WELCOME TO IWPR'S REPORTING CENTRAL ASIA, No. 496, June 9, 2007
GOLD-DIGGING IN KYRGYZSTAN Villagers protest against a gold mining development
by throwing stones at the prime minister, but the real battle to control the
industry is taking place elsewhere. By Taalaibek Amanov in Bishkek
EXPERTS WARN OF REAL-ESTATE BUBBLE IN KAZAKSTAN Overpriced housing and
expensive mortgages could drive home-buyers out of the market, causing a major
slowdown if not collapse of the real-estate sector. By Ivan Voitsekhovskiy in
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GOLD-DIGGING IN KYRGYZSTAN
Villagers protest against a gold mining development by throwing stones at the
prime minister, but the real battle to control the industry is taking place
By Taalaibek Amanov in Bishkek
Recent protests over a gold mine in northwestern Kyrgyzstan involve local
villagers who are fearful of possible chemical spills on their land and angry
at being left out from the consultation process. But some commentators note
that the dispute is taking place as commercial rights to the Jeruy mine change
hands yet again, and they see a connection between grassroots protests and the
high-level struggle for control of Kyrgyzstans gold mines.
Kyrgyz prime minister Almazbek Atambaev had been in the job for less than two
months when he was dragged into the dispute at the Jeruy mine at the end of
Jeruy is the second largest gold deposit in Kyrgyzstan, and its long-delayed
development is seen as vital to economic growth.
For the previous six months, locals had carried on protests by attrition,
sporadically blocking the road to the mine to stop trucks bringing workers and
equipment to the mine, located in the Talas region.
On May 26, Atambaev went to Jeruy to urge local people to open the road and
allow development work to resume. He tried to reassure a sceptical audience
that once the mine was finally up and running, it would net 500 million US
dollars a year in added revenue for central government, while another 150
million dollars would go straight to Talas region.
When Atambaevs motorcade was setting off to return to Bishkek, a crowd of 300
to 400 villagers blocked the road and pelted the official cars with stones.
Several police officers were injured and government cars were damaged.
Police made a number of arrests and launched a criminal investigation into the
At one level, the dispute is about a rural population worried about
environmental safety in their area once commercial mining starts, and also
unhappy that so far, they have seen none of the economic benefits of
The primary ecological worry is a possible leak of cyanide, used in processing
pure gold from ore.
In 1998, a truck carrying cyanide to the Kumtor gold mine Kyrgyzstans
largest overturned and spilled some of its cargo into the Barskoon river,
which feeds into Lake Issyk-Kul.
The scale of the resulting contamination is still hotly disputed. Activists say
a number of people died soon afterwards and many more illnesses and fatalities
were caused by poisoning of subsoil waters and crops. But the authorities have
said the impact has been much less than claimed. A joint commission of Russian
and Canadian scientists found in late 1998 that irrigation water reaching local
villages did not contain enough toxic traces to cause health concerns.
There is a direct parallel between Kumtor and the situation now at Jeruy, as in
both places, grassroots concerns about environmental worries and demands for
compensation are going on against a background of high-level discussions on
contractual arrangements, and even questions about whether foreign investors
should be allowed in the gold industry at all.
The people are not being kept informed about whether Kyrgyzstans interests
are being protected, whether licenses to develop fields are issued to companies
correctly, and whether our legislative requirements are observed, said
opposition member of parliament Temir Sariev.
At the Kumtor mine, high in the mountains of Jeti-Oguz region at the
southeastern end of Lake Issyk-Kul, there were similar scenes in the first two
weeks of May as protesters blocked the main road up to the mine.
They were demanding further compensation payments for the 1998 spill, and also
a review of the governments agreement with Canadian investors Centerra Gold,
who run the mine through the subsidiary Kumtor Operating Company, KOC.
The protests followed a parliamentary debate in late March over a bill which
would if successful cancel the contract with Centerra and hand the mine back to
Even though the Kyrgyz government already holds 16 per cent of the stock in
Centerra, and it is unlikely it could run a high-tech mining operation on its
own, the debate is a live and highly politicised one in Kyrgyzstan.
Re-nationalisation is probably not imminent, since the bill would need a
parliamentary majority and a final signature from President Kurmanbek Bakiev.
Yet many politicians are worried about the many contracts signed with a variety
of gold industry over the years since independence in 1991, allegations of
corruption and certainly a lack of transparency in many of these deals, and
suggestions that the Kyrgyz state has lost out financially as a result.
These concerns, tinged too with some nationalist sentiment, dovetail neatly
with the worries expressed by local groups about health and livelihood.
