Kyrgyz Republic has made meaningful progress with considerable improvements in implementing the 2016 Standard.

Outcome of the Validation of the Kyrgyz Republic.

Decision reference: 2020-73 / BC-296
Decision basis: EITI Articles of Association 2019-2021, Article 12.1. ix)

29 September 2020

Board decision

The Board came to the following decision:

The EITI Board agrees that the Kyrgyz Republic has fully addressed 12 of the 20 corrective actions from the country’s first Validation. Consequently, Kyrgyz Republic has made meaningful progress overall in implementing the 2016 EITI Standard, with considerable improvements across several individual requirements.

The Board commends the Government of the Kyrgyz Republic and the Supervisory Board (MSG) for their efforts to improve transparency and accountability across the upstream extractive industry value-chain. There has been renewed engagement from both government and the Supervisory Board in their oversight of all aspects of EITI implementation, even if challenges remain related to ensuring sustainable funding for the annual EITI work plan. The Board takes note of the government’s on-going efforts to secure funding for EITI implementation from development partners and the government budget.

EITI stakeholders in the Kyrgyz Republic have begun the transition to systematic disclosures of EITI data by improving government and corporate disclosure systems, such as the collection of some EITI data through annual corporate filings to the regulator, the State Committee for Industry, Energy and Subsoil Use. The Board encourages the Kyrgyz Republic to ensure that EITI reporting builds on these emerging systematic disclosures to provide an annual diagnostic of public- and private-sector audit practices, and of state-owned enterprises in particular. By pursuing collaboration with the State Property Management Fund and the Ministry of Finance, the Supervisory Board can help strengthen oversight of government disclosure systems and of SOEs’ financial relations, including their transactions with related parties.

The Board commends the Supervisory Board’s efforts to overcome constraints on the publication of some mineral commodities’ production and export data related to national security provisions and urges the Supervisory Board to pursue these efforts to ensure comprehensive disclosures data on all mineral commodities produced. The Board also encourages to ensure these disclosures are comparable, by employing internationally recognised data standards. Building on improvements in disclosures of license information, the Board encourages the Supervisory Board and government to ensure the comprehensiveness and accessibility of licensing information. The Board takes note of improvements in disclosures of subnational revenue flows and social expenditures and encourages the Supervisory Board to ensure that EITI reporting provides an annual diagnostic of the rules and practices related to subnational transfers.

The Board has determined that the Kyrgyz Republic will have 18 months before a third Validation , i.e. until 29 March 2022, to carry out corrective actions regarding government engagement (Requirement 1.1), license allocations (Requirement 2.2), license register (Requirement 2.3), state participation (Requirement 2.6), production data (Requirement 3.2), comprehensiveness (Requirement 4.1), SOE transactions (Requirement 4.5), subnational payments (Requirement 4.6), and subnational transfers (Requirement 5.2). Failure to achieve satisfactory progress in the third Validation will result in temporary suspension in accordance with Article 6 of the EITI Standard. In accordance with the EITI Standard, Kyrgyz Republic’s MSG may request an extension of this timeframe or request that Validation commences earlier than scheduled.

Corrective actions and strategic recommendations

The EITI Board agreed the following corrective actions to be undertaken by the Kyrgyz Republic. Progress in addressing these corrective actions will be assessed in a third Validation commencing on 29 March 2022:

