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Hard-up Kyrgyzstan builds up pressure on Centerra Gold

Source: Thomson Reuters Foundation - Thu, 21 Feb 2013 14:28 GMT
Author: Reuters
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* Government to cancel contract unilaterally if no compromise

* Insists Centerra must pay for "colossal" environmental damage

* Centerra accepts dispute may not be settled through talks

By Olga Dzyubenko

BISHKEK, Feb 21 (Reuters) - Kyrgyzstan's parliament gave the government three months to renegotiate the terms of a 2009 financial agreement with Canada's Centerra Gold, ordering it to tear up the current contract if no compromise is reached.

"In case no compromise is reached with the investor, initiate the procedure of denunciation of the Agreement on New Terms," the legislature said in its order to the government on Thursday, citing the name of the 2009 agreement.

After two days of debate, the resolution was adopted by a 71-1 vote.

Centerra's Kumtor mine, the largest gold deposit operated in Central Asia by a Western company, is vital for the rickety economy of the country, where two presidents have been toppled by violent revolts since 2005.

Kyrgyzstan's gross domestic product shrank by 0.9 percent last year after Centerra lowered its output.

A special state commission has found that financial agreements signed with the Toronto-listed company between 1992 and 2009 were approved by the then political elite without wide public discussion and not entirely in Kyrgyzstan's interests.

Economy Minister Temir Sariyev, who heads the commission, told parliament on Wednesday that besides underpaying to Kyrgyzstan's coffers, Centerra had inflicted "collossal damage" to the environment.

"This 2009 agreement is not in the interests of our state. We want to cancel it all and return to the legal framework. No one is talking of nationalisation," he added. "If the other side disagrees, it is free to appeal to an international court."

"If within three months our negotiations yield no results, the government will unilaterally cancel the agreement."

Kyrgyzstan published a parliamentary report last June that said Cenetrra's operations were damaging the environment and the health of villagers. Centerra said at the time the allegations were without merit.

The company accepted in a statement last month that it may not be able to settle its dispute with the government through talks.

Sariyev said in January, that under the 2009 deal signed when fugitive President Kurmanbek Bakiyev was in power, Centerra pays Kyrgyzstan a 14 percent tax on gross revenue from Kumtor, its flagship mine. He said the country wants the investor to pay between 17 and 20 percent as other mining companies do.

Official data show that if the current agreement is renegotiated, Centerra would pay annually some 5 billion soms (${esc.dollar}105 million) more.

"They would also have to pay (another) ${esc.dollar}10 million anually for ecological damage," Sariyev told deputies on Wednesday.

Centerra, whose output dropped by 40 percent to 387,076 ounces in 2012, already faces an environmental damages claim from Kyrgyzstan worth 6.8 billion soms, or ${esc.dollar}142 million at current exchange rates.

Centerra, one-third owned by Kyrgyzstan, reported on Wednesday a fourth-quarter loss of ${esc.dollar}68 million, or 29 cents per share, on a one-time accounting charge and said it expected to incur closure costs related to underground operations at Kumtor in the first quarter of 2013.

The company made a profit of ${esc.dollar}79.4 million, or 34 cents per share, a year earlier.

Nationalist calls to expropriate Kumtor, which Centerra is to operate until 2042, have stirred tensions in the nation of 5.5 million, which hosts both U.S. and Russian military air bases and lies on a drug trafficking route out of Afghanistan.

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