Kyrgyzstan: The struggles at Kumtor take a bizarre new twist

Published by MAC on 2016-01-07
Source: Guardian, RFL/RE, Globe & Mail

Tensions flare over environmental threat of Canadian gold mine in Kyrgyzstan

In the Tian Shan mountains, an ambitious ‘ice mining’ project has led to protests among local communities, with claims from activists of threats and violence

Claire Provost and Ryskeldi Satke in Bishkek

Guardian

5 January 2016

The remote Issyk Kul province in eastern Kyrgyzstan, on the border with China, is home to some of the most stunning vistas of the rugged Tian Shan mountain range that cuts through much of Central Asia. Mountain goats and endangered snow leopards roam the rocky slopes, while rare species of dandelion and wild tulip bloom in alpine meadows.

But far from being a serene backdrop to peaceful village life, the Tian Shan (Mandarin for “celestial mountains”) in this part of Kyrgyzstan are at the centre of one of the region’s most ambitious and controversial mining projects and a long-running and increasingly tense conflict with communities nearby.

High up in the mountains, the Canadian company Centerra Gold is digging for gold at Kumtor, the biggest open-pit mine in Central Asia. It’s a process that requires controversial “ice mining” to dig into glaciers and release the precious metal in the rock below.

Fears about the environmental impact of the mine and anger over who is benefiting have sparked protests over the past five years targeting Kumtor. But opposing the mine is dangerous, according to local activists who say they have been subject to threats, harassment and violence.

“I was beaten to make sure I would keep quiet,” says Rustam Atabayev*, a young man who recently moved his family to a different town – further away from the mine – in fear for their safety. Atabayev says he was lured into a stranger’s home last year and badly beaten by other villagers for joining in protests against Kumtor.

“They demanded that I stop supporting anti-mining protests and activism,” said Atabayev, who says controversy around the mine has pitted neighbour against neighbour. His assailants videotaped his beating on their mobile phones, he added. “They beat me for hours and I was at home for days recovering.”

Kyrgyzstan, the only parliamentary democracy in Central Asia, is often seen as more open and democratic than its neighbours. But the country’s human rights record remains poor with frequent and chilling reports of torture and ill-treatment of prisoners. In December 2015, a Human Rights Watch researcher was refused entry and told that she was “banned” from the country, prompting the organisation to warn that the state’s “quest to prevent human rights scrutiny sends a dangerous signal about its intentions”.

About 350km south-east of the capital Bishkek, the Kumtor gold mine is one of the main drivers of Kyrgyzstan’s economy. As the country’s largest foreign investment and biggest private employer, the mine accounted for as much as 23% of Kyrgyzstan’s total industrial output and 7.4% of GDP in 2014.

It also has powerful partners including the public, London-based European Bank for Reconstruction and Development (EBRD) – which has provided Centerra Gold with millions of dollars in financing – and the Kyrgyzstan government, which owns a third of Centerra’s shares through a state company called Kyrgyzaltyn.

Atabayev says the gold mine has divided villagers living near the project, with some benefiting from it more than others. “There are certainly good things at Kumtor such as good salaries [for those who work there],” he says. “But there are only 3,000 people working at the gold mine while we have a population of [nearly] 6 million in Kyrgyzstan.”

In Issyk Kul, tensions flared in 2013 into weeks of unrest starting with a blockade of the road leading to the mine and culminating in the occupation of Kumtor’s power station, temporarily cutting electricity to the project. Clashes with police and security forces left dozens wounded and prompted a government “state of emergency” and the imposition of a curfew in the area for 10 days.

Following the protests, dozens of villagers were arrested. Five are understood to have been imprisoned, including two men convicted of trying to extort millions of dollars from company officials (charges they denied). Another five villagers are understood to be still on trial, charged with disturbing the peace.

Marat Karabayev*, 31, says more protests are “certainly going to take place”.

“There are too many problems in the villages. Social, economic and environmental issues combined,” says Karabayev, whose sibling is among the imprisoned protesters. “The government used force against us. Since then, we are going into a third year and things are getting worse.”

Kumtor’s remote location – combined with fear of retaliation for opposing the mine – makes the human rights situation around it hard to monitor.

Sukhgerel Dugersuren, executive director of Oyu Tolgoi Watch, a Mongolian NGO, says she was prevented from talking to local communities when she tried to visit the area in October.

