Kumtor sent a letter to Kyrgyz Republic Prime Minister

published: 30 May 2013

Kumtor Operating CompanyKumtor sent a letter to KR Prime Minister in which it provided responses to the demands made by a group of people who on May 27, 2013 blocked the road to the Kumtor Mine. These demands were delivered to the company the day before the illegal action date. Below we provide the full response without abridgments:

His Excellency Prime Minister KR
Mr. Zh. Satybaldiev



Although Kumtor is the largest business enterprise and taxpayer in Kyrgyzstan today, expectations must be maintained in terms of its impact and what it can achieve. Since its founding in 1994, Kumtor has paid $1.2 billion USD in taxes to the government of Kyrgyzstan (including income tax, social fund payments, mineral and road taxes, customs and duties, dividend payments and other such mandatory payments to the government, but excluding fees and payments to Kyrgyzaltyn, local purchases and other discretionary payments or fees) and $27.6 million USD to the Issyk-Kul Development Fund. This allows the Government to fund salaries for teachers, doctors, nurses, police officers and to pay for roads and other essential services across the country. But despite its size, Kumtor cannot solve all problems on its own.

In addition to taxes paid direct to the government, Kumtor directly invests money into the community through a budget which has risen from 781,000 USD in 2009 to 6 million USD budgeted for 2013 for a total of 12.388 million USD in direct support to the community (including planned 2013 spend). Centerra Gold also funds a strategic investment fund which has provided 32 million USD since 2011 for school renovations and creation of a microfinance project, both in Kyrgyzstan.

A major contribution to the Kyrgyz economy comes from the purchase of local goods and services. This is an area where Kumtor has worked very hard to develop, and over the years our total spend on local purchases has been increasing. Although we are not required to, we work closely with local suppliers to help them improve quality and business processes in order to build long term partnerships. This program has shown many successes and at the current moment, we have 566 local suppliers of goods and services.

In the last three years alone, Kumtor has injected 153mil USD into the economy of Kyrgyzstan through local purchases. When Kumtor spends money locally this creates jobs and provides additional tax revenue to the government, and as a result the impact across Kyrgyzstan is magnified.

As part of its community engagement and development, Kumtor feels it is critical to look towards closure of the mine (currently planned for 2026) and works towards minimizing the impacts associated with closure. For this reason, we implement projects through delivery partners in the areas of small and medium business development, support to the development of the agricultural sector, youth and education, environment and cultural projects. These projects serve to build capacity and skills, diversify the economy and will reduce the impacts of mine closure by building a diverse and robust economy in Issyk-Kul which is not dependent on Kumtor.

Another area where Kumtor supports the Issyk-Kul Oblast, including Jety-Oguz region, is through donations and small projects. It is critical for such projects to support the needs and interests of the people and their priorities within certain restrictions. As such, Kumtor works at the local level with the Ayil Okmotu and with the population on an ongoing basis. As the region is diverse and has differing needs and priorities, a regional committee has been formed which includes local and regional government representatives, local NGOs, youth and others. The purpose of the regional committee is to act as a formal platform for discussion of issues of importance, as well as prioritizing projects and donations across the region. This ensures that the entire region has the opportunity to benefit from such support.

Attached to this document is the list of donations and projects provided for by Kumtor’s local community development budget in Jety-Oguz region for the years 2012 and 2013.

Issyk-Kul Development Fund

As part of the 2009 Investment Agreement Kumtor contributes 1% of gross revenue into the Issyk-Kul Development Fund. The purpose of the fund is to provide for social objects required in the Oblast, such as schools, kindergartens, clinics, hospitals and other such social infrastructure.

Since its inception in 2009 and until the end of 2012, Kumtor has contributed 24.2 million US dollars into the fund, and in the first four months of 2013, 3.4 million USD has already been contributed, for a total of 27.6 million USD.

The Issyk-Kul Development Fund spends its money through a committee made up of the Fund Director with oversight from the Governor’s office. The Akym of each region can put forward project proposals for their region which are considered by the Oversight Committee. Kumtor has the right to veto projects in Jety-Oguz and Ton regions and the city of Balykchy. We believe that many of the demands made by the Jety Oguz district communities could be addressed by the Issyk-Kul Development Fund.

