EITI In the Kyrgyz Republic

The EITI in the Kyrgyz Republic

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The EITI in the Kyrgyz Republic: Navigating a Janus state in Mineral Resource Development?

Christopher J. Carter


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Table of Contents

Executive Summary ……................................................................................................3

Introduction .....................................................................................................................4

Context ..............................................................................................................................4

Theory of Economic Transition ...............................................................................4

Resources Curse and Dutch Disease ........................................................................6

Ethnic Conflict , Distrust and Corruption................................................................7

Governance ………...................................................................................................8

Law on EITI and Mineral Development ..................................................................9

Geological Survey ….......................................................................................................11

EITI Reports and Implementation ………..................................................................12

Observation, Analysis & Critiques………………........................................................12

Communication of EITI ……………………………..…………………………………..…………..15

Stakeholder Analysis .............................................................................................15

Government .................................................................................................16

Civil Society .................................................................................................16

Industry .…………...............................................................................………..17

Communities, Negotiations and Present Conflict …..….….................................…17

Conclusions and Policy Recommendations .................................................……...19

Bibliography ..................................................................................................................20

Citation: Carter, C. (2014). The EITI in the Kyrgyz Republic: Navigating a Janus state for

Mineral Resource Development


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Executive Summary

Enduring the early and middle stages of economic transition from the Soviet Union, the

Kyrgyz Republic has streamlined legislation and economic systems for extractive industry and

has developed a portfolio predominantly around gold deposits. Having participated in the EITI

since 2004, the nation is in its fifth year as a compliant member and is conducted by a working

stakeholder group comprised of civil society, industry and government stakeholders (EITI,

2013).

Recently, the EITI has been called into question by civil society stakeholders demanding its

tangible benefits society to not only hold mining development accountable but to ensure

reciprocation for environmental impacts. While reconciliation report validations show minor

room for accounting improvement, the success and of EITI implementation today rests in the

ability to effectively engage local governments of mineral development regions in transparency

efforts and revenue allocation planning. In doing so, this central Asian nation may begin to

realize the benefits of this Central Asian states mineral wealth for civil society and human

development instead of leading down a destructive path.

The state of EITI implementation in the Kyrgyz Republic has been likened to a Janus state; a

place of beginnings and transitions that can lead to either prosperity or destruction. Moving

from 2010 ethnic conflicts and revisions to national legislature around land and tenure,

implementation of the EITI in the Kyrgyz Republic has the potential to increase efforts towards

accountability and transparency if EITI communications are improved and shared decision

making around the purpose of the initiative and its revenue allocation are aligned at the local

level. This report outlines this progress and some inherent opportunities for improvement.


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Introduction

Today, the emergence of nationally supported mineral resource development of major

gold deposits such as the Kumtor gold mine (Centerra) has come at an opportune moment for

the Kyrgyz Republic. To better understand the Kyrgyz EITI experience must be situated within a

broader transition as a former soviet state and the associated social and political environment in

which it was situated. This includes a contextual understanding of economic and governance

transition, strategic geological resources, stakeholders in the EITI process, critiques of the

initiative. Lastly recommendations are presented which outline the arrangement of local

processes that engage stakeholders. While the development of mineral resources in the Kyrgyz

Republic has assisted in its economic transition, the EITI initiative may require adaptation to

include the participation of local governments if it is to ensure its relevance to the society it aims

to benefit.

Context

Theory of Economic Transition

To understand the transition of the Kyrgyz state it is important to note the initial

conditions and structures in which the nation begun in its transition. Following a collapse of the

Soviet Union in 1991, former states and satellites of the former USSR underwent an

unprecedented process in global economics. Before this time, no economy had ever moved from

a comprehensively controlled economy to a market economy. This included an introduction of a

liberal trade regime, eliminating most capital controls, ending most price subsidies, and

introducing its own currency, the som, in May 1993 (Koichuev, 2009).

The transition to a market economy traditionally features a critical decline in output and the

pattern of severe economic collapse followed by recovery. This is due to an initial inflation in

currency accompanied by economic liberalization. The years following 1990 in Kyrgyz

Republic’s economy follow this typical ‘J curve’ of a post-soviet economy. Initial decline followed

by later fluctuations and a major recession in 2005 and 2009.


