Wednesday, 30 October 2013

Kyrgyzstan's Parliament Pushes Government for More Shares in Kumtor Mine

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By Jamil Payaz (the 30/10/2013 issue of the CACI Analyst)

On October 25, 2013, the Prosecutor General's Office pressed charges against the former Ministers of Ecology and Finance and a former Vice Prime Minister, who is now a parliamentarian, accusing them of corruption when signing the Kumtor agreement in 2003. As the parliament has rejected the tentative deal envisaging a 50-50 joint venture, uncompromisingly demanding at least a 67 percent stake in the Kumtor gold mine, the country's largest foreign currency earner, the Prosecutor General is working hard to substantiate the parliament's claims that major restructuring deals with TSX-listed Centerra was soaked with corruption.

BACKGROUND: On October 23, the parliament virtually unanimously rejected the non-binding Memorandum that the Kyrgyz government and Centerra reached over a month ago. Prime Minister Satybaldiev, backed by President Atambayev, failed to convince the parliament that 50 percent was the maximum that his Cabinet managed to raise the country's shares to after the almost nine-month-long negotiations with Centerra. Moreover, the parliament recommended that the government denounce the operating agreement signed with Centerra in 2009 and 2003, if a "mutually acceptable" solution is not found by December 23, 2013. Although Prime Minister Satybaldiev has expressed doubts that further negotiations will yield any better results, some parliamentarians are certain that a favorable condition has been set to negotiate terms with Centerra that will better serve the country’s interests.

"Of course, [Centerra] will try to turn to an international court. But it will not be able to go too far. Whatever the outcome is, the gold is ours, and the truth is on our side," Omurbek Tekebayev, one of the ardent opponents of the current agreement and the leader of one of the coalition factions, Ata Meken, said in a recent interview. Centerra will have to comply with the government’s demands, and in the event of denunciation, the government must run the mine itself, he stressed. As a vociferous opponent of the previous two regimes, Tekebayev believes that their rule was so corrupt that the Canadian companies could not have achieved such gains without corrupt schemes.

However, Ian Atkinson, President of Centerra, who arrived in Bishkek on the eve of the voting in parliament, termed all the allegations of corruption speculations, underscoring that so far no documents showing corruption have been provided to courts. He also made it clear that he will have to defend the company's shareholders by appealing to an arbitration court if the current agreement is denounced. Atkinson stressed that it is impossible for Centerra to have less than 50 percent in the new venture, pointing out special requirements and legal norms pertaining to international corporations listed in stock markets. Whatever a new arrangement contains, it also has to be approved by shareholders and a Canadian court, he said.

In February, 2013, the parliament issued a decision instructing the Prosecutor General's Office to launch investigations into, among other things, corruption allegations related to the agreements, especially the one signed in 2003. To date, twelve criminal cases have been launched, with charges being pressed against three experts of the government, two former ministers and deputies, a parliamentarian, as well as former President Askar Akayev's son Aidar, and then-Prime Minister Nikolay Tanayev. The latter two fled to Russia after the popular uprising in March 2005.

According to the 2003 agreement, Comeco and Kyrgyzaltyn, the state gold agency, joined into Centerra. The Kyrgyz side received 30 percent in Centerra in exchange for 66 percent in Comeco, while the former agreed to pay taxes, share dividends from other developing gold mines in Mongolia and the U.S., and allow Kyrgyzaltyn to sell its share in stock markets. Notably, the deal was sealed without the required approval of the parliament. Shortly after the signing, the government sold about 17 percent of its share for US$ 86 million, as became known, to invest in social projects such as poverty reduction. Satybaldiev admitted that a stumbling block in the recent negotiations was that in 2003 Centerra became a legal owner of the Kumtor project and was registered in Canada.

IMPLICATIONS: It remains to be seen whether the Prosecutor General’s Office will find solid evidence of corruption. Currently, the prosecutors are making an extra effort to submit their findings to a local court to meet the legal deadline by the end of this year, since local laws set out an expiration period of ten years for corruption cases. Moreover, Prosecutor General Aida Salyanova admitted that her office lost all the archives and existing criminal cases after their building burned down during the violent anti-Bakiev protests in April 2010.

Also, the Prime Minister complained to the parliamentarians that no transcripts from previous negotiations have been found, something that, he said, put them in a disadvantageous position before the Canadians. These circumstances imply that the Prosecutor General will have to rely almost exclusively on testimony of the former officials. The limited time allocated for the investigations, which coincides with the December 23 deadline set by the parliament for the government, will only handicap the government to thoroughly substantiate allegations of corruption. Thus, there is a very high risk that the criminal cases will be widely perceived as political persecution and exploited by the opposition in the current fragile political situation.

Experts say the parliament has driven itself into a corner by rejecting the 50 percent arrangement with Centerra. A parliamentary journalist, Elvira Temir, believes that the parliament is reluctant to take responsibility for the mine's future, since it found the preliminary deal unacceptable but failed to dissolve the government that expects no gains from further negotiations with Centerra. Indeed, the heated discussions of the deal in the parliament the first time, on October 10, abounded with populist statements but resulted in no concrete recommendations, with the parliament postponing the issue for two weeks. Some parliamentarians were reported as saying that they had to eventually turn down the new deal, even though they know Satybaldiev will fall short of realizing their demands.

It is worth mentioning that, despite President Atambayev’s strong support for the current deal, even his Social Democratic Party (SDPK) voted against it, with only some abstaining from voting. In fact, SDPK faction leader Chynybai Tursunbekov openly admitted that his 26-member faction had to support the “populist decision” of the other parliamentarians because they fear being labeled “traitors,” a tag the Prime Minister is still to repulse over the course of the parliamentary debates. The parliamentarians turned especially sensitive after their vote was announced to become public, something President Atambayev insisted on to make the voting transparent.

So far President Atambayev has showed a strong support for the government, accusing the parliament of turning the issue into a campaign for the next parliamentary elections scheduled for 2015. Echoing the Prime Minister’s words, he repeatedly underscored that the Memorandum represents a compromise between Centerra and the Kyrgyz side. He stressed that Kyrgyzstan will still have to buy four percent to make it 50 and that additional shares can only be bought. “Centerra has one thousand shareholders who bought shares at a stock market. There is no Comeco to take the shares from… Comeco sold its shares and ran away,” Atambayev said in response to the parliament.

Nevertheless, denunciation of the mine contract might well be hindered owing to fears of clearly unpopular repercussions, including protracted and expensive international arbitration and stoppage of production, which is detrimental for the country’s budget with a US$ 340 million deficit and three thousand locals employed by Centerra. Over 10 percent of Kyrgyzstan’s GDP comes from the mine, equaling approximately half of the country’s industrial output. Nevertheless, experts expect that the Prime Minister will in December return to the parliament with the same deal, but with minor changes. Until then the arrests of former officials are likely to continue, but many doubt they will produce solid evidence of corruption.

CONCLUSIONS: The parliament’s inflexible stance on the mine makes many wonder whether President Atambayev will be forced to dissolve it to secure revenues from the mine to the money-strapped budget. The Kumtor issue has the potential to cause a major political crisis in Kyrgyzstan, with the parliament unable to conduct a pragmatic discussion based on legal aspects and economic figures. The criminal cases launched might easily get politicized if they are not properly conducted. Importantly, the openness that the government seeks to show in the overall process marks a new development in Kyrgyzstan’s political environment, and it should serve as an opportunity for Centerra to better explain its position to the public and take steps to improve its tarnished image.

AUTHOR'S BIO: Jamil Payaz is a Bishkek-based freelance journalist who specializes in economic, political, and security issues in Kyrgyzstan.

Read 4159 times Last modified on Wednesday, 30 October 2013

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