KYRGYZ GOVERNMENT, PARLIAMENT REFUSE TO PROLONG CONTRACT WITH CANADIAN GOLD COMPANY

The Kyrgyz government and parliament have been postponing ratification of a contract with the Canadian mining company Cameco Corporation that is due on June 1. Talk has been circulating for the past few years that the Kyrgyz government’s 2003 agreement between Kyrgyz Kumtor Gold Company and Cameco is not in the national interest. Kumtor and Cameco are registered as Centerra Gold Inc. in Canada and mostly managed by the Canadian side. Some political leaders have expressed their concern that a Kyrgyz-Canadian agreement on Centerra Gold Inc. should be revised and more benefits secured for the Kyrgyz side.

While Centerra might sue the Kyrgyz government in international courts for its failure to ratify the contract, a representative of Kyrgyzstan’s major state gold mining and retail company Kyrgyzaltyn, Aleksey Eliseyev, argues that the Kyrgyz side will be able to negotiate a better deal in the court (www.24.kg, June 5). He even suggests that the Kyrgyz government sue Centerra Gold Inc. to annul the agreement of 2003 that was signed by the previous regime led by Askar Akayev. The agreement provided Kyrgyzstan with only a 16 percent share of the company and stipulated that 2 percent to 4 percent of the profit should be distributed among the local population. Cameco, the main investor in Centerra, is exempted from profit and other taxes for 10 years.

In August 2007 the Kyrgyz government led by former Prime Minister Almazbek Atambayev worked out a new agreement with Centerra, which included higher taxes, but did not change Kyrgyzstan’s share in the company. Kyrgyz-Canadian negotiations were also previously led by Daniar Usenov, an influential businessman and former deputy prime minister. Several political leaders in the present regime think that Akayev permitted such an unattractive agreement with Centerra because he was bribed or was not fully informed about the deal. As Eliseyev argues, if the deal of 2003 is declined, then Kyrgyzstan will already be able to control Centerra fully this year, according to the agreement of 1993.

However, unlike Eliseyev, some MPs insist that the government should come up with a solution before the Kyrgyz-Canadian disagreement reaches an international court. This will prevent damage to Kyrgyzstan’s international investment image (www.24.kg, June 5). Centerra’s shares already have fallen 8 percent to C$8.15 on the Toronto Stock Exchange this month due to uncertainties surrounding the company (Forbes, June 2).

Absence of agreement among Kyrgyz leaders in the government and parliament reflects a continuing struggle over control of natural resources in the country. Members of the presidential family, as well as current and former government members, have vested interests in concluding certain stipulations in the agreement with Centerra. The gold mining site, located in northeastern Kyrgyzstan, is the biggest in the country with roughly 500,000 ounces of gold extracted every year. Besides gold, the mining site contains a myriad of other valuable materials, including cyanide. Over 1,600 people work at the mine.

On surface, the debates on Centerra seem as if Kyrgyz leaders are considering increasing the company’s contribution to the national economy. The debates range from suggestions of increasing taxes to increasing Kyrgyzstan’s share to two-thirds or nationalizing the company altogether. Although these debates receive local public support, the battle of interests might essentially take place along the two informal camps currently visible among Kyrgyzstan’s political circles. One is allegedly concentrated around Usenov and State Advisor to the President Usen Sydykov, while the second camp is clustered around Medet Sadyrkulov, the head of the presidential administration. Both camps are believed to be splitting the support of President Kurmanbek Bakiyev’s family members, his brother Zhanysh Bakiyev and son Maskim. Both camps also have international connections and strong support at home (www.parus.kg, May 23).

The clamor around Centerra is reflected in Kyrgyzstan’s other natural resources sites following the change of regimes in March 2005. Showdowns over the control of the Jerui and Taldy-Bulak local gold mining sites have been reoccurring for years. In 2006, for instance, under former Prime Minister Felix Kulov, it was agreed that Jerui would be explored by an unknown Global Gold company, while under the previous regime another company was to be involved in the mine (www.msn.kg, May 30, 2006). The deal on Jerui was concluded in the absence of a formal tender.