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Improving Licensing Could Give Tajikistan a Shot in the Arm

As a lower middle-income country that heavily depends on remittances from migrant workers hard hit by the economic downturn in Russia, Tajikistan is in desperate need of foreign capital to balance its economic growth.

Its cash-strapped mining sector has the capacity to absorb large foreign direct investment inflows. Of Tajikistan’s 600 coal, lead, zinc, copper and bismuth, antimony and mercury, precious metals, iron, tungsten and molybdenum, oil and gas, fluorspar, strontium, rock salt, boron, ornamental stones, semiprecious and precious stones, construction materials and other mineral deposits, just over 100 are in operation. The extractives sector currently accounts for 4.2 percent of state budget revenues, 23.2 percent of exports and 5.2 percent of employment. In 2014, the extractives sector generated USD 87 million in state fiscal revenue, with 90 percent of it coming from mining.

Revitalizing the minerals sector, following the relatively successful example of Mongolia, could provide the government with much-needed tax revenues and create domestic services jobs. Eventually, this could help the 31 percent of Tajikistan’s population that lives below the poverty line.

But improving extractives value chain transparency is a necessary first step to gain the confidence of foreign investors. And Tajikistan is slowly cottoning to global standards: it became an Extractive Industries Transparency Initiative (EITI) candidate country in February 2013 and produced its first EITI report in October 2015.

However, having begun extractive activities in 2004, this country relatively new to mineral production must create a robust and transparent license allocation framework to attract foreign investors and ensure it gets its fair share of the revenue from mining contracts.

In Tajikistan, the government allocates licenses through a bidding process or in some cases simply awards contracts. Multiple government authorities are responsible for granting licenses depending on the type of natural resource in question: the Main Geology Directorate (for exploration of sub-soil mineral resources), the Ministry of Industry and New Technologies (coal), and the Ministry of Energy and Water Resources (for oil and gas). Licenses to explore, extract and produce oil, gas and coal are issued for a minimum of five years; mineral licenses are for three years. Both types may be renewed. The government receives benefits in the form of a license fee, a one-time payment of TJS 4,000 (USD 508).

Although Tajikistan’s first EITI report includes the license cadaster, the official website of the registries of the State Committee on Investment and State Property Management (GosKomInvest) does not provide information on existing and revoked licenses. The licenses database is not publicly available on any official website.

Moreover, the license registries do not explain whether a license is issued through public bidding or other means. No description of bidding companies is presented and most licenses are allocated through agreements rather than competition. Nor does the government publish contracts in open data format.

Take the example of Konimansuri Kalon silver deposit. In 2009, the government announced a tender for exploitation of the deposit, which is expected to bring in a USD 2 billion investment. Of the 12 bidding companies, the government approved a short list of four—two Chinese, one Anglo-Australian (BHP Billiton), and a consortium led by Glencore subsidiary Kazzinc. Later, both Chinese companies and BHP dropped out of the competition, leaving only Kazzinc. Ultimately, no company was awarded the contract as the government and the consortium “failed to arrive at a common view on terms.” Recently, the government announced a new bidding process for Konimansuri Kalon. In this way, the withdrawal of foreign investors, possibly linked to poor infrastructure, among other factors, has delayed minerals production in Tajikistan’s largest prospective deposit. However, this might also indicate that the bidding companies were scared off by obstacles and uncertainties associated with investing in emerging post-socialist economies like Tajikistan’s.

Recognizing the importance of transparency and accountable government in attracting foreign investment, the Eurasia Regional Extractive Industries Knowledge Hub has implemented a series of capacity-building trainings for key stakeholders. These courses introduce participants to the essentials of EITI requirements and explain tangible benefits to EITI membership. They also help participants to prepare an action plan for local-level multi-stakeholder groups and to write an annual EITI report. The Eurasia hub team recently conducted a training course for members of the Tajikistan’s EITI multi-stakeholder group focused on communicating about EITI to the Tajikistan public.

Current volatile commodity prices might discourage companies’ investment in countries with an uncertain business environment and bureaucratic obstacles. If Tajikistan wants to attract foreign company investment, it must improve its mineral licensing system to make it transparent and predictable to potential investors.

Farid Guliyev is a research associate for the Eurasia Hub at Khazar University in Baku, Azerbaijan. Jahongir Nigmatov works as a consultant on technical issues for the EITI national secretariat in Tajikistan.