October 23, 2013 / 5:24 PM / 4 years ago

UPDATE 3-Kyrgyzstan presses for 67 pct share in Kumtor gold venture

* Dispute over Kumtor a warning signal for potential investors

* Government has until Dec. 23 to report results of new talks

* Shares drop 19 percent

* Persistent anti-Centerra riots keep tension on the boil (Adds Centerra comment, paragraph 8)

By Olga Dzyubenko

BISHKEK, Oct 23 (Reuters) - Kyrgyzstan’s parliament voted on Wednesday to seek control over a proposed gold mining venture with Canada’s Centerra Gold, demanding a 50-50 agreement signed last month be torn up in an intensifying row over a major foreign currency earner.

Parliament voted to cancel agreements unilaterally with Centerra and demand 67 percent in the new gold venture with the Canadian firm, which owns 100 percent of the Kumtor gold mine. Centerra shares fell more than 19 percent.

The face off with the Toronto-listed miner played out against a backdrop of riots and opposition calls to nationalize Kumtor and exposed the risks potential investors face in the volatile nation, which has overthrown two presidents since 2005.

The dispute flared up last year after parliament told the government to redraw financial agreements with Centerra Gold and a special commission accused the miner of inflicting huge ecological damage on the country.

Last month the cabinet and Centerra signed a memorandum of understanding, paving the way for Kyrgyzstan to swap its 32.7 percent stake in the Canadian firm for 50 percent in a venture that would own Kumtor.

But on Wednesday, the legislature voted almost unanimously to reject the memorandum.

“The government of Kyrgyzstan must unilaterally initiate its exit from the existing agreements,” said the resolution backed by all 82 deputies present and put to vote shortly afterward.

They gave the government until Dec. 23 to report the results of its talks with Centerra Gold on setting up a new venture.

Centerra said it expects to continue discussions with the government, although it noted that any resolution to the matter would need to be fair to all of its shareholders.

The Kumtor mine, high in the Tien Shan mountains, is a major foreign exchange earner for Kyrgyzstan and alone accounted for 12 percent of 2011 gross domestic product in the impoverished Central Asian nation of 5.5 million.

“A STRONG TRUMP”

The parliament told the government to scrap the existing agreements with Centerra Gold after Prime Minister Zhantoro Satybaldiyev said his cabinet would not be able to boost its stake in a proposed joint venture to 67 percent.

“If you can achieve this 67 percent, have a try,” he told deputies during heated debates.

Parliamentarian Raikan Tologonov of the pro-government Atameken faction told Reuters after the vote: “In order to achieve a 67 percent stake during the talks, the government must have a strong trump up its sleeve.”

“This (cancellation of agreements) will force Centerra to start serious negotiations.”

President Almazbek Atambayev, who backed the memorandum on creating a 50-50 joint venture with Centerra, had spurned repeated calls to nationalise Kumtor, saying that any stoppage of the enterprise would hurt the shaky economy.

The motion to raise Kyrgyzstan’s stake in a would-be Kumtor venture to 67 percent was first voiced by the opposition, which is in minority in parliament. But it was later adopted by other parties in the legislature.

Presidential powers in Kyrgyzstan, attempting to build a parliamentary democracy, are limited compared with those in the four other Central Asian countries, which are ruled by authoritarian leaders and whose parliaments rubber stamp laws.

The authority of central government is often weak across the country, where both Russia and the United States keep military air bases.

This month, police clashed with hundreds of locals in the administrative centre of the Issyk Kul region, where Kumtor is located, after protesters took the governor hostage and threatened to burn him alive in a car doused in petrol.

In May, Atambayev imposed a state of emergency on a district in Issyk Kul after protesters blocked a road to Kumtor and cut off electricity supplies, temporarily halting production.

Shares of Centerra were down 19.4 percent at C$4.31 on Wednesday afternoon. (Reporting by Olga Dzyubenko; writing by Dmitry Solovyov; additional reporting by Julie Gordon in Toronto; Editing by Dale Hudson, Keiron Henderson and Leslie Gevirtz)

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