In accordance with Requirement 1.1.c, the Kyrgyz Republic should ensure that there is sustainable funding for all aspects of the EITI implementation, including for activities, disclosures and dissemination of EITI-related data, as part of its full, active and effective engagement in the EITI process. The provision of funding could include funding from both development partners and government allocations to support all aspects of the annual EITI work plan. To strengthen implementation, the Kyrgyz Republic is encouraged to explore ways of enhancing government leadership of the transition to systematic disclosures.
In accordance with Requirement 2.2, the Kyrgyz Republic should comprehensively disclose the list of licenses awarded during reporting period, in particular license awards through direct negotiations. To strengthen implementation, the Kyrgyz Republic is encouraged to ensure systematic disclosure of the requisite information set out in Requirement 2.2(a-c) through existing public portals, and ensuring transfers of licenses are also publicly disclosed.
In accordance with Requirement 2.3, the Kyrgyz Republic should disclose date of application, date of award and duration of all licenses active during the reporting period. The Kyrgyz Republic is encouraged to maintain the up-to-date online register that includes information about licenses held by all entities, including companies and individuals or groups that are not included in the EITI Report. To strengthen systematic disclosure of the licensing information, SCIESU could upgrade its online license register to be user friendly, searchable and comparable with the list of licenses applications.
In accordance with Requirement 2.6, the Kyrgyz Republic should ensure that a description of practices regarding the financial relationship between the government and SOEs is publicly disclosed, including coverage of transfers of funds between the SOE(s) and the government, SOEs’ retained earnings, reinvestment and third-party financing. The level of state participation in SOEs’ subsidiaries and joint ventures should be comprehensively disclosed, including the terms attached with all state and SOE equity in extractive companies. Any loans or loan guarantees provided by the government or SOE(s) to oil, gas and mining companies operating within the country should be disclosed. The Kyrgyz Republic may wish to ensure public access to debt agreements between the state (Ministry of Finance) and extractive companies to ensure that disclosures of existing loans and loan guarantees between central government agencies, SOEs, and extractive sector companies are comprehensive. To strengthen implementation in accordance with the 2019 EITI Standard, the Kyrgyz Republic is encouraged to ensure that the audited financial statements of SOEs are publicly, including the auditor’s opinions and the detailed financial notes. The Kyrgyz Republic may wish to use EITI reporting as a means of monitoring SOEs’ compliance with their statutory obligations to publish this information, working with the State Property Management Fund to ensure that their planned portal includes annual information on SOEs’ dividends, retained earnings, reinvestment, third-party financing and loans and loan guarantees.
In accordance with Requirement 3.2, the Kyrgyz Republic should disclose production data annually for all extractive commodities produced, including production volumes and values disaggregated for each commodity. Gold concentrates, iron, silver, coal and copper are of particular importance, given that several are produced by companies considered material for EITI reporting. The Kyrgyz Republic is also encouraged to explore ways to ensure that constraints linked to state secrecy considerations do not hinder its systematic disclosures of production volumes and values for all extractive commodities. To ensure comparability of production data, the Kyrgyz Republic is encouraged to make use of internationally recognised methodologies and standards, such as the United Nations’ Central Product Classification (CPC), Harmonised System Codes (HS), or the International Standard Industrial Classification of All Economic Activities (ISIC rev 4).
In accordance with Requirement 4.1.a-c, the Kyrgyz Republic should ensure that all material extractive payments and revenues are comprehensively disclosed. All companies making material payments to the government are required to comprehensively disclose these payments in accordance with the agreed scope. In order to publicly demonstrate the comprehensiveness of its EITI disclosures, the Kyrgyz Republic is encouraged to ensure that the Supervisory Board’s decisions on which companies and revenue streams are deemed material is clarified in publicly-accessible documents. In accordance with Requirement 4.1.d, the government is required to provide aggregate information about the amount of total revenues received from each of the benefit streams agreed in the scope of the EITI Report, including revenues that fall below agreed materiality thresholds. Where this data is not available, the Kyrgyz Republic should be transparent about the barriers to the government’s full unilateral disclosure of extractive revenues and draw on any relevant data and estimates from other sources in order to provide a comprehensive account of the total government revenues. The Kyrgyz Republic may wish to ensure full government public disclosure of extractive revenues through existing government systems, such as the Open budget portal.
In accordance with Requirement 4.5, the Kyrgyz Republic should ensure that transactions involving each material SOE, including their subsidiaries and joint ventures, are comprehensively and reliably disclosed annually. These disclosures should include material payments collected by material SOEs from each joint venture and subsidiary, including but not limited to dividend incomes and management fees. It also encompasses their other non-revenue transactions either received from, or paid to, government agencies. This may include transactions related to loans and loan repayments, and other material transfers.
In accordance with Requirement 4.6, it is required that the Kyrgyz Republic establish whether direct payments, within the scope of the agreed benefit streams, from companies to subnational government entities are material. Where material, the multi-stakeholder group is required to ensure that direct company payments to subnational government entities and the receipt of these payments are disclosed and reconciled in the EITI Report.
In accordance with Requirement 5.2, the Kyrgyz Republic is required to disclose the revenue sharing formula and any discrepancies between the transfer amount calculated in accordance with the relevant revenue sharing formula and the actual amount that was transferred between the central government and each of the regional and district funds during the reporting period.

