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Teething Pains in Sochi, A Costly Mining Dispute in Kyrgyzstan

Plus, foreign investors lose their taste for Mongolia and Brussels loses patience with Kyiv.

by Piers Lawson, Ioana Caloianu, Sarah Fluck, and Aliona Kachkan 6 February 2014

1. Ready or not, Sochi, here come the Olympics 


As the Sochi Games unofficially get under way in Russia today, non-sporting issues connected with the Olympics make the headlines.


The BBC reports that the U.S. government has urged international carriers flying direct to Russia to beware of explosives hidden in toothpaste tubes that may have been smuggled onto planes.


The Sochi International Airport. Photo by Stefan Krasowski/flick.


A U.S. Department of Homeland Security statement said that while it has no specific evidence of a threat, “out of an abundance of caution” it "regularly shares relevant information with domestic and international partners," according to the news agency, which also reports that the United States has deployed two warships in the Black Sea in the event of a security breach during the games.


Euronews meanwhile concentrates on accommodation problems for visiting journalists and tourists as they arrive at the Olympic village ahead of the grand opening of the games on Friday. It says competitors and foreign visitors witnessed workmen still applying finishing touches to hotels, while The Washington Post earlier this week chronicled problems with hotels including no or unsafe water, stray dogs in the rooms, no heating, and broken elevators.


The authorities – who have spent $51 billion on the Olympics in the hope of turning the Black Sea summer resort into an annual tourism destination - say the bulk of the work is complete apart from a few teething problems, according to Euronews.


Radio Free Europe for its part concentrates on unhappiness among some athletes at Sochi over Russia's anti-gay laws.


It says “a small but determined” group of participants hope to show their solidarity with “Russia's embattled lesbian, gay, bisexual, and transgender (LGBT) community” during the Olympics, even though there is continuing uncertainty over exactly what forms of protest will be tolerated in Sochi. This week, a UN committee urged the repeal of Russia’s law against the airing of “homosexual propaganda,” saying it “encourages discrimination and even violence,” The Washington Post reports.


2. Ownership tussles continue to plague major mine in Kyrgyzstan


Uncertainty over who owns Kyrgyzstan's largest foreign-run gold mine has resulted in $80 million worth of losses for the state budget, Prime Minister Jantoro Satybaldiev said this week, Business News Europe reports.


Jantoro Satybaldiev
Leaders of frequent protests near the mine, in the northern Issyk-Kul province, demand its nationalization, saying Canadian operator Centerra pays too little in taxes. Last year the government of Kyrgyzstan and Centerra renegotiated terms that would have split ownership 50-50, but the deal was rejected by parliament in October, with some lawmakers demanding a 67 percent share for the government.


The government is still considering a proposal to give the state a larger share in the economically vital Kumtor mine, BNE reports.


But Satybaldiev warned a parliamentary session that nationalizing Kumtor would result in even steeper losses, BNE reports, citing local media. "We can't choose nationalization, because we plan to increase wages and pensions of citizens. Budget revenues are important for us. How many schools and hospitals we could build with these means?” he said.


The deal now on the table, drafted in December, would see the government mining company “take a 50 percent interest in a joint venture established to take over ownership of Kumtor,” BNE writes. “In exchange, Bishkek would hand over its 32.7 percent equity stake in Centerra, according to a December 24 statement from the Canadian company” – terms not unlike the ones already rejected by parliament, BNE points out.


To break the impasse, the government has set up a reconciliation commission to include legislators, Radio Free Europe reports. While the government is still reportedly eyeing a 67 percent share, Centerra has indicated that it would like to keep at least 50 percent, according to RFE.


In 2011 the Kumtor mine accounted for more than 10 percent of the country's GDP, the BBC reported in November. It is also Kyrgyzstan's biggest employer, with more than 3,000 people working there, most of them Kyrgyzstanis.


President Almazbek Atambaev told the BBC’s Kyrgyz service at the time that the mine may need to be nationalized.


"Even if it is very hard and harmful for Kyrgyzstan, maybe, for the sake of pacifying people, we might take a harmful action ... Like nationalization," he said.


3. Mongolia’s mineral wealth loses its luster for foreign investors


Some of Mongolia’s biggest foreign investors “want out,” Bloomberg reports.


Continuing financial discrepancies in the books of Golomt Bank, one of Mongolia's biggest lenders, are one of the main reasons for the planned exodus, according to the news agency.


Credit Suisse and Abu Dhabi's sovereign wealth fund invested in Golomt in the past few years, hoping to take advantage of Mongolia’s $1.3 trillion in mineral wealth, Bloomberg reports. But those investment hopes have soured amid claims that “one of Golomt's owners arranged loans he did not report, hid defaults for years and, as the bank's board called for probes, oversaw the destruction of financial records.” 


