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Kyrgyzstan: Negotiations on Kumtor gold mine amid political controversy

Courtesy of The Times of Central Asia

Category: Politics, Analyses & Opinions

Published on Monday, 2 March 2015

Written by Maria Levina

di Emanuele G. - martedì 3 marzo 2015 - 2599 letture

BISHKEK (TCA) — The heavily politicized issue of Kumtor, the largest gold mine of Kyrgyzstan, is now back to the attention and blackmail of the Kyrgyz parliament. The Kyrgyz Government has been spending the full 2014 negotiating with Centerra of Canada to find a reasonable solution. On February 26, 2015 the Government updated the parliament on the present situation and Prime Minister of Kyrgyzstan Joomart Otorbayev told about the results of negotiations.

Centerra Gold’s Chairman and CEO Ian Atkinson was involved in the negotiations until March 2014, and Company’s Chief Lawyer Frank Herbert heads negotiations since September 2014 to the present day. The Canadian delegation arrived in Bishkek on February 24 and following previous negotiations an agreement was reached according to which after the creation of the joint venture the 2014 profit will be split 50-50, giving Kyrgyzstan a considerable income since according to preliminary information, Kumtor’s profit in 2014 was $110 million, said Otorbayev.

According to the Prime Minister, 95% of the documents have been completed, with the exception of two final points concerning the remediation fund and a new financial model. Once both issues are finalized, the Government will submit to the Parliament seven new legal documents for approval. Agreement has also been reached on the increase of reclamation of tailings at the Kumtor mine at the expense of Centerra. The annual fee for damage to the environment will be improved. It was proposed to introduce a fee for the use of water resources. Monitoring will prevent the risk of glacial floods.

The Kumtor issue has created a long outstanding debate between the Canadian company and Kyrgyzstan, the matter has been used as a political weapon in a populist approach that has damaged considerably the image of Kyrgyzstan and deterred international investors and reduced considerably the value of Centerra shares with a damage to the Kyrgyz economy amounting to hundreds of millions of dollars.

The negotiations between the parties did reach an agreement already in December 2013 and a Head of Agreement (HOA) to set up on a 50-50 basis for the shareholding of the Kumtor mine was signed on January 18, 2014. Under such agreement the potential restructuring of Kumtor mine was made possible in exchange for the 33% shares that the Kyrgyz Republic holds in Centerra through the State Company KyrgyzAltyn.

Regretfully the draft agreement was not approved by the Parliament and new events and political interference dragged the conclusion for the entire 2014 until today. If the Kumtor joint venture is created releasing the Kyrgyz participation in Centerra holding company, the Kyrgyz project will operate as an independent joint stock company under Kyrgyz legislation allowing Kyrgyzstan to monitor the company’s activities including its income and expenses, said Otorbayev.

While the discussion between the parties continues, a new labor agreement was signed with the unionized employees on January 23, 2015, to expire on December 31, 2016. On the basis of such agreement an adjustment of salaries will be introduced in accordance with the inflation rate every six months.

Other developments concern the continuous refusal – probably politically motivated – of the various Kyrgyz Republic governmental agencies to approve Kumtor annual mine plan at its ecological passport. This is a document that requires renewal every five years and the lack of receiving the same may also determine a suspension of the mining operation with financial and employment consequences that will damage all parties.

Another issue to be taken into consideration, as reported in Centerra annual report for 2014, is “the order dated October 10, 2014 issued by the Ontario Superior Court of Justice in favor of Stans Energy Corp”. Stans Energy was awarded a favorable verdict by the Arbitration Court at the Moscow Chamber of Commerce and Industry (MCCI), and presently Kyrgyzstan is the subject of several arbitration cases in various international arbitration courts.

According to the annual report of Centerra, “Under the Ontario supreme court of Canada, Kyrgyzaltyn is prohibited of disposing of its shares in Centerra or exercising its rights as a registered shareholder of Centerra. The Kyrgyz Republic is appealing the Stans Arbitration Award to Russian courts in Moscow on the basis that the MCCI lacked the jurisdiction to hear the matter. This matter is scheduled to be heard in the first quarter of 2015.

“If the Kyrgyz Republic does not succeed in overturning the Stans Arbitration Award in the Russian courts and Kyrgyzaltyn is unsuccessful in the Sistem Appeal, Kyrgyzaltyn would no longer hold a sufficient number of Centerra shares to contribute to the HOA restructuring transaction such that it could receive 50% of a new Kumtor joint venture. In such circumstances, the Company believes that the restructuring of the Kumtor Project in accordance with the HOA would be impossible.”

In the meantime the political debate continues in the Kyrgyz Parliament with different opinions pros and cons the joint venture agreement and little consideration of the new investments in the country and the overall economic situation.

The Respublika parliamentary faction leader Maksat Sabirov suggested restoring the agreement of 1993, when Kyrgyzstan’s share was 67%. Otherwise, it is necessary to discuss the nationalization of the mine, he said. The Ar-Namys faction leader Felix Kulov supported Sabirov. “The Parliament will agree to establish a joint venture only if the opinion of the deputies and the local population is taken into account. Otherwise, there will be no other way except for nationalization,” he said.

Omurbek Tekebayev, the Ata Meken faction leader, proposed two options to solve the problem — nationalization and capitulation. Either Kyrgyzstan will become a full owner of the mine, or it will entirely subordinate to the Canadian company and lose its independence, he said.

The Ata-Jurt faction leader Jyldyzkan Joldoshova denied the idea of nationalization. First, the country needs highly skilled mining specialists. In the case of nationalization, the country will face lawsuits in international courts for millions of dollars. She proposed to create a joint venture in which 70% of the mined gold will remain in Kyrgyzstan.

The Government intends to find a compromise solution and considers all the alternatives on the Kumtor project but it will agree to nationalize the mine only as a last resort, said Otorbayev.

The Parliament issued a resolution giving the Government a month to complete negotiations with Centerra Gold.

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