Background

The Kyrgyz Republic was admitted as an EITI Candidate in September 2007 and was designated compliant with the EITI Rules in March 2011. The first Validation of the Kyrgyz Republic against the EITI Standard commenced on 1 July 2016. On 8 March 2017, the EITI Board found that the Kyrgyz Republic had made an inadequate progress in implementing the 2016 EITI Standard. Twenty corrective actions were identified by the Board, pertaining to the following requirements:

Government engagement (Requirement 1.1)
MSG governance (Requirement 1.4)
License allocations (Requirement 2.2)
License register (Requirement 2.3)
Contract disclosure (Requirement 2.4)
State participation (Requirement 2.6)
Production data (Requirement 3.2)
Export data (Requirement 3.3)
Infrastructure provisions and barter arrangements (Requirement 4.3)
Transportation revenues (Requirement 4.4)
Transactions involving SOEs (Requirement 4.5)
Subnational direct payments (Requirement 4.6)
Data quality and assurance (Requirement 4.9)
Subnational transfers (Requirement 5.2)
Social expenditures (Requirement 6.1)
SOE quasi-fiscal expenditures (Requirement 6.2)
Contribution of the extractive sector to the economy (Requirement 6.3)
Public debate (Requirement 7.1)
Discrepancies and recommendations from EITI Reports (Requirement 7.3)
Outcomes and impact of EITI implementation (Requirement 7.4).

The Board asked the Kyrgyz Republic to address these corrective actions to be assessed in a second Validation commencing on 8 September 2018. Upon two extension requests from the Supervisory Board (SB), the Board extended the Kyrgyz Republic’s Validation deadline to 2 October 2019.

The Kyrgyz Republic has undertaken a number of activities to address the corrective actions:

On 7 April 2017, the Supervisory Board agreed an action plan to address the corrective actions.
In March 2017 the civil society and company constituencies developed and approved their respective nomination procedures to address corrective action #2.
On 7 April 2017, the Supervisory Board updated and published the EITI work plan for 2017-2018.
On 25 March 2017, the Supervisory Board approved the ToRs for the 2015-2017 EITI Report.
On 27 June 2018, the Supervisory Board approved and published Kyrgyz Republic’s 2017 Annual Progress Report.
On 4 January 2019, the government approved Regulation #631 on Improving the EITI Process that include changes to the Supervisory Board Memorandum of Understanding.
On 10 January 2019, the Supervisory Board approved and published the 2019 work plan.
On 12 March 2019, the Supervisory Board appointed the Independent Administrator to prepare the 2015-2017 EITI Report.
On 22 June 2019, the Supervisory Board approved and published Kyrgyz Republic’s 2018 Annual Progress Report.
On 7 June 2019, the Supervisory Board approved and published the 2015-2017 EITI Report.
On 16 September 2019, the State Committee on Industry, Energy and Subsoil Use organised the EITI national conference^{^[1]} and a press briefing.^{^[2]}
In July-September 2019, the CSO Coalition conducted EITI dissemination activities in Bishkek and five extractive regions, namely Chatkal, Ala-Buka, Kochkor, Ton and Talas.
In August-September 2019 the CSO Coalition conducted three press briefings to inform media about the EITI and its recently published report. The three press briefings resulted in 25 publications related to the EITI.
In August 2019, the CSO Coalition organized a mass media contest on the best publication on EITI. On 27 September, the contestants attended the award ceremony with the participation of Karybek Ibrayev, Supervisory Board Chair and KEITI Secretariat.
In September 2019, the State Committee on Energy, Industry and Subsoil use conducted EITI dissemination activity in the Ala-Buka region.