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.

The further transition to a market economy and the development of a democratic leaning

parliament put new questions as to if current government institutions should be complexified or

if new ones should be added. Development of such features as a the legal system, private

property and a financial system were central to this transition, this included industrial and law

structure and designed for a command and control economy and an absence of property rights.

In this transition, a legal system had to be developed that could be obeyed and would produce a

climate of trust which included the creation of private property and a definition of the rules of

economic transaction, something that would come to define the relationship with mineral

resource industry and international investment. Property law was developed to ensure rights to

income from the use of property, transferability (sell, rent) and rights of control (exercise of

decision making), initially insured for Kyrgyz nationals (Koichuev, 2009).

Within the legal system major adjustments and mechanisms needed to be developed to ensure a

broader framework for businesses to operate within. Core tenets of business law such as a

contract law, bankruptcy law, anti-monopoly laws, securities law for stocks and bonds,

intellectual property law—patents, trademarks, copyrights and lab or laws—defines rights and

obligations of employers and employees. Within the finance system the transition from a

command and control economy to a market economy saw the development of a macro economy

including revenues and expenditures, a tax structure and budgetary process.

At the core of this transition was the elimination of state trade monopoly and introduction of

convertible currency and the implementation of an exchange regime capable of sustaining a


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reasonable foreign & domestic balance. Initially the Kyrgyz Republic experienced a significant

fall in its foreign & domestic balance and country support programs and restructuring programs

of a suite of multilateral organizations namely the World Bank and the Asia Development Bank

who have contributed 29% and 25% of loans respectively (ADB, 2012). Economic growth of

about 5% is expected to continue in 2013–2014 (Economist Intelligence Unit’s estimate). A

period of fiscal consolidation is anticipated that will limit the scope for financing large-scale

public sector projects or delivering more sophisticated public services. Fiscal deficit is expected

to widen from 4.7% of GDP to about 5.5% in 2012–2013, as revenue is likely to drop due to the

labour dispute at the Kumtor gold mine and the early 2012 ban on casinos and most gambling

establishments (ADB, 2012). Today the legal system and property rights allocation are viewed as

weak by the international community and on-going resolutions and revisions aim for clarity

Resource Curse and Dutch Disease

The resource curse, also known as the paradox of plenty, refers to the paradox that

countries and regions with an abundance of natural resources, specifically point-source non-

renewable resources like minerals and fuels, tend to have less economic growth and worse

development outcomes than countries with fewer natural resources. This is thought to happen

for a few elemental reason including a decline in the competitiveness of other economic sectors

or a volatility of revenues from the natural resource sector due to exposure to global commodity

market swings is also strongly tied to the role of government and its management of natural

resources, revenue redistribution, accountability and transparency in dealings with industry

actors. There is a call for a more decentralized model of revenue reallocation and transparency

efforts to combat the resource curse by engage popular agency and building capacity of local

governments ensure appropriate allocation of benefits. Today given the large percentage of

revenues from gold development to the government revenues the Kyrgyz republic remains

subject to volatility in mineral prices on the global market and remains at risk in revenue

distribution and supporting local impact benefit negotiations in to regions most impacted by

mining.

Dutch disease is the illustrated relationship between the increase in exploitation of natural

resources and a decline in the national manufacturing sector that leads to a lack of

diversification in the economy and destruction of domestic production capacity. The sudden

increase in increase in revenues from natural resources makes the nation's currency stronger

compared to that of other nations (manifest in an exchange rate), resulting in the nation's other


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exports becoming more expensive for other countries to buy, making the manufacturing sector

less competitive. As of today, with a high reliance on gold exports from the Kumtor mine, the

Kyrgyz Republic is considered to have a high potential for the Dutch disease.

Ethnic Conflict, Distrust and Corruption

Following an uprising that led to the ousting of the countries head Kurmanbek Bakiyev, 2010

brought deep seated and long forming ethnic tensions to a head as Kyrgyz and Uzbeks engaged

in violent clashes over the allocation of lands leaving 400 dead and destroyed property worth

millions of dollars in the southern cities of Osh and Jalalabad. The causes are wide reaching and

have been attributed to poor governance, high unemployment, low productivity particularly of

marginalized youth, poor social services delivery especially in the south, attempts of ethnic

‘Kyrgyzification‘ of southern provinces, and disputed borders with neighbouring states (Hanks,

2011).

