Blog Entry

Centerra Gold: The Ugly Face of Canadian Capitalism

Jamie Kneen

National Program Co-Lead

The Canadian mining company’s many environmental and social offences represent a flagrant breach of the trust placed in it by the Kyrgyz people.

Guest blog by Gulzhan Musaeva. 

Back in the early 1990s, the Kumtor mine was meant to become newly independent Kyrgyzstan’s ticket to prosperity. Kumtor, the seventh largest gold deposit in the world at the time, became the first mine in Central Asia to be operated by a Western company. But as often is the case with resource extraction in developing countries, the only parties who ended up gaining from the country’s mineral wealth were big businesses and corrupt politicians.

Through the years, Centerra has faced numerous accusations of environmental harm and human rights violations in relation to Kumtor. The company, unwaveringly defended by the Canadian government and the European Bank for Reconstruction and Development (EBRD), has staunchly denied any wrongdoing, despite independent verification of infractions of international treaties and customary law – and apparent violations of Kyrgyz law that remain unprosecuted. In the pursuit of economic self-interest, it exploited the laxity of local legislative bodies through behind-the-scenes maneuverings with successive generations of sleazy officials.

Precious but controversial commodity

Kumtor has been a perennial bone of contention for Kyrgyzstan and its foreign operators. First there was Cameco Gold, Centerra’s predecessor, also Canadian, that received concession rights, apparently without a proper bidding process, in 1992.

Trouble came quickly after operations started in 1997: on a spring day of 1998, a Kumtor truck carrying a ton of cyanide veered off a mountain road and overturned into the river Barskoon. The accident led to the mass deaths of fish and livestock and subsequently the poisoning of thousands of residents in the vicinity.

Entire villages had to be evacuated in the weeks that followed, but Cameco made light of the situation, all the while blocking independent ecological assessment of the area. Despite countrywide calls for a harsh punishment for the company, in the end only the hapless truck driver was criminally charged.

For more than two decades, the survivors of the tragedy fought to be fairly compensated. Finally, in 2020, the Kyrgyz judiciary ordered Kumtor Gold Company to pay the plaintiffs 400,000 soms (or $5,700) each — a pitiful amount of money set against long-term ill health consequences the locals had had to bear.

Social conflicts around Kumtor continued unabated since Barskoon, as public opposition against the Canadian miners grew ever stronger. Residents of Issyk Kul, the region where the mine is, saw little benefit in the way of infrastructure and social services, all while foreign operators of Kumtor, along with provincial officials, were getting progressively and rapidly richer. Years of accumulated frustration spilled over in a series of major protests throughout 2013 and 2014. At minimum, the people were fighting for basic access to clean water.

The government portrayed the riots as politically motivated and retaliated violently, engaging the police and even the military to subdue dissent. Hundreds were injured and mass arrests followed, accompanied by documented cases of torture. Centerra’s direct involvement was limited to unlawfully procuring a video recording alleging extortion against protest leaders. (The men, who protested their innocence, were convicted and sentenced to prison.) Indirectly, Centerra was a beneficiary of a revolving door with state security services that kept any grumbling local folk away from the mine.

Treacherous bending and discarding of rules

Barskoon was the first ever testament to the Kyrgyz government’s disinterest in defending the well-being of its own people and the Canadian side’s disingenuousness. Things only got worse when owner Cameco was replaced by Centerra in 2003, as Kyrgyzstan’s share in the new business was cut by half, from 67% to just 33%. The recompense for this injurious move came in the form of $56 million of under-the-table money allegedly paid to the president at the time, Askar Akaev, and his family.

Allegations that Centerra was paying off officials instead of playing by the rules had started then. But its governance track record got progressively more questionable from there. The biggest blow to the Kyrgyz people’s interests came in 2009 when the government allied with Centerra yet again, by dropping all of its previous claims against the Canadians (which included charges of corruption, environmental harm, and tax violations) and agreed to a minor boost in shareholding in return for a twofold increase in the development area. Because this additional land included several glaciers and a protected ecological sanctuary, the citizens were rightly outraged. But that was only the tip of the iceberg.  

By greasing the palms of local politicians, then the president Bakiev and his cronies, Centerra sealed a special treatment on tax and operations for itself, which was guaranteed by the Supreme Court — something virtually unheard of anywhere else. Given Kumtor’s significance to the struggling local economy (it single-handedly contributes about 12% to GDP), the decision to award the Canadian company with a tax discount — 13% against the base 17-20% and a zero rate for related-company transactions — was not just economically senseless for Kyrgyzstan but also morally unacceptable for Centerra to push for in the first place, much less accept.

The $1.5 billion that Kyrgyzstan has received from the development of the mine “simply covers the cost of rent and the licence and is but a miserable price for colossal destruction that is worth hundreds of times more”, according to local environmentalists. The bulk of the money, to the tune of $11.5 billion, has left the country through Centerra.

To critics, the 2009 agreement supports allegations that Centerra was not merely a victim of systemic extortion, but rather a proactive participant and sponsor of political manipulations of law. The company has used this document as insurance against every and all risk. It managed to successfully dodge a legislative proposal that aimed to prohibit activities on glaciers by arguing that Kumtor ought to be exempt from relevant Water Code provisions. In 2017, Centerra went a step further, engineering a move to have its destructive work on glaciers expressly sanctioned by the state.

Even after many such wins, Centerra has not always cooperated with the Kyrgyz government. In 2012 and 2013, for example, Centerra denied the country its share of dividends under questionable circumstances. The company has also been notorious for the frequent use of brinkmanship, making threats to close down operations if its demands are not met. This negotiating ploy helped Centerra handle a regulatory impasse in 2014 when it failed to receive an approval for its annual mining plan, pending investigations into graft and payment irregularities.