In addition to this, the Supervisory Board conducted a mainstreaming feasibility study^{^[3]} with support from the EITI International Secretariat. The recommendations from the study were endorsed by the government and the Supervisory Board members.

Kyrgyz Republic’s second Validation commenced on 2 October 2019. The EITI International Secretariat has assessed the progress made in addressing the 20 corrective actions established by the EITI Board following Kyrgyz Republic’s first Validation in 2016.^{^[4]}

Subject to the EITI Board’s consideration of new information published after the commencement of Validation, the International Secretariat’s assessment is that the Kyrgyz Republic has fully addressed twelve of the 20 corrective actions, having made “satisfactory progress” on ten of the corresponding requirements, with two requirements now assessed as “not applicable”. The assessment of Requirements 1.4 (MSG governance) and 3.3 (export data) as “satisfactory progress” is subject to the EITI Board’s consideration of developments subsequent to the commencement of Validation. The International Secretariat’s assessment is that the Kyrgyz Republic has partly addressed the other eight corrective actions. In addition, the Secretariat’s assessment is that there has been back-sliding in Requirement 4.1 on the comprehensiveness of disclosures.

The draft assessment was sent to the Kyrgyz Republic EITI Supervisory Board (local MSG) on 16 June 2020. Following comments from the Supervisory Board submitted on 3 August 2020, the assessment was finalised for consideration by the EITI Board.

^{^[1]} Press release on the EITI National Conference in Bishkek, accessed here in December.

^{^[2]} GKPN Press briefing, accessed here in December 2019.

^{^[3]} Mainstreaming feasibility study of the Kyrgyz Republic, accessed here in December.