The benefit from the Issyk-Kul Development fund goes beyond simple contributions. When infrastructure such as schools, hospitals, clinics and kindergartens are built, contractors are used for the construction, creating work spaces, and then once completed new work spaces are created for teachers, doctors, nurses and others, all of which serve to provide a sustainable income and lasting economic benefit, apart from simply raising the living standards of Issyk-Kul Residents.

Demands #1 and #2: Hospital equipment and funding and clinics

Health care in Kyrgyzstan is managed through the ministry of health which determines policy and is responsible for determining the level of care required, including the types and locations of various facilities across the country.

The current 5 year strategy, Den sulook, has been agreed with the ministry and various international donor organizations which partially fund health care in Kyrgyzstan according to the strategy.

The strategy looks not only at levels of service but also ensures that the requisite number of qualified personnel are trained and employed to operate equipment and carry out procedures in an efficient and economical manner.

Kumtor does support hospital projects and recently presented the Oblast hospital in Karakol with a life-saving power generator and soon will be helping to renovate the oblast level maternity hospital. Kumtor was involved in renovations to the Barskoon maternity ward in 2011 as well.

Centerra is currently working with the Ministry of Health on a proposal to provide substantial funding for improvements to cardiac care in the Kyrgyz Republic. Such initiative will provide direct benefits to residents of Jety-Oguz.

Demands #3 and #7: Water

Water is clearly an important factor when it comes to quality of life and opportunities for employment. For example irrigation water allows people to earn a living through growing crops.

Kumtor has recently co financed a joint water and land rehabilitation project in Jety Oguz Oblast (Lipenka Ayil) by contributing 200,000USD out of a total of 375,800USD.
Other projects in water are always being considered, however large scale infrastructure projects can only be done though the Issyk-Kul development fund due to the large number of projects required across the Region and the associated costs involved.

As a priority area identified through the large number of community engagements and conversations, from everyday people up to the heads of regions, Kumtor has identified water as a priority focus area which must be addressed in order to support other areas of development such as small business development and agricultural sector growth. As such, Kumtor has begun investigating the issue in more detail to identify key issues by region (i.e. drinking water vs. irrigation water, presence or absence and condition of infrastructure, etc.) in preparation for a large scale water project across several regions of Issyk-Kul Oblast.

Once issues and potential partners have been identified, we intend to go through the Regional Committee process already in place to discuss and agree priority areas. This action plan will be implemented through a combination of Issyk-Kul Development funding and Kumtor funds due to the size and complexity of the issue.

As a sign of success of the community development and Regional Committee system, this issue has been identified and as such action had already been taken in the form of concrete projects across the region providing clean drinking water and irrigation system repairs, as well as feasibility studies to expand the program, before the demands of this letter were received.

Demands #4, #5 and #11: Orphanages and kindergartens and schools

The Issyk-Kul Development Fund is the ideal mechanism to fund the construction and renovation of kindergartens, orphanages and schools in the region. As noted earlier, Kumtor contributes 1% of revenue to the Issyk-Kul Development fund specifically for these types of social infrastructure, and Kumtor is willing to support local residents who wish to work closely with their Ayil-Okmotu and Akym to scope and prioritize projects for inclusion in the Issyk-Kul Fund for approval by the oversight committee.

Kumtor provides frequent funding to kindergartens, orphanages and schools upon request through donations. This includes furniture, books, renovations, musical instruments and other support. (see attached list of donations for details).

Demand #6: Roads

Kumtor relies on roads for the continuous operation of the mine due to the movement of people and goods required to run. In addition to our own operations, roads are necessary for supporting the economy in general; for tourists, goods and services which support the local communities, as well as access for emergency services when required.

Kumtor has paid 21 million USD in road taxes from 1999-2009 under previous agreements. In 2009 it was agreed to roll the road tax into the unified tax rate paid by the company, and so road taxes make up an element of the overall tax paid.