To prevent the emergence of another authoritarian leaning leader the post-Bakiyev the

preceding administration designed a new constitution that increased the parliament’s powers

and limits presidents to a single six-year term. In 2011 the Kyrgyz Republic held its first

competitive parliamentary and presidential elections, becoming the first country in Central Asia

to transfer political power by means of elections (Freedom House, 2011). Further, distrust and

corruption allegations of public officials is widespread and today is recognized by a corruption

score of 6.25 (1 = Best, 7 = Worst) from the Freedom house. As a response to public and

international attention an anti corruption president Atambayev launched campaign in 2012. He

pledged that no one in the country would be immune from prosecution, including members of

his own party. Some progress has been made in improving the work of the financial police. In

practice, however, most prosecutions for corruption have been selective and targeted at

opposing members of parliament ((Freedom House, 2011).

Today recent ethically grounded conflict indexical to long standing power relations within and

between regions and peoples, the bloody conflict and the governance restructuring that would

occur has defined the stability of the nation outwardly for foreign investors and remains alive in

the collective memory of citizens.


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Governance

In 2010 newly elected President Roza Otunbaeva declared that the key task for the

Kyrgyz citizenry was “to make a return to authoritarianism impossible.” This was made concrete

in the establishing of a multiparty parliament, a three-party coalition government, and a divided

executive branch with a significantly weakened presidency are the main features of Kyrgyzstan’s

new political system, now five years old. A new constitution forbids any singular political party

from controlling more than 65 seats in the 120-seat parliament. The parliament has the power to

nominate, appoint, and dismiss the heads of local governments or to have any decisive role in

ministerial appointments. The creation of space for a multi-cameral legislature reflects the

fragmentation of Kyrgyz Republic’s political landscape of pluralism and competition. This

includes five parties, the Ata Jurt (Fatherland), Social Democratic Ar Namys (Dignity),

Respublika and Ata Meken (Fatherland) all of which hold a nearly equitable proportion in

parliament. However today the performance of this governing structure to meet new demands

for decentralization, a functioning rule of law and secure the republics transition into a

democratic state with empowered local governments will define future frameworks that EITI

implementation relies and today the government is recognized not as a democratic state but a

semi-consolidated authoritarian regime.

While the transition of the Kyrgyz Republic to a market economy was strong in the 1990s, the

transition has recently slowed in the past decade due to weak governance that solidified large

gaps in the nations transition. These gaps are particularly notable in the role and corporate

governance of the many SOEs, difficulties in cross-border trading, and weak procurement and

public financial management systems (ADB, 2012). Further weaknesses to this transition come

in the form of corruption, recognized widely by the public and by international actors. In 2011

the country received a governance score for ‘Control of Corruption’ score of -1.22 (on a scale of -

2.5 and 2.5) by the World Bank. Today, initiatives against corruption are now being initiated by

the central government. Using the UNDP human development indices, an aggregate measure of

life expectancy, education and income, the Kyrgyz republic scores a 0.622 out of 1 and has

shown little change over the past 20 years. The gender inequality index notes a score of 0.357

also out of 1 (UNDP, 2014). According to transparency international measures of perceived

public sector corruption scored a 24 (CPI, 2013). Currently more than half of industrial output

of the country is generated by the mining sector with foreign companies resulting in about 15%

of budget revenues and 14% of GDP (EITI, 2011)


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Today the main criterion for determining the materiality threshold for EITI reporting is 1

million USD and is determined at the project development phase. To exploit the deposit a

licence is issued by the Geology Agency. The legislation provides for four types of licenses

depending on the type of work: 1) for prospecting activities up to 5 years with the possibility of

further extension according to the technical project; 2) for exploration activities up to 10 years

with the possibility of further extension according to the technical project; 3) for deposit

development activities up to 20 years with the possibility of further extension until depletion of

mineral reserves; 4) for objects not related to geological mineral exploration and deposit

development issued for the term defined in the technical project with the possibility of further

extension for the term defined in the adjusted technical project. Depending on the significance

of the deposit/licensed area licensees can be obtained on the basis of a competitive bidding,

auction or direct negotiations (Kalikova, 2012). Of all valid licenses granted by the agency in

2011, more than 60 % of licenses are issued for the development of mineral deposits (KEITI,

2012).

