The first MINEX Kyrgyzstan mining forum has taken place in Bishkek, and featured representatives of the government, the business community and international organisations. As the participants sought constructive dialogue and networking opportunities, KP was there to witness the event.
The MINEX (Mining and Exploration) international project is a platform for commercial meetings, knowledge transfer, demonstrations of the most advanced mining technologies, and, of course, the discussion of challenges and opportunities for the development of the mining sector, which is regarded as one of the most lucrative and attractive for investors. The forum was founded in Russia in 2005, and besides Russia tours around different cities in Europe and Asia. In neighbouring Kazakhstan, it takes place on an annual basis every spring, with the participation of a range of Kazakh and international companies. It was in Astana that Kyrgyz specialists first encountered this new form of engagement, which attracted such interest that they raised the question of holding a similar mining event in Bishkek. After long negotiation and preparation, MINEX has begun its work in Kyrgyzstan, gathering around 200 participants together for the one-day event.
A FOUNT OF UNDERGROUND RICHES
Mining represents around 50% of the output of industrial sector in Kyrgyzstan. It accounts for 45% of the country’s exports, and companies working in this sector, annually contribute around KGS 12 billion to the state budget and employ around 18,000 people. In the country, around 200 sites have been explored or are in the process of being explored, and yet for all that, the country’s mineral resources have still not fully been appreciated. Few projects get off the ground. Why is investment in Kyrgyzstan so stalled, and why are international companies operating in the country faced with such unpredictable and unpleasant situations?
The government officials participating in the forum spoke with one voice of the successes the state had experienced in improving the investment climate and the conditions for investors.
The Deputy Chair of the State Committee on Industry, Energy and Subsoil Use, Alymbek Orozbekov identified the creation of a favourable investment climate as a key focus for the cabinet.
“Mining accounts for around 80% of all inbound investment. This is only possible thanks to the work of the government. Cardinal reforms are being undertaking, administrative barriers torn down, liberalisation of the tax regimes pushed through, and equal conditions for local and international investors ensured,” he emphasised.
However, Umbetaly Kydyraliyev, a member of the Kyrgyzstan Parliamentary Committee on Fuel and Energy considers it unthinkable to add to the state budget prior to any increases in investment in the mining sector. He reminded the forum that, in May, the government has passed the Mineral Resources Act, which balanced the interests of the state, investors and local communities. Changes had been made to the civil, land and tax codes of the country. At the same time, the deputy recognised that it is impossible to ignore the challenges faced in developing the sector and improving investment attractiveness. The main problem for subsoil developers remains conflict with local communities, which sometimes negates all the efforts of the Kyrgyz authorities and discourages potential investors from investing in the economy of Kyrgyzstan.
According to Ulan Ryskulov, for Chair of the State Committee, investors need not only political, but also legislative stability.
DIALOGUE AS THE KEY TO UNDERSTANDING
Aigerim Omokeyeva, General Director of Adji-Service, which provides a range of drilling and blasting services, and whose company was the main sponsor of the event, noted that conflict situations on the ground have the effect of deterring investors.
“On the ground, people have stopped trusting investors, which in past times were engaged in massive corruption and acted in the interests of specific persons. It is important to regain this lost trust. Local inhabitants should be offered employment, so that they are not kept on the sidelines, but are full participants in the work being undertaken,” she announced. “In Kyrgyzstan, there are many contradictions in the process of securing permits. It is essential that the overlapping functions of the various ministries and state agencies be substantially reduced, and that the appropriate conditions for honest investors, who are ready to fulfil all their environmental and health and safety obligations, be created. The state should support such companies to the maximum.”
The problem of conflict between mining companies and the local community corroding the business image of the country is an issue not only in Kyrgyzstan, but in many countries, asserted Ulanbek Ryskulov, former Chair of the State Committee on Industry, Energy and Subsoil Use. While still head of the committee, he was one of those responsible for bringing MINEX Forum to Kyrgyzstan.
“The root of the problem lies in a lack of information and insufficient outreach to the local population,” he commented to Komsomolskaya Pravda. “This is where all the fear and concern about ecological problems comes from. In 2010-11, the sector was practically stagnant. Investors were shut down, roads were closed. We changed this situation by opening up a dialogue between the parties and by working actively on the ground. It was the same principle at work with licences. There were accusations that the system wasn’t transparent, and that the natural wealth of the country was being sold under the counter. Then, after legislative changes were made, open auctions were conducted, so that everyone could see how companies were acquiring their licences, and contributing to the state budget.
“You don’t have to dive down deep to find an answer to the main question, namely that of how to attract investment. Investors need not only political, but legislative stability,” says Ulan Duulatovich. “They need clear and comprehensible laws, which are in play from the moment of his entry into the market, and are not going to changes over the years. Effective leaders know that you don’t change your horse in the middle of a crossing.
The geologist’s task is to unite the central block with the southwestern. If they are successful, exploratory work will have covered one kilometre in length, by half a kilometre in breadth. Geological exploration is even taking place in the northeastern and Sary-Tor blocks.
FACTS VERSUS RUMOURS
The investment climate is negatively affected by artificial obstacles for companies that have begun working in the country, or have been working in the country for many years. On the sidelines of the forum, for example, there was considerable discussion about information that appeared in the media about the alleged intention of Centerra to sell its stake in the largest investment project, the Kumtor Gold Mine to the Chinese.
