- - Sunday, July 8, 2012

BISHKEK, Kyrgyzstan — As the Kyrgyz government prepares to renegotiate its stake in the Kumtor gold mine, local analysts warn that opposition politicians are using the country’s biggest financial asset as a pawn in partisan rivalries.

Stock in Centerra Gold, the Toronto-based company that operates the Kumtor mine, plummeted in recent weeks as members of the Kyrgyz parliament called for its nationalization.

“Kumtor is an essential part of Kyrgyz economy,” said Orozbek Duysheyev, head of the Association of Miners and Geologists in Kyrgyzstan, in Bishkek. “Its workers get highest salary in the country — plus, Kyrgyzstan is its biggest shareholder. Why we must place obstacles in front of the work of this company?”

Last week, the Kyrgyz government voted down a bill to nationalize the mine. But it agreed to set up a committee to renegotiate its agreement with Centerra Gold, with a view to increasing its 33 percent stake and securing a share of mine’s output, which accounts for 12 percent of the country’s GDP — the largest share after international aid and remittances sent home by migrant workers.

The recent moves toward nationalization followed a report published in June that claimed the mine was causing environmental damage — accusations that Centerra has strongly denied.

“The allegations that have been made are quite unfounded,” said John Pearson, vice president of investor relations at Centerra Gold. “The operation has been audited and studied by independent groups and independent reports show that we meet and exceed all the Kyrgyz standards.”

Patriotism or power play

A state commission has been set up to review the environmental impact of Kumtor, an issue fraught with emotion in Kyrgyzstan.

In 1998, an accident involving a truck carrying chemicals to the mine released large amounts of cyanide into the Barskaun River, which environmental groups say resulted in hundreds of local people being hospitalized. Local media reported four deaths from cyanide poisoning.

“In many people’s minds, Kumtor represents foreigners coming in from outside and taking the Kyrgyz wealth for themselves and poisoning the Kyrgyz population at the same time,” said Nick Megoran, senior lecturer in human geography at Newcastle University in Britain who specializes in Kyrgyzstan.

Mr. Megoran added that with opposition politicians prompting the debate over Kumtor, their initiative to nationalize the mine might really be aimed at challenging the government — which took office in December — and winning support for themselves.

“What this opposition move is trying to do is to suggest that a truly patriotic government would be administrating control of the mine for the benefit of the people rather than foreigners,” he said.

And that position taps into the mindset of many Kyrgyz citizens.

“It would be great for Kyrgyzstan if we could nationalize this gold mine,” said Alykul Kenjeyev, a taxi driver in Bishkek. “It would bring a lot of money to the country’s budget. Today, it is Canadians who are getting most of the profit. I, as a citizen of Kyrgyzstan, regret very much that minerals in our mountainous country are making others rich, not us.”

Land deal

But analysts say that placing the mine’s operations under state control would leave it vulnerable to corruption and mismanagement.

“The Kyrgyz government has never run effective business so far,” said Mr. Duysheyev. “Of course there will be a problem with corruption [if it were] run by the government. It is hard to believe that the Kyrgyz government can run Kumtor effectively.”

On Thursday, local media reported that the government denounced an agreement made by an administration in 2010 to give 40,275 acres to Centerra Gold, an apparent show of force after being chided for its reluctance to nationalize the mine.

“It is politics,” said Mr. Duysheyev. “The government is trying to make compromises with the opposition groups …

“This mountainous land was given to Kumtor for geological exploration. It’s empty land used by some as a pasture during three months in summer. What if [Centerra] found gold there? Wouldn’t it bring more benefit to Kyrgyzstan by means of direct income from shares and creating new jobs?”

The results of the review into the government’s deal with Centerra Gold won’t be decided until November, but analysts say that uncertainty over the mine’s future will do little to encourage outside in investment in this impoverished Central Asian state.

“Kyrgyzstan has been unstable over the past two years and with these current debates raging, it would take a brave foreign investor to put money into the country at moment,” said Mr. Megoran.

Ruby Russell reported from Berlin.

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