Law on EITI and Mineral Development

Natural resource laws of the Kyrgyz republic have seen major revisions over the past three years,

deictic of a demand for both the implementation of EITI efforts and a more timely and

transparent process for international and local actor engaged in mineral development. These

revisions aimed to simplify the land allocation process for foreign and national companies and

reduce wait times in issuance and eliminate administrative regulation. Prior to revisions land

use foreign issuance of property required a government resolution. Under revisions, the land

code has been amended to include temporary land allocation to the foreign subsoil users.

Paired with on-going revisions to legal frameworks the EITI initiative has been solidified by

legislative acts. Resolution No 361 signed in 2004 commits the government to accept the

principles of the EITI reiterating the government's commitment to implement the EITI in

cooperation with civil society and extractive companies. Implementation of the EITI is

formalized through resolution no.362 (2008) in Kyrgyz law, which establishes a supervisory

board composed of five representatives from each stakeholder group (governments, company

and civil society) to oversee implementation. The board is chaired by the director of the State

Agency for Geology and Mineral Resources. After a period of convalescence that followed the

revolution of 2006, the government of the Kyrgyz Republic issued Resolution No. 382 of 16 July

2008 that served to re-invigorate the EITI and establish a Supervisory Board to implement the


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process. The Board is “an advisory and consulting body aimed to ensure general supervision,

coordination and consulting assistance for the EITI”. Although the resolution does not specify

the required makeup of the Board, the current membership of the Board is as follows: thirteen

members from government departments and the Parliament, five members from companies and

five members from civil society Resolution no.317 (Dec 2010) establishes the definition of

materiality of what companies required to report, further refinements to the reporting process,

and governance of the multi-stakeholder group(KEITI, 2011).

Further the revised Law on Subsoil use, dated 17 September 2012, includes references to EITI.

The existing law on subsoil omits any clear regulations determining the financial and social

services package residents in surrounding communities will receive leaving it to company CSR

campaigns and local negotiation. Issuance of mineral licenses under recent revisions which will

likely resemble the Canadian NI 43-101 validation process where ore body value estimation and

extent is verified by a 3rd party. Under these revisions a licence approval will mandate the

approval of the deposit by a registered geoscientist.

To date there is limited civilian and decentralized control of how revenues are distributed at the

local level. The existing law on subsoil omits any clear regulations determining the financial and

social services package residents in surrounding communities will receive, leaving it to company

CSR campaigns and local negotiation. While legal stipulation for revenues due and development

fund allocation is absent from mineral legislation it has been adopted as a key working area of

the 2014-2015 EITI working plan(KEITI, 2011)

Geological Survey

While Kyrgyzstan retains many mineral resources including coal, iron, mercury, copper

plan the primary attraction for foreign investors and the government alike remains gold. Today

two gold mines are operational in the Kyrgyz Republic (Kumtor & Makmal), and there is a

potential for further exploration and development of existing and unexplored deposits (Figure

3). Several new gold deposits have been discovered in the past 10 years and are increasingly

drawing interest from foreign investors. Gold mines currently in operation constitute 90% of

production volume in the mining industry (Safirova, 2012).


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Kyrgyz Strategic Mineral Deposits

Figure 2.

Some formerly state-owned Soviet companies are still operational. Among them

are Kara-Balta Mining Enterprise, which refines up to 25 tons of gold and silver per

year (Zozulinsky, 2007). Canadian Kumtor operating Company is the largest gold producer in

the Kyrgyz Republic and produces 15 – 23 tons of gold per year out of the largest gold mine in

the country Kumtor. It has been operating since 1996, and so far has produced over 180 tons of

gold with estimated proven reserves of 363 tons of gold. The Kyrgyz government owns 16% of

shares in Centerra Gold that owns Kumtor Operating Company. The Kumtor mine alone

contributes 6% to the Kyrgyz GDP, comprising 37% of Kyrgyz exports Within the new

Commonwealth of Independent States of Central Asia Kyrgyzstan takes the 3rd place in

production volume of gold of the (US Embassy, 2008).