“These are nothing more than rumours as is the assumption that the Canadian company having creamed off the best of the site is going to close the mine and abandon Kyrgyzstan,” Ishimbai Chunuyev, President of the Kyrgyz Mining Association told KP. These sorts of decisions cannot be taken without the agreement of the shareholders among is the Kyrgyz side whose shareholding in the project is 26.6%. In line with the agreements reached, the investors continues to fulfil all their obligations. Funds have been accumulating in a special account intended for the implementation of a plan to reclaim the site after the closure of the mine. $7 million USD has been transferred for the purchase of medical equipment for a cancer centre. The company has spent $18 million USD on further exploration of the flanks of the Komorovsky field. This implies that work continues to be undertaken. So what sort of departure on Centerra’s part are you talking about?
There are no doubts about the gold miner’s intentions. Tyntchtyk Mokeyev, Deputy Chief Engineer of Kumtor Gold Company, speaking before the participants of the forum with his presentation told the story of the discovery of the largest deposits in Central Asia, and of the challenges of working in difficult mountainous terrain, and of ensuring environmental and industrial safety. In his speech, the speaker focused on geological exploration, which after a long pause the company has resumed in four areas: Central, South-West, North-East and Sary-tor.
“The fact that the management of Centerra have decided to resume and to finance exploration four years later, indicates their intention to extend the life of the mine and keep it in operation in spite of all the rumours,” said Tynchtyk Mokeyev. “The two-year project is aimed not at confirming existing reserves, but at uncovering new ones. There are real opportunities here. Moreover, the possibility of developing separate fields using the underground method is currently being considered, and specialists are conducting technical and economic analysis and are studying the geotechnical conditions.”
Exploration at Kumtor is carried out around the clock, uninterrupted even by the coldest weather. Kumtor residents have still not got used to these kinds of difficulties. It is even more difficult to get used to provocations and the political instability that hinders productive work. Whether you want to or not, you have to react to the situation and find possible solutions. On 1 November, Centerra and the Prime Minister, Mukhammedkalyi Abylgaziev, who replaced the Sapar Isakov this spring, once again extended the deadline for fulfilling the terms for the Strategic Agreement for the Protection of the Environment and the Promotion of Investment for a further three months. In all likelihood, the expectations of experts that the negotiation process would be done by the new year have not been met. But the experts are still hoping for a positive outcome. “It’s in our interests to reach a consensus with the project operator to ensure the stable operation of the enterprise,” they agree.
Tynchtyk Mokeyev, Deputy Chief Engineer at KGC told the forum that there are, in his opinion, good exploration prospects remaining.
It is unreasonable and short-sighted to hope that Kumtor will continue to inflate the national budget and pull forward the economy of Kyrgyzstan, at least because the underground reserves of the mine are running out. But even the fact that no other facility can compete with the largest gold deposit in terms of its raw materials reserves does not reduce the potential of the national mining industry. Small mineral deposits for some reason have failed to attract much state attention. And more’s the pity. These reserves have the potential to give the economy a boost, according to Ishimbai Chunuev, one of the moderators and speakers at the forum.
“The year 2018 was declared the year of regional development by the President,” the expert recalls, “but, as you know, the full development of the different regions is impossible without attracting further investment. Near the villages, in remote areas, there are numerous mini-fields that can be developed. But in order to interest potential investors, it is necessary to legalize small mining business and to revise our current approaches. We should simplify access to licenses, offer tax incentives, and abandon full exploration and surveying of useful mineral reserves.”
“And, of course, the main task of the state is to create favourable conditions for large foreign investors.”
“And to attract them, we must speak in a clear legislative language, not constantly changing laws, and develop and adopt a mining code that will not contradict other legislation. If we do that, the mining industry will get a second wind,” said the expert in conclusion.
Ishimbai Chunuyev, President of the Kyrgyz Mining Association proposes to legalize small-scale mining to give impetus to the development of the regions.
PREDICTABLY UNPREDICTABLE KYRGYZSTAN
Does the state understand all this? According to third-party experts, it was not ready for a serious conversation at this industry event.
“Sometimes business wants to run much faster than the state can keep up. Lagging behind in its way of thinking and its models, and a lack of symbiosis between business and the regulator: these are problems characteristic of many countries. We highlighted the issues faced by investors in Kyrgyzstan, showed that in addition to the problems there are opportunities for business development. It was sad to see the absence of the top people from the government side, which confirms the unpredictability of investment policy, the fear of taking responsibility, and the unwillingness of the authorities to speak openly about the problems and try to solve them. In order for mining companies to enter the country, they must have a clear idea of what will happen over the next ten years. And if we do not know what will happen tomorrow, what big investments can we talk about? The Head of the Organising Committee of the MINEX Forum, Arthur Polyakov, gave his assessment of the long-term risks, lack of knowledge of the subsoil, and the complex perceptions of the mining industry by local communities: these are the main problems working against the interests of the Kyrgyz state.
Let’s finish, however, on the same positive note with which the first Mining and Geological Forum in Bishkek started.
“I sincerely hope that it will give impetus to the expansion of dialogue and joint efforts to solve the problems hampering the development of the mining industry, and will become a tool to inform the global business and investment audience about the new opportunities opening up in the mining industry of Kyrgyzstan, said the Head of the Organizing Committee of the Forum in his opening speech.
It is impossible to predict how the event will be perceived further afield, and whether it will serve as an impetus for further action.