The apogee: irreversible environmental damage

The Kumtor mine is situated amid a fragile glacier system of the Tian Shan mountain range. While Centerra and proponents argue that displacing the  Lysyi and Davydov glaciers — whose ice mass decreased from 700 million cubic metres to less than 200 since mining started — has been unavoidable, it is the company’s illegal practice of depositing tailings directly on top of glaciers that has accelerated their melting. Centerra has not taken any measures to stop this or other actions that were found to be in violation of environmental protection laws, showing no regard for the country’s legislation – already considered deficient by most standards.

Centerra has persistently denied any wrongdoing, while its investors and financiers have colluded by trivialising the environmental issues. But for landlocked Kyrgyzstan, where glaciers feed hydroelectric generation and sustain the entire regional ecosystem, it is a matter of survival. Independent and government-led environmental queries into Kumtor have revealed the extent of Centerra’s responsibility for the loss of glacier mass. Academic researchers, using satellite imagery, explain that Lysyi and Davydov are being disproportionately affected by ice removal during local mining activities: the two glaciers each lose over 30 metres a year, while other glaciers nearby retreat by only 10 metres a year due to natural surface melt.

Centerra has insisted on referencing climate change as the sole factor materially affecting the glaciers. However, it has barred outside technical experts from access to the mine (most conspicuously Bankwatch in 2011 and 2015) and hindered the work of state audit teams. Regulatory and prosecutory bodies, meanwhile, “lack the necessary political support to perform truly independent, competent oversight”, said independent hydrogeologist Robert Moran, who conducted an extensive study on Kumtor.

Mining operations bring an attendant hazard which the company keeps very quiet about: the tailings dam at Kumtor, containing approximately 2 billion tonnes of waste mixed with ice and toxic chemicals, is highly vulnerable to failure — based on a rating given by the Global Tailings Portal — which would spell utter disaster for the transboundary rivers and grand Lake Issyk-Kul that lie downstream. Although Centerra claims to be maintaining the dam, recent precedents from around the globe expose the inadequacy of standard tailing management practices. The fact that the dam is located in a highly seismic zone below another expanding body of water, Lake Petrov, complicates the task even further.

Persistent water pollution is another problem Centerra has not dealt with. Toxic substances from the tailings make their way into the waterways all year round. Some 5 million cubic metres of treated wastewater (in addition to indirect seepage) is discharged into the Kumtor River which then flows into the large Naryn River. Among other contaminant sources are waste rock, open pit walls and floor, and explosives, as well as countless fuel and process chemical spills.

Centerra does not bother reporting any toxicity data (although it would have to on its home turf in Canada, where regular disclosure of testing results is mandatory), nor did it ever conduct any pre-mining environmental studies to determine baseline water conditions. Local residents complain of a serious reduction in fish stock, which has been attributed by environmentalists to high concentrations of contaminants that exceed international water quality standards and aquatic life criteria.

When the mine eventually closes, the country will be mostly left to fend for itself. Centerra’s reclamation fund is clearly insufficient to cover the actual costs of maintaining waste deposits in perpetuity and restoring the local environment effectively.

Big decisions to make for the uncertain future

The new Kyrgyz president was a loud critic of Centerra in the past and, once in power, has swiftly set in motion a campaign to reclaim power in the mine. The plot is thickening by the day. On May 6, the Parliament passed a new law which allowed external management to be installed within Kumtor Gold Company; simultaneously, a court ruling came out obliging the company to pay just over $3 billion as compensation for environmental damages.

Centerra, in response, followed a well-worn pattern of, first, denying the charges and, second, invoking the inviolable agreement of 2009. This time, however, the stakes are higher, given that the government is not backing down, so the company has initiated an international arbitration. In a truly deplorable move, foreign managers have remotely turned off all control and monitoring systems at the mine endangering the safety of workers. 

Kyrgyz society is divided over further action. On the one hand, there are valid fears that the government may not be able to run the complex mining operations. On the other hand, there is significant support for outright nationalisation of Kumtor, although the legalities of such a move are debatable. It is possible that the government will take the middle road and ask for a 100% stake in Kumtor, which probably will not go down well with Centerra, given that the Kyrgyz mine is still its primary cash cow. 

It is hard to say what the future for Kumtor will look like. But the bigger question is whether the price Kyrgyzstan has paid for mining to this day has been worth it. If the mining development is extended to 2031 (under Centerra or otherwise), will natural systems be able to handle the increased load – or crumble, leading to ecological and social calamity and ruin?

For its part, Centerra, since its inception and entry into Kyrgyzstan, has acted out the role of a foreign capitalist perfectly. It created a web of rent-seeking arrangements with corrupt institutions and profited from unconstitutional economic privileges, mindlessly pillaging the country’s resources without respect for environmental norms or human rights.

Canada, for its part, has facilitated Centerra, and before it Cameco (originally a Crown corporation), in raising capital in Canadian stock exchanges and financial markets with no conditions or requirements for environmental protection or transparency prior to the entry into force of the Extractive Sector Transparency Measures Act in 2015. According to publicly available information, no investigation has ever been carried out under Canada’s Corruption of Foreign Public Officials Act despite the proliferation of allegations and even official Kyrgyz investigations.

Companies like Centerra (which are many) do not deserve to be acquitted, much less supported, by their national governments or financiers, nor should they be shielded by international law. Meanwhile, Kyrgyzstan must look elsewhere to learn once and for all to safeguard its true wealth that is immeasurable in monetary terms: nature and people.

Gulzhan Musaeva is an independent business analyst with focus on sustainability issues.