KOC vice president Andrei Sazanov said in early May that all the talk of
re-nationalisation and protests by locals had dented Centerra Golds position
on international stock markets, and the Kyrgyz government as a shareholder had
consequently lost some 60 million dollars this spring.
A special government commission is currently holding talks with Centerra.
The Jeruy protests similarly come at a time of transition at the top, with one
foreign investers pushed out unceremoniously and two more acquiring the mines
assets and the right to dig gold, respectively.
On April 26, KazakhGold, a major mining firm in Kyrgyzstans bigger neighbour,
announced that it had bought out Norox Mining, the company which owns the Jeruy
gold processing plant via a two-thirds holding in the Talas Gold Mining
The Kazak firm bought the Norox shares from a subsidiary of the UK-based mining
firm Oxus Gold.
What KazakhGold did not acquire was the right granted by the Kyrgyz authorities
to actually mine the deposit, although an April 26 statement made it clear that
it was interested in doing so.
Oxus Gold held the operating license until last year, when the Kyrgyz
government took it away following allegations that the company had breached
some terms of its agreement. Oxus has described some of the governments
actions as unlawful.
The license now rests with a firm called Jerooyaltyn, set up by the Kyrgyz
government and an Austrian company called Global Gold. Jerooyaltyns plans for
the mine are unclear.
Some observers say the real issue being played out at Kumtor and Jeruy is
attempts by politicians to exert control over the mines. The campaign to seek
fair solutions for local communities is merely a sideshow that is being
exploited for bigger ends, they say.
Kyrgyzstans natural resources are being divided up. The fact that conflicts
around the major gold deposits are heating up is intimately connected with
corruption, said Tolekan Ismailova, head of the Citizens against Corruption
Political analyst Zainidin Kurmanov believes the political and business
turbulence surrounding Kyrgyzstans gold mines is affecting perhaps even
driving the local protest movements.
There are various financial groups behind these [mining] projects, and they in
turn are backed by certain politicians. Civil society gets drawn into the
struggle for ownership, because that struggle needs to be framed within a
clear, understandable and attractive agenda. And that is where the
environmental issue comes in, Kurmanov told IWPR.
Kurmanov said the grassroots protestors are probably completely unaware of the
wider political and business context. But he argues that a pattern of selfless,
public-spirited actions being manipulated by specific interest groups is bad
Its catastrophic for our country, because such actions show that Kyrgyzstan
is not open to attract cooperation and partnership, he said.
Taalaibek Amanov is an IWPR contributor in Bishkek.
EXPERTS WARN OF REAL-ESTATE BUBBLE IN KAZAKSTAN
Overpriced housing and expensive mortgages could drive home-buyers out of the
market, causing a major slowdown if not collapse of the real-estate sector.
By Ivan Voitsekhovskiy in Almaty
Over the last four years, Kazakstans economy has boomed as revenue from
exports of oil, copper and grain have continued flooding in.
Most people have benefited, with the average income per capita up by 22 per
cent and salaries increased by more than a third in 2007, according to official
figures. The growth in spending power, along the modernisation of the banking
system and the introduction of mortgages, has resulted in massive growth in the
However, experts say the main players in the market property developers,
banks and the authorities are fixing prices at an artificially high level.
They warn that as the rise in house prices is accelerating at a much faster
rate than wages, this growth is unsustainable and the bubble could burst at any
They draw comparisons with the situation in Japan, where the economy soared in
the late Eighties and peaked in the early Nineties, but then fell steadily in
what become known as the lost decade.
The growth in the Kazak real estate sector comes after years of stunted
development during the economic crisis which followed the collapse of the
Soviet Union. Nowhere can the construction boom be seen more clearly than in
the former capital Almaty, which remains the economic and financial centre of
the country, and to which migrant workers flock from across Kazakstan and
abroad in search of higher salaries and better jobs.
When Astana became the capital in the second half of the Nineties, resources
were redirected there, and development in Almaty and other major regional
centres was neglected in spite of the rising need for new homes and offices.
After mortgages became available in 2004 for the first time, the construction
industry began to grow by 30 per cent a year. In the last couple of years, 40
per cent of all mortgages in Kazakstan were taken out by residents of Almaty.
Besides measures to regulate land ownership and ease permission procedures, the
government is running a programme to build affordable housing for civil
servants and young families, with prices set at 350-450 US dollars per square
metre and a loan scheme on soft terms over 20 years.
But this investment in the lower end of the market has had little effect on
overall prices, construction has now become the most profitable economic sector
after oil and gas.
Official figures show that housing prices in April were 50 to 70 per cent
higher than in the same month of 2006. In 1999, a two-room apartment in Almaty
cost just a few thousand dollars, but today the same money would not buy one
square metre of property.
