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Kyrgyzstan: Did One Walkout Shrink GDP?

Numbers released this week by Kyrgyzstan’s National Statistics Agency suggest a strike at the crucial Kumtor Gold Mine last winter played a major role in shrinking the country’s economic growth from 5.7 percent in 2011 to minus 0.9 percent in 2012. 

Workers at Kumtor laid down their tools last February to demand parent company Centerra Gold cover their social security taxes. The walkout was resolved after 10 days, with Toronto-listed Centerra – which is one-third owned by the Kyrgyz government – agreeing to make the payments, even though it said the strike was illegal because it violated a collective agreement with workers.

By then the damage was done. Centerra later reported that while workers were neglecting the high-altitude open-pit mine, ice had formed there, and the company decreased its production forecast by one-third. It had previously predicted it would mine 575,000 to 625,000 ounces of gold in 2012; it eventually pulled 315,238 ounces from the ground. 

The mine’s fundamental role in the delicate Kyrgyz economy is well documented. In 2011, Kumtor’s output accounted for 12 percent of Kyrgyzstan’s GDP, and over 50 percent of industrial production, according to official figures. That year, GDP was hurt by another incident: In November, villagers blocked the road leading to the mine. Their weeklong protest drove down the country's year-on-year GDP growth from 8.5 percent for the first 11 months of the year to 5.7 percent by year's end.

In a statement this week, Ian Atkinson, Centerra’s president, called the 2012 haul “disappointing.” The setback wasn’t only due to the strike, however. “In November, when we reported our third quarter results, we announced a further reduction in the Kumtor production due to the mine encountering an irregular till/bedrock contact while transitioning from waste to ore,” he said, predicting a much better year in 2013 and noting that the company had recently upped estimates for total gold reserves by 58 percent.

What does all this mean for the average Kyrgyz? According to the government’s 2012 statistics, if we take the mine out of the equation, Kyrgyzstan’s economy still grew by approximately 5 percent. But Centerra is a major taxpayer, so the falling revenues hurt the government’s ability to pay for social programs. Shortly after the strike, the economics minister said the state budget depended on the mine maintaining output similar to 2011. 

In the coming weeks Centerra faces another challenge in the form of a $152 million fine for environmental damages. The company says the government’s claims are “exaggerated or without foundation” and the activities in question “have been approved at all times by appropriate Kyrgyz authorities and are specifically referred to in Kumtor’s annual mine plans, which are submitted and approved annually by Kyrgyz authorities.”

Kyrgyzstan: Did One Walkout Shrink GDP?

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