The technical road which leads to the mine site is Kumtor’s overall responsibility, and indeed was constructed by the company. Currently, 12 local residents are employed as contractors for road maintenance and watering, and since 1994 a total of 35 million USD.

Demand #8: Employment

Kumtor has been actively working with community leaders to enhance the communications and process regarding employment for some time, but particularly in the last 2 years, when there has been a need to recruit considerable number of staff. The company has taken into consideration the problems identified with previous recruitment efforts and changed the process accordingly . One of the changes is the involvement of community representatives in both the screening of applications and the actual interview process of candidates. Representatives attend as observers to verify the process and very positive feedback and support for a fair and transparent process has been achieved.

From 2010 the number of designated impact communities was increased to a total of eleven. This included the Ton region for the first time. The following geographical distribution reflects the employee representation by community. Kumtor places a priority on hiring from Jety-Oguz region.
Of the current 2,670 fulltime Kumtor employees, 1,997 are from Issyk-Kul and 965 of these (48.3% of the total) from Jety-Oguz.

      Ak-Suu 59 2.95%
      Balykchy 268 13.42%
      Djety-Oguz 965 48.32%
      Issyk-Kul 28 1.40%
      Karakol 469 23.48%
      Ton 178 8.91%
      Tyup 30 1.50%
Total 1997  

Demand #9: Microfinance

Microfinance is a cornerstone of the Kumtor Sustainable Development program, and currently 3 micro credit agencies operate in the regions of Jety-Oguz, and Ton and the city of Balykchy.

The Jety-Oguz Micro Credit agency has the longest history with Kumtor, and since its inception in 2006, 68 million Som (1.56 million USD) has been provided by Kumtor and subsequently loaned out in Jety-Oguz Region exclusively. Interest rates at these Kumtor funded MCAs are among the lowest in the country and are designed to support agriculture and small business growth.

In 2012, Kumtor provided 1 billion Som (21 million USD) to create Ala-Too Finance, under the Ministry of Youth, Labour and Employment. These funds are to be used exclusively for the provision of low interest, pledge free loans for socially vulnerable members of society.

Whilst all Kumtor funded micro credit schemes are low interest, it is important to consider the sustainability of such projects. A certain minimum level of interest is required in order to ensure the fund does not run out of money and can continue to disperse loans beyond the first tranche. The percentage must be higher than the rate of inflation at a minimum and also cover some basic administrative costs, otherwise money will run out and not allow any credit to future borrowers and would be limited to a one time cash gift.

Demand #10: Fuel

In 2010 after the revolution, no diesel fuel was available for farmers to use in their tractors from retail outlets. However, Kumtor had plenty of diesel for its operations and quickly and without hesitation decided to help out in that situation. If it were not for Kumtor’s support of diesel fuel, a whole season would have been lost which would have resulted in tens of thousands of people being without critical income which is derived from farming and would have resulted in a social catastrophe.

Since then, despite the widespread availability of diesel fuel, Kumtor has regularly been subsidizing diesel for farmers during the critical spring season. This allows farmers to realize greater profits through lower expenses, which has a flow on effect in the economy as they have more money in their pocket.

Since 2010 Kumtor has provided more than one million litres of subsidized diesel fuel for farmers in Jety-Oguz Region.

Demand #11: Sports halls

As with other infrastructure, a number of sports halls have been built and renovated through the Issyk-Kul Development Fund. In addition to large scale projects, Kumtor has supported a wide range of sports teams and events through donations over the years.

Demand #13: Veterinary care

The Veterinary Inspection Service under the Ministry of Agriculture is responsible for the policies and strategy around livestock and related management of illnesses etc. As with other areas mentioned above, Kumtor cannot take on responsibilities for such functions as a private company and under legislation cannot provide for salaries of government employees. From taxes paid into the Republic budget the Government of Kyrgyzstan decides on priority funding of various initiatives and programs.

Rodney Stuparyk
Vice-President Operations
CJSC Kumtor Operating Company

Финансовая помощь Джеты-Огузского району из бюджета Фонда Развития Иссык-Кульской области на сегодняшний день составила 15 431 067 сом.


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