The mining industry in Kyrgyzstan: Problems and Prospects

The dynamic development of the mining sector is a priority of Kyrgyzstan, along with energy; it can be the basis of economic recovery and the country’s integration into the regional and global economy. According to international experts, with a relatively small area and good geological exploration, mineral resource potential of Kyrgyzstan is used poorly.

According to official data, today in the country on the states balance sheet are deposits of gold (proven reserves of 430 thousand tons), tin (208 thousand tons), tungsten (144 thousand tons), rare earths (51 thousand tons), aluminum (349 million tons) coal (more than 1 billion tons), antimony (157.5 thousand tons), mercury (40 thousand tons), molybdenum (2358 tons) and several others.


Mining industry is one of the most attractive areas for foreign investors. To date, the biggest investor in the mining industry in Kyrgyzstan is Canada, investments which account for 48% (the "Kumtor"), as the investment put China - 14%, UK - 7%, Germany and Kazakhstan - to 5%, Russia and Switzerland - on 4%, USA - 3%, etc.

China is showing an increasingly growing interest in the mineral raw material resources of Kyrgyzstan. This is understandable; the most dynamic economy needs raw materials for its industry. In particular, China plans to participate in the development of polymetallic deposits "Kuru-Tegerek and gold Deposit "Ishtamberdy" (southern region of Kyrgyzstan).

The well-known Chinese company "Hongbo" intends to participate in the development of deposits of rare earth metals. In addition, China is interested in the development of coal deposits "Tegene" reserves, according to the Association of Miners and Geologists of the republic, is 58.5 million tons.

Russian mining companies are also interested in the development of deposits in the country. On line two intergovernmental requests countries to participate in the concessions already submitted by four companies, including Polyus Gold - the worlds third-largest company developed gold reserves

Turkish businessmen are not left behind and still spring on the Kyrgyz-Turkish Trade and Investment Forum announced their readiness to invest in the mining sector of Kyrgyzstan. From our side it was proposed in the framework of cooperation to create a center for processing gold. Businessmen Indonesia are also interested in cooperation with Kyrgyzstan in development of mineral deposits, what at a meeting with First Deputy Prime Minister of the Kyrgyz Republic Joomart Otorbaev said vice-speaker of the House of Representatives of the Republic of Indonesia Muhammad Anis Matta.

In addition, the development of rare-earth metals deposits interested Japan. Especially for the establishment of mutually beneficial relations in the industry in the republic came delegation, composed of the chief of the department for Russia, Central Asia and the Caucasus Bureau of the Trade Policy of the Ministry of Economy, Trade and Industry of Japan Takayoshi Tsuda, deputy head of the department of mineral and natural resources and energy when Ministry of economy, trade and industry of Japan Satoshi Hashimoto. Even distant South Africa is interested in the mineral resources of Kyrgyzstan. At a meeting with Minister of Economy of the KR Temir Sariev, Ambassador of South Africa Shirish Manaklal Sony said that his country has a lot of experience in the technology development of the mining industry, as well as the development of coal deposits, in connection with which South Africa has the ability to attract investment in this industry of Kyrgyzstan.

Shortcomings and problems

Despite this increased interest from potential investors, real development is not hampered accumulated over many years of problems. On the shortcomings in this area at an expanded meeting on the problems in this industry reminded the Prime Minister of the Republic Zh.Satybaldiev: "We started to distribute licenses to the right and to the left, so resources are not used properly, because population has lost confidence in us. Despite the availability of resources in recent years has not been created any jobs, taxes that come from the mining sector, account for only 5% of all revenues. In order to develop the mining industry, we have to make productive use of financial resources. We must recognize that there are corrupt schemes in the field, but if we work honestly, investors will come. "

In turn, the Minister of Economy and Antimonopoly Policy Temir Sariev voiced the main problems of the mining industry of the republic.

The first problem - poor management in state agencies; presence of incompetent staff in mining, who do not understand properly the field. As a result, break in field work; plans are not coordinated. So, last year the negotiations of mining companies were considered only by 1 June, and in 2012 all documents were signed only on August 1. This is despite the fact that the field season lasts only 4-6 months.

The second problem - it existed previously opaque licensing system of field development, which gave the opportunity for corruption.

