Kyrgyzstan and Multinational Gold Mining: A Sheep in the Land of Wolves? Author: George Wright,  Associate Professor (Retired), University of Washington

Abstract: This paper will examine the Kyrgyz Republic’s share of revenue from gold mining. After it started production in 1994, the Kumtor gold mine was critical to a new government searching for sources of revenue and export earnings. But almost since its inception the mine has generated controversy - environmental disasters, tales of official corruption, and suspicion that a global Canadian mining company, Cameco, was taking advantage of a small nation with an inexperienced government. A 2004 restructuring of the venture was the source of considerable conflict between the then President Akiev and the legislature. The new agreement created a new Canadian corporation, Centerra Gold Inc, which added a smaller Mongolian mine to assets but reduced Kyrgyz ownership to a 16 percent share. Moreover, the negotiated tax formula was soon denounced as inequitable as the price of gold soared. Relations with the foreign corporation again came to a head in 2007 when President Bakiev insisted on renegotiating the lease agreement and his political opponents in the Jorgoku Kenesh voted to nationalize mining. The result was a new (but not yet ratified) agreement that increases the Kyrgyz share of ownership up to 29% and substantially both increases and simplifies taxation.

Research Questions: The paper will exam the “fairness” of the division of revenue by assuming that improvements over time in the Kyrgyz share are a measure of what a mining company would have been willing to grant but avoided through lopsided bargaining power. Three specific questions are posed:  1) How has Kyrgyzstan’s share of gold revenue changed over time?   2) What difference would it make if the recently negotiated tax formula had been retroactively applied?  3) How does the Kyrgyz republic’s agreements compare with other mining concessions granted by developing nations? 

Relevance: The issue is relevant beyond the confines of Central Asia since conflicts over mining rights, division of profits and environmental costs have been of growing global concern, particularly the environmental costs imposed on poor nations.  Less attention has been paid to the division of mining profits partly because financial data is rarely published by either company or host government.

Data Sources: The Blair government sponsored an international effort to improve transparency by publishing accurate revenue data (the voluntary Extractive Industries Transparency Initiative).  Since the Kyrgyz Republic was one of the first nations to join the program and Centerra, as a publicly traded corporation, is required to furnish information specifically about the Komtur project, we have unusually reliable data with which to assess the division of gains.   Some international comparison data are available from a survey published in 2000 by the United Nations Trade and Development Organization (UNCTAD).