June 27, 2012 / 10:44 AM / 5 years ago

Kyrgyz MPs order revision to contract with Centerra

BISHKEK (Reuters) - Kyrgyzstan’s parliament rejected a motion to nationalize Centerra Gold’s (CG.TO) flagship Kumtor venture, but gave a special commission until October 1 to prepare a revised contract with the Canadian investor.

The final resolution, approved on Wednesday by a 67 to 11 vote, said the Kyrgyz state must revise its 33 percent stake in Centerra Gold and must have a share in gold production from Kumtor, which accounts for about 60 percent of Kyrgyzstan’s industrial output.

Shares in Centerra had plunged to a more than 2-1/2 year low last Friday after two days of heated debates in Kyrgyzstan’s legislature, triggered by a 300-page report which accused the miner of afflicting immense damage on the country’s ecology and the health of local villagers.

The parliamentary commission head said at the time that Centerra had done damage worth around $4 billion through its operations in Kyrgyzstan.

A draft resolution, backed mainly by the opposition, suggested the government should nationalize the Kumtor mine and said the government should create a state company which would sell some of its gold output to the central bank to replenish its reserves.

But after hours of wrangling, this bill was rejected by a 35 to 45 vote.

“Those who understand the gist of the matter realize that it is impossible (to nationalize Kumtor),” said deputy Ravshan Dzheyenbekov. “The legislature today demonstrated a well-balanced and mature approach.”

A special commission will now to be formed by July 10, bringing together government members, parliamentarians, officials from the presidential administration and independent experts, to present by October 1 a revised contract with Centerra.

The commission is also charged to revise Kyrgyzstan’s share in Centerra and to ensure that the state should be now paid a certain share of Kumtor’s gold output. The government currently receives dividends for its stake in the gold miner.

The commission was also ordered “to conduct by October 1 an assessment of the ecological, industrial and social damage done by Kumtor Operating Co at the Kumtor deposit”.

The mine lies in a harsh permafrost area some 4,000 meters above sea level and has been hit by a series of disruptions, with villagers of the central Asian state blocking the only road to the mine, demanding land and jobs.

Ice movement in the high-altitude pit has cut Kumtor’s output, depressing Kyrgyzstan’s annual GDP growth to 1.8 percent from the original target of 7.5 percent.

Toronto-based Centerra in March forecast output of between 390,000 and 410,000 ounces this year, down from its previous estimate of 575,000 to 625,000. Kumtor accounted for more than 90 percent of the 583,156 ounces the company produced last year.

Reporting by Olga Dzyubenko; Writing by Dmitry Solovyov; Editing by Jason Neely and David Holmes

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