Kyrgyzstan’s government has reached yet another possible restructuring plan with Toronto-listed Centerra Gold, which owns the country’s largest and most profitable mine. But the non-binding agreement must still be ratified by Kyrgyzstan’s self-serving parliament, which rejected a strikingly similar plan in October.
The high-altitude Kumtor gold mine is the largest industrial asset in the impoverished Central Asian nation, account for approximately 12 percent of GDP in a good year and over 50 percent of industrial output.
Restructuring negotiations, which would lead to the fourth operating agreement since Canadian miners started developing the Kumtor deposit in the mid-1990s, began after parliament voted in February to tear up a 2009 agreement, maintaining it was not in the interests of the country. Centerra countered that it has invested approximately $1 billion in the mine since signing that contract. Few believe Kyrgyzstan has the technical know-how to operate the project on its own.
Many in Kyrgyzstan’s business community accuse parliamentarians of stoking controversy to make a name for themselves. They fear that parliament’s protracted debate, often accompanied by threats of nationalization, is frightening off foreign investors. Despite Kyrgyzstan’s vast mineral deposits, Kumtor is its only substantive mining operation. Repeated changes in government, high-level corruption, and an opaque licensing process have been part of the problem. Regular riots that appear to be led by shady business groups with alleged ties to parliamentarians have not helped Kyrgyzstan’s image as a safe haven for investors.
The tentative agreement announced December 24 is very similar to a September memorandum of understanding that Kyrgyzstan’s parliament rejected in October. Like before, the proposal would see Kyrgyzaltyn, the state-run gold company, exchange its 32.7 percent share in Centerra for a 50-percent interest in a new joint venture that would own Kumtor, Centerra said in a statement.
Unlike in the September agreement, instead of a $100 million payment to Centerra by the joint venture over ten years, Centerra will lease its equipment to the new company for ten years.
There is no guarantee parliament will go for the agreement. In October it demanded at least 67 percent of the mine. And already, though Centerra has threatened an international arbitration suit, there are murmurs of discontent in some quarters.
But, thus far, most of the negotiations in parliament have taken place behind closed doors, suggesting legislators may be putting aside chest thumping and grandstanding to search for a face-saving solution to the country's most urgent economic issue.