“We were forced to leave Issyk Kul by state security, which had come to our hotel in double the number of our team and left us alone only after we promised to leave the town immediately,” says Dugersuren, who was travelling with the European environmental group Bankwatch and human rights activists from the Irish NGO Front Line Defenders.

“We also have activists [in Mongolia] jailed or charged with trumped up cases … or just beaten, harassed by local forces,” she says.

Atabayev said his main concern is how the Kumtor mine is affecting already fragile glaciers on the Tian Shan mountains.

The mine’s tailings pond sits 5km below Petrov Lake, which is fed by glaciers that melt naturally as the seasons change. But mining upstream, combined with the effects of global warming, could tip the balance and cause the already rapidly expanding lake to flood.

If this happens, Atabayev fears it could wipe out at least part of the tailings pond, spilling cyanide and other chemicals into the Kumtor river, which flows into a water system that millions of people depend on for irrigation, fishing and household use.

“As a large opencast mine, it is inevitable Kumtor has impacts on the local natural environment,” the company acknowledges on its website. It says it is “committed to understanding our impacts” and that “in response to concerns raised by some stakeholders”, it no longer deposits waste rock directly on glaciers.

But controversial practices like ice mining are critical to its operations. “Should Kumtor be prevented from continuing its practice of mining ice, the entire [project] … would be at risk, leading to an early closure of the operation,” Centerra Gold warned in a 2015 technical report.

John Pearson, vice-president of investor relations at Centerra Gold, says the company is carefully monitoring Petrov Lake to “mitigate the risk of an outburst” and that it has contributed 1% of its gross revenue to a regional development fund since 2009 – making a total of $46m (£31m) so far.

The company, Pearson adds, has “a number of programmes aimed at the integrated development of the Issyk Kul province … [to] reduce the impact when the mine closes on the local communities”.

“Kumtor and Centerra do not condone any sort of violence or threats and/or harassment to groups or individuals. People have the right to organise and participate in peaceful legal protests,” he says.

The EBRD said its staff visit Kumtor “at least annually” but that “given the remote location of the mine, it is not always possible to visit local communities”.

The development bank said it had reviewed reports from “independent environmental and social consultants [who] have also audited the mine operation … on behalf of various bodies, including the mine itself, the Bank and the Kyrgyz government”. It said “social and community issues have featured in some of these studies … [but] no major issues have been identified”.

Kyrgyzaltyn did not respond to requests for comment.

Based on Centerra’s estimates, operations at Kumtor will cease in 2026 – fewer than 10 years from now. It says it is working on a plan to close the mine safely, but Atabayev is fearful that the area will be left with nothing but environmental catastrophe when the company pulls out.

“Once they extract all the gold at Kumtor, they have to close the project … This is what worries me,” he says. “What’s going to happen after? What will our descendants have?”

* Names have been changed to protect identities

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It's Not Just About The Horse Penis, It's About The Gold Mine

Pete Baumgartner

RFE/RL's Kyrgyz Service

5 January 2016

Kyrgyz were variously enraged and bemused after a British expat working at a foreign-owned gold mine jokingly compared a beloved local equine delicacy to a "horses penis" (sic).

But the Facebook jest by Michael McFeat -- a welding superintendent at the Kumtor Gold Company in Kyrgyzstan -- could scarcely have come at a worse time for his Canadian bosses, whose relations with Bishkek are at an all-time low.

The mine's owners have recently been locked in a fierce battle with the Kyrgyz government over fresh mining permits and a redivision of profits from an enterprise that generates around 10 percent of Kyrgyzstan's GDP.

McFeat is already paying a price for the perceived slur. He was detained at Bishkek's Manas Airport early on January 3 for "document irregularities" and sent to the regional capital, Karakol, before being expelled two days later, RFE/RL's Kyrgyz Service confirmed, quoting the border service.

Initial reports said he faced racially motivated hate charges that could have resulted in up to a five-year jail sentence.

Issyk-Kul police chief Emilbek Saliev told RFE/RL's Kyrgyz Service that dozens of Kyrgyz employees at the Kumtor gold mine filed a collective complaint about McFeat's comments on January 2.

They also staged a brief strike at the mine the next day to protest the failure by Kumtor management to punish McFeat for his comment, which he deleted from his Facebook page before issuing an apology.