EITI Reports and Implementation

Observations, Analysis and Critiques


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The 2011 Kyrgyz EITI reconciliation report offers concise reporting of resolved discrepancies in

payments made and received with very little in the order of glaring or problematic discrepancies

after adjustments. However, overall discrepancies could be reduced through a more coordinated

effort to provide EITI templates to companies to ensure that initial reported amounts are both

inclusive and more accurate. As of the 2012 EITI report Mining and Gas were covered and no

major discrepancies were noted. The largest share of payments of the mining companies go to

the state Social Fund (23%) where enterprises involved in the EITI made 1610.6 million soms

(30 Million USD). The Social Fund is the most visible contribution for civil society. Under

legislation it is responsible for national social insurance and provision of pensions and does so

through regional offices. Payments from companies subject to EITI reporting make payment to

a total of 14 payment streams to central offices in Bishkek and the Kumtor mine is dealt with

separately (Figure 3).

Figure 3.

Taxation of the Kumtor mine is based on the results of on-going direct negotiations with the

Government of the Kyrgyz Republic and are approved by the Jogorku Kenesh (Parliament).

Compared to the payment types the taxation regime for the "Kumtor" project is a simpler


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scheme made up of two sorts of payments 1.) A tax on gross income at the rate of 13 %, and 2.) 1

% of the revenue to the Development Fund of Issyk-Kul Region the only noted local

development fund thus far (EITI, 2011). Efforts to manage increased resource flows have

accumulated in the establishment of a National Development Bank (NDB) under guidance of the

IMF. Today, no sovereign wealth funds exist.

In 2011 an international firm was hired by the Kyrgyz Republic EITI to evaluate its

implementation. Taking into account implementation progress, stakeholder views and validator

judgements a validation methodology of 18 indicators was used to evaluate the initiative in

country. In this monitoring two concerns arose.

Discrepancies in KEITI reporting 2004-2014

Figure 4.

Firstly that civil society stakeholders noted the inability of the EITI Report to address

environmental concerns such as the development of the Kumtor mine in headwaters regions and

contracting issues between extractive companies, local and central authorities. Secondly, the

validator Coffey International found EITI efforts non-compliant to indicator 13, which stipulates

that government reports must be based on audited accounts to international reporting


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standards -and/or- evidence of discussion and agreed way to address this problem. Otherwise

they were found to be compliant to all other criteria (Coffey International, 2010.).

Looking forward in addressing any discrepancies in reporting implementation, the 2014-2015-

work plan includes an expansion of monitoring mechanisms to include the monitoring local

extractive industry funds for development and the use of resources allocated for environmental

protection. Contract transparency aims to be increased through the following

● Reviewing the allocation of licenses

● Reporting on the indirect contributions of the mining sector to the economy

● Establishing a reporting mechanism for transparency in the use of extractive industry

funds allocated for infrastructure investments.

Communication of EITI in the Kyrgyz Republic

To date the EITI has gained media coverage through materials specially published EITI

Secretariat (particularly magazines and comics) as well as the newspaper "Kyrgyz Tuusu" and

"Word of Kyrgyzstan" dated August 9. In July 2012 the head of the EITI Secretariat in

Kyrgyzstan K.Ibraev took part in the TV program "Business Talk" on channel NTS, where they

discussed various issues of budget transparency and the development of the EITI. In September

and October 2012 on Channel NTS, a series of television programs translating the EITI was

presented to the public in a show titled, "The practice of EITI in Kyrgyzstan", "Kumtor EITI" and

"Trip Report to Chatcal." In November and December 2012 a seminar on taxation of subsoil

users in the EITI was hosted on the television show "The economy in the cube". Further in 2013

a 20 minute documentary funded by the World Bank as part of the ‘Improving Civil Society

Awareness and Engagement in EITI process”.

Web publishing has played a role in transparency of EITI reporting to civil society stakeholders.

On December 29, 2012 the 2010 and 2011 Kyrgyz Republic EITI Reconciliation reports in

Kyrgyz and Russian languages were posted to the websites of the Consortium of NGOs in

promoting the EITI in Kyrgyzstan and the Kyrgyz Mining Association to inform the general

public. Currently the Eurasia Foundation of Central Asia has developed a communications

strategy for EITI dissemination for the six districts. Some grassroots training has begun through

the Marandan public foundation at the village council most notably in Naryn district (EFCA,

2013).


