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The Kyrgyz government desperately needs the money generated by gold mining. But can it live with the growing international criticism?by Bakyt Ibraimov and Temir Akmatov 5 March 2012
BISHKEK | Before its first 100 days were out the new Kyrgyz government fended off the threat of a long labor dispute in a vital industry, the last thing the country needed after two years marked by a popular uprising, vicious ethnic clashes, and a sluggish recovery from the financial crisis.
A strike in February brought the Kumtor mine, the country’s biggest gold mine and one of the largest single contributors to the state budget, to a standstill. Although miners are now back on the job, a low chorus of accusations about environmental mismanagement at the high-altitude site could grow into a major international embarrassment for the government.
The strike and a new report alleging high levels of pollution and health problems around the mine highlight the spot the novice Kyrgyz government finds itself in as it looks to mining to help resurrect an economy ravaged by the crisis and a legacy of corruption.
On 7 February 1,300 workers walked off the job at Kumtor, a huge open-pit operation in mountainous Issyk-Kul province, in a disagreement over social insurance payments. Miners demanded that Kumtor Operating Co. either increase wages or cover the 10 percent withheld from their pay as a mandatory contribution to the national pension fund, firm spokesman Ermek Kozubekov said. Kumtor is wholly owned by Canada-based Centerra Gold; the Kyrgyz government in turn holds 33 percent of Centerra shares.
The 10-day strike shut down production at the pit and set off a flurry of activity as Centerra management and state officials led by Prime Minister Omurbek Babanov sought to resolve the dispute. Babanov took office on 1 December, the same day new President Almazbek Atambaev was sworn in, bringing two years of political turmoil and ethnic violence to an end.
Gold mining, and the Kumtor operation in particular, are vital components in the Kyrgyz economy. The value of gold produced at the mine annually equals 20 percent of the country’s total industrial output, according to Orozbek Duisheev, president of the Association of Miners and Geologists.
The mine produces about 55 kilograms of gold daily, worth at least $2.5 million, Duisheev said.
On 16 February, after a meeting between Babanov and Centerra management, the strikers accepted an offer of a 4.5 percent pay increase, backdated to 1 January, and annual bonuses of up to $2 million, government spokesman Sultan Kanazarov said. Miners returned to work the following day.
Kumtor workers are relatively well compensated for work in the difficult conditions at the 4,000-meter-high mine. Miners earn a minimum monthly salary of 80,000 soms ($1,700), some 10 times the national average.
The expected cost of the settlement for 2012 is approximately $4 million, Centerra said in a press release.
Kumtor looms large in the local and national economy. Most of the mine’s 2,500 employees come from nearby villages in the Jety-Oguz and Ton districts. The company reported production of 18.1 tons of gold in 2011 and says it paid more than 8 billion soms ($172 million) in taxes and other payments to the treasury, equivalent to nearly 10 percent of the state budget.
Centerra’s gross revenues are taxed at 14 percent, according to the latest operating agreement signed by the company and the government in 2009, which also saw the Kyrgyz government more than double its stake in the firm. The tax includes a 1-percent contribution to the Issyk-Kul province’s development fund, but Centerra is exempt from other local payments, taxes, or fees. In a report, the CEE Bankwatch Network criticized the deal, which Vladlena Martsynkevych, the watchdog group’s Central Asia officer, said could work against local interests.
One potential positive from the strike and the Bankwatch report could be to bring long-festering suspicions of official malfeasance into the open.
Observers often charge that widespread corruption and political instability are holding back development of the Kyrgyz mining industry and the overall economy. No major new mining projects have been launched for years, despite the viability of mines such as Kumtor and others, all of which are at least partly foreign-owned.
“For 20 years, there has been no positive progress in development of the Kyrgyz mining industry,” the 24.kg news agency quoted Economy Minister Temir Sariev as saying on 15 February during a parliamentary debate on proposed new mining laws and problems in the sector.
Members of the new government often put the blame for financial mismanagement of major industries on the previous Kurmanbek Bakiev and Askar Akaev administrations, both of which were toppled amid accusations of rampant corruption and cronyism.
“There have always been tensions and intrigues around gold mining in the country, and it is possible that it is beneficial for certain politicians, who push away mining industry investors for the sake of their own interests,” said Duisheev of the miners’ association.
Another sensitive issue that has long dogged Kumtor concerns allegations that the authorities have turned a blind eye to large-scale contamination of the fragile alpine environment and potential health hazards for the residents of villages below the mine.
The Bankwatch report accuses the mine of releasing large amounts of cyanide and other contaminants but says the company’s stinginess in releasing test data makes it difficult to properly assess the environmental situation.
