ASSESSMENT OF THE COAL RESOURCES OF THE KYRGYZ REPUBLIC:

COAL CHARACTER AND DISTRIBUTION, GEOLOGY, MINING, AND IMPORTANCE TO THE NATION'S FUTURE

USGS Open File Report 97-137A (English)

APPENDIX I. PRIVATE (SMALL) ENTERPRISE MINING PROGRAM

A. SUMMARY

The Private Enterprises Mining Program allows private investors access to the coal resources of the Republic for the purposes of mining and marketing coal to satisfy local and regional energy requirements of the nation. The private operators engaged in the program receive technical assistance from agencies of the State, primarily from the Ministry of Geology and Mineral Resources, but need additional training and assistance in resource and mining technology, market development, and economics of small, free-enterprise, market-economy mining companies.

B. BACKGROUND

The Small Enterprises Mining Program was initiated by government decree circa 1993 in an attempt to help satisfy the energy requirements of local areas of the Republic. The program envisioned recovery of coal from accessible outcrops by operators with little or no mining experience equipped with whatever earth-moving machinery was available. Operators were required to supply coal to "Budgetary Institutions" (schools, hospitals, etc.) at no cost, and were not allowed to produce more than 10,000 tonnes of coal annually. The Committee of Geology (now the Ministry of Geology and Mineral Resources) provided resource guidance and was responsible for licensing and general overview of operations. The Ministry of Industry, Material Resources and Trade was authorized in September, 1994, and April, 1995, to issue loan guarantees in the amount of 1.5 million soms and 910 thousand soms, respectively, to catalyze the program. Seven enterprises and four enterprises received the loan guarantees, respectively. [We were told that only two of the eleven firms are repaying the banks that provided the money, the Ministry never had any money for the program, and does not expect to be involved in repayment of the loans to banks.] Technical advice to the small enterprises was provided upon request by KYRGYZKOMUR, the government coal mining company operating under the Ministry of Industry, Material Resources and Trade.

C. PRESENT STATUS OF THE PROGRAM

Within the past year, the program has been renamed the Private Enterprises Mining Program. The mines now have no production restrictions and are not required to provide unpaid-for coal to the Budget Institutes. KYRGYZKOMUR may still provide advice and assistance, and the ability of the Ministry of Geology to assist the program may have been increased. Table 1 below is a list of the licensed Private Enterprises Mines in the program. In addition, there may be as many as eleven unlicensed mines operating in local areas.

Licensed enterprises receive resource and reserve information from the Ministry of Geology and Mineral Resources, and can contract with the Ministry for exploration assistance such as trenching or drilling. The enterprises must pay taxes on production and sales, must submit regular reports on activity, and may receive technical advice and guidance in mining.

TABLE 1.--LIST OF LICENSED PRIVATE ENTERPRISES

Enterprises are listed in four organizational forms in table 1. It is probable that those listed as Small Enterprises are similar to Private Firms but may still have a more cooperative or communal aspect. Private Firms and Stock Firms are probably similar to western understanding of those terms. Village Enterprises are almost certainly responses to local needs and are cooperative in nature.

Table 1 shows that the bulk of coal produced by the small mines came from the Alay coal region. Reportedly, more coal has been produced than sold in the Alay Region. In other areas sales may have matched production. In addition to the production listed in table 1, about 14,000 tonnes were reportedly produced by about eleven other small mines, perhaps all unlicensed as yet.

At most (all?) of the small mines, coal is 1) mined when someone desiring coal arrives with a truck, or 2) mined and stockpiled awaiting the arrival of someone with a truck. The coal is not segregated by size in most (all?) cases and the percentage of coarse versus fine coal can range widely. Cash is the desired form of payment, barter may be accepted, and humanitarian supply with little or no prospect of recovery of mining costs almost certainly takes place.

The former chief geologist of KYRGYZKOMUR, T. Kydyrbaev, is now an Inspector, headquarted in Osh, who reports directly to the Chief of the Department on Geological Control, Utilization and Conservation of Natural Resources in the Ministry of Geology and Mineral Resources in Bishkek. He has oversight and information responsibility for eleven of the licensed private coal enterprises plus all other mineral extraction operations in Dzhalal-Abad and Osh Oblasts. Private Enterprise activities in other oblasts are the responsibility of the headquarters office in Bishkek.

Each private enterprise must reach an agreement quarterly with the local tax office on the value per ton of the coal mined in that quarter. This value is called the Tax Price and the miner must pay a 5% tax per ton of coal produced based upon the Tax Price. This production tax is distributed 20% to local settlements, 30% to the Oblast, and 50% to the central government. When the coal is sold the actual sale price may be more or less than the Tax Price. On the actual sales price the enterprise operator pays a 25% sales tax, a 5% insurance (social liability?) tax, a 1.5% tax intended for road maintenance, and a 1.5% tax for a Water and Air Quality Protection Fund. [If coal is traded for other commodities, the same taxes apply to the barter transaction.]

In the fourth quarter of 1995 the Tax Price established for private enterprises coal mines ranged between 90 and 120 soms per ton and averaged about 100 soms per tonne. In contrast the average Tax Price for state-owned mines was about 185 soms per tonne with a range from 96 to 322 soms per tonne.

In 1995, the private coal mining enterprises reportedly produced almost one-eighth of the coal mined in the Republic. They constitute an important part of the system that supplies energy for the people of Kyrgyzstan. With assistance the private mining companies could supply more of the fuel needs of the Republic, employing citizens to develop and produce indigenous resources.

D. NEEDS FOR PROGRAM DEVELOPMENT

The Small Enterprises Mining Program began as a very legitimate humanitarian response to needs for energy in many local areas of the Republic. In those areas coal was unavailable to, or unaffordable by, some or all of the population. The program still is aimed at satisfying the local and regional energy needs of the people of Kyrgyzstan. However, in common with many other parts of the emerging market-oriented economy of the independent countries that were formerly parts of the Soviet Union, the program is now attempting to emphasize private enterprise as a solution to continuing domestic requirements.

The program was initiated under nearly crisis conditions with essentially no requirements for specialized mining knowledge, experience and equipment. The program assumed that market values and other economic factors were of little importance compared to the fuel needs of the population, and loans (perhaps a form of subsidy) were supplied to start the program.

In its present form the program seems to be in transition from its original strongly communal form to that of privately-funded, small, market-responsive, private enterprises that are intended to support the operators and recompense investment. Some of the enterprises listed in table 1 above will never be "privatized". Some of them are attempting to function as "profit-making organizations" or "investment opportunities". Many of them need help of various kinds in their attempt to supply the coal needs of the Republic. Those attempting to become viable economic entities require assistance to increase technological and engineering sophistication, to recognize and satisfy marketing factors, and to understand and apply the complex system of economic and legal factors that affect small-scale, market-oriented, coal-mining enterprises.

Assistance ranging from on-site advice to training could be supplied in response to individual enterprise needs to be identified through the Ministry of Geology and Mineral Resources, other governmental agencies, the Association of Small Enterprises (the members are small mining enterprises operators), or through individual contacts and site visits. In addition, general applicable training courses over an identified range of needs could be offered to groups interested in privatization of small coal mines. One suggestion that emerged during discussions was the desirability of a "planned" or "model" small coal-mining enterprise that could be used as a successful "pilot" analog to instruct, guide and promote private enterprise.

A program to assist and train elements of KYRGYZKUMURHOLDING in mine management, mine planning and design techniques, financial systems, and marketing may be initiated soon. It is appropriate that a similar program designed specifically for private entrepreneurs and investors be available through the Private Enterprise Mining Program.

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