^{^[4]} https://eiti.org/document/validation-kyrgyz-republic-2016-reports

Assessment of EITI requirements

Not met
Partly met
Mostly met
Fully met
Exceeded

Scorecard by requirement View more	Assessment View more
Overall Progress
MSG oversight
1.1Government engagement
The government engages in EITI at a high level. Senior officials are represented and engaged. However, government funding and outreach to other donors was unsuccessful in 2017-2019. Despite future funding prospects, shortfalls in 2017-2019 caused challenges for reporting, outreach and dissemination. Therefore, while many aspects have been addressed, the overall objective of effective government engagement has not yet been fully achieved.
1.2Company engagement
Although there is significant scepticism and to some extent active lobbying against the EITI within parts of the company constituency, some companies have been actively engaged through participation in MSG meetings. Many companies, including all large tax payers, participate in EITI reporting. The renewed industry engagement is welcome.
1.3Civil society engagement
There is an enabling environment for civil society to operate in the Kyrgyz Republic, and no concerns about civil society’s ability to participate in the EITI process.
1.4MSG governance
The constituency guidelines for nomination were developed prior to the commencement of Validation, and participation in the nomination process was open and transparent. Although the processes were concluded after commencement of the Validation, the EITI Board considered that the corrective action was fully addressed. Civil society and companies have appointed their representatives without interference. No stakeholders highlighted any significant deviations from the Memorandum of Understanding in practice.
1.5Work plan
The MSG has agreed an up to date work plan for 2016, with objectives for EITI implementation that are linked to national priorities for the extractive sector, as well as costed and time bound work plan activities and actions. Future work plans need to be clearer about the link between the work plan activities and the work plan objectives, and include more specific deadlines for each activity. It is also recommended that the Supervisory Board urgently agrees a fund raising strategy including plans for partial government funding in the future.
Licenses and contracts
2.2License allocations
The Kyrgyz Republic comprehensively describes how licenses are awarded and transferred. Kyrgyz Republic has begun disclosing license information regularly. However, some gaps remain for 2015-2017 awards and transfers; no list of allocations through direct negotiations was available. The government confirmed there were no deviations from the licensing procedures, however the basis for the conclusion was unclear.
2.3License register
Kyrgyz Republic discloses information on license holders online, including coordinates, relevant dates, and commodity being produced. The register also links to the general business register and to the Open Budget Portal of the Treasury. Dates of application for licenses allocated before 29 March 2018 are not available. These dates cannot be compared with the license register due to poor technical usability.
2.4Policy on contract disclosure
The report explains the government policy on contract transparency and comments on the actual practice of contract disclosure. The report also discloses the only publicly available contract with the Kumtor Gold Company.
2.1Legal framework
The 2013-14 EITI Report contains a comprehensive description of the legal framework including a detailed overview of the fiscal regime, changes to the legal framework, and reforms underway. Responsibilities of government entities involved in the management of the extractive sector are described. The fiscal system is centralised, with local governments only collecting property tax and land tax.
2.5Beneficial ownership	Not assessed
The Kyrgyz Republic took part in the beneficial ownership pilot, but only four companies disclosed their ultimate beneficial owners. The 2013-2014 EITI Report confirms that as of 2014, companies must disclose their beneficial owners when applying for a license and notify the government in case of changes in beneficial ownership. Failure to do so constitute grounds for revoking the license in accordance with the Subsurface Law.
2.6State participation
Kyrgyz Republic improves on most aspects of the corrective action. Ten state-owned enterprises (SOEs) are active in the extractive sector. Two companies were considered material, Kyrgyzaltyn OJSC and Kyrgyzneftegaz OJSC. Some disclosures governing the financial relationship between the government and SOEs exist. However, disclosures do not extend towards subsidiaries and joint ventures of SOEs. Lack of coverage of these entities made it impossible to conclude that extractive SOEs’ data is comprehensive. Information is not available on actual practices of these rules. Loan and loan guarantees was partially addressed, though debt agreements between SOEs and the Ministry of Finance were not accessible at the commencement of Validation.
Monitoring production
3.1Exploration data
The EITI Report provides a comprehensive overview of mineral resources and deposits, including “attractive” extractive projects, most of which are significant exploration projects.
3.2Production data
Kyrgyz Republic makes great efforts in pursuing comprehensive disclosure of production data. However public disclosures of the EITI Report continue to fall short of providing clear and comprehensive estimates of production volumes and values for all commodities. Production data does not seem to include silver, mercury, copper, iron and antimony. Kyrgyz EITI has begun to overcome the obstacle of state secrecy laws, though this barrier still exists. Kyrgyz Republic also published data after the commencement of Validation, though they did not cover all gaps in disclosures.
3.3Export data
