Kumtor deal crushed in Kyrgyz parliament

By bne IntelliNews October 24, 2013

bne -

Kyrgyzstan's parliament on October 23 rejected the latest proposed deal on the Kumtor gold mine, insisting the government should receive a controlling stake. The failure to push the agreement through leaves the country to face several more months of uncertainty.

An overwhelming 118 of the 120 deputies in parliament rejected the draft agreement with current majority owner of the asset - Toronto-listed Centerra Gold. It would have given the Kyrgyz state 50% ownership of the country's largest mine - which generates around 12% of GDP - but MPs insisted Prime Minister Zhantoro Satybaldiyev's government hold out for a stake of at least 67%.

Under the draft agreement, Kyrgyzstan would have exchanged the 32.7% stake it has held in the listed parent company since 2009, for a 50% stake in a new joint venture that would manage the mine. Centerra Gold's stock fell 23.2% to CNS4.10 on the Toronto stock exchange after news that the deal had been turned down, Reuters reports.

The vote opens the way to numerous conflicting arguments towards the next step, with the company and the government fighting rising resource nationalism.

"Centerra expects to continue discussions with the government with the objective of resolving matters through constructive dialogue," the company said in a statement. "However, [it] maintains that any agreement to resolve matters must be fair to all of Centerra's shareholders."

"Discussions are on-going and any definitive agreement would be subject to compliance with all applicable legal and regulatory requirements and approvals, including any independent valuation and minority shareholder approval requirements. There can be no assurance that any transaction will be consummated or that the company will be able to successfully resolve any of the matters currently affecting the Kumtor Project," the statement adds.

According to the same statement, a deadline of December 23 has been set by parliament for the conclusion of a new round of negotiations. That demand comes despite a request from Satybaldiyev for another six months to reach a new agreement.

"You have rejected the memorandum and we need to launch new negotiations," the PM told the lower house, according to RIA Novosti. "We need to be given a fair term, I'm asking for six months. The government cannot in the short term solve the problems which arose 20 years ago."

However, Kyrgyz MPs say the existing agreement, signed under former President Kumanbek Bakiyev in 2009 - months before he was toppled by a revolution - should be scrapped, whether a new deal is reached or not. They claim that the current arrangement is not in the country's interests.

Hot(ter) potato

The failure to agree a new deal only raises the heat around the ownership of Kumtor which has stood as the country's hottest political issue for some time. A series of riots and demonstrations have taken place throughout the year, both near the mine and in other parts of the country, during the argument. Many demonstrators have demanded that the Kumtor agreement be scrapped unilaterally and the mine nationalised.

Around 800 people joined a demonstration in the village of Saruu near Kumtor to demand nationalisation of the mine, as they waited for the parliament's verdict. Demonstrators said they would give the government three days to meet their demands, which also included the release of people detained during a protest on October 7. More demonstrations are expected during the next two months as negotiations continue.

While most MPs agreed in the parliamentary vote to a 67% stake for the state, some opposition MPs called for at least 70%. The nationalist Ata-Zhurt demands that all agreements with Centerra be scrapped within the next week. Highlighting the inflammatory atmosphere around the issue, an MP from the Ata Meken party - a coalition partner to the SDPK - even called for a criminal case against Satybaldiyev for acting contrary to the country's interests, 24.kg reports.

Visor Capital admits in an analyst note that the outcome is not easy to predict. "The problem originates from further tensions between the government and the parliament: during parliamentary hearings certain MPs accused the government and the PM of incompetence for negotiating only a 50% stake in Kumtor, and suggested that the government should resign."

However, they also suggest Centerra has an ace up its sleeve. "Should the parliament go too far, we believe that the company would have no other solution than seeking international arbitration, with significant likelihood to win. The most likely outcome is to reach a compromise."

Related Articles

bne:Chart - Russia begins to steady the ship according to latest Despair Index

Henry Kirby in London - Ukraine and Russia’s latest “Despair Index” scores suggest that the two struggling economies could finally be turning the corner, following nearly two years of steady ... more

COMMMENT: Great challenges for Eurasia call for decisive solutions

Juha Kähkönen of the IMF - The Caucasus and Central Asia (CCA) region continues to navigate a wave of external shocks – the slump in global prices of oil and other key commodities, the slowdown ... more

IMF calls for Central Asia to tighten monetary policy

Naubet Bisenov in Almaty -   Caucasus and Central Asian (CCA) countries need to tighten their monetary policy to anchor inflation expectations, but excess tightening may weaken financial ... more

Register here to continue reading this article and 2 more for free or 12 months full access inc. Magazine and Weekly Newspaper for just $119/year.

If you have already registered, enter the information below with the same email you used previously and you will be granted immediate access.

IntelliNews Pro subscribers click here

Thank you. Please complete your registration by confirming your email address. A confirmation email has been sent to the email address you provided.

Thank you for purchasing a bne IntelliNews subscription. We look forward to serving you as one of our paid subscribers. An email confirmation will be sent to the email address you have provided.

To continue viewing our content you need to complete the registration process.

Please look for an email that was sent to with the subject line "Confirmation bne IntelliNews access". This email will have instructions on how to complete registration process. Please check in your "Junk" folder in case this communication was misdirected in your email system.

If you have any questions please contact us at sales@intellinews.com

Subscribe to bne IntelliNews website and magazine

Subscribe to bne IntelliNews website and monthly magazine, the leading source of business, economic and financial news and commentary in emerging markets.

Your subscription includes:
  • Full access to the bne content daily news and features on the website
  • Newsletters direct to your mailbox
  • Print and digital subscription to the monthly bne magazine
  • Digital subscription to the weekly bne newspaper

IntelliNews Pro subscribers click here

bne IntelliNews
$119 per year

All prices are in US dollars net of applicable taxes.

If you have any questions please contact us at sales@intellinews.com

Register for free to read bne IntelliNews Magazine. You'll receive a free digital subscription.

If you have already registered, enter the information below with the same email you used previously and you will be granted immediate access.

Thank you. Please complete your registration by confirming your email address. The confirmation email has been sent to the email address you provided.

IntelliNews Pro offers daily news updates delivered to your inbox and in-depth data reports.
Get the emerging markets newswire that financial professionals trust.

"No day starts for my team without IntelliNews Pro" — UBS

Thank-you for requesting an IntelliNews Pro trial. Our team will be in contact with you shortly.