What has happened at Golomt helps explain how Mongolia’s shine is fading for potential investors, Bloomberg says, which notes that the country was one of the world's three fastest-growing economies in 2011 and 2012, with gross domestic product expanding by as much as 17.5 percent.


Yet foreign direct investment, after peaking in 2011 and 2012, fell by almost half last year. In the past five years, four of Mongolia's top 10 banks have folded or merged to avoid bankruptcy, Bloomberg says.


The Abu Dhabi Investment Council (ADIC), which lent Golomt $25 million in 2010, is looking for the exit sign after 15 months, Reuters reports. Citing a source and documents, the news agency says, “Auditors identified serious management failings.”


The ADIC and Golomt disagree over whether the sovereign investor can redeem its five-year loan before maturity, a Reuters source says, and the matter has gone to confidential arbitration proceedings in London.


Golomt has three other foreign investors, Reuters says, including Credit Suisse, which lent the bank $10 million in 2007, Swiss-Mo Investment Ag, which has a 10 percent stake in the bank, and Dutch trading firm Trafigura, which has a 5 percent stake.


The Mongolian banking authorities have not commented on the latest allegations, Reuters says. 


4. EU official says Ukraine’s pols too complacent about crisis


The EU’s foreign policy chief, Catherine Ashton, has criticized what she described as “a lack of urgency” among Ukraine’s politicians over the country’s political crisis, Euronews reports.


Ashton, who met with President Viktor Yanukovych in Kyiv yesterday, said officials were discussing an economic package for Ukraine, although the country would not get “large dollops of money,” according to Euronews.


“Although there is a sense of violence decreasing, there is still great concern about the situation on the ground and great concern to see that those who have committed violence are brought to justice and a great desire to see some kind of transparent and independent process to achieve that,” Ashton said, according to Euronews.


Her visit comes as the Ukrainian currency, the hryvnia has fallen to a five-year low against the dollar, the news agency points out.


Meanwhile, Ashton said “a lot more work” needs to be done to resolve the confrontation in Ukraine between the government and those protesting against it, Radio Free Europe reports.


Ashton said Brussels is ready to provide Ukraine with a mix of technical and economic support but would expect to see political and economic reforms, according to RFE.


Earlier this week, EU Commission President Jose Manuel Barroso said the EU is the “biggest international donor to Ukraine,” handing 3.3 billion euros in grants and 10.5 billion in loans to Ukraine since its independence, EurActiv reports. Still, he reiterated earlier vows not to get into a “bidding competition” – in an allusion to Russia’s $15 billion loan to Ukraine in December – to secure Ukraine’s signature on a free-trade and political association agreement.


Guy Verhofstadt, a member of the European Parliament from Belgium, has proposed sanctions against Ukraine, including a Europe-wide travel ban and asset freeze for government officials.


U.S. Assistant Secretary of State for European and Eurasian Affairs Victoria Nuland is due in Kyiv today to meet the president and opposition, Interfax-Ukraine reports.


5. Official: No support for rumors of nefarious Belarusian link to U.S. health care site


The U.S. government is rebutting allegations from conservative news sources that the software it uses for its health care program could contain malware owing to links with developers from Belarus.


Citing anonymous sources, the Washington Free Beacon reported earlier this week that intelligence sources were concerned about security because “developers linked to the Belarusian government helped produce the [health-care] website.” 


It said the revelations have led to renewed concern that private data posted by millions of Americans could be compromised.


But a security official at the White House said investigators had “found no indications that any software was developed in Belarus," Reuters reports. Caitlin Hayden, a spokeswoman for Obama's National Security Council, acknowledged that an intelligence agency “had issued, then retracted” an alert about Belarusian involvement in developing the website, according to the news agency.


Republicans argue that the website is vulnerable to hackers four months after its roll-out on 1 October was beset by problems.


Reuters says the rumors of a Belarusian connection started after Valery Tsepkalo, head of the Belarusian government-backed High-Technology Park, said in a June interview that his company was involved in the development of the website, which includes information on millions of users and providers of health insurance.


“We are being paid to help Obama with the health care reform,” Tsepkalo told a Russian broadcaster, according to Reuters.


The latest allegations come weeks after a U.S. cyber security firm released details it said showed that the Russian government spied on companies and government agencies in the United States, Europe, and Asia in 2013, mostly for economic gains.

Piers Lawson is a TOL contributing editor. Ioana Caloianu is a TOL editorial assistant. Sarah Fluck and Aliona Kachkan are TOL editorial interns.
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