Kyrgyz parliament proposes review of Kumtor agreement
BISHKEK. June 27 (Interfax) - The parliament of Kyrgyzstan on Wednesday reviewed a report from a temporary deputy commission investigating the activities of Kumtor Operating Company (KOC, the Centerra Gold Inc., operator of the Kumtor gold-ore deposit) and recommended the government set up a commission to look into information on rational use of natural resources, protecting the environment, production safety and social protection of the population.
A resolution, which Interfax has a copy of, says the future commission should by October 1 2012 review the conditions of the Kumtor project agreement between the government of Kyrgyzstan, Centerra Gold Inc. (Canada) and CJSC Kumtor Gold Company "in order to protect economic and environmental interests."
The agreement is to be reviewed in terms of the "quantitative and qualitative composition of the Kyrgyz side in the management of the management company." The amount of deductions for environmental and re-cultivation work at Kumtor is also to be increased and the share Kyrgystan has in Centerra Gold Inc., reviewed.
Parliament also believes it is necessary to review the concession area that is subject to development within the framework of the Kumtor project and to "review the tax regime and revenue distribution forumula in accordance with international standards."
The resolution asks the Prosecutor General's Office to "study the Kumtor agreement, investigate the violations uncovered and shown in the report from the temporary deputy commission and provide a legal evaluation and also to recover all lost materials from earlier proceedings related to the Kumtor mine and resume investigations on them."
Earlier Sadyr Zhaparov, the head of the temporary commission and a deputy for the opposition faction Ata Zhurt, said that many financial, environmental and technical violations had taken place at the Kumtor mine. He said former Kyrgyz government officials and KOC have been involved in schemes of corruption and that legislation had been violated when signing investment agreements on development of the mine.
Zhaparov said at Wednesday's meeting that the agreement to develop the Kumtor mine with Centerra gold Inc., should be unilaterally terminated and that Kyrgyzstan should obtain control of all shares in the company and create the new OJSC Kumtorzoloto, which could develop the mine by itself. Parliament did not back that proposal.
A statement by KOC that Interfax received Wednesday says "the unjustified conclusions made by the temporary deputy commission has harmed the business reputation of Kumtor Operating Company and Centerra Gold Inc., which has led to a sharp drop in the price of Centerra shares on the exchange in Toronto and a cut of over $300 million in the value of the package of shares held by Kyrgyzstan."
"In 2009, Centerra, Kumtor [CJSC Kumtor Gold Company] and the government of Kyrgyzstan signed an agreement on new terms, which underwent all the necessary internal government procedures and was approved by parliament and the Constitutional Court," the statement says.
KOC reckons that "right now the agreement is valid and must be followed. It contains a guarantee from Kyrgyzstan to ensure the protection of the Kumtor project and the republic will be liable in an international arbitration court if it violates that."
"Kumtor Operating Company and Centerra Gold Inc., are always willing to carry out constructive dialogue with Kyrgyzstan's government bodies. However, these discussions should take into account the agreed responsibilities undertaken by the republic in the framework of the agreement on new terms," the company said.
Amangeldi Muraliev, a Kyrgyz representative on the Centerra Gold Inc., board, said parliament's decision on reviewing the agreement on Kumtor would have a negative impact on the investment climate in the country.
"Of course, Kyrgyzstan could follow the Venezuela route and nationalize this mine, but that will scare off all other investors," he added
Muraliev reckons that over the past two years the Centerra Gold policy regarding Kyrgyzstan "has taken a real turn for the better. We have attained its [the company's] increased transparency and now a representative from Kyrgyzstan works as one of the vice presidents at Centerra."
The company paid over $130 million in taxes last year and the government obtained over $30 million in dividends. Muraliev added that the Canadian company voluntarily allocated $21 million this year to implement joint social projects throughout the country.
"If we talk about the environment then there are points of contention, but on all key points all studies, including independent studies, show that Centerra management has worked to the basic standards adopted by serious mining companies in developed countries," he said.
"The issue of reviewing the agreement with the Canadians cannot be approached off the cuff and we have to define what needs to be reviewed: the tax regime or the Kyrgyz share in the company itself?" he said.
"It seems to me that the deputies acted in haste. Of course what has happened is an element of parliamentary democracy. But share quotes are collapsing because of it as has just happened, thanks to the deputies, with Centerra Gold shares," Muraliev said.
Kumtor Operating Company is the Centerra Gold Inc., operator for the development of the Kumtor mine, which is located in north Kyrgyzstan. Through Kyrgyzaltyn the Kyrgyz government owns 33% of Centerra Gold Inc.