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Stakeholder Analysis

Government

Implementation of the EITI is overseen is formalized through resolution no.362 (2008)

which established a supervisory board composed of five representative from each stakeholder

group (governments, company and civil society). The board is chaired by the director of the

coordinating State Agency for Geology and Mineral Resources. Ministries of natural resource

and industry have identified the need to hold ‘joint meetings’ in mining regions to engage

populations in EITI activities and accountability measures.

To date there is limited civilian and decentralized control of how revenues are distributed at the

local government level. The existing law on subsoil omits any clear regulations determining the

financial and social services package residents in surrounding communities will receive, leaving

it to company CSR campaigns and local negotiation. While legal stipulation for revenues due

and development fund allocation is absent from mineral legislation it has been adopted as a key

working area of the 2014-2015 EITI working plan.

Civil Society

Formal society participation at the state level has come in the form of a supervising

multi-stakeholder board. This is comprised of five participants from public associations whose

interests encompass human rights, law, public finance, and NGOs in EITI promotion.

The purpose of EITI for civil society has been called into question by NGO and ministries and a

lack of governmental capacity for adequate communication and public engagement in mining

regions has been cited as an obstacle to addressing conflict. Public meetings and interpersonal

communication has been cited as the preferred method of communication over internet and

other mass media channels.

Public accessibility to EITI reconciliation reports is delayed up to three years. However,

reconciliation reports were published in two national newspapers beginning in 2009 and a

media outreach campaign including a themed series of television programs has accompanied

publishing ever since. Web publishing of the reports in Russian and English languages has been

available since 2010, hosted by promotional NGOs. Kyrgyz press is considered partly free by the

freedom house agency. An educational campaign explaining the benefits of extractive industry

to increase citizen awareness has been suggested by the government.


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The purpose of EITI for civil society has been called into question by NGOs citing a lack of

governmental capacity for adequate communication and public engagement in mining regions

as an obstacle to addressing nascent conflict. Public meetings and interpersonal communication

remains the preferred method of communication over Internet and other mass media outlets.

Industry

Currently there are 35 recognized mineral resources, companies most of which are

domestic the most profitable Kumtor mine is partially held by the Kyrgyz government. During

the period from 2000 to 2008 the number of valid company licenses for subsoil use has

increased from 114 to 2005 licenses or 17 times. And in 2011, the number of valid licenses was

reduced to 850, likely due to a restructuring of the tenure process (KEITI, 2011). To date

company participation in reporting has been compliant and industry stakeholders hold 5 seats

on the multi-stakeholder group. It is suggested that companies establish working joint meetings

with local governments and participate in communications campaigns. In total, 73 companies

participated in the EITI reporting and reconciliation process (KEITI, 2012). Incentives to

participate in the EITI today are namely in building a political environment of trust to civil

society actors as accountable actors, however, the demand by the civil society sector has been

placed predominantly on environmental accountability, something the EITI does not directly

account for.

Taxation of the Kumtor mine is based on the results of direct negotiations with the Government

of the Kyrgyz Republic and approved by the Jogorku Kenesh (Parliament) of the Kyrgyz

Republic and does not dependent on the general tax regulations. Taxation regime for the

"Kumtor" project is cast to a simpler scheme consists of two kinds of payments – a tax on gross

income at the rate of 13 %, and 1 % of the revenue to the Development Fund of Issyk-Kul Region.

The "Kumtor" project is not exempt from the payments of deductions from fund of salaries,

deductions to the Social Fund, payments for environmental pollution, etc. (KEITI, 2011).

Kumtor Gold Company was the only company that made supplementary payments (around US

$10m) to build and support Kyrgyzstan’s schools

Currently new agreements the government and Centerra signed a memorandum on

restructuring the project. According to the document, the development of the mine will take

place under a new joint venture with equal equity participation. It will be registered in


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Kyrgyzstan, and the country will be able to increase tax revenues and dividends by 70 per cent.

It will also be able to participate in decision-making processes.

