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Kyrgyzstan faces international legal battle over gold mine

Kyrgyzstan is facing an international legal battle after the government of new president Sadyr Japarov fined the country’s biggest foreign investor $3bn and moved to take control of a huge gold mine.

Canada’s Centerra Gold on Sunday filed an arbitration suit in an attempt to stop Bishkek from taking further steps to nationalise Kumtor, a gold mine that produces 510,000 ounces 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,” Scott Perry, chief executive of Centerra, said in a statement.

Centerra’s decision to file for international arbitration comes as Kyrgyzstan’s parliament is expected on Monday 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 $3bn for hazardous operations, issued a $170m tax claim and passed a new law that paves the way for the state to nationalise Kumtor, in a show of force by Japarov, a nationalist firebrand and convicted criminal, 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.

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 spat with Centerra comes four months into the presidency of Japarov, who fought for the nationalisation of the mine a decade ago before he was jailed over allegations of kidnapping a political opponent.

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 and former economy and finance minister.

“[The] 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.

If the fine remains unpaid, he said, “we are also ready to appeal and go to the arbitration court”, adding that nationalisation has never been on his agenda.

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 nationalisation 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 on Sunday over the possibility of a state takeover of the Kumtor Gold Company.

“We believe that any such decision would put in doubt the commitment of the Kyrgyz Republic to stand by its obligations to its international partners and foreign investors. It risks the country’s economic recovery and its reputation as a secure place for investors to operate,” it said in a statement.

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