Many in Kyrgyzstan were outraged that McFeat would dare to compare chuchuk -- a sausage prized among the former nomadic Kyrgyz, who consider the horse a noble animal that is only eaten on special occasions -- to horse genitalia.

Prominent Kyrgyz historian and publicist Kyias Moldokasymov wrote on Facebook: "The guy who mocked chuchuk must definitely be punished! And don't you think that those who are destroying Kyrgyz glaciers and creating irreparable damage to our environment while taking natural wealth out of the country are also laughing at us and asking, 'What can you do about it?' must also be punished?"

Samat Dolotbakov, a director at the Emark construction company and the CEO and founder of the magazine #ONE, wrote on Facebook: "Dear friends, I saw in [McFeat's] post written in English that he laughed [and made fun] of our nation.... I can't leave that without reacting. It is not his first day in Kyrgyzstan. He works here, makes his money. I want him and other foreign guests to learn their lesson. Because I will never insult another nation while visiting it, I hope you wouldn't either..."

But some Kyrgyz suggested the real outrage was the authorities' response to the Facebook quip, which merely appeared crafted -- however crudely -- to get a laugh out of McFeat's friends and family in Scotland.

"Horsesausagestan -- a country without leadership, where the emotions of three-year-old hooligans rule the day," tweeted Edil Baisalov, a former parliament member and government official.

Bektour Iskender, founder of the kloop.kg website, asked: "OK, to call chuchuk a horse's penis is, of course, not the smartest thing. But please tell me why for doing this someone should be taken to the police station? What law is violated when somebody refers to horse sausage like that? I would like to now hear from the most competent lawyers."

Aliya Suranova, a well-known Kyrgyz blogger, said the strong reaction to McFeat's comment is a symptom of something deeper in society.

"What happened is that this story is a very vivid reflection of us [and our society] at the current time. It is the result of our anger toward 'strangers, foreign agents, State Department spies,' etc. We have so much hatred and anger toward all of them that we are ready to go out and start beating anyone who is not Kyrgyz by blood," she wrote on Facebook.

Whether an overreaction or not, McFeat's comment has certainly resulted in some bad PR for Centerra, the Canadian-based company that owns the Kumtor mine -- which is Central Asia's largest Western-managed gold-deposit project.

Centerra has been especially image-conscious since 1998, when a Kumtor truck carrying cyanide overturned while driving along the curvy mountain road that leads up to the mine. The spill poisoned the Barskoon River that supplies water to many of the villages along the southern shore of the lake at Issyk-Kul. Hundreds of people became sick and several died; pregnant women were advised to have abortions and the government evacuated many of the downstream villages.

After that tragedy, Kumtor officials made infrastructure investments in the region and in small communities near the mine, partly, no doubt, in an effort to generate positive PR.

In 2014, government officials heeded calls by Kyrgyz nationalists and told Kumtor to revise its agreement with the state to give the government a bigger share of the mine and, therefore, its profits.

Under a veiled government threat to nationalize the gold mine, negotiations between the two sides began nearly two years ago. At issue was a government proposal to exchange its 32.7-percent stake in Centerra for 50 percent of a joint venture that would give the state control over the gold mine. Those talks broke down on December 22, with the government citing its "national interest" in walking away from the table, casting doubt on the sides' ability to agree on mining permits that were running out fast.

Kyrgyz officials said afterward they will propose a new deal that would give Kyrgyzstan "an increase in financial flows."

The government has also accused Centerra -- which is also Kyrgyzstan's biggest taxpayer -- of lowballing its estimate of the gold reserves at the Kumtor site.

Centerra officials have argued that Kyrgyzstan is bound by the current agreement and that any dispute over the current contract should be decided by an international court.

Prospects of reaching an agreement have been complicated by a Canadian court's freezing of Bishkek's portion of Centerra stocks after international arbitrators ruled in favor of foreign investors.

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Mogul battles Kyrgyzstan in Ontario courts over Centerra Gold shares

Jeff Gray, Law Reporter

The Globe and Mail

15 November 2015

Valeri Belokon, a Latvian business mogul with interests in banking, newspapers and the English soccer team Blackpool FC, is locked in a legal battle with the government of the former Soviet republic of Kyrgyzstan – a battle that is set to partly play out in Toronto courtrooms.