Some local residents say their health began to decline soon after a truck carrying 20 tons of chemicals fell into the Barskoon River in 1998.
“Our health has been getting worse year by year” since the accident, says Tamara Duysheva, a resident of Barskoon village about 15 kilometers from the mine. She said said several local people died and others were hospitalized after the spill.
“We were assured we would get better, but it’s not happening. People keep dying,” Duysheva said.
A joint Russian-Canadian expert commission concluded in 1998 that the level of toxic substances found in irrigation water used by Barskoon and Tamga villages was too low to cause harm to human health. Local residents continue to contest the findings. The Kumtor Operating Co. paid an undisclosed amount of damages to the state after an international arbitration hearing, and the government says it eventually paid 94 million soms (at time worth some $300,000) to victims of the accident.
Local and international observers also complain about lack of information and transparency regarding Kumtor’s activities.
Hydrogeologist Robert E. Moran, the Bankwatch report’s author, says the company does not allow open access to outside technical experts. In the report, he says he was not allowed to visit the mine to take water and other samples.
Dinara Kutmanova, executive director of the Republican Environmental Protection Fund in Bishkek, said existing risks and hazards at Kumtor can be minimized, but information is scanty owing to the authorities’ failure to monitor the area properly.
“Since 1997, when gold mining began, not a single independent analytical study has been made, which could clarify the whole picture,” Kutmanova said.
Moran’s report cites Centerra estimates that as of the end of 2010, Kumtor’s operations had created more than 981 million tons of waste rock and about 53 million cubic meters of tailings, or residue left after processing the ore.
“Both wastes contain numerous contaminants that are released into the environment. Their volumes will continue to increase and the wastes will remain on-site forever, requiring continual maintenance,” Moran said.
Moran says that water quality data from Kumtor and an interagency commission set up in 2011 show that contaminants such as fuels and greases, explosives, and other chemicals are being released into rivers and streams. According to the scientist, these sediments and contaminants flow downstream into the Naryn River. The Naryn is a tributary of the Syr Darya, one of the region’s major sources of water for households and agriculture.
Moran also warns of the potential hazards associated with mining in a high mountain area. Glacier ice has been removed to get at ore-bearing rock below, the report states, and waste rock has been dumped on two glaciers, accelerating their melting.
These practices could have devastating consequences, according to Erkingul Imankozhoeva, a member of the Kyrgyz parliament. She said the nearby glaciers are shrinking by up to 61 meters per year as melt water flows into a nearby lake.
“Sooner or later, there will be a breakthrough of the reservoir, and some of the hazardous substances from the tailings will be washed away, poisoning mountain streams used by local residents for consumption and domestic needs,” Imankozhoeva said.
The legislator also alleges the mine began using more than 4,000 hectares of lands in an adjoining nature reserve without public consultation. A commission she led that also included officials and representatives of non-governmental organizations visited the mine site and took water samples in September. Parliament discussed the commission’s work in January.
“AN INACCURATE PICTURE”
Bankwatch’s Martsynkevych said the mining firm’s failure to take proper environment impact studies makes assessments of future risk difficult.
“The lifetime of the open pit mine has been prolonged until 2021, but the public never saw and was not consulted on the mine’s closure plan, which is supposed to be revised at least every five years and to be accessible to the public,” she said.
Centerra’s chief executive, Stephen Lang, questioned the Bankwatch report in a 13 February letter to the London-based Business and Human Rights Resource Center, saying it “paints an inaccurate picture of Kumtor’s environmental practices and of the regulatory framework within which it operates.”
Lang said the mine has a good environmental safety record and will release a comprehensive response to the Moran report “in the coming weeks.”
The government, however, did take action on the report. On 14 February, First Deputy Prime Minister Aaly Karashev instructed state agencies to monitor industrial and environmental safety at Kumtor and review the legality of its use of land on the nature reserve. Most of the preliminary checks were supposed to be completed within 10 days.
At a public hearing in Bishkek on 15 February, Deputy Prime Minister Joomart Otorbaev said the mining sector has been at a standstill for several years owing to lack of transparency and corruption and that the goverment is determined to change this situation, according to Kanazarov, the government spokesman.
However, some observers are critical of such initiatives.
Kutmanova said that 15 commissions have examined various aspects of the mine but their work has been “useless” because accurate data was not provided.
Meanwhile, people living nearby are still complaining about the slow response to their grievances.
“We local people are not told anything, we are not aware of what’s going on,” Duysheva said. In 2005, 29 local people sued Kumtor Operating Co. over the 1998 spill, she said, but the lawsuit has not been settled.
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