Top manager of major mining company under house arrest in Kyrgyzstan

BISHKEK (TCA) — “We appreciate all investors who conduct their business in Kyrgyzstan, but often problems arise from the work of companies’ top managers who sometimes carry out illegal activities,” Secretary of the Security Council of Kyrgyzstan Damir Sagynbaev said at a press conference in Bishkek on May 31.

He was commenting on the situation around the detention of Ilyas Tulekeyev, General Director of KAZ Minerals Bozymchak, which caused great resonance in the country and abroad.

Last week, Ilyas Tulekeyev was arrested and later put under house arrest in Bishkek.

About the company

KAZ Minerals Bozymchak belongs to the KAZ Minerals PLC group of companies, the largest copper producer in Kazakhstan. More than 33% of KAZ Minerals PLC shares belong to Vladimir Kim, who has a fortune Forbes estimated at $3.1 billion.

KAZ Minerals Bozymchak has been operating in Kyrgyzstan since 2007. It holds licenses for exploration and development of the Bozymchak copper and gold deposit in the Ala-Buka district of the Jalal-Abad province. The explored reserves of copper are 140.78 thousand tons, gold — 22.96 tons, and silver — 144.2 tons.

In 2015, the Bozymchak ore mining and processing enterprise was launched which now employs about a thousand people, and 97% of them are locals.

For the operating period, the company has paid 2.8 billion soms of taxes to the state budget. Last year, KAZ Minerals Bozymchak was ranked among the top three taxpayers of the country, and paid about 768 million soms to the state budget of Kyrgyzstan. The company has invested about $500 million in the country.

Official version

The criminal case against KAZ Minerals Bozymchak was initiated in 2017 and was later suspended, Security Council Secretary Sagynbaev said.

During a second inspection, the suspended criminal case was resumed, and Ilyas Tulekeyev, General Director of KAZ Minerals Bozymchak, was charged. On May 25, 2018, he was detained and charged for “abuse of powers by employees of commercial or other organizations”.

After Tulekeyev was detained, many other companies that are in arrears with the Social Fund and the Tax Service reimbursed their tax debts. In three days, six large companies transferred tax arrears worth 33 million soms, Sagynbaev said.

Kyrgyzstan does not intend to scare away investors who have nothing to do with law violations, he added.

On May 27, the Pervomaisky District Court of Bishkek released Tulekeyev from custody, but the charge was not withdrawn.

KAZ Minerals’s position

KAZ Minerals Bozymchak expressed its concern about the unreasonable initiation of the criminal case, violation of the law and legal interests of the investor.

On May 29, the KAZ Minerals Board of Directors held a press conference in Bishkek to clarify the situation.

The company sued an administrative action to appeal the decision of Kyrgyzstan’s tax authorities due to the additional taxation according to the Government provision adopted in September 2017. The court session on this suit is scheduled for July 2018. According to the law, the investigation into the case of the General Director was to be suspended until the court’s decision.

Nevertheless, on May 25, the Financial Police detained Tulekeyev, who was charged with the non-payment of an additional amount of taxes in the amount of 55.6 million soms. The tax was added to the company retrospectively, that is, in hindsight.

The company disputes this additional charge in court, therefore, it is not yet legal.

Nevertheless, the company showed its loyalty and on May 28, 2018 transferred a disputable amount of 55.6 million soms to the deposit account of the Financial Police until the court decision. After the trial, the disputable amount will either be returned to the company or go to the state, depending on the court’s decision.

The tax inspection began in January 2017 to check the investor’s activities for 2014, 2015 and 2016. As a result, the State Tax Service added additional 55.6 million soms as an income tax, despite the fact that the Government amended the Regulation on the procedure for determining the value of gold in gold ore and gold concentrate in September 2017. According to the Constitution of the Kyrgyz Republic, the laws are not retroactive.

The company believes that it should pay tax from September 2017, when the amendments were adopted according to which any concentrate containing even a minimum percentage of gold is considered gold-bearing.

The concentrate the company operates with consists of copper, silver and gold, and copper predominates in the concentrate.

Until 2007, when KAZ Minerals Bozymchak entered Kyrgyzstan’s market, there was no copper industry in the country. Accordingly, Kyrgyzstan’s legislation did not take into account this specificity. This is a matter of production technology. “Therefore, the taxation applied to gold mining and gold processing companies was automatically applied to us as well,” Tulekeev explained.

“We are ready to meet and pay taxes, but within the legal framework,” Board Chairman Eldar Mammadov concluded.

Business community’s opinion

As of May 25, 2018, shares of KAZ Minerals PLC on the London Stock Exchange fell -10.80 points and lost 1.07% of their price.

Kyrgyzstan should think about the conditions it creates for investors, said Askar Sydykov, Executive Director of the International Business Council (IBC) based in Bishkek.

Last autumn, when the license of KAZ Minerals Bozymchak was suspended due to environmental claims, the company’s share prices fell on the London Stock Exchange. The damage was incurred not only to the KAZ Minerals PLC Group, but also to Kyrgyzstan. Kyrgyzstan’s rating after that began to fall, affecting the investment image of the country.

Kyrgyzstan badly needs foreign investment. Investors follow up the situation in the country and assess the investment climate and risks. The situation around one of the largest investors in Kyrgyzstan’s mining industry may be disappointing, and potential investors can change their decision and invest in another country with fewer risks.

The position of state structures is not clear in this situation because it is the State that should strongly support investors and business, the business community believes.

IBC believes that KAZ Minerals Bozymchak was forced to transfer 55.6 million soms to the account of the Finance Police. “It looks like raiding because the court has not yet ordered that this amount should be paid,” Sydykov said.

There is one more nuance. According to the Kyrgyz Government’s decree on stimulating the activities of law enforcement agencies, 30% of the money received as compensation for damage to the state by persons guilty for economic and official crimes can be transferred to accounts of law enforcement agencies for their own needs, including bonuses for employees.