At about 600 US dollars a month, wages in Almaty are significantly higher than
in the rest of Kazakstan. But even a good salary of 1,000 dollars will not
cover repayments on a 20-year mortgage on a two-room apartment costing 3,000
dollars per square metre.
There is concern that most potential buyers have been priced out of the market
by the discrepancy between wages and loan repayments.
Aidarkhan Kusainov, head of the Almagest consultancy company, says the
real-estate market began to overheat in the second half of 2006. Buyers are now
forced to take out larger loans and repay the sum over a longer period.
In mid-2006, housing became inaccessible for buyers who were not prepared to
take on the risk of a ten-year mortage, and they left the apartment-buying
market. And at the end of 2006, those people who were prepared to take out a
mortgage for 20 years left the market. At present, the market consists of
speculative trading, he said.
Meruert Mahmutova, director of the Public Issues Analysis Centre, warns that an
unrestrained increase in mortgage lending will lead the country into crisis.
She warns that if bubble bursts it will cause chaos throughout the whole
financial sector, which is funding mortage lending by borrowing abroad.
Excessive debts in the private sector exacerbates the vulnerability of the
tenge [Kazak currency]. The Asian crash [of the Nineties] showed that a boom in
foreign lending to the private sector may end not only in a weakening of the
currency, but also in a bank crisis, she said.
Bulat Kusainov, a leading academic at the Institute of Economics, suggests that
there will be problems whether prices continue to rise or if fall abruptly
following a crash.
If the bubble bursts, banks that have borrowed abroad wont be able to repay
the money, and may end up being taken over by foreign banks. A crisis in the
banking system will consequently result in the crisis of the entire economy.
But if the bubble continues to grow, the eventual fall will be even more
painful, he said.
There is also a worry that corruption is pushing prices up artificially. When
Kazakstan broke away from the Soviet Union, a new class of well-connected
businessmen snapped up prime pieces of land when prices were at their lowest.
Construction companies had to bribe officials to get land sales approved, and
the market began to be saturated with luxury housing developments - the most
profitable sector for builders, thus making it even more difficult for average
customers to afford housing.
Alexander Kalinin, deputy chairman of the Kazakstan Realtors Association,
believes that price-fixing is prevalent throughout the property market. When
major companies come out with forecasts that the market is about to experience
more growth, the construction firms raise their prices.
Kusainov suggests the authorities should step in to curb such behaviour,
although that is easier said than done. The anti-monopoly committee must
combat the artificial overstatement of prices on the real estate market. But
since there are high levels of corruption, nobody will be able to do that, he
But the construction companies deny that the prices are set too high, arguing
that the inflation is a result of increasing demand that is outstripping supply.
In the last year alone, our corporation has finished 1,207 apartments, said
Oleg Nam, the president of KUAT, the largest construction company in Kazakstan.
He says that in Almaty, home-buyers are rejecting Soviet-era housing and even
housing stock from 10 to 15 years ago, and going after new properties.
Despite what sceptics say, demand for housing is on the rise, especially among
young families, he said.
According to Nam, the main difficult facing his company is not selling houses,
but finding the capital to invest in developments in the first place.
Many bankers agree that price rises are fuelled by genuine demand.
This year, the average cost of real-estate in Kazakstan, including Almaty,
will grow by 25 per cent, predicted Aida Gapparova, the head of the mortgage
department at the bank TuranAlem.
Gapparova insists this growth is healthy and fears of a crash in the property
market are unfounded. There are none of the economic preconditions for a fall
in prices, she said.
She says town planners have carefully projected a sustainable level of growth
over the next few years, to replace demolished housing and keep up with demand
Kusainov is not predicting gloom, either. Instead, he says that the market will
begin to cool off, wages will rise more slowly, and people will gradually be
forced to reduce their spending.
It will take time to get used to the fact that the economy is not going to
keep growing at double-digit figures, and nor will salaries and bonuses, he
A slowing in the market will in turn lead to higher interest rates, so that
people will struggle to make repayments, according to Kusainov.
There will be a deterioration in the quality of bank loans which were taken
out in the hope of a general growth in incomes and a continuation of the
consumer boom of previous years. People will simply get tired of handing over a
third or more of their incomes to the banks, he said.
Kusainov thinks property developers who took out loans to finance their schemes
will also be affected by higher repayments. They will be in a greater hurry to
sell properties and will not be able to hold out for higher prices from buyers,
meaning prices will start to drop.
The resulting stagnation on the real-estate market, even over a six-month
period, would flood the market with apartments, because if prices stop rising,
it will reduce the effectiveness of investments, he said.
Ivan Voitsekhovskiy is an independent journalist in Almaty.
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