Kyrgyz parliament votes to renegotiate Kumtor gold mine contract

Bankwatch Mail | March 7, 2013

In a landmark ruling in late February, the Kyrgyz parliament voted to renegotiate a contract signed in 2009 with the Canadian mining firm Centerra Gold Inc. for the exploitation of the Kumtor gold mine, near the border with China. The 2009 deal is the most recent form of the contract between the Kyrgyz state and Centerra that has had a presence in the central Asian republic since the late nineties.

This article is from Issue 55 of our quarterly newsletter Bankwatch Mail

Download as pdf

Go to overview page

Browse all articles on the right

Subscribe for email delivery

Among a range of issues, Kyrgyz parliamentarians referred to serious environmental concerns underpinning their decision. This can be considered a success for local activists that have for years campaigned against the negative impacts of Centerra’s mining activities.

The day before the vote the Kyrgyz parliament heard from a State Commission appointed to undertake a comprehensive investigation into the risks and benefits of the Canadian firm’s gold mining operations in Kyrgyzstan. This in fact was the third official investigation since 2011.

The Kumtor Gold Mine

In the environmental part of the report, the State Commission argues that mining by Centerra has caused irreparable damage to nearby glaciers, including destroying the largest glacier in the area, Davidov. Results from German and Slovene laboratories show that mining activities have led to the pollution of the Kumtor, Taragay and Naryn river basins and will continue to do so if no measures are taken. Currently, there is a substantial risk that the dam on Lake Petrov may break because of pressure from mining operations, with the potential to result in a disastrous spill of tailings downstream.

The reassessment of the terms on which Centerra can mine in the future is good news in other ways too. New open pit mines planned by Centerra would negatively affect more glaciers in the region. In addition, the company is at the moment exploring territories which intersect the territory of the Sarychat-Ertash nature reserve, permission to which was approved in 2009 and revoked in July 2012 by the Government. A reassessment of the contract might also make Centerra more inclined to abide by decisions that limit its activities.

In addition to environmental harm, the State Commission informed Kyrgyz legislators that the deal with Centerra had failed to provide adequate benefits for Kyrgyzstan – the Kumtor mine is the Centerra’s main profit-generating project, accounting for 92 percent of the Canadian company’s income in 2011. The Commission advised Kyrgyz authorities to renegotiate the contract, investigate the conditions under which it was signed, and adopt measures to avoid similar mistakes in the future.

Centerra has indeed enjoyed surprisingly favourable terms: a generous tax regime, fixed environmental charges (USD 310 000 per year), an extended allowance to operate the open-pit mine until 2026 and very low payments for future recultivation works after the mine’s closure.

These come on top of other beneficial factors such as a high gold component in the ore (on average 2.9 g per ton and more), relatively low spending on gold production (USD 502 per ounce) and significant proven and probable remaining gold reserves (approximately 900 tonnes of gold, compared to 260 tonnes produced in the period 1997-2011).

The parliament’s ruling should serve as a wake-up call, both for all Kyrgyz authorities with any influence on the direction of the country’s development, and to the international financiers of Centerra – including the EBRD, which in 2010 extended a revolving debt facility to the company.

The voices of citizens and civil society groups, who have for years warned about Centerra’s Kyrgyz operations, should not be pushed to the sidelines by ‘sustainable development’ claims. On the contrary, local voices should be heard and be permitted a say in the decision-making over such investments from the outset.