Kyrgyz Republic discloses export volumes and values for most commodities. Some gaps remain and were hampered by state secrecy laws; in particular for gold export volumes and data on metal commodities. However, the EITI Board considered publications made after commencement of Validation, and consider that Kyrgyz Republic provided fully disaggregated export data, using international data standards for commodities, covering in excess of 99% of all extractive exports. The remaining ~1% relates to exports of metal commodities, under the Harmonised System code for metal ores.
Revenue collection
4.3Barter agreements	Not applicable
The International Secretariat’s assessment is that the corrective action on infrastructure and barter arrangements has been addressed and that Requirement 4.3 was not applicable to the Kyrgyz Republic in the period under review.
4.6Direct subnational payments
All revenue streams are recorded in the State’s single treasury account, even subnational revenues. Kyrgyz Republic clearly distinguishes mandatory social expenditures versus regular fiscal instruments. Full disclosures are not made for ‘Opportunity cost of provided land plots ’ as is required, even if included in the reconciliation exercise.
4.7Disaggregation
Data is disaggregated by individual payment, individual company and individual government entity. The data is not presented by project.
4.9Data quality
Kyrgyz Republic have embedded several aspects into corporate filings to the regulator, with data reported to the regulator annually. The full plan for addressing the corrective action has not yet been completed, but significant progress has been made. There were minor issues related to adherence to standard reconciliation procedures, however the IA was able to provide an assessment on the comprehensiveness and reliability of reconciled financial data.
4.1Comprehensiveness
The report does provide an assessment of comprehensiveness of the reconciled financial data. However, some material payments and companies were excluded from reconciliation without sufficient evidence. There are barriers to ensure full government disclosure of extractive sector revenues. However, these are not clarified nor are plans to overcome these barriers.
4.2In-kind revenues	Not applicable
The 2013-14 EITI Report does not provide information on whether the government collects revenues in-kind. Government officials confirmed that in-kind revenues are not practiced.
4.4Transportation revenues	Not applicable
The International Secretariat’s assessment is that the corrective action on transportation revenues has been addressed and that Requirement 4.4 was not applicable to the Kyrgyz Republic in the period under review.
4.5SOE transactions
The report discloses some SOE transactions. Material dividend incomes and management fees are not reconciled. Additionally, dividend incomes collected by Kyrgyzneftegaz OJSC were not considered.
4.8Data timeliness
The draft 2013-2014 EITI Report was published online on 31 December 2015. The final 2013-2014 EITI Report was published and distributed among stakeholders on 16 February 2016.
Revenue allocation
5.1Distribution of revenues
The 2013-14 EITI Report provides a list of revenues recorded in the national and local budgets. Stakeholders confirmed that all revenues are allocated in the budget.
5.2Subnational transfers
Kyrgyz Republic addresses material transfers from Treasury’s special account to to regions. How revenues should be distributed is provided but it remains unclear how the government calculates the transfers. Actual amounts are disclosed and disaggregated by project and beneficiary. However, the transfer amount calculated in accordance with the relevant revenue-sharing formula is not provided.
5.3Revenue management and expenditures	Not assessed
The 2013-14 EITI Report provides a description of the budget process, and auditing practices for state finances. The 2013-14 EITI Report also provides an overview on establishment of regional development funds - oblast and district levels that were introduced in November 2014 and that will receive a share of extractive related non-tax payments.
Socio-economic contribution
6.1Mandatory social expenditures
Social payments are mandatory, social package payments from companies are available. Additionally, social payments to the Issyk-Kul development fund, funded by the Kumtor Gold Company, are disclosed.
6.2Quasi-fiscal expenditures
Kyrgyz Republic discloses all quasi-fiscal expenditures for two material SOEs; Kyrgyzaltyn OJSC and Kyrgyzneftegaz OJSC. There was consensus among stakeholders consulted that these disclosures were comprehensive.
6.3Economic contribution
Kyrgyz Republic discloses information about contribution of the extractive industries to the economy, with a commentary from the IA that there is 6% discrepancy in comparison to the data by the National Statistics Committee. The report provides information on the extractives industries’ contribution to government revenues, exports and employment, although the IA does not comment on the methodology used to calculate these values.
Outcomes and impact
7.2Data accessibility	Not assessed
Kyrgyz Republic’s EITI does not yet provide EITI data in easily accessible format. The MSG held a discussion to address this encouraged requirement, no actions were taken.
7.4Outcomes and impact of implementation
The Kyrgyz Republic reviews outcomes and impact on a regular basis. They monitor progress in meeting each EITI Requirement, including steps undertaken to exceed them.
7.1Public debate
Kyrgyz EITI reporting is comprehensible and accessible to the general public. Several outreach and dissemination events have been organised in key mining regions. Restricted funding have limited efforts somewhat, however civil society and the regulator, SCIESU, have supported in its place.
7.3Follow up on recommendations
The Supervisory Board ensured that there has been adequate follow up of the recommendations from EITI Reporting, including identifying, investigating and addressing the causes of discrepancies.