Mining Troubles

by Nathan Hamm on 8/15/2006 · 8 comments

Newmont’s troubles in Uzbekistan are only getting worse. The Uzbek government says that Newmont owes $48 million in back taxes. It has also seized control of the joint-venture and blocked the export of gold from the country.

What’s going on? It may not simply be an example of Uzbekistan’s government seeking to drive off any and everything American from the country.

“I think [the motive for the dispute] is probably mainly financial,” said Anna Walker, of the London-based Economist Intelligence Unit. “When the original terms of the agreement were drawn up, they were quite favorable for foreign joint ventures. As prices of gold have been extremely high in the last couple of years, the government realizes that it is quite a lucrative way of getting more money. So I think that is one of the principle reasons.”

In a way, this is business as usual. The Uzbek government sees a successful business and cooks up a reason to seize it.

Newmont is not the only mining company encountering difficulties in Uzbekistan of late. Oxus lost its license to develop a metal deposit in Surkhandaryo.

Government sources quoted by Interfax and Reuters say President Islam Karimov last week issued an order giving a state-owned Uzbek company, the Almalyk Mining and Metallurgical Combinate, the right to develop the Khandiza deposit instead of Oxus.

Neither report provides an explanation as to why Karimov made such a decision.

The Newmont article notes that Uzbekistan already has the lowest level of per capita foreign investment in the Commonwealth of Independent States. For a country that cannot afford to scare off potential investors, Uzbekistan sure does give businesses plenty of reasons to stay away. Karimov made a trip to South Korea and Uzbekistan purchased favorable news coverage to try to convince investors who had been fleeced to bring their cash back. But actions speak louder than words, and short-sighted seizures of foreign assets only guarantees that Uzbekistan will continue to suffer from low levels of investment.

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– author of 2991 posts on 17_PersonNotFound.

Nathan is the founder and Principal Analyst for Registan, which he launched in 2003. He was a Peace Corps Volunteer in Uzbekistan 2000-2001 and received his MA in Central Asian Studies from the University of Washington in 2007. Since 2007, he has worked full-time as an analyst, consulting with private and government clients on Central Asian affairs, specializing in how socio-cultural and political factors shape risks and opportunities and how organizations can adjust their strategic and operational plans to account for these variables. More information on Registan's services can be found here, and Nathan can be contacted via Twitter or email.

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Laurence August 15, 2006 at 3:20 pm

Nathan, Newmont was having troubles with the government even when I was there in 2002-2003. The tension with the US after Andijan cannot have helped their business. I think Russian and South Korean investors may face a more friendly environment…

Nathan August 15, 2006 at 3:26 pm

Except South Koreans already got robbed. When you have a big question mark in your investment budget for payoffs to officials who will never be upfront with what they want, it’s kind of hard to commit to investing. Russian “business” does have it a bit easier as they have a state budget to help them out.

albert August 15, 2006 at 9:59 pm

This is a poor nation of hopeless creatures. I had a chance to work in both projects and to my deepest regret I am convinced that acting so, movers and shakers of this country will unevitably get double, triple Andijon. First of all expats are leaving. Inadvertently, russian- speakers and all occidental- minded (russians, tartars, koreans, uzbeks, tajiks) being yet a link between local system and western proliferation and money are leaving too, securing a Moscow- based judoka a planned russian exodus back to motherland. Of course Almalyk will not work in Handiza project. Otherwise it would start mining there since 1974, when reserves were state- proven. Even in USSR times they did not touch it. And will anybody believe that they will find funds to start up a project? They prepared it for Koreans, but it was a propaganda trick merely and Koreans got sucked, making President of this country a blabber for a convenient case. Newmont project will probably be sold to Potanin, but I would not touch this being him, even if they intentionally undervalued this project with one singing debutante, because one thing is to promise anything to each other in Moscow or Tashkent (I have already mentioned one uzbek promise to korean President) and another thing is to proceed in Stockholm Court.
One thing or another- every day on my way to job I see the same picture- 10 workers are constructing a wall to a local successfull, getting probably $100 a month and on the opposite side of the road a militia sergeant carelessly gazing at them working, sitting in the shade of platan in a shabby arm- chair. He gets probably the same mon. This cross- roads ideology is simple. He looks smarter and in some time 10 militia will gaze at one sole working at another wall somewhere near. This is a future of this nation, which is probably enhvisaged in their famous motto. There is a russian saying which is very applicable to Uzbekistan but cannot be reproduced in its full aroma in English, but I hope Nathan will get it- Mentalitet natsii poznayotsya po eyo mentam

Rustam August 16, 2006 at 3:32 am

albert – I have seen You guys working, I know a lot of people who are personally facing problems because of this changes in fortune.
BUT, it is one thing to run around with a bleeding nose now after you have been beaten, blaming all the UZBEK nation as such and totally other to negotiate with this dictator, his idiot ministers of economy, finance, foreign economic relations, cabinet of ministers, presidential administration, hokims, every time sucking up to them, bribing them as long as they will let you guys work, when you were witnessing what they were doing to many of your colleagues, i mean, BAT, Coke and others. You could see this coming, at least Uzbek side of the Newmount, highly professional and knowledgeable people, they could see this, they could foretell this, why there was not any change in the strategy, why you did not inform the Ambassador, people in the State Dep. of the actions of Karimov. Therefore think about what you did wrong, to whom you were doing all the sucking up, first before saying about “Mentalitet natsii “.

David August 16, 2006 at 9:43 am

Quite funny about Oxus I suppose. Everybody warned them they would get screwed, but would they listen? O no…. But don’t expect Potanin or any other oligarch to come in and pick up the pieces, unless Putin puts the order out. The Russians more than anyone know what they can expect in Uzbekistan. You might as well put your money into Zimbabwean dollars.

Why the clueless Boucher has nothing to say about all this defeats me. It was always the real downside to US policy in Uzbekistan that it never really focused on economic rights, and failed to understand how profoundly criminalised the whole economy was. Attending one of those Uzbek-American chamber of commerce meetings was like stepping into a fantasy world.

Politically, though, its all perhaps quite interesting ….

Nathan Hamm August 16, 2006 at 11:03 am

Boucher did mention it briefly in the press conference last week (linked here).

We keep in very close touch with American companies here. But I am afraid it would not be appropriate for me to discuss the affairs of any particular company. I think the only thing I would say is that there are companies that are finding it increasingly difficult to do their business here. We did discuss these issues today. And I expect we will continue to discuss them in the future. The actions that are taken with regard to some of these particular situations I think will lead other investors to draw their own conclusions. Therefore, I would say that it is important that they be able to handle the situation carefully and fairly. But in terms of public discussions I think I have to leave it at that.

Alex August 16, 2006 at 7:04 pm

Newmont will walk away quietly since they have broken few laws, including US. They know it and so do the Karimovs. Newmont will find an excuse and disappear quickly before additional damaging information is released to US Government.

Alex August 16, 2006 at 7:18 pm

BIg mistake

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