The third and one of the most pressing issues identified conflicts of mining enterprises with the local population, which is cause to stop work and lose the confidence of investors. According to the Association of Miners and Geologists of Kyrgyzstan, last year recorded 10 facts of aggression against the mining companies. And this figure is less real because not all conflicts are made public.

The fourth problem, according T.Sariev is the development of deposits in the specially protected areas. In such areas, there is a ban on exploration that hinders the search for new mineral reserves.

The actual steps

Leaders of the country understand the importance of this sector for the development of the national economy and take measures for its improvement. On the legal level, the purposeful work on formation of favorable conditions for the activity of the mining companies and the sustainable development of the mining industry. Parliament has passed and the President signed the first package of bills developed by the Ministry of Economy of the Kyrgyz Republic with the participation of the business community, which are intended to reform the mining sector. In particular, the laws of the Kyrgyz Republic "On Subsoil"; "On amendments and additions to the Tax Code of the Kyrgyz Republic", "On Making Amendments and Addenda to the Land Code of the Kyrgyz Republic"; "On amendments to the Law" On non-tax payments" were developed.

To solve the problem of coordination in the Kyrgyz Republic Law "On Subsoil" a norm, called "silence - consent". This means that if within one month from the date of the expulsion of the report there will be no response, we may assume that the documents have been reviewed, the report is approved and you are ready to implement planned activities.

Also, this law provides for the progressive rate of payment for the retention of the license, which will stimulate the subsurface user to quickly perform all the work, up to industrial development. Now, all licenses will be issued only on the basis of tenders and auctions, which will ensure openness and transparency, and eliminate the corruption schemes.

To avoid conflicts with the local population in the legislation established a balance of interests of all three stakeholders - the state, the investor and the local community. Now, representatives of the local governments, district administrations will be included in the commission for conducting tenders and auctions for licenses. In addition, there are additional payments to local budgets, in particular, the "social package" requiring the investor to promote the development of the local community and region (employment, education, and infrastructure investments). Also part of the cash proceeds from the auction, and 2% of the revenues of mining companies will be fully in local budgets.

In addition, local governments and district state administrations instructed to conduct explanatory work among the local population, to talk about the benefits of the projects and to assist investors and bodies of the Interior, the Prosecutors Office, the National Security Committee should identify the instigators, abettors, and to hold them accountable for breaking the law. All these measures should reduce the intensity of emotions on the ground and eliminate the opposition of the local population and mining companies.

In addition, at this stage, the government is preparing a second package of bills, which is planned to be submitted to Parliament and to take until the end of 2012. It includes amendments to the Administrative and Criminal Codes, reinforcing sanctions for violations of officials at all levels of the KR law on mineral resources, in particular, unjustified refusal or violation of the terms of (renewable) license for subsoil use, violation of terms of consideration of geological reports, work plans and other violations. Besides preparing changes regarding production sharing, mining concessions, strengthening of the principle of the inviolability of private property and the equitable distribution of the exploration and mining licenses.

In early September, was a presentation of the most important document - the Concept of Strategy of Development of the Mining Sector in the Kyrgyz Republic, for which had attracted experts in the mining industry, economics and law, among them the head of the Kyrgyz Mining Association Valentin Bogdetsky, one of the best specialists in mineral resources in republic Leonid Oseledko, an international expert, who advised many governments on legal issues, Craig Andrews,

The objective of the Strategy of Development of the Mining Industry is the elimination of the existing problems and creation of favorable conditions in terms of legislation and government regulation, with the transition from the administrative method of regulation to economic regulation mechanisms. All the existing problems will be analyzed and taken into account, including those related to personnel policy and the imperfection of legislative and regulatory framework in the sphere of subsoil use. Strategy presentation is scheduled for March 2013.

According to experts, now in Kyrgyzstan, created comfortable conditions for investors wishing to invest their capital in the development of mineral deposits. But the most favored generated in the mining industry will work efficiently while maintaining political stability. In this case, Kyrgyzstan will have an advantage, as in other CIS countries access to mineral resources is complexity; bureaucratic obstacles. According to the estimates of international financial institutions, the mining industry of Kyrgyzstan can annually generate income of more than 1 billion. US dollars and become the locomotive of the entire country’s economy.