Kyrgyzstan Fights Losing Battle Over Kumtor

The Kyrgyz government is unlikely to win significant concessions as it demands a controlling share in the company in charge of the country’s largest gold mine, say NBCentralAsia observers.



The latest round of talks involving the Kyrgyz government, Canada’s Cameco mining firm and the Centerra Gold company they jointly own began on July 16.



The Kyrgyz authorities believe Cameco – by virtue of its 53 per cent holding in Centerra – takes too much of the profit from the Kumtor mine, and are angling to raise their own share in the joint venture from 16 to 61 per cent, thereby generating more tax revenue.



Kumtor, located in the northern Issykkul region, is a prize asset for Kyrgyzstan and one of the ten largest gold mines in the world. Mining at Kumtor accounted for one-third of the country’s industrial production in the first six months of this year. Over 180 tons of gold have been mined since commercial extraction began.



Attempts to renegotiate ownership arrangements have been going on since the end of 2006. The initial deal signed in 1994 awarded a two-thirds share in the mining operation to the Kyrgyz government and the rest to Cameco, which ran the mine through the Kumtor Operating Company, KOC. The latter firm was exempted from paying profit tax for ten years.



That arrangement ended in 2004, when Cameco and the Kyrgyz government made KOC a wholly-owned subsidiary of Centerra Gold, a Canada-based joint venture. However, the Kyrgyz subsequently liquidated some of their stock - about seven million shares worth around 90 million US dollars – leaving them with the 16 per cent they now hold.



NBCentralAsia observers say Kyrgyzstan will find it very difficult to regain its former dominant position. It is not in a position either to buy more shares or to persuade Cameco to cede its holdings voluntarily and without compensation.



“It is impossible to buy back [the government’s] share in Kumtor,” said NBCentralAsia economic observer Sapar Orozbakov. “This is about restoring justice through negotiation. But I don’t believe the Kyrgyz government will succeed in increasing its share to 61 per cent.”



KOC declined to comment.



Avazbek Momunkulov, head of parliamentary committee on taxes, says that if talks reach a deadlock then Kyrgyzstan has the right to take the matter to an international court or to consider re-nationalising the mine.



However, according to Orozbek Duysheev, head of the Association of Miners and Geologists and a member of the Kyrgyz delegation at the ongoing talks, the Kyrgyz authorities could yet be successful if it is able to present the Canadian companies with figures that convince them its claims are fair.



(News Briefing Central Asia draws comment and analysis from a broad range of political observers across the region.)