Crossroads Asia | Economy | Central Asia

Kumtor: Kyrgyz Court Cancels $3.2 Billion Fine on Departing Canadian Mining Firm Centerra

The contentious saga of Kumtor Gold Mine is one step closer to completion.

Kumtor: Kyrgyz Court Cancels $3.2 Billion Fine on Departing Canadian Mining Firm Centerra
Credit: Depositphotos

In early April, Canadian mining firm Centerra Gold announced it had reached an agreement with Kyrgyzstan to “effect a clean separation.” Centerra would leave Kyrgyzstan and pass the lucrative Kumtor Gold Mine into Bishkek’s hands and Kyrgyzaltyn, the Kyrgyz state-owned mining company, would give up its interests in the Canadian company. 

As Centerra noted in its announcement, however, the agreement was conditional on shareholder approval and, importantly, “on the full and final release of all claims of the parties, termination of all legal proceedings involving the parties in all jurisdictions with no admissions of liability.” The divorce will only be final once those conditions are met. 

In that context, this week a court in the Kyrgyz capital had canceled a lower court’s May 2021 decision to fine Centerra 261.7 billion soms ($3.2 billion).

The May 7, 2021 decision by the Oktyabr (October) district court in Bishkek to fine the Kumtor Gold Company (KCG), the Centerra subsidiary operating the mine, was in response to a suit brought by four ostensibly private citizens (though one was the son of the head of Kyrgyzstan’s State Ecology and Climate Committee, raising conspiratorial eyebrows). They alleged illegal dumping and other environmental violations at the mine and the court agreed. The same day as the court decision to fine KGC, the Kyrgyz parliament pushed through a bill that would allow the Kyrgyz government to impose “external management” on companies with mining concession rights (of which there was only one in Kyrgyzstan) that had been deemed guilty of committing environmental or safety violations. How convenient. 

Within two weeks, Kyrgyz President Sadyr Japarov signed the bill into law over objections and threats of arbitration from Centerra. Bishkek then imposed “external management” on Kumtor and it hasn’t been under the control of Centerra since. 

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In the subsequent year, the country and the company have traded accusations, begun to pursue arbitration, filed lawsuits, and so on. 

In September 2021, Kyrgyzaltyn was suspended from the LBMA’s Good Delivery List “for failing to meet the requirements of the Responsible Sourcing Programme.” It was thus blocked from trading on London’s lucrative bullion market.

In another sign of progress in making the Centerra-Kyrgyzstan divorce final, earlier this month Kyrgyzaltyn was reinstated to the Good Delivery List, with the LBMA stating, “All gold and silver refined during the suspension is considered to be compliant with GDL rules and, therefore, Good Delivery.”

Chairman of the Kyrgyz Cabinet of Ministers Akylbek Zhaparov heralded the decision as “another recognition of the just policy of President Sadyr Japarov’s team.” 

“We were able not only to achieve the victory of the interests of the people of Kyrgyzstan, but we did it, as promised from the first day, in full compliance with all international and legal obligations.”

Centerra’s April statement regarding the agreement with Kyrgyzstan noted that the company expected to hold a shareholder meeting in the second quarter of 2022 (so by the end of June) to consider the agreement, after sending shareholders “full details” of the agreement, the relevant transactions, the company’s rationale, and the risks. The Bishkek court’s decision this week to cancel the case that triggered the mine’s seizure last year will likely be viewed favorably as Kyrgyz meeting its end of the bargain. 

With Kyrgyz authorities in control of the mine, Bishkek hopes to draw all the benefits to itself. Arguably, not having to split profits with a foreign partner means more money can remain in Kyrgyzstan. In June 2021, while on a visit to Naryn region, Japarov pledged to create a development fund into which 0.6 percent of the gross profit of the Kumtor Gold Company would be deposited annually. This has drawn some complaints as the mine isn’t located in Naryn, but in the neighboring Issyk-Kul region. Kyrgyz authorities have pledged to be transparent about the mine’s operation, though critics have their doubts. Kyrgyzstan is no stranger to corruption. Japarov, in a Facebook post earlier this month, said the Accounts Chamber would check the activities at the mine and issue a public report.

One downside to complete Kyrgyz control of the mine will be an inability to shift blame stemming from any future failings onto an external actor. The mine, and calls for nationalizing it, have served to galvanize many of Japarov’s supporters over the years. But the fundamentals of mining at the site have not changed, which means the same risks of environmental and safety violations that served to pushed Centerra out for good have not miraculously disappeared.