Lawyers for Mr. Belokon, 55, who counts Prince Charles among his business partners, filed an action earlier this year in the Ontario Superior Court to try to seize shares in Toronto-based Centerra Gold Inc., which operates a massive gold mine in the mountains of Kyrgyzstan.

In September, an Ontario Superior Court judge issued a freeze order on Centerra shares and dividends worth $25-million owing to or held by a Kyrgyzstani state-owned company, pending the final outcome of Mr. Belokon’s case.

It is just one of a series of four court battles in Ontario in which Centerra is caught in the crossfire with various litigants who claim Kyrgyzstan owes them compensation and are seeking to get their hands on Centerra shares, which appear to be one of the former Soviet republic’s few assets outside its borders.

However, in each case, a key legal question that remains unanswered is whether courts in Ontario will deem those shares Kyrgyzstani government property, as they are owned indirectly by a state-owned company called Kyrgyzaltyn JSC.

Mr. Belokon’s trouble in Kyrgyzstan started in 2010, when an uprising swept president Kurmanbek Bakiyev from power. Mr. Belokon, said to be close to Mr. Bakiyev’s son Maxim, had purchased a bank in Bishkek in 2007, renaming it Manas Bank.

But after the April, 2010, revolution, the elder Mr. Bakiyev sought refuge in Belarus and his son was forced to flee to Britain. Newly installed Kyrgyzstani authorities ordered the seizure of many of the country’s banks, including Manas. They launched an investigation into alleged money laundering and other alleged improprieties. But Kyrgyzstani courts have previously rejected the allegations, and Mr. Belokon has not been convicted of any crime.

In 2011, Mr. Belokon, who denies the allegations of wrongdoing, demanded compensation for the bank seizure before an arbitration panel in Paris under the terms of an investment treaty signed by Latvia and Kyrgyzstan. In a ruling issued in October, 2014, the panel ordered Kyrgyzstan to pay him about $25-million in compensation, rejecting the money laundering allegations for lack of any evidence. Kyrgyzstan is appealing that ruling in Paris.

Earlier this year, Mr. Belokon filed a claim in Ontario Superior Court, seeking to freeze some of Centerra’s shares. Canadian lawyers acting for Kyrgyzstan tried to block Mr. Belokon’s move, filing court documents outlining Kyrgyzstan’s money laundering allegations. But in September, Ontario Superior Court Justice Wendy Matheson agreed to strike out an affidavit filed by a Kyrgyzstani official investigating the bank, calling it “irrelevant,” “clearly scandalous” and an attempt to “repackage” Kyrgyzstan’s failed defence in Paris.

For Centerra, this and the other similar tangled legal fights are another headache as it tries to renegotiate the ownership structure of its Kumtor gold mine in Kyrgyzstan, where the company has faced protests, allegations of environmental wrongdoing and threats of nationalization.

In July, a former Centerra chief executive officer, Len Homeniuk, was detained in Bulgaria at the behest of Kyrgyzstan, which accused him of corruption for transactions dating back to 2003. He alleged the arrest was nothing more than a pressure tactic, and Bulgaria later refused to extradite him, setting him free last month.

Centerra says it is eager to restart talks with Kyrgyzstan’s newly elected coalition government, which took power after a vote last month. Kyrgyzstan wants a larger share in the mine, its single largest taxpayer, and the two sides had previously tentatively agreed to a proposal that would see the mine owned by a joint venture that is half-owned by Kyrgyzstan.

But this restructuring plan would require Kyrgyzstan to hand over its current one-third share in the Toronto-listed company to Centerra, something made impossible by court orders freezing those shares.

“It’s a matter of discussion ... that we have with the Kyrgyz,” John Pearson, Centerra’s vice-president for investor relations, said in an interview. “That’s the complicating factor.”

It’s not Mr. Belokon’s only court battle. The Riga-based tycoon, whose Baltic International Bank counted the late Russian oligarch Boris Berezovsky among its clients, also recently announced he was filing litigation against his fellow co-owners of Blackpool FC.

Mr. Belokon, who holds a 20-per-cent stake in the soccer club, filed a claim in September alleging that co-owners Karl and Owen Oyston, a father and son, improperly transferred soccer club cash to their own companies. The allegations have not been proven.

Follow Jeff Gray on Twitter: @jeffreybgray