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BISHKEK (TCA) — Protection of natural resources and using them wisely is among the priorities in ensuring the national security of Kyrgyzstan. However, corruption in issuing licenses hampers the mining industry development and the attraction of investments in this sector, Kyrgyz President Sooronbai Jeenbekov said on January 30 at a meeting of the Security Council to address problems in the subsoil use.

The sector employs more than 18 thousand Kyrgyzstan citizens and brings about 12 billion soms of income to the national and local budgets, which is about 8% of GDP and 44% of industrial output.

The gold mining is the basis of the mining industry, and foreign companies invest mainly in gold mining.

“Unfortunately, security issues in the subsoil use have not received adequate attention. On the contrary, this sphere has been gradually withdrawn from the State control. As a result, a lot of problems have been accumulated in the mining and subsoil use,” the President said.

Corruption

Deep-rooted corruption has penetrated into some state bodies, especially into the licensing system, the President said. Licenses are retained without carrying out relevant work, just for resale.

Over the years of independence, 2,571 licenses for the subsoil use right have been issued. Permits for geological research and development of almost all gold deposits were issued to private companies. However, in most cases, when issuing permits for deposits, the interests of the state and society were not taken into account. On the contrary, preference was given to the protection of the interests of a narrow circle of people, some influential groups. This resulted in a situation when licenses were issued but deposits were not developed.

“From year to year, there was an increase in the number of licenses on hand. Resale of licenses flourished in the industry. Those who found a loophole under corruption schemes seized licenses, and then sold them at speculative prices or kept them to sell more expensively later,” Jeenbekov explained.

In 2018, the President ordered to carefully analyze the issuance of licenses and make an inventory.

“The license retention fee did not help us improve the situation. It turned out that it is easier to pay for license retention than to develop a field,” he said.

It is necessary to make changes to the relevant laws to ensure openness, justice, and fair competition in the mining industry, to improve the country's investment climate and create favorable conditions for investors, the President concluded.

He also told about corruption in the State Committee in charge of subsoil use.

From 2009 to 2018, five Chairmen of this state body were prosecuted on corruption charges. Over the past eight years, about hundred criminal cases have been initiated against the officials of this State Committee and private entrepreneurs, the President said.

Following inspections in the sphere of subsoil use in 2018, the Prosecutor General's Office of Kyrgyzstan revealed damage to the state amounting to 100 million soms, said Prosecutor General Otkurbek Jamshitov.

Licenses for deposit development were bought as a market commodity for resale, he added.

The ex-Chairman of the State Committee for Industry, Energy and Subsoil Use, Duishenbek Zilaliev, issued a third of the total number of all development licenses issued for 27 years of Kyrgyzstan’s independence, State National Security Committee Chairman Idris Kadyrkulov said.

The National Security Committee is investigating the issuance of licenses to foreign companies by Zilaliyev. He was accused of illegal enrichment and arrested in December 2018.

The State Inspectorate for Environmental and Technical Security is also among the most corrupt state bodies, the President said. The activities of this department are now being investigated.

Protests of the local population

The protest mood of the local population against mining production in their areas is usually due to the weak cooperation of relevant state bodies with local authorities.

In many cases, local authorities are not aware of investors who were granted a license to develop fields. As a result, local governments cannot build business relations with investors who are going to invest in their regions.

“The lack of cooperation adversely affects the investment climate and the mood of the local population,” said Jeenbekov.

He spoke about the obstacles to bona fide investors who sincerely want to invest in the country's economy and develop fields. In some cases, local governments want to get the most out of a foreign company that has not yet begun to work.

The President told about the situation around the Makmal field in the Jalal-Abad province in the south of the country. As a result of protests, the local population suffers while provocateurs got away clean and escaped responsibility. The local authorities are to blame for this situation as they were not able to adequately carry out explanatory work among the population, Jeenbekov concluded.

Local authorities and local residents should have complete and reliable information about companies which receive licenses to develop deposits in their regions. This is the only way to avoid conflicts and collisions with investors, the President believes.

He also told about shortcomings of law enforcement agencies, which should identify provocateurs and real organizers of protest actions and counteract them. Measures to prevent and eliminate such situations should be carried out promptly and the situation should not be out of control. Otherwise, attempts to confront the people and authorities will continue, scaring off investors.

According to Prime Minister Mukhammedkaly Abylgaziyev, there were facts when, pursuing their own interests, certain groups including politicians and officials arranged various illegal actions.

When drafting agreements with investors, the share of the state, its rights and requirements should be clearly indicated.

“Thus we could fully control the country's natural resources, solve social problems on the ground and gain the trust of the people,” he said.

Taxes

According to President Jeenbekov, mining taxes range from 15% to 50% in some countries while the tax burden is only 8-10% in Kyrgyzstan. “Of course, this state of affairs must be changed,” he said.

Due to the lack of local factories, gold concentrates are exported from the country. To strengthen control over their export and to replenish the national budget, the Government is considering imposing a tax on the export of concentrates, Prime Minister Abylgaziyev said.

Industry priorities

The Government is proposing to create a state-owned mining company on the basis of Kyrgyzaltyn (Kyrgyz Gold) OJSC, Prime Minister Abylgaziyev said.

Due to the decrease in gold reserves at the Kumtor gold mine, the Government plans to develop other priority sectors of the economy.

In 2018, for the first time, Kyrgyzstan’s GDP growth was 3.5% excluding Kumtor. Production growth was in other sectors of the economy. These are the first steps to reduce the dependence of the domestic economy on Kumtor, the Prime Minister concluded.

The Government is currently conducting an inventory of the country's mineral resources and economic entities, as well as developing a long-term strategic development program of the subsoil use. It is planned to build mining enterprises in the regions, Abylgaziyev said.

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