need to attract an investor. Who will come to work on the terms when one side invests, and the other gets the profit (the state)? Nobody will come to work in such conditions,» Askar Sydykov believes.
