Kyrgyzstan and its largest foreign commercial investor, Centerra Gold, claim to have buried more than half a decade of uncertainty with a deal the government signed right in time for the October 15 presidential election.
On September 11, the government headed by new Prime Minister Sapar Isakov put the ink on a deal increasing Centerra’s annual environmental contributions tenfold in exchange for the government dropping a $100 million lawsuit in the local courts.
According to an upbeat but typically legalese-heavy statement from Centerra the same day, the new deal provides for “full and final reciprocal releases and resolution of all existing arbitral and environmental claims, disputes, proceedings and court orders.”
Under the new deal, Centerra will make a one-off payment of $50 million into a government-administered environmental development fund and up its annual environmental payments from $310,000 to almost $3 million. Moreover, the company has agreed to provide $10 million to upgrade the country’s main cancer treatment hospital.
Finally, it has deigned to move the company’s land reclamation fund to Kyrgyzstan from London and “accelerate” annual payments of $6 million into the fund, at least until it reaches its target of $69 million from its current level of $26.3 million.
The $69 million tag is the amount recognized in the general agreement between the two parties signed in 2009 as being needed to repurpose the territory around Kumtor once mining and processing activities cease, which could be as early as 2026.
These are big concessions made by the Toronto-listed company.
It is not clear to what extent the government’s roughhouse tactics, which had included limiting Centerra’s potential to transfer money from its local affiliate in the Kyrgyz Republic to Canada and restricting foreign employees’ rights to leave the country, may have played in forcing a deal through.
The agreement is image-boosting for Isakov, a close ally of incumbent President Almazbek Atambayev and the loyalist candidate running to replace him, Sooronbai Jeenbekov.
Isakov referred grandly to the “resolution of all the outstanding matters regarding the Kumtor Project” and “a new beneficial relationship with our country's largest enterprise” on September 11, suggesting the government has shelved all bids to restructure the company for the moment.
But how secure is Centerra, of which Kyrgyzstan itself owns 26.6 percent, and which contributes up to around one-tenth of the country’s economy, now this deal has been signed?
In short, not very.
Even before the government signed the deal with the company, the second largest faction in the parliament Respublika/Ata-Jurt was demanding the government sue the company over its recent takeover of Thompson Creek Metals, a junior mining company based in British Colombia, Canada.
That takeover led to a dilution of Kyrgyzstan’s Centerra shares from just under a third of the company to just over one-quarter, even as it boosted the country’s potential returns from Centerra beyond Kumtor’s forecasted closure. The Kyrgyz representatives on Centerra’s board opposed the takeover at the time, but Isakov has since talked positively of bigger dividends as a result of the deal.
Nevertheless, Isakov’s views on the politically polarizing Kumtor project may count for little if the man heading Respublika/Ata-Jurt, Omurbek Babanov, becomes president.
Babanov, who many view as a favorite over Jeenbekov in the presidential race, has long espoused a hard line on the company, favoring disentanglement from the Centerra and a 67-33 split of its local affiliate in Kyrgyzstan’s favor.
On winning the presidency, it is possible he would maneuver to collapse the current government or even call for new parliamentary elections to stamp his will on domestic politics.
In that event, it would soon become clear whether his positions on the mine represented empty posturing or a real threat.