The central Asian country of Kyrgyzstan has enormous potential in terms of gold and copper production. But owing to corruption and a lack of government oversight of mines in the country, Kyrgyzstan's government has in the past failed to reap the benefits in terms of mining tax revenue. But this situation is set to change, as last week the government signed a mining law aimed at increasing its tax revenue and fighting corruption.
There used to be serious problems with the mining licensing process. Some mining companies would just sit on the land once they’d bought it, and avoid making the capital investments needed to build a mine. They then hoped to sell the land on at a higher price than they had paid for it. Some hope that the news laws will put a stop to this kind of activity.
Local authorities and governments have often been involved in this corrupt licensing process. According to Minister of Economy and Anti Monopoly Policy Temir Sariev, these activities have to be stopped as they result in serious losses for the government. In the future mining licenses will only be granted through auctions. But if mining sites are not exploited and production does not start, the government will have the right to punish companies with high fines. Furthermore, selling licenses to third parties will be illegal and result in fines.
But these new mining laws are not the only reason why commodities markets have been focusing their attention on Kyrgyzstan. The country's government is also introducing a new 12% mining tax aimed at putting an end to growing tax evasion among Kyrgyzstan's gold and copper producers. Experts believe that these new laws will drastically reduce the number of mining companies operating in the country. Today there are about 800 companies operating in Kyrgyzstan, but some estimate that only 300 will be able to survive the new tax regime – with the government hoping that lots of fraudulent operations are thrown out of business.