Communities, Negotiations and Present Conflict

Currently limited opportunities exist for civil society to participate in EITI efforts.

Building trust between local communities and the extractive sector through transparency and

environmental impact disclosure and reporting has been cited as a critical cornerstone to the

success EITI and investment climate improvements in the Kyrgyz Republic. There is a call for

unbiased information readily available information about developments, revenue payments and

environmental risk. Currently 43 conflict zones have been identified by the agency of geology

and mineral resources where problems, sometimes violent, arise between extractive industry

and the local populations. Much of this conflict is based in a lack of information and fear of

environmental damage as illustrated by a 1998 cyanide spill into the Barscoon River. A villager

explained how “We’re having problems with bad roads and water. We get our drinking water

from the river, which is very dirty. This is very difficult for us”(Bankwatch, 2012).

While shared decision-making processes are actively discussed, on-going conflicts around the

absence of Impact Benefit Agreements, and mutual obligations agreements, corruption

allegations, have emerged and have included a series of protests and blockades involving

Centerra’s Kumtor gold mine. Complaints specific to the Leruy and Batken regions include a

lack of investment in local communities, environmental degradation of headwaters, and desire

to improve travel surfaces to reduce dust on heavy use roads used by the Kumtor Mine.

“To reduce conflict of the Kumtor gold mine and others, local communities need

to be involved in decision making and to make tripartite agreements between

mining companies, the government and communities agreements about social

and environmental responsibility” -Three Trees NGO on Conflict and Mining in the Kyrgyz Republic

Today there are limited opportunities for civil society at the local level in mineral development

regions to monitor and participate in EITI reporting or monitoring, the need for decentralizing

the EITI reporting and mineral licensing process to local oblasts is beginning to be recognized

and has been addressed by NGOs and the World Banks in country initiatives.


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The biggest conflict around the mine is taking place at the moment – contract terms that were

agreed on in 1991 between the Kyrgyz government and Centerra Gold Inc. These terms have

been renegotiated a number of times each time is has been on the table every time the

government changes, something which has also created a tenuous relationship with

international investors (Jamasmie, 2013).


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Conclusion and Recommendations

Large-scale gold mines like Kumtor are indeed economic drivers for the Kyrgyz Republic in its

later stages of economic and governmental transition. However gold, a symbol of power and

wealth leading to prosperity, can also lead to conflict. Today in the Kyrgyz Republic we see both

potentials and it is a matter of the government setting its own priorities of the EITI reporting

process and widening local participation in EITI implementation that will grant a better

perspective of mining's contribution to society. The following policy recommendations are

aimed to enhance the implementation of the EITI in the Kyrgyz Republic

1. Public participation musy be increase in EITI decision-making processes.

a. Currently civil society actors have called the applicability and relevance of the

EITI into question and little public input has been elicited around the Kumtor

agreement.

2. Audit translation and interpolation of data, is needed. Today there is need for

a. EITI media literacy campaigns which would include auditor or prosecutor to

investigate the ‘non-listed’ transactions and

b. Publication to increase the transparency of environmental assessment and

reporting, something that come in the form of a sustained NGO.

3. Sub regional EITI committees and clarification of EITI reporting

a. Today there is growing recognition within both government and civil society to

engage in a more decentralized form of EITI implementation and mineral

development. This would also grow to include regional sub-committees and the

creation of joint meetings and shared decision-making as it pertains to contract

negotiations and impact benefit agreements.

b. Policy makers at the regional level need to sit down together with representatives

from the mining companies and citizens and take a hard look at what the point is

of EITI reporting if no one knows any more about the contributions from the

mining sector in the country.


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Bibliography

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Country Assistance Program Evaluation http://www.oecd.org/countries/kyrgyzstan/adb.pdf

2. Jamasmie, C. (2013). “Centerra and Kyrgyzstan reach agreement on Kumtor” Mining.com.

Published December 24, 2013

3. Coffey International. (2010). Validation Of The Kyrgyzstan Extractive Industries Transparency

Initiative(KEITI)http://eiti.org/files/Kyrgyz%20Republic%20(ENG).pdf

4. Extractive Industries Transparency Initiative (EITI) in the Kyrgyz Republic. Eurasia Foundation

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Documents

EITI In the Kyrgyz Republic