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Financial Times: Dispute with Centerra could lead to international sanctions

The international business newspaper Financial Times published an article in connection with the latest developments around Kumtor gold mine in Kyrgyzstan.

As the publication notes, Canada’s Centerra Gold filed an arbitration suit in an attempt to stop Bishkek from taking further steps to nationalize Kumtor, a gold mine that produces 510,000 ounces of gold a year.

«The leadership of the Kyrgyz Republic has acted with astonishing speed since the beginning of this year to undermine the basis on which the Kumtor mine has been operated and has refused to engage with us on any matters it considers to be the subject of dispute,» Financial Times quotes Scott Perry, chief executive of Centerra, as saying.

Centerra’s decision to file for international arbitration comes as Kyrgyzstan’s parliament is expected today to appoint independent managers to run Kumtor for three months. It follows a weekend where Centerra’s offices in the country were raided and documents seized.

In the space of 10 days this month, Bishkek fined Centerra $3 billion for hazardous operations, issued a $170 million tax claim and passed a new law that paves the way for the state to nationalize Kumtor, in a show of force by Japarov, who came to power last year. Centerra disputes the environment and tax claims.

The moves have alarmed international financial institutions working in Kyrgyzstan — the only democratic country in central Asia — as well as western governments.

The Financial Times

Gold production is the largest source of economic revenue in Kyrgyzstan and Kumtor is the largest single contributor to its gross domestic product.

Canada and the UK issued a joint statement last week warning the government that measures that «negatively impact trade and foreign direct investment will further undermine already fragile economic livelihoods of the Kyrgyz people».

Hit hard by the pandemic, Kyrgyzstan was one of the first countries to apply for emergency funding from both the World Bank and the IMF.

«Kyrgyzstan is in a terrible economic situation, it totally depends on external support. And the international response will be harsh. If the funding stops, Kyrgyzstan will be in trouble. This country cannot afford to lose it,» said a foreign source working with the government and previously associated with Kumtor.

The new administration sees the tough approach towards Centerra as a way to demonstrate it wants business to abide by the rule of law, according to Akylbek Japarov, a parliamentarian in charge of a recently formed state commission on Kumtor.

«Time has come to live by the law,» he told the Financial Times, accusing the Canadian company of working through behind-the-scenes agreements with the previous presidential administration. «The collusion of top officials is obvious, up to the president and prime ministers, who gave permits allowing that company to produce gold on our land while violating our laws,» he said.

Foreign experts said the dispute with Centerra was a short-sighted way for the government to bolster the country’s finances, and the move could lead to international sanctions.

«Look at Japarov himself, he is a guy on a mission,» said a person working in the country who has knowledge of the project. «And his appetite has grown. He wanted nationalization and now he wants cash.»

The European Bank for Reconstruction and Development, which has worked with Kyrgyzstan and other central Asian countries on a number of projects, expressed its concern over the possibility of a state